Centerlines - June 2013 - (Page 33)

NOW UNDERWAY Gas Money Allegheny County Airport Authority has big plans for proceeds from natural-gas drilling BY NICK FORTUNA T he Allegheny County Airport Authority's balance sheet got markedly healthier in February, when it cashed a $50 million check from Consol Energy in exchange for the right to drill for natural gas on 9,263 acres of land at Pittsburgh International Airport. The deal was a welcome cash infusion for the airport authority, which is saddled with about $390 million in debt from the construction of the U.S. Airways terminal in the early 1990s. The airport built that terminal at the behest of U.S. Airways, which wanted to use Pittsburgh as its principal hub, but in 2004, the airline shifted its focus to Philadelphia and Charlotte, leaving Pittsburgh underutilized. U.S. Airways now operates only 44 daily flights at Pittsburgh International, down from more than 500 in the late 1990s. The U.S. Airways terminal was designed to handle 30 to 40 million passengers a day, and in the late 1990s, the airport saw a high of about 21 million passengers annually. That figure fell to just 8.1 million passengers in 2012, said Brad Penrod, president of the airport authority. But Penrod is hoping the drilling revenue will breathe new life into the airport. In addition to the upfront payment of just under $50 million, the airport authority will get 18 percent of the proceeds from the natural gas obtained on airport land. That amounts to $12 million to $15 million annually, depending on market conditions, Penrod said, and the drilling will continue for as long as the wells keep producing, perhaps several decades. In an analysis for the Pittsburgh Post-Gazette, Kit Pettit, an attorney who has reviewed more than 1,000 drilling leases for landowners, said the airport authority got an excellent deal, largely because of the sheer size of the parcel involved. The airport authority got $5,000 per acre in upfront payments, far above the going rate for the area of $2,000, he said. In addition, the airport authority's 18 percent royalty rate is higher than the usual 15 percent to 17 percent, he said. The deal also releases the airport authority from having to pay some of the costs of transporting the gas, a common requirement in gas leases. Consol's plan calls for six to seven well pads on airport property with 45 to 50 wells, with the first wells in operation as soon as late 2014. Penrod said the drilling would occur at least several thousand feet from runways and along the sides. Penrod pointed to Dallas/Fort Worth International Airport and Denver International Airport as proof that natural-gas drilling can be done without affecting airport operations or safety. The Dallas-Fort Worth project has resulted in more than $293 million in revenue to support airport operations, according to the Fort Worth Star-Telegram, and a Denver airport spokeswoman said her airport saw $7 million in drilling revenue in 2010. Last year, the Allegheny airport authority and Allegheny County agreed to – but did not sign – a deal that would have put the drilling revenue in escrow to be split evenly later. The county lobbied Congress to try to change Federal Aviation Administration rules that require any drilling revenue from airport property to be reinvested in that airport. The money in escrow and all future royalties would have been split between the A portion of the drilling revenue will be used to repay debt, and a portion will go toward airport capital improvement projects. airport authority and the county after those rules were changed. When the lobbying effort failed, the county allowed the project to move forward anyhow, with the airport authority keeping the revenue. The county still should benefit substantially, however, as the airport authority plans to put the money to good use, according to Jeff Letwin, the airport authority's special counsel focusing on drilling, real-estate development and regulatory work. Letwin said a portion of the drilling revenue will be used to repay debt, and a portion will go toward airport capital improvement projects, such as paving work and upgrades to emergency and snow-removal vehicles. In addition, the revenue will be used to lower airlines' operating expenses and charges, which Letwin hopes will bring more flight service to Pittsburgh. The money also will allow the airport authority to continue to clear land and install infrastructure for commercial development, which Letwin said will bring jobs and tax revenue to the area. Letwin said there are 16 non-aviationrelated buildings on Pittsburgh International's property, and those corporate offices, call centers, distribution facilities, and manufacturing plants paid the airport authority $2.5 million in rent last year. That figure should swell in future years as construction continues, and the additional jobs should lead to more business travelers at Pittsburgh International, he said. "The more non-airline revenue we can generate, the more savings we can pass on to the airlines to lower their operating costs," Penrod said. "So, if an airline is on the fence about adding new service to Pittsburgh, it helps lower their cost of entry and makes us more attractive. But at the same time, we know the airlines will look at their passenger count total, so it's important that the area sees growth." ■ | CENTERLINES 33

Table of Contents for the Digital Edition of Centerlines - June 2013

President's Message
Canadian Airports
Associates' Corner
Policy Corner
The Control Tower
On the Hill and on the Stump
Cover Story: Privatization
Customer Service: Partners in a Better Passenger Experience
Marketing Perfecting-And Protecting-Your Brand
Now Underway
Grand Openings
New Members
Index of Advertisers/
Box Scores

Centerlines - June 2013