By Mark Gutglueck
For five years Ontario kept up the same incessant drum beat: Los Angeles was purposefully mismanaging Ontario International Airport. The drumming was followed by this mantra: The megalopolis to the west, in accordance with its own selfish agenda related to advancing its own economy and the use and expansion of Los Angeles International Airport, is holding Ontario International Airport back. The drum beat and mantra would then be punctuated with this refrain: Give the airport back!
A campaign inspired and at least partially quarterbacked by Ontario City Councilman Alan Wapner, which was signed onto by all of his council colleagues, involved a full court press in which the public was repeatedly subjected to the proposition that Ontario Airport would expand its status from that of a medium hub regional airport to its rightful position as the most dynamic large scale hub airport in the country, if only it could unbind itself of the yoke Los Angeles had used to encumbered it.
In 1985, during the absence of then-mayor Robert Ellingwood, four members of the Ontario City Council as it was then composed deeded Ontario Airport to the City of Los Angeles for no consideration. That transaction was considered a public benefit transfer, one that came about because the City of Los Angeles and the corporate entity, Los Angeles World Airports, it used to operate its department of airports, had met all of the criteria that had been laid out in a joint operating agreement entered into some seventeen-and-a-half years previously. With a few notable exceptions, such as Ellingwood, most Ontario officials at that time believed granting Los Angeles possession of the airport to be beneficial.
Indeed, for four decades – from 1967, when the two cities entered into the joint powers authority relating to the airport, until 2007, when not just Ontario and Los Angeles but all of Southern California, all of California and the entire nation was first gripped by what would turn out to be a six-year-running economic downturn and lingering recession – the relationship between Ontario and Los Angeles vis-a-vis the airport could not have been more positive or cordial.
Wapner, somewhat ironically, was a creature of Los Angeles, having attended and graduated from both Los Alamitos High School, lying just across the Orange County Line immediately south of the Los Angeles County limits, and USC. As an Ontario councilman, however, he had no reluctance to militate against Los Angeles, where his roots were. By sheer force of personality, through coaxing and wheedling his council colleagues to demand that the airport be returned to Ontario, Wapner relentlessly pushed on, insisting the smaller city was being taken advantage of by Los Angeles. With each succeeding week it seemed, Wapner’s attacks grew ever more pointed and vitriolic and the campaign ever more acrimonious. Los Angeles and its officials, in charge of one of the world’s great and most celebrated municipalities, didn’t quite know what to make of the tempest and crisis its little sister and its officials to the east seemed intent upon precipitating. They attempted to carry on, remarking, with some degree of justification, that the downturn in passenger traffic into and out of Ontario was a byproduct of the lingering recession and contractions in the airline industry, exacerbated by the reluctance of airlines to maintain marginally profitable flights to hub airports. Wapner and his cohorts rejected those assertions as claptrap and excuses, demonizing the then-executive director of Los Angeles World Airports, Gina Marie Lindsay, as intent on running Ontario Airport, and the accompanying regional economy into the ground. Then, in 2012, Ontario formed, with San Bernardino County, the Ontario International Airport Authority. In 2013 it followed up with the filing of an administrative claim against the City of Los Angeles, in which it accused Los Angeles World Airports with neglecting the marketing of Ontario International Airport while imposing on airlines still operating there exorbitant enplaning and servicing fees that resulted in a precipitous drop in the number of passengers flying into and out of Ontario.
When Los Angeles rejected that administrative claim without addressing the specific and detailed grounds for relief contained therein, Ontario, represented by the law firm of Sheppard Mullin Richter & Hampton filed suit against Los Angeles, seeking the return of the airport. After several rounds of legal sparring, 13 months ago, Los Angeles essentially capitulated, agreeing in principle to surrender not only operation but ownership of the airport in a deal that called for Ontario to fork over to Los Angeles $150 million for the airport itself, $60 million to purchase assets technically belonging to Los Angeles World Airports that are in place at Ontario Airport and which are crucial or indispensable to its operations and take on bonded indebtedness of roughly $60 million related to the financing for the provision of airport infrastructure that has become Ontario’s responsibility to service. In December 2015, officials with both cities signed a transfer pact that memorialized the $270 million deal, and tentatively scheduled Ontario’s actual takeover for July 1, 2016. Because there was a delay in the passage of federal legislation allowing passenger facility charges collected at Ontario International being used to make good on Ontario’s payments due to Los Angeles, the transfer has been delayed until November 1.
And while Ontario’s propaganda for the last six years has been that the airport will overnight transform itself on the basis of local control and the move away from Los Angeles’s ownership, the reality is very different. Indeed, the reality appears to be the precise opposite of the myth that Ontario perpetuated in its crusade to recapture the airport. At Ontario, seven airlines now flying into and out of Ontario International Airport. Sixty airlines fly into and out of Los Angeles International Airport. Los Angeles could induce, indeed has induced, airlines to fly to Ontario by offering them gate position advantage at Los Angeles International Airport. Ontario and the Ontario International Airport Authority possesses no such leverage. Los Angeles is a major player – or more accurately, one of the top five or six worldwide players – in the realm of passenger aviation.
Kelly Fredericks, who was lured away from managing Rhode Island’s largest airport to serve as Ontario International Airport’s CEO early this year, has seen passenger traffic drop at Ontario International Airport since he has been in charge of Ontario’s oversight of the airport. In the first six months of 2016, the airport sustained a 0.1 percent decrease – a downturn of 2,035 passengers – over the same period in 2015. Simultaneously, in Orange County John Wayne Airport experienced a 10.2 increase. Among Southern California’s sizeable inland commercial airports, Ontario’s performance in that regard was hands down the worst. Burbank’s Bob Hope Airport, the Southern California airport with the next lowest-performance in terms of passenger growth, saw a 1.7 percent increase in its number of passengers since last year.
In the starkest of terms, Southern California, with a population of more than 24 million, of which some 20 percent are considered affluent, will see roughly 103 million passengers embarking and disembarking at its airports in 2006. Roughly 79,310,000 to 80,340,000 of those, or some 77 to 78 percent, will fly into or out of Los Angeles International Airport. At Ontario International Airport in the same time frame, some 4,326,000 passengers will embark and disembark there, 4.2 percent of the region’s passenger share. More than a year after Los Angeles unofficially returned the airport to Ontario, it is languishing as it had for the previous seven years and the rhetoric city officials used in forcing Los Angeles to disgorge it has been revealed as wishful hyperbole.
Indeed, rather than adding to the seven airlines now functioning out of the airport – AeroMexico, Alaska, American, Delta, Southwest, United/United Express and Volaris – most of those have but a token presence in Ontario, with Southwest Airlines accounting for 54 percent of the passengers that come through the airport.
Ontario city officials and Fredericks are trying to ignore a rampant rumor that shortly after Ontario takes full authority over the airport in November, that list of seven airlines will be reduced to six or five.
In 2007, when the airport was under the management of Los Angeles World Airports, Ontario International accounted for 8.6 percent of the passenger traffic in Southern California. And while Ontario officials laid at the feet of Los Angeles the blame for the steady drop off of passengers at the airport that hit a 20-year low of 3,969,974 in 2013, it is the airlines that are the ultimate arbiters in terms of how many flights they will schedule into and out of the airport. Thus, the airport appears to have fallen into a type of chicken-or-the-egg syndrome. It needs airlines to agree to schedule more flights into and out of the aerodrome so that more passengers will likewise fly into or out of Ontario; but until more passengers materialize, the airlines are not inclined to increase the number of flights at the facility. And, having abandoned its partnership with Los Angeles, the City of Ontario does not have the leverage to induce the airlines to step up the number of flights at Ontario, even as some of them are contemplating leaving altogether.
Ontario’s best prospect of having the airlines return is that the airport will reassume the eight to nine percent share of the Southern California passenger market it enjoyed in 2006 and 2007.
The degree to which Ontario officials have deluded themselves and others into believing their own propaganda was thrown into stark relief when Ontario officials confidently stated the leadership team in place at the airport has everything under control. In hiring Fredericks, the Ontario International Airport Authority Board, which is dominated by the City of Ontario, assumed he would have some formula for marketing the airport to the general flying public and persuading three to four times the current seven airlines to set up operations at Ontario International. Fredericks acknowledged recently he has only begun to look into the myriad of challenges facing the airport, and he is turning to others, including consultants and the public, to clue him in as to what should be done.
Along those lines, the airport authority last week hired Daniel E. Adamus as its chief marketing officer. He will join Cassie MacDuff as the airport’s marketing manager.
The most upbeat news coming out of the airport issue in the last fortnight was Fitch Rating’s indication on Monday September 12 that it had uprated Ontario International Airport bonds, previously deemed as negative, to stable.
Of note is that Fitch’s assessment of the mid- and long term financial health of the airport clashes somewhat with that of Standard and Poor’s, another bond rating firm.
Fitch Rating’s uprating of the airport bonds is based on the controvertible assertion that the airport’s passenger traffic is on the upswing. In 2011 Ontario Airport had 4,551,875 passengers. In 2012, 4,318,994 passengers.
In 2013, 3,969,974 passengers. In 2014, 4,127,278 passengers. In 2015, passenger traffic at Ontario reached 4,209,311. But, as earlier noted, passenger traffic at Ontario dropped during the first six months of the current year. And projections are that there will actually be fewer passengers passing through the airports gates this year than last.
Fitch Ratings’ size-up of Ontario International’s fiscal health was not based on the most-up-to-date data. “The outlook revision reflects the stabilizing traffic performance” after a lengthy period of declines since the recession, the Fitch Ratings report states. “Boardings have increased since fiscal 2015 and remain above 2 million.”
Fitch states the airport, prior to beginning the round of payments to Los Angeles, has an unrestricted cash reserve of $67 million, which would be enough to cover operations for nearly one-and-three-fifths of a year. The airport has a debt service coverage ratio above 1.6, with annual debt service payments ranging from $7 million to $7.3 million, according to Fitch.
One reality that cannot be denied is that under the stewardship of Los Angeles, Ontario International Airport prospered.
In 1967, when Ontario Airport yet had a gravel parking lot and fewer than 200,000 passengers passing through its gates annually, the Ontario City Council ratified the joint operating agreement with the city of Los Angeles to permit the larger city to use its stronger negotiating position with the airlines serving Southern California to induce them to utilize the Ontario facility. Using its leverage, Los Angeles persuaded a whole host of airlines to begin flying into and out of Ontario.
By 1969, flights out of Ontario dramatically increased. In short order, Continental Airlines, PSA, United, American Airlines, Hughes Air West, and Delta established routes from Ontario. In the early 1970s, Ontario was in competition with John Wayne Airport in Orange County, which at that time was expanding dramatically. Though a benchmark of 10 million passengers at the airport by 1975 was not achieved, the Los Angeles Department of Airports still assiduously promoted Ontario International.
In 1981, a modern, second east-to-west runway was built, necessitating the removal of the old northeast-to-southwest runway.
After all of the performance criteria in the original joint operating agreement were achieved, in 1985 the city of Ontario deeded the airport to the city of Los Angeles for no consideration. Under Los Angeles World Airports’ guidance the former backwater air field was transformed into a world class aerodrome, its existing east-west runway was improved and another constructed so that it now has the largest civilian runway in California. The facility now boasts an ultra-modern concourse and two state-of-the art terminals.
In 2007, passenger traffic at the airport reached 7.2 million, a 3,600 percent improvement over what the airport experienced when it was last under the control of Ontario.
By Mark Gutglueck