LAX clashes with Federal Express over mail carrier's expansion plan.

New policies of the Los Angeles Board of Airport Commissioners have led to another dispute with a major carrier wanting to expand or improve facilities at Los Angeles International Airport.

The latest conflict revolves around a proposal by Federal Express, the express mail carrier, to build a $66 million parcel- sorting facility at LAX. So far, the five-member commission appointed by Mayor Richard Riordan has yet to vote on the plan, which Federal Express claims would create 400 permanent jobs.

Federal express assert it needs a long-term ground lease to justify the facility but the commission has said that under new board policy, leases will not exceed five years. In addition, the commission claims Federal Express has refused to agree to a new provision in airport leases that are common in most commercial real estate deals.

"The airlines have to realize that this is a new administration and from now on the city is going to control the airport," said commission President Ted Stein last week.

A Federal Express official said the stalemate is hurting the carrier's ability to do business in Los Angeles. Federal Express has 5,000 employees in the greater Los Angeles area and claims an annual local operating budget of $180 million.

Last September, just two months after Riordan took office -- and in the middle of a major dispute over landing fees with airlines using LAX -- American Airlines cancelled a planned $77 million renovation of its passenger terminal facilities at the airport. American decided not to go ahead with the project, which the carrier claimed would have created 400 construction jobs, after the new commission said it wanted to reconsider terms of the project.

American said the administration of former Los Angeles Mayor Tom Bradley had approved the project, a contention disputed by the current commission.

Riordan, who sought election last year as a pro-business candidate, has said he wants to change the way the Department of Airports and its governing commission operated under Bradley. He has said that for too long the airlines dictated to the commission how LAX should be run rather than the city telling the airlines how the facility will operate. Riordan's philosophy on the airport came to a head last summer when the commission tripled the airlines' user fees at LAX.

The airlines opposed the fees and the matter became a national issues when the commission threatened to ban carriers that did not pay the new charges. After weeks of legal wrangling, the airlines accepted a federal court decision that they had to pay the new fees.

Officials at Federal Express Corp. in Memphis, Tenn., would only discuss basic elements of the dispute with the commission. The officials, including the managing director of real estate for Federal Express, said they did not want to to be drawn into a public fight with the body or to discuss the company's options if it is not allowed to go ahead with the expansion.

According to material provided by the Air Transport Association, the airlines' national trade group, the cargo carrier wanted to start construction last month on a $66 million package sorting facility.

At the April 4 meeting of the commission, David Hurtado, managing director of real estate for Federal Express, told the agency: "To date we have been unable to get the commission or airport staff to even start negotiations for a lease for this expansion. ... Our business is being hindered, we cannot serve the community and we don't know what step to take next."

Hurtado told the commissioners:

"We cannot invest $66 million in a facility for a five-year lease because we can't pick up that stuff and just move it at the end of five years. This project will enable the airport to bring 400 additional jobs to this city. It's just beyond me to understand why we (the commission board) don't want to move forward with this."

In an interview last week from Memphis, Hurtado said Federal Express is the largest cargo tenant at LAX, with 10-story and two-story office buildings, a flight training complex and a sorting facility.

He said the plan to build another sorting facility was approved by the Bradley administration and the Los Angeles City Council before last summer's election that also changed the make-up of the council.

He would not say whether the company is considering legal action to force approval by the commission.

Stein said the commission is willing to negotiate the length of the lease but he claimed the days of 30-year agreements are over. He also said the commission is willing to work with Federal Express on the city buying the sorting facility if the commission does not renew the lease at the end of five years.

Stein said the commission is less flexible on a provision that will not be included in all airport leases. He said Federal Express has refused to agree to a so-called cross default provision in which all LAX-Federal Express agreements would be invalid if the carrier failed to live up to the terms of any single contract.

Stein asserted cross default provisions are standard in most real estate deals.

"We're willing to work with the carriers but they have to realize the city is the landlord of the airport and the commission is going to protect the interests of the citizens," he said.