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The start of something big: BAA-Indianapolis management contract signals changes in airports' dealings with airlines.(includes related article on airport funding)(Airports & Airways)

BAA-Indianapolis management contract signals changes in airports' dealings with airlines

A lot could be riding on the decision by the city of Indianapolis to hand management of its airport to a private company, the British Airports Authority. If the parties accomplish their goals, Indianapolis's action could mark a turning point in U.S. airport management, ownership, financing and airline relations.

The airport is only the latest of city activities turned over to so-called managed competition since Stephen Goldsmith became mayor in 1992. Actually, he campaigned on the idea of selling a batch of city entities. His unhappiness with the airport stems from the drain on coffers from bonds used to finance United's maintenance base. He figured a sale could pay that off.

In office, however, he ran into major hurdles--U.S. FAA's bureaucratic intransigence despite a Bush administration executive order making it practical, and IRS rules related to tax-exempt bonds--"that were very near insurmountable." Now, he says, if the BAA deal cuts costs 30%, "we accomplish the same thing." Also, since "we didn't want to take money out of the airport," the advantages of a sale didn't outweigh the disadvantages.

But in several asides, Goldsmith, who wants to be governor of Indiana, implies that he still prefers a sale. First, he notes, when he campaigned, "Congress hadn't pressured FAA to monitor revenue diversion" in the way it has since he took office. He chafes at the whole system. "Airport-airline relationships are socialistic." He thinks residual contracts, the type used at IND that requires airlines to pay the difference between total costs and nonairline revenues, eliminate the incentive to reduce costs.

He also cites the airlines' attitude toward taxing various activities at an airport that his city owns. "They'd eventually make the case that everything is aviation-related and we shouldn't tax anything." So, "there should be more of a marketplace ... rather than a cartel." Moreover, federal grants from the trustfunded Airport Improvement Program "confuse the market." He says: "If the BAA contract breaks the current approach, it'll be a significant contribution" to changing the traditional relationship.

Tom Browne, Air Transport Assn. managing director-airports, says carriers think Indianapolis remains sale-minded. "Skeptics think they will try to come back in 2-3 years. …

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