The Republican-led Georgia Legislature wants to take control of the world’s busiest airport, a move that’s drawing stiff opposition from its owner, the city of Atlanta.
A recent amendment to SB 131 says if a “joint governance plan” is entered into by the city and the General Assembly, the act would be repealed on July 1, 2020. If the city doesn’t agree, the act would go into effect.
The bill, sponsored by Sen. Burt Jones, R-Jackson, is sailing through the legislative process. The Senate voted 34-22 to pass the measure on March 7. The House held its second of three readings on Monday.
Atlanta Mayor Keisha Lance Bottoms and the City Council strongly oppose the hostile takeover. They reached office in nonpartisan elections, but the city is a bastion for Democrats. In November, Fulton County, of which Atlanta is the seat, voted by more than 72% for Democratic gubernatorial candidate Stacy Abrams.
Bottoms, who assumed office Jan. 2, 2018, said the bid to take over the airport is an “unnecessary and irresponsible affront” to the city that doesn’t bode well for what has been a productive and cooperative relationship with the legislature.
“State senators that usually champion small government and local control have made a sweeping power grab to take what they did not build,” Bottoms said in a statement. “There is no economic rationale for this theft. The city is prepared to explore all legal options to prevent the Senate majority’s attempted act of larceny.”
Gov. Brian Kemp, a Republican who narrowly won office last fall over Abrams, would not indicate what his position is on the bill.
“Our office does not comment on pending legislation before the General Assembly,” Kemp spokesman Cody Hall told The Bond Buyer.
The takeover would require the state, under the bond ordinance, to deal with the airport’s $2.75 billion in outstanding debt, and potentially pay Atlanta for some or all of the airport’s assets, currently valued at $6.25 billion, according to Federal Aviation Rules.
The airport's general revenue bonds are rated AA-minus by Fitch Ratings and S&P Global Ratings, and Aa3 by Moody's Investors Service. Analysts have lauded managers for the airport’s strong finances and its low cost per passenger.
The city of Atlanta has owned the airport for more than a century, and developed it into a powerhouse as a top economic engine for Georgia. It’s been the named the world’s busiest airport by the Airports Council International over the last 21 years, credited by ACI with handling more than 107 million passengers in 2018.
SB 131 targets the Atlanta airport by definition because it defines a major airport as “any airport or landing field that is located in this state and used for public commercial aviation which conducts more than 400,000 takeoffs and landings in any calendar year.”
Atlanta International is the only one that qualifies. It averages about 2,700 takeoffs and landings daily.
“This is the Ferrari of airports,” Hartsfield-Jackson General Manager John Selden told the Senate Transportation Committee on Feb. 26.
Selden, who was appointed general manager in September 2018, said the bill has caused concern among the airport’s staff.
“It also creates disturbances in our business environment because of uncertainty,” said Selden, who was deputy general manager at John F. Kennedy International Airport in New York before moving to Atlanta. “We don’t know what the future holds. We don’t who will be running the airport. We don’t know what the goal of the [state] panel will be.”
Selden said Atlanta has built an “incredible airport that is just a jewel of the state of Georgia” piece by piece over 100 years. Its cost per enplaned passenger is $4.80, he said, comparing that with Denver’s CPE which is about $12.
Jones said he sponsored the legislation because of a “steady flow” of news articles and investigations of former mayoral administrations and activities at City Hall. Atlanta has a strong mayor form of government, where the mayor has the power to hire and fire, and appoint agency heads such as the airport’s general manager.
A Senate study committee he chaired last year examined numerous issues with the airport, and determined there was sufficient areas of concern particularly around the airport’s vendor and procurement processes.
“Since the early 1980s, Atlanta’s airport has repeatedly been the epicenter of indictments, bribery convictions, and allegations of unfair contracting and bidding. These incidents have fueled a perception surrounding the airport of unlawful and unethical behavior supported by political corruption,” the committee report said, after hearing witnesses describe contract bidding irregularities and negative experiences because certain bidders had advantages due to their political connections.
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Since taking office, Bottoms and the City Council have implemented a number of structural changes at City Hall, including an overhaul of procurement procedures and the hiring of a new chief procurement officer, retired Lt. Col. David L. Wilson whose duties included managing $1.2 billion in commodity, service and construction contracts for the Air Force.
Earlier this month, the city established a new Board of Ethics and Independent Compliance and created the position of Independent Compliance Officer.
Despite those efforts, Sen. Jones said at the Feb. 26 Transportation Committee meeting that problems uncovered at the airport continue to be troublesome and embarrassing for the city and the state because of the departmental structure under which it runs.
“This is enabling legislation that would create an authority that would essentially be a landlord but also the operations arm for the airport, particularly focusing in on vendor and procurement processes,” he said.
Sen. Frank Ginn, R- Danielsville, asked Jones about the value of the airport and how he planned to compensate the city.
Jones said a majority of the funds invested in the airport have come from a combination of bonds secured by airport revenues, and that state and federal funds have also been spent on airport projects.
“There’s never been to the best of my knowledge…city of Atlanta tax dollars that have been obligated by the airport,” Jones said. “You asked what’s obligated as far as value on the entity [but] in and of itself they do currently have outstanding bonds that are sitting out there and have to be addressed.”
In addition to the debt, Hartsfield-Jackson’s assets were valued at $6.25 billion in the airport’s 2018 comprehensive annual financial report.
In a rule adopted in 2016, the FAA said when a change in sponsorship or operation of an airport is implemented, “the new airport sponsor and/or operator should reimburse the prior sponsor for investments that have been made by the prior sponsor of the airport but have not been fully recouped at the time of the change in airport sponsorship.”
Later in the meeting, Jones said the FAA could transfer the airport’s bonds to the new authority.
However, city officials said that is not correct.
Doug Selby, Atlanta’s bond counsel, told the Transportation Committee that a complicated process would be required for the state to deal with the airport’s $2.75 billion in outstanding debt starting with amending the master bond ordinance, which would require seeking the consent of bondholders
Selby, a partner with Hunton Andrews Kurth LLP, also said there are limited instances in the bond ordinance that would allow for a transfer of the debt. One is if lawmakers passed an act to combine Atlanta with another city or jurisdiction, and that was approved in a local referendum. A second way to transfer the debt would be to another entity with comparable airport operational experience, both in terms of size and scope.
An opinion from tax counsel would also be required stating that the transfer wouldn’t impact the tax status of the bonds, Selby said, and an airport consultant’s report would be needed to demonstrate that the change of ownership wouldn’t impair the debt service coverage on the existing bonds.
“While the bonds are outstanding I suppose there could be an additional way to pay off the bonds but I would point out that none of the long-term bonds of the airport are currently callable, which would require a defeasance and an escrow would have to be established,” he said, adding that a defeasance would require the use of more costly taxable bonds to take out the existing debt.
But a transfer, Selby said, also could impose a problem with the 20-year leases negotiated with airlines in 2016.
“Contained within those leases were additional covenants that there not be a change of control,” he said.
In addition to that prohibition, he said the lease with the airport's dominant carrier, Delta Air Lines, contains a covenant that the airline maintain its headquarters in Atlanta.
“A breach of that covenant could be viewed as a release from that covenant,” Selby said. “So there are important legal consequences that we would submit that are related to the airport.”
City Council President Felicia Moore told the Senate committee that the airport is important to the city, and that seven new council members and a new mayor elected in 2018 are dedicated to make sure every facet of government is run with integrity.
“It’s our airport," she said. "It belongs to the city of Atlanta and it’s been something we’ve built.”
The Georgia dispute resembles a 2013 fight in North Carolina, when the state legislature created a new local authority to wrest control of Charlotte-Douglas International Airport from the city of Charlotte. The ownership dispute ended when a local judge ruled that the state-created authority could not control the airport until it obtained an operating certificate from the FAA.
It says the FAA will only accept an application for a license change when there’s a legally definitive resolution of the dispute or a final, non-reviewable legal decision. The FAA will then evaluate whether the new airport sponsor “is capable of assuming all grant assurances, safety compliance, and other federal obligations, and has the expertise to operate the airport as required by law.”
The Georgia state takeover plan comes amid an ongoing major capital program at Hartsfield called ATLNext. The $6 billion multi-year plan, to be predominately bond-financed, will modernize the domestic terminal, extend two concourses, add parking decks, expand cargo facilities and pave the way for a new hotel.
Bottoms said SB 131 could be deleterious for the city and the state.
“This very conversation not only risks destabilizing existing development and investment at the airport, but threatens existing and future job growth for both the city and state,” she said.
