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Airport finally completes 18-month negotiations


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Des Moines International Airport (DSM) will give airlines an additional $200,000 annually of airport profits, increasing the total sum that carriers will receive to $850,000. The increase in profit share is a result of a newly drafted five-year proposal that the airport and its current air service providers negotiated during the past 18 months. The airport board and the carriers have agreed to the contract, and the Des Moines City Council will vote on the final agreement Monday.

“I don’t remember when the last time (carrier profits) were increased,” said Craig Smith, aviation director at DSM. “This is the first time we have adjusted it during my tenure. In the give and take of negotiations, this is one thing we agreed to, mainly because it had not been adjusted in a long time.”

The new five-year agreement will replace the three-year agreement that expired Sept. 30. However, increasing the contact duration by two years was also something the airport had to negotiate for, Smith said. He explained that prior to the deregulation of the airline industry, some airports would have contracts with carriers that extended between 20 and 30 years “and that was because of the nature of the industry at the time.”

The longer contracts were established for airlines that were investing large sums of money into airports and wanted to ensure they would be in that airport long enough to reap the benefits of their investments. Smith said that a lot of these contracts have expired during the past five to 10 years and many airports have adopted shorter contracts with carriers.

“A five-year agreement provides stability,” he said. “We think we have hit the right spot at the five-year mark, so hopefully it will save us time for now and for the next four years.”

However, Smith said that even though the contract is written as a five-year agreement, it has been designed so that it could be, in essence, only financially binding for one year; if an airline elects to discontinue service prior to the fulfillment of the five-year contract, it is not obligated to pay terminal rent beyond one year.

“We didn’t want that to be a hindrance or a barrier for a new carrier that is coming in and immediately they would be obligated for five years,” he said, “not knowing how it will work out.”

Smith said the airport began negotiations more than 18 months ago and that the new contract would remain in effect through June 30, 2013. The agreement pertains to the 10 signatory carriers who agreed to the terms of the contract: Allegiant Air LLC, American Eagle Airlines Inc., Delta Air Lines Inc., ExpressJet Airlines Inc., which operates as Continental Express, Midwest Airlines Inc., Northwest Airlines Inc., United Air Lines Inc., US Airways Inc., United Parcel Service Inc. (UPS) and FedEx Corp.

ABX Air Inc., which operates as DHL International Ltd., elected to opt out of the contract due to an impending service consolidation with UPS. However, Smith noted that the agreement has not been finalized.

“None of this has been approved,” he said. “But in this case, UPS is going to be doing domestic air service for DHL, and DHL will be concentrating on its ground operations.”

In the past, ABX was providing air service out of DSM for DHL, but will not be doing so in the future. DHL and ABX are unsure of when the exact change of service will take place and therefore have elected not to sign the new contract, Smith said.

“The airline carriers made some concessions, and so did we,” Smith said. “It was a very long negotiation; this was one we went back and forth.”

Smith believes the slow pace of the negotiations was largely because “the carriers are going through tumultuous times and so therefore had trouble getting approval internally to do things.” Also, Smith noted that airline employee turnover has been high, which made it difficult for everyone to stay on the same page.

“You’re dealing with one person one week, and then the next month it’s a new person, so it would start all over again,” he said.

The airport also agreed to remove a mandate that required all cargo carriers to occupy a minimum of 1,500 square feet, and agreed to allow carriers to enter into a contract with any third party for ground handling.

The former contract required carriers to get airport approval before entering into a contract for ground handling, but Smith said, “We have to contend with the airlines making significant changes in their business models, so we just have to adjust along with it; we have to be nimble with the way the industry is changing.”

For instance, Continental Airlines Inc. uses American Eagle for all its ground handling at DSM, and Smith said, “We didn’t feel we should interfere with that business deal, and as long as they are operating, we felt like there was not a lot of reason to get in their way.”

Additionally, the new agreement simplified terminal rent billings for passenger airlines by reducing space classifications, and combining equipment fees and improvement fees into the terminal rent rate.

The Aviation Department also assumed preventive and routine maintenance of all inbound and outbound bag belt systems, and will absorb the costs associated with those systems.

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