(April 19) Communication between Los Angeles and Ontario officials has broken off in the wake of the city of Ontario’s most recent escalation of its effort to take back ownership of Ontario International Airport, consisting of Ontario’s filing of a claim against the larger municipal entity. Such a claim is considered to be the precursor of a lawsuit.
Taken aback by Ontario’s move, influential political entities and personages within the city of Los Angeles, including ones who were previously sympathetic to Ontario’s entreaties with regard to the airport, are being steamrolled into taking a hard line in response to Ontario’s claim. In the absence of a running dialogue with Ontario officials, those pressing for the sale of the airport to a public or private buyer at a maximum price appear to be in ascendency, with any vestige of the cooperation between the two cities that built Ontario Airport shattered.
In 1967, Ontario and Los Angeles formed a joint powers authority to oversee the advancement of the airport, after fewer than 200,000 passengers had embarked there the previous year. Under the guidance of the Los Angeles Department of Airports and a subsequently formed entity, Los Angeles World Airports, Ontario International Airport prospered and expanded. In 1985, Ontario, in accordance with criteria laid out in the 1967 joint powers agreement, deeded the airport in total to Los Angeles, and the airport continued to thrive, with expansions in the runways and the addition of two modern terminals. In 2007, 7.2 million passengers passed through Ontario International. But in the more than five years since, while Los Angeles World Airports made substantive improvements to Los Angeles International Airport and passenger traffic has increased there, ridership at Ontario International has dropped consistently ever since, with 4.5 million passengers at the facility last year.
Ontario officials, convinced that Los Angeles officials and Los Angeles World Airport officials in particular are promoting Los Angeles International Airport to the detriment of Ontario International, have pressed to have Los Angeles deed the airport back to Ontario. Officially, Ontario for three years has sought a public agency-to-public agency transfer of the airport at no consideration, the converse of the 1985 transaction. Two years ago, Ontario, so as to not publicly contradict its official position that the airport grounds are a public benefit property and thus of no sales value,  made what it considered a private offer to Los Angeles World Airports (LAWA) that would result in Los Angeles transferring the airport’s title and operational control to Ontario for $250 million in the form of Ontario assuming $75 million of the outstanding bond debt obligations for past improvements to the airport, $125 million in future passenger facility charges to be realized at the airport and $50 million cash.
For more than twenty-two months, Los Angeles World Airport officials gave no official response to that overture, though in early 2012, amid public assertions by Ontario officials that the airport had no monetary value as a saleable entity, they publicly revealed Ontario’s sub rosa offer, much to the consternation of Ontario officials.  In response Ontario officials stepped up their campaign to convince the public that Ontario is the rightful and logical owner and operator of the airport. That campaign entailed assertions that Los Angeles World Airports’ control of Ontario Airport constituted a conflict-of-interest in that passenger traffic increases at Los Angeles International Airport are inversely proportional to ridership at Ontario Airport and that LAWA was intentionally inflating the costs sustained by airlines flying into and out of Ontario  – enplaned passenger fees and passenger facility charges – as part of an effort to discourage those airlines from scheduling more flights into and out of Ontario.  Ontario further charged that LAWA was using Ontario Airport as a dumping ground for idle airport workers for whom there was not realistic employment at Los Angeles International, a ploy which further increased the overhead at Ontario Airport, Ontario officials said.
In August 2012, Ontario with the county of San Bernardino formed the Ontario International Airport Authority as an entity intended to eventually wrest ownership of the airport from Los Angeles and subsequently manage its operations. The following month, Los Angeles World Airports released an appraisal of Ontario Airport by the consulting firm of Leigh Fisher which pegged the airport as being worth at least $243 million and as much as $605 million, depending on cash flow expectations over the next half century.
On January 22, 2013, Gina Marie Lindsey, the executive director of Los Angeles World Airports, made a counteroffer to Ontario’s $250 million offer, proposing to sell the airport to Ontario for $474.5 million.
Two weeks ago, the Ontario International Airport Authority released an appraisal of the airport property it had commissioned from Oliver Wyman, a New York-based consulting firm. According to Oliver Wyman, the airport and the property it is sited on is not worth the  $243 million to $605 million Leigh Fisher derived but rather had a value below zero – in the range of negative-$78 million to negative-$104 million.
Those provided with Oliver Wyman’s low valuation of the airport hardly had time to assimilate that appraisal when Ontario on April 11 followed  up with a 67-page claim against Los Angeles, drafted by the prestigious Washington, D.C.-based law firm of Sheppard Mullin Richter & Hampton, charging the city of Los Angeles and Los Angeles World Airports with chronic mismanagement of the airport and seeking to abrogate the 1967 joint powers agreement between the two cities.
Ontario’s move blindsided Los Angeles officials, who at present are in a state of uncertainty given the pending end of Mayor Anthony Villaraigosa term in office and the yet-to-be-determined outcome of the mayoral race between Wendy Gruel and Eric Garcetti. Upon learning of the claim, Villaraigosa tasked the city of Los Angeles’ chief administrative officer, Miguel Santana, to make an appraisal of the situation. In short order, Santana broke off discussions with Ontario officials and directed LAWA to do the same. He simultaneously produced two basic recommendations for Villaraigosa and the city council.
Santana said the mayor and council need to detail the city attorney to make a comprehensive assessment of the claim filed on Ontario’s behalf by Sheppard Mullin Richter & Hampton to determine both the accuracy of the factual assertions in the claim and the validity of the conclusions as to matters of law, and that the attorney then advise Santana, the mayor, the council and LAWA on how to proceed.
Santana’s other recommendation was that he huddle with LAWA to determine alternative management strategies at Ontario Airport.
Santana noted that Los Angeles and LAWA have made substantial investments into improvements at Ontario Airport over the last 45 years.
Among Los Angeles city officials are ones, including councilmen Bill Rosendahl and Dennis Zine, who are more or less amenable to redeeding the airport back to Ontario. Zine, however, is leaving the city council in his effort to become city controller. Other members of the council have expressed reservations about the wisdom of Los Angeles divesting itself of Ontario Airport and none appear inclined to deeding it back to Ontario for no consideration.
Moreover, in early 2011, LAWA invited expressions of interest from firms that would entertain the notion of purchasing Ontario Airport to either run it directly or as an investment with future sale value.
American Airports Corporation, an American airport operator; Airport Property Ventures, an American airport operator; AMP Capital, an Australian infrastructure investor; AvPORTS/ AFCO, an American airport operator; The Carlyle Group, an American infrastructure investor; Fraport AG, a German airport operator; GMR Airports, an Indian airport operator; Goldman Sachs Infrastructure Partners, an American infrastructure investor; Incheon International Airport Corporation, a Korean airport operator; and Munich Airport Consulting, a German airport operator, all expressed an interest in Ontario Airport.
Santana’s counterpart, Ontario City Manager Chris Hughes, told the Sentinel this week that Ontario officials are now awaiting a substantive response from Los Angeles and LAWA.
“We’re waiting for them and their response to the claim,” Hughes said. “The ball’s in their court.”
Hughes, while acknowledging Ontario had indeed offered $250 million for the airport, asserted nonetheless that the airport remains a public benefit property that should not be subject to a sale.
“What we have always said is we want the airport transferred,” Hughes said. “We never requested a sale. We always requested a transfer of the airport. You don’t sell airports. They are either transferred from  one agency to another or put into an airport privatization program. Since the Airport Privatization Program started in 1997 none have gone through that successfully. The furthest they got to actually transferring a midsize airport were up in San Jose and San Juan in Puerto Rico. Calling it a sale is not necessarily accurate.  We have attempted to negotiate for it for three years. We made the $250 million offer over two years ago. We got a response back this year. The response [i.e., an asking price of  $474.5 million] is unreasonable.”
Asked if it was logical to assume that the eventual sale will entail some figure between the $250 million Ontario has already indicated it is willing to put up and the $474.5 figure floated by LAWA, Hughes responded, “I’m not going to answer that.” Upon consideration he added, “Ontario is still willing to negotiate toward a deal that is financially responsible.”
Hughes resisted suggestions that Ontario lacks the resources to run an international airport on its own and that it would have even less leverage with the airlines than does Los Angeles World Airports, given that LAWA controls gate positions at Los Angeles International, which it can use as inducements with the airlines. He said that LAWA disavows having sufficient influence over the airlines to have them increase flights out of Ontario.
“[Gina Marie Lindsey] said ‘We cannot force the airlines to do anything.  The airlines go where they want to go.’ She is saying there is no benefit to having LAX [Los Angeles International] attached to Ontario Airport.”
Hughes said that passenger facility charges collected at Los Angeles International had been used for improvements at Ontario Airport, but he insisted that money was not taxpayer money put up by Los Angeles’s citizens. “Back in the late 90s, the airlines paid for new terminals in Ontario. $125 million in passenger facility charges had been collected at LAX and the airlines made the choice to spend that money in Ontario when there were no capital projects going on at LAX.”
He suggested that $125 million of the $250 million Ontario was willing to fork over to Los Angeles to facilitate the transfer of the airport was intended to reimburse Los Angeles for those passenger facility charges collected in Los Angeles.
Hughes noted that “in excess of $100 million” of the money spent on improvements at and around Ontario Airport, including ground access projects on Haven Avenue and Archibald Avenue, consisted of money Ontario directly provided or which it had obtained on its own from the federal government.
Hughes said Ontario will not accept the airport remaining under the ownership and control of Los Angeles.
“That’s not an option,” he said. “The airport is too important to our city and too important to this region.”