Lax caught in holding pattern: airlines chafe over fees as airbus demands costly upgrade.

Los Angeles International Airport finds itself caught in an unlikely squeeze: European airplane maker Airbus wants expensive terminal improvements while airlines are complaining about the increasing cost of flying out of LAX.

Airbus, a unit of European Aeronautic Defence and Space Co., is publicly pressuring airport operator Los Angeles World Airports to make terminal improvements that it maintains are necessary to accommodate Airbus' new 555-passenger, A380 super-jumbo jet. The airport is expected to become the No. 2 A380 hub worldwide, behind only Heathrow Airport in London.

Indeed, there's industry speculation the recent decision by the jet maker to land the Airbus' U.S. trial flight in March at New York's John F. Kennedy International Airport instead of LAX was a ploy to pressure the Los Angeles airport into committing to the improvements.

That view is given support by a letter Alan Rothenberg, president of the Board of Airport Commissioners, wrote to Airbus Chief Executive Louis Gallois on Feb. 19. He accused the jet maker of "going back on its word to the people of Los Angeles" by changing the course of the maiden U.S. flight after LAX had "spent more than $50 million in structural upgrades specific to the needs of the A380 aircraft and others like it."

LAX officials had planned to hold a large media event on the occasion of the A380's landing at the airport, hoping to use the celebration to improve the airport's image.

But the problem for the airport authority: making the additional improvements will likely force it to further raise fees for airlines, some of which have already filed legal action to lower existing fees.

Seven airlines filed a joint complaint Feb. 20 with the Department of Transportation over the airport's decision to raise terminal charges, claiming a Feb. 1 fee hike is illegal and unfair. And just last month, three other airlines filed a federal lawsuit against LAX for raising other rental fees.

Michael Boyd, an aviation expert and president of Boyd Group Inc. consultancy, said Los Angeles World Airports finds itself in this position because it does not have a coherent plan for dealing with expected growth, and not just from the A380.

"LAX is making itself something of a laughing stock. Right now it's very confused," said Boyd. "It looks like you've got amateurs trying to plan an airport's future."

Airbus executives say that LAX has made adequate improvements to handle the A380 for its first two years of flight--Qantas Airways is set to begin flying the behemoth by early 2008 between Melbourne, Australia, and Los Angeles--but it must make additional improvements or find itself losing its status as a worldwide transportation hub.

Last month, Allan McArtor, chairman of Airbus North American Holdings Inc., visited Los Angeles and made a case before the City Council for the improvements, which involves creating more A380 landing gates on the north side of the airport and moving some domestic carriers to the south side.

"What's now on the drawing board for LAWA is not an acceptable level of service for what will be rapidly expanding A380 operations," said McArtor in an interview with the Business Journal last month. "If L.A. can't modernize itself to attract these new airplanes, then they're likely to go elsewhere. All the new terminals you see around the world are years ahead of L.A."

Airbus executives have been vague about their reason for choosing to fly into New York first, saying that it was the wish of Lufthansa Airlines.

Planned upgrades

However, LAX officials say they are prepared to handle the A380, with the initial flights coming into Tom Bradley International Terminal. They also say that as flights increase, the $50 million they are spending will allow the plane to be accommodated at six gates.

But Airbus executives are upset because four of those gates will be remote terminals that will require passengers to be bused. Airbus would rather see more A380 gates at Terminals 2 and 3 on the north side of the airport, with some of the domestic carriers there moved to the south side, where the jet maker contends there is space.

Airbus officials have not released a detailed financial cost estimate for the improvements that would be required under its plans, but McArtor said it would be relatively inexpensive.

The jet maker also has argued that any improvement made for the A380 also will help LAX accommodate other planned mega jumbo jets, including Boeing Co.'s 747-800 and 777-300.

Rothenberg's letter notes that LAX plans to spend another $70 million on future improvement, but does not specify exactly what they will be. Airport officials declined comment on the figure in the letter.

Boyd, the aviation expert, noted that LAX is far from the only airport around the country that has had to weigh making A380 improvements against the rising expenses of running airports.

"When you make an upgrade you have to make it ft, r the highest and best use," he said, noting that Atlanta's Hartsfield-Jackson International Airport and a number of other hubs refused to make upgrades for the A380.

However, the tiff over structural improvements at LAX comes at an inopportune time for the airport, which finds itself at the center of a second major dispute in-the past month with airlines over an unrelated increase in fees.

Seven airlines--AirTran Airways, Alaska Airlines, ATA Airlines, Frontier Airlines, Midwest Airlines, Southwest Airlines and U.S. Airways--filed a DOT complaint last week over increased terminal charges.

The airlines maintain that the Feb. 1 fee increase violates federal law because it only applies to carriers out of Terminals 1 and 3, and therefore discriminates against those airlines. In the filing, the airlines say the airport "is not a private commercial landlord" and that access to the airport "on fair and non-discriminatory terms is essential."

In response, the airport authority said the airlines' leases all expired between May 2001 and August 2004, and they have been operating without a lease ever since. "The action by seven airlines occupying LAX Terminals 1 and 3 signifies their ongoing refusal to pay their full and fair shares of LAWA's costs of operating those terminals for their benefit," the agency said in a statement.

The new fees amount to about $5 per passenger, which the airport said still leaves operating costs lower than those for many other major airports around the country. Though the fee increase is not directly related to the upgrades for the A380, the dispute highlights the difficulty of raising the capital necessary to maintain and improve airport structures.

Compounding the situation, the complaint comes on the heels of a lawsuit filed last month by three airlines--United Airlines, American Airlines and Continental Airlines--over increased fees for maintenance and operation costs.

RICHARD CLOUGH

Staff Reporter