Consultant Pegs Ontario Airport Value Between $243 Million And $605 Million

(September 21)  Los Angeles World Airports, the entity created by the city of Los Angeles to run three airports that city owns, has released a 60-page consultant’s report that offers an inexact estimate of the retail value of Ontario International Airport.
The consultant, the firm of Leigh Fisher, pegs the airport as being worth at least $243 million and as much as $605 million. The calculations are based on cash flow expectations over the next half century, the report states.
Los Angeles took over management of Ontario Airport in 1967 as part of a strategy to increase flights out of the aerodrome. That ploy worked, as Los Angeles was able to use its control of gate positions and other considerations at Los Angeles International Airport to induce airlines to fly into and out of Ontario. Just under 200,000 passengers enplaned at Ontario Airport in 1966. Under Los Angeles’s management, over $550 million in improvements were made to the facility. In 1985, Ontario deeded the airport to Los Angeles for no consideration. In 2007, usage of the airport peaked, with 7.2 million passengers moving through the airport’s gates.
Since that time, passenger traffic through Ontario International has dropped dramatically, with 4.2 million passengers using the airport in 2011, and further declines registering this year.
Ontario city officials have repeatedly asserted that Los Angeles World Airports is purposefully mismanaging Ontario Airport’s operations to increase passenger traffic at Los Angeles International Airport, which has undergone significant renovations in recent years.
Los Angeles World Airport officials reject those claims, maintaining that the drop in passenger traffic through Ontario is a function of the sputtering economy and the doldrums in the airline industry generally.
Ontario officials have pushed ever more strenuously – including seeking legislation in Sacramento and Washington, D.C. and conducting an intense public relations campaign – to have Los Angeles return ownership and management of the airport to Ontario.
At one point, Ontario city officials, led by councilman Alan Wapner, were suggesting that  Los Angeles should simply deed the airport back to Ontario as a public benefit transfer, propounding that the airport had no value as marketable real estate. Quietly, however, the city of Ontario made a confidential offer to purchase the airport for $50 million and an assumption of all debt related to financing for improvements that had been made to the airport.
Los Angeles officials have indicated they are not prepared to simply surrender their autonomy over the airport and they believe the aerodrome and its assets to be worth in excess of $450 million.  Last year they floated the idea of privatizing the airport and selling it and its assets to an investor or firm specializing in airport operations. They sought parties interested in just such an arrangement, eliciting responses from ten  domestic and international entities, including American Airports Corporation, a California-based airport operator; Airport Property Ventures, a California-based airport operator; AMP Capital Investors, an Australian infrastructure fund manager; Aviation Facilities Company, a Virginia-based airport manager and developer; Carlyle Group, a Washington DC-based private equity firm; Fraport, a German airport investor, owner and manager; GMR Airports, an Indian airport operator; Goldman Sachs Infrastructure Partners, a New York-based infrastructure fund; Incheon International Airport Corporation, a Korea-based airport operator; and Munich Airport Consulting, a German airport operator.
Los Angeles World Airport’s hiring of Leigh Fisher and the contents of the report drove home the very real possibility that Los Angeles could simply sell the airport to the highest bidder, leaving Ontario in the position of having to accommodate a private company’s primacy with regard to the airport’s operation. The Leigh Fisher report provides Los Angeles with a sufficient basis to reject Ontario’s assertion that the airport has no monetary value. That monetary value potentially exceeds the roughly $50 million in cash and assumption of roughly $75 million in debt Ontario has referenced.
The Leigh Fisher document points out that there have been varying valuations for mid-size hub airports such as Ontario over the last several years, at ranges below and well above the price Ontario officials envision for Ontario Airport.  According to the report, “The Port Authority of New York bought Stewart Airport for $78.5 million in 2000.” The report further notes, “In Chicago, the city conducted a competitive bid process for a 99-year lease of  Midway Airport. A consortium offered $2.52 billion. The timing of the bid coincided with 2008 financial crisis and the transaction was not completed, with the investors forfeiting a $126 deposit  in the process.” The report also referenced “Luis Munoz Airport serving San Juan, Puerto Rico, [which is] classified as a medium hub airport by the FAA. In July 2012, the government announced the award of a 40-year lease to a consortium consisting of a Mexican airport operator and an investment firm for $615 million, annual lease payments and agreements to make specified improvements.” That deal is currently undergoing FAA review.
Nevertheless, Leigh Fisher indicated there were factors that inhibited Ontario Airport’s value.  “Compared to other medium hub airports with comparable numbers of enplaned passengers, Ontario has high airline charges as reflected in its per enplaned passenger charges, somewhat lower non-airline revenue in comparison to its peers, considerably higher maintenance and operating expenses due to high staffing levels and particularly high costs for security, law enforcement, airport rescue and firefighting,” the Leigh Fisher report states. “Based on Ontario Airport’s role as an airport in the Los Angeles basin and industry trends, it is likely that in the near term the increased focus of mainline airlines and low cost carriers such as Southwest on service development at large hubs and international gateways such as Los Angeles International Airport may continue to limit Ontario Airport’s airline service development.”

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