FIVE SIMPLE RULES FOR DATING AIRLINES

1
2005 ACI-NA Annual Conference
FIVE SIMPLE RULES FOR DATING AIRLINES
September 18, 2005 Presented By Helen Raabe,
Director of Airport Legal Services, DEN Warren
Adams, Director, Leigh Fisher Associates
2
Presentation Outline

• Facts and Figures on Denver International Airport
  (DEN)
• Types of Self Help Dating Books Available
  Through the Usual Means
• Amendments at DEN and The Five Rules of
  DatingUnpublished Material
• Lessons Learned

3

• DEN FACTS AND FIGURES

4
DEN Passenger Market is Growing and More
Diversified

• Record 42 million passengers in 2004
• Enplaned passengers up 13 in 2004 and 2.2 in
  2005
• Reduced reliance on United Air Lines, as shown
  below

Source Airport Management Records
5
Airlines With Use and Lease Agreements at DEN

• 5 to 10 Years Until
• Agreement Expiration
• Alaska Airlines
• Frontier Airlines
• America West Airlines
• Lufthansa German Airlines
• American Airlines
• Mexicana de Aviacion
• ATA Airlines
• Midwest Airlines
• British Airways
• Northwest Airlines
• Continental Airlines
• Spirit Airlines
• Delta Air Lines

• 20 Years Until Agreement Expiration
• United Air Lines

The United Agreement was the first in the United
States to be assumed by United in the
bankruptcy court
6
Important Elements of DEN Agreements
7
It Helps to Have a Simple Approach for
Establishing Rates and Charges
Produce Results by Airline
Subtract Interest Income
You Get the Point!
Address Airline Specific Deals
Concourse lineal feet
Airport Costs
OD Passengers
Allocate To Cost Centers
Domestic Deplaned Passengers
Rentable Space
Divide by Appropriate Denominator
Landed Weight
Subtract PFCS
8

• DATING RESOURCES
• PUBLISHED MATERIALS

Disclaimer Warren and Helen express no opinion
concerning the actual effectiveness, real or
imagined, of this material
9
For Those That Are Dating Challenged
10
For Those That Havent Learned from Past Mistakes
11
For Those That Havent Been Very Lucky
12
For the Highly Educated Type
Using What I Learned at Harvard Business School
Note MBA!
13

• LEASE AMENDMENTS
• AND THE
• THE DEN GUIDE TO DATING
• UNPUBLISHED MATERIAL

Results guaranteed in 10 years or your money back
14
Past and Current Challenges Facing DEN Management
15
Looking Back on the First 10-Years at DEN

• The 1990 UA agreement that formed the business
  deal for the New Airport project is substantially
  the same
• No significant changes to the rate-making
  methodology at DEN have occurred in the last
  10-years
• Most significant events were addressed without
• Minimizing the future flexibility of DEN
  management
• Substantially changing the cost structure of the
  airlines
• Common-threads existed through each
  negotiationhence, The Five Simple Rules for
  Dating Airlines
• I would not give a fig for the simplicity on
  this side of complexity, but I would give my life
  for the simplicity on the other side of
  complexity
• Oliver Wendell Holmes

16
Rule Number 1

• 1. Its all about the money

• Decide who is picking up the tab
• Translation Follow the money Understand the
  financial implications of what you are negotiating

• Recognize you may be buying the dinner, but they
  are paying for the gas
• Translation They all have direct costs,
  operating costs, and hidden costs

17
Example Securing the United Lease in 2003 and
Master Lease in 2005

• Primary carrot to United City to reduce all
  rates and charges by 4 million from 2004 through
  2010, and by 11 million for 5 years (tied to
  construction projects)
• Revision 1 Fixed, triggered, and variable
  reductions structured
• Revision 2 Material adverse change in United can
  suspend or cancel reductions

• Airport premise with all other airlines All
  airlines benefit from 4 m rates and charges
  reduction from 04 thru 10
• Revision 1 Reductions can end if not financially
  feasible
• Revision 2 Offered in all agreements, not just
  Uniteds

Simplicity, simplicity, simplicity! I say, let
your affairs be as two or three, and not a
hundred or a thousand
Henry David Thoreau
18
Rule Number 2
2. If its not about money, its about control

• The airline wants to drive, even if you bought
  the car
• Translation Recognize they are the airline and
  youre not

• The airline wants to lead, even if you hired the
  band and rented the dance hall
• Translation Figure out how you can give them
  control without sacrificing your needs

19
Example Reassigning GatesKey to Future
Flexibility

• Airport Premise The Airport may at its sole
  discretion, relocate and reassign the Airlines
  use and lease of the Demised Premises and gates
• Pointed out that under federal regulations
  Airline must make gates available anyway
• Pointed out that Airline has a chance to cure
  under separate provision
• Revision 1 The City will be responsible for
  reasonable costs (City will pass on to other
  airline)
• Revision 2 The Airport will give sixty (60)
  days advance written notice

Life is really simple but men insist on making
it complicated Confucius
20
Example Anti-Corruption Provision-the Enron
Concern

• Airport Premise Airline lease may be terminated
  if any director or officer is convicted of a
  crime
• Pointed out that Airline has a chance to cure
  under separate provision
• Revision 1 Changed any crime to any crime
  which is a disqualifying offense under 49 CFR
  1544
• Let every eye negotiate for itself and trust no
  agent William Shakespeare

21
Rule Number 3
3. If you cant give them money or control, give
them an opportunity to be heard

• Let them know when you will call and how long you
  can talk
• Translation Define upfront the ground rules, the
  steps in the negotiation, and the deadlines you
  expect to meet

• Let them vent when they need to vent
• Translation Listen to their issues speak their
  language

• Tell them if youre not interested
• Translation Be clear about when it is time to
  move on to other matters

22
Example Implementing Common Use Terminal
Equipment

• Airport premise The Airline agrees to make all
  modifications to become compatible with the
  Airports CUTE installations.
• Revision 1 The Airport will give six (6) months
  advance written notice
• Revision 2 The Airline makes the changes after
  the City installs the equipment
• Revision 3 The Airline may still install
  proprietary equipment (with the Airports
  consent).
• Revision 4 Prior to implementing CUTE, the City
  will consult with Airline.
• Make everything as simple as possible but not
  simplerAlbert Einstein

23
Rule Number 4
4. Are We Dating Others or Are We Going Steady?

• Dont divide and conquer. Rather, unite and
  collaborate
• Translation Collaboration and consensus
  building is a negotiating strength

• Treat your acquaintances as courteously as your
  main squeeze, because you never know
• Translation The 2 market share airline may be
  a 30 market share airline in the future

24
Example Addressing Vacancy on Concourse A

• Amendment to lease negotiated in 2000 MII
  received
• Airlines expressed interest in moving to less
  expensive facilities when lease expired
• At the time, Concourse A was more expensive than
  Concourse C
• Writing-off of approximately 56.4m in assets
  identified by City as a way to address the cost
  imbalance

• All elements of business deal shared with the
  airlines
• Citys proposal shown on a future basis for each
  airline
• Airlines were able to translate concepts to
  future costs
• City used financial modeling capabilities to
  evaluate airline proposals
• Facts are stubborn things but statistics are
  more pliable
• Mark Twain

25
Rule Number 5
5. Be Clear, Honest, and Courteous

• Transparency is as important as anything else
• Translation Talk about the elephant in the room

• Use term sheets to agree on concepts/principles
• Translation A common understanding of the
  problem is critical

26
Lessons Learned

• Start Early
• Reach consensus internally on the desired outcome
• Identify multiple paths for producing the
  desired outcome
• Firm up legal issues and positions deal
  breakers

• Establish Credibility Early On
• Establish a track record of involving airlines
  and other stakeholders
• Understand the numbers and what they mean for
  the airlines
• Have a consistent message of what is important to
  airport management

• Maintain a Long-Term View
• Determine if agreement will stand the test of
  timestay flexible
• Dont compromise long-term flexibility for
  short-term gain or just to get a quick agreement

27
2005 ACI-NA Annual Conference
FIVE SIMPLE RULES FOR DATING AIRLINES

• September 18, 2005
• Presented By
• Helen Raabe, Director of Airport Legal Services,
  DEN
• Warren Adams, Director, Leigh Fisher Associates