The Impact of Airline Bankruptcies on Airports (2009)

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3 THE IMPACT OF AIRLINE BANKRUPTCIES ON AIRPORTS By Jocelyn K. Waite Waite & Associates, Reno, Nevada I. INTRODUCTION A. Scope of the Report Given the importance of airline revenue to airport operations and the prevalence of airline bankruptcies, lawyers representing airports should be cognizant of bankruptcy issues so that they can anticipate issues when negotiating agreements with airlines before bankruptcies occur, and take appropriate steps in the event of airline bankruptcies, including consulting with and adequately monitoring bankruptcy counsel. Airline bankruptcies not only pose significant finan- cial hardship on airports dependent on airlines for revenue, but also raise significant legal issues concern- ing treatment of airlines’ obligations to airports under the bankruptcy process. The objective of this report is to examine those legal issues presented by the filing of airline bankruptcies that are relevant to airports, and to explore how airport lawyers and courts have re- sponded to those issues. The report is intended to pro- vide a solid understanding of the basics of bankruptcy theory and law relevant to airport operating agree- ments with airlines, and to identify issues such as lease recharacterization and payment of stub period rent1 that particularly affect airports dealing with airlines in bankruptcy. Such an understanding should assist air- port lawyers in conducting research on bankruptcy- related issues in their own jurisdictions, in negotiating agreements that include appropriate protections of the airport’s interests in the event of airline bankruptcy, and in mitigating damages to the airport’s financial interests in the event of bankruptcy under existing as well as future agreements. The balance of the Introduction provides an overview of airport financial issues, including the precarious na- ture of airline finances, the importance of airlines to airport financing, and the Federal Aviation Administra- tion (FAA) study on the Impact of Air Carriers Emerg- ing from Bankruptcy on Hub Airports, Airport Systems, and U.S. Capital Markets. The main body of the report: 1 Stub period rent is the rent owed for the “stub period,” that is “the period from the bankruptcy filing date to the end of the first month of bankruptcy administration.” In re UAL Corp., 291 B.R. 121, 122 (Bankr. N. D. Ill. 2003). Discussed in § II.D.4, Stub Period Rent, infra. • Discusses bankruptcy theory. • Provides an overview of the most salient provisions of the Bankruptcy Code and relevant federal aviation requirements. • Discusses the bankruptcy process. • Reviews bankruptcy cases on several topics most relevant to airport concerns. • Examines the treatment of airport claims under the Bankruptcy Code and under federal aviation re- quirements. After reviewing applicable legal authority, the report concludes by: • Reviewing the major legal issues at play under the Bankruptcy Code and under federal law and regulation that should be of greatest concern to airport counsel. • Offering some points for airports to consider in or- der to mitigate losses due to airline bankruptcy, both before and after airlines file for bankruptcy protection. • Sounding a cautionary note about steps that ap- pear helpful, but in fact may not be. The report primarily addresses federal business bankruptcy cases, although it does identify issues on which state law will govern. The analytical emphasis is on airline bankruptcy cases, although nonairline cases are also referenced. The intent is to provide a starting point for airport lawyers to conduct research on the law in their specific jurisdictions in evaluating airline agreements and other issues; further research is advis- able. In fact, given the complexity of bankruptcy law, airport lawyers are likely to be working with bank- ruptcy counsel, and the report may be particularly use- ful to airport counsel in that regard. The report is meant to provide an overview of bank- ruptcy basics. Readers in need of specific details of bankruptcy procedure should consult practice guides2 2 See, e.g., PAMELA EVERETT NOLLKAMPER, BANKRUPTCY COURTS AND PROCEDURES (2005) (Procedural information on Chapter 7, Chapter 11, creditors’ proceedings, adversary pro- ceedings, appeals, and U.S. Bankruptcy Courts); THOMAS J. SALERNO & JORDAN A. KROOP, BANKRUPTCY LITIGATION AND PRACTICE: A PRACTITIONER’S GUIDE (4th edition 2007). (Over- view of U.S. bankruptcy law—including suggested resources, bankruptcy court system, Chapter 7, and Chapter 11; Appendi- ces include forms and samples of pleadings and related docu- ments); D.M. LYNN, MICHAEL R. ROCHELLE & SANDER L. ESSERMAN, HANDBOOK FOR DEBTORS IN POSSESSION (2007) ,

4 and bankruptcy counsel. Rejection of collective bargain- ing agreements, while important to airlines in bank- ruptcy,3 is also beyond the scope of this report. It is beyond the scope of the report to render legal opinions or recommend specific approaches to negotiat- ing operating agreements with airlines. However, the report will identify legal issues that airport authorities may want to consider in negotiating such agreements. Operational considerations will also affect airport au- thorities’ negotiating strategies and efforts to insulate themselves from the effects of airline bankruptcy, for example, by increasing retail and other nonairline revenues. Such operational considerations are beyond the scope of the report as well. B. Overview of Airport Financial Issues Turbulence in the airline industry leads to less reve- nue for airports. When the FAA asked for comments on the impact of airlines emerging from bankruptcy on airports, those commenting cited negative effects such as “…rejected leases, discontinued or reduced services, non-payment of rates and charges, non-payment or re- duction in PFC receipts, extended uncertainty with leaseholds, and the attempts to reject payment on a special facility bond obligation while continuing to op- erate at the SFB-financed facility, paying only non- capital costs.”4 COLLIER HANDBOOK FOR TRUSTEES AND DEBTORS IN POSSESSION; Marvin E. Jacob, Richard P. Krasnow & Scott E. Cohen, Special Provisions Relating to Chapter 11 Airline Cases (Ch. 15 in WEIL, GOTSHAL & MANGES, REORGANIZING FAILING BUSINESSES, A COMPREHENSIVE REVIEW AND ANALYSIS OF FINANCIAL RESTRUCTURING AND BUSINESS REORGANIZATION, ABA Section of Business Law (2007)). 3 11 U.S.C. 1113, Rejection of collective bargaining agree- ments. Unlike railroads, airlines in bankruptcy proceedings may, under some circumstances, reject collective bargaining agreements. 2 PAUL STEPHEN DEMPSEY, ROBERT HARDAWAY & WILLIAM E. THOMS, AVIATION LAW AND REGULATION (1992, § 17.12, the Bankruptcy Amendments and Federal Judgeship Act of 1984, 98 Pub. L. No. 353, 98 Stat. 333–346. See, e.g., Northwest Airlines v. Association of Flight Attendants (In re Northwest Airlines Corp.), 483 F.3d 160 (2d Cir. 2007). See also Babette Ceccotti, What About My Pension? Bankruptcy Invades What Was Once a Secure World, 16 BUSINESS LAW TODAY (Nov./Dec. 2006) , available at www.abanet.org/buslaw/blt/2006-11-12/ceccotti.shtml (Last visited Dec. 15, 2008). Note that while it is bad faith to file bankruptcy solely to modify or reject a collective bargaining agreement, it is permissible to file bankruptcy when one of the purposes is to modify or reject the agreement to achieve other legitimate bankruptcy goals. Jeffrey S. Heuer & Musette H. Vogel, Airlines in the Wake of Deregulation: Bankruptcy as an Alternative to Economic Deregulation, 19 TRANSP. L.J. 247, 261 (1991). 4 FAA, Discussion of comments received in response to Re- quest for Public Comment on the Impact of Airlines Emerging From Bankruptcy on Hub Airports, Airport Systems, and U.S. Capital Bond Markets, 68 Fed. Reg. 38108 (June 26, 2003), at 5, available at www.regulations.gov/fdmspublic/component/main?main=Docu mentDetail&o=0900006480313b4f (Last visited Dec. 16, 2008). More specifically, for example, the recent bankrupt- cies of Aloha Airlines, Skybus Airlines, and ATA Air- lines may cost Oakland International Airport over $2 million in annual revenue, due to loss of gate leases and landing fees.5 While airports draw to varying degrees on nonairline revenues,6 many airports are dependent on airlines for financial support, so airlines’ financial difficulties affect the airports they serve. A significant number of airlines nationwide face such difficulties, a trend that began in the 1980s7 and has since gotten worse, in part due to declines in traffic following the terrorist attacks of Sep- tember 11, 2001 (9/11)8 In addition to a decline in traffic due to fear of terrorist attacks, fuel price increases both before and after September 2001 have severely dam- aged airlines’ profitability, as have borrowing and labor costs.9 The Severe Acute Respiratory Syndrome (SARS) outbreak and the Iraq War also depressed air travel and thus airline revenues.10 Changes in business travel patterns have also played a role for some airlines.11 In 5 Matt Andrejczak, Airports Weigh Prospects Amid Industry Turmoil, MARKETWATCH, Apr. 15, 2008. Accessed Apr. 17, 2008, available at www.marketwatch.com/news/story/airports- weigh-prospects-amid-industry/story.aspx?guid=%7B0FCF7 F2F%2DD1FE%2D4BCD%2DB50F%2D8B28AEFE885F%7D (Last visited Dec. 16, 2008). 6 CINDY NICHOL, ACRP SYNTHESIS 1, INNOVATIVE FINANCE AND ALTERNATIVE SOURCES OF REVENUE FOR AIRPORTS, at 2, 24–34 (Transportation Research Board, 2007), http://onlinepubs.trb.org/onlinepubs/acrp/acrp.syn.001.pdf. Airport bonds, which are financed by both airline and nonair- line revenue, are the largest source of funding for airport capi- tal projects. Statement of Greg Principato, President, Airports Council International–North America (ACI-NA) and Fredrick J. Piccolo, Chairman, ACI-NA, CEO, Sarasota-Bradenton In- ternational Airport, before the House Transportation and In- frastructure Subcommittee on Aviation, “FAA’s Airport Im- provement Program,” Mar. 28, 2007, http://aci.3cdn.net/ea933d8aa009ff2942_e9m6bxat5.pdf. 7 Ian Dattner, Chapter 11 Protection: Who Are We Protect- ing?, 38 COL. J.L. & SOC. PROB. 287, 319 (2005). Since the air- lines were deregulated in 1978, over 120 airlines have declared bankruptcy. Id., n.119. 8 Kristina McQuaid, Delta & Northwest File for Bankruptcy: Is It Time to Ground a Major Airline? 29 HOUS. J. INT’L L. 663, 665 (2007), available at http://www.entrepreneur.com/tradejournals/article/168283785. html (Last visited Dec. 16, 2008). 9 Id. at 667. 10 Statement of Mario Diaz, Deputy Aviation General Man- ager, Hartsfield-Jackson Atlanta International Airport, at the summit on Trans-Atlantic Relationship–Aviation Policy: Clear- ing the Way to a More Open Market, Apr. 12, 2003, http://www.uga.edu/ruskcenter/pdfs/occasional3avia.pdf, at 172; Eric Young, War, Economy Clip Airport's Wings, S.F. BUSINESS TIMES, Mar. 28, 2003, available at www.bizjournals.com/sanfrancisco/stories/2003/03/31/story1.ht ml. (Last visited Dec. 16, 2008). 11 Jon F. Ash, The Economic Implications of the O’Hare Modernization Program 5–11 (May 2004), http://www.intervistas.com/4/reports/OHareModernizationProg ram.pdf.

5 addition, airports face new federal security require- ments.12 To the extent that new security requirements have prevented nonticketed people from reaching con- cessionaires situated beyond security checkpoints, those requirements have also led to a reduction in nonaero- nautical revenue at some airports.13 Some airports are more vulnerable than others. A representative of Moody’s Investors Service testified to the House Aviation Subcommittee that airline bank- ruptcies were expected to affect “those airports with less profitable routes, a high reliance on airline-derived revenues, a service area that is below the median in terms of generating demand for air travel, below- average liquidity levels, and limited ability to cut air- port operating costs and/or scale back capital pro- grams.”14 Other factors include: whether the airport’s market has a high percentage of origin and destination traffic; whether the Chapter 11 airline operates a sig- nificant hub at the airport;15 the level of airline competi- tion in the market; 16 the type of rate setting agreement; and the presence of majority-in-interest provisions.17 Airports may rely on a range of bonds to help finance airport operations, including general obligation (GO) bonds, general airport revenue bonds (GARBs), bonds backed by passenger facility charges (PFCs), bonds backed by customer facility charges (CFC), and special facility bonds.18 Of these, GARBs, PFC-backed bonds, 12 Executive Summary, ACI-NA 2005 Airport Capital Devel- opment Needs, www.aci- na.org/static/entransit/Airport%20capital%20development%20 needs.pdf. 13 See John F. Brown Company, Inc., Airport Case Studies in Connection with Study on the Impact of Air Carriers Emerging from Bankruptcy on Hub Airports, Airport Systems and U.S. Capital Bond Markets, Nov. 2003, at 98, http://ostpxweb.dot.gov/aviation/domav/dotspecterstudy.pdf. 14 AAAE Airport Report, Panel Considers Airline Outlook, Oct. 15, 2005. Accessed Nov. 3, 2008, at http://www.aaae.org/news_publications/airport_report/arannua l.cfm?e=getFile&efs=29E7BA2F8C60BD8F8D4C9609EBAC215 18CA041E967F00A0F91DDDC0AD7C7E08958D5. 15 Fitch Places Delta U.S. Hub Airports on Negative Outlook; Sectorwide Impact Seen to be Minimal, BUSINESS WIRE, Sept. 15, 2005, available at http://findarticles.com/p/articles/mi_m0EIN/is_/ai_n15391979 (Last visited Jan. 2, 2009). 16 AAAE Comments in response to June 26, 2003, Notice, p. 3, available with membership login at http://airlineinfo.com/rulespdf3/161.pdf (html file available). 17 See generally Fitch Ratings, Public Finance, Airports Rat- ing Criteria Handbook for General Airport Revenue, Passenger Facility Charge, and Letter of Intent Bonds (Revenue Criteria Report), Mar. 12, 2007, assessable through Fitch Ratings Web site account, available at http://www.fitchratings.com. 18 NICHOL, supra note 6, at 13–18. Nichol also discusses other financing mechanisms and issues, such as bonds backed by future grants, tax credit bonds, and the effects of the alter- nate minimum tax. See also PAUL STEPHEN DEMPSEY, THEORY AND LAW OF AIRPORT REVENUE DIVERSION 4-9 (Airport Coop- erative Research Progam, Transportation Research Board, Legal Research Digest 2, 2008), and special facility bonds depend in whole or in part on revenue from the airlines serving the issuing airport; these bonds are discussed below. Airline bankruptcies do not really affect GO bonds, which are backed by the general tax revenues of the governmental entity that issues them, or CFC bonds, which are backed by CFCs collected by car rental companies. 1. Bond Financing GARBs.—GARBs must be issued under legal author- ity such as state law or municipal charter.19 GARBs have been the predominant means of financing airport infrastructure,20 and have generally had a very strong credit history.21 These bonds are generally tax-exempt industrial revenue bonds. Although issued by airports or other public authorities, GARBs are often backed by airlines through use and lease agreements.22 As of the year 2000, airlines at roughly half of the largest U.S. airports backed GARBs.23 In addition, when revenues for PFC pay-as-you-go projects are not sufficient, addi- tional GARB funding may be required.24 PFCs:25—PFCs are fees authorized to be imposed by commercial service airports for each paying passenger enplaned at the airport.26 The FAA must authorize im- position and collection of PFCs at individual airports. PFCs range from $1 to $4.50 per enplanement, depend- ing on project purpose.27 As of March 2008, more than $2.5 billion was collected annually at over 360 air- ports.28 http://onlinepubs.trb.org/onlinepubs/acrp/acrp.lrd_002.pdf. 19 National Federation of Municipal Analysts, Recommended Best Practices in Disclosure Airport Debt, May 2004, at 16, www.nfma.org/disclosure/rbp_airport.pdf. See, e.g., Brown Company, supra note 13, at 17, describing GARBs issued by Allegheny County, and at 50, describing GARB authority and restrictions for St. Louis. 20 NICHOL, supra note 6, at 14. Under O’Hare’s Moderniza- tion Plan, GARBs will finance more than 50 percent of three major components of the plan. Ash, supra note 11, at ES-4. 21 Fitch Ratings, supra note 17, at 1. 22 PAUL STEPHEN DEMPSEY, AIRPORT PLANNING AND DEVELOPMENT HANDBOOK: A GLOBAL SURVEY 187 (2000). 23 Id. at 188. 24 See Brown Company, supra note 13, at 39. 25 ACI, Passenger Facility Charges, www.aci- na.org/static/entransit/Passenger%20Facility%20Charges%20F act%20Sheet.pdf. 26 Aviation Safety and Capacity Expansion Act of 1990 (Title IX of the Omnibus Budget Reconciliation Act of 1990), Pub. L. No. 101-508, 104 Stat. 1388, Nov. 5, 1990; Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR21), Pub. L. No. 106-181, 114 Stat. 61, Apr. 5, 2000; 14 C.F.R. pt. 158. 27 14 C.F.R. pt. 158.15, Project eligibility at PFC levels of $1, $2, or $3, pt. 158.17, Project eligibility at PFC levels of $4 or $4.50. See, e.g., Fitch Ratings, supra note 17, at 10–12; NICHOL, supra note 6, at 8–9, 16–17. 28 Bernard F. Diederich, Federal Government Updates: PFCs (DOT White Paper—Airline Bankruptcy Issues), presented at Airports Council International–North America 2008 Spring

6 PFCs can be used on a “pay-as-you go” basis to fund small projects, as a means to fund bonds that pay for large projects,29 and to repay tax-exempt bonds issued to finance improvements.30 The purpose for PFC revenues can be changed. For example, Lambert-St. Louis Inter- national Airport (STL) received approval to apply PFC revenues to fund construction of its east terminal, and later used GARBs to substantially replace the PFC revenue and redirect PFC revenue to its runway pro- ject.31 Between 2001 and 2005, approximately $2.2 bil- lion in PFCs were collected, of which 30 percent could go to bond financing.32 PFCs fund approximately 30 percent of current U.S. airport capital investment33 bonds, and directly fund another 11 percent of capital investment.34 Special facility bonds.—In order to be tax-exempt, special facility bonds must be issued by a governmental entity, which must have legislative authority to issue bonds.35 However, the issuance is on behalf of an airline or group of airlines. Multi-tenant bonds have stronger credit because of their more diverse revenue base.36 The bonds are nonrecourse with respect to the governmental authority, which passes the bond payments through to the Bond Trustee.37 The structure of special facility Legal Affairs Committee Conference, Session II: Current Air- port Legal Issues, Apr. 18, 2008. 29 Jacobs Consultancy, Issues for Airports in the 2007 FAA Reauthorization, Dec. 2006, at 3, http://www.jacobs- consultancy.com/pdfs/publications/Jacobs-Focus-2006-12.pdf; NICHOL, supra note 6, at 16–17. 30 Humberto Sanchez, Airport Lobbyists Seek Higher Pas- senger Fees to Pay Debts, THE BOND BUYER 358.32492 (Oct. 23, 2006), at 6; Yvette Shields, Chicago OKs $1.4B for O'Hare: Mix of New Money, Refunding, and CP, THE BOND BUYER 360.32638, (May 24, 2007), at 1 (Chicago to use PFCs to retire GARBs), available at http://www.accessmylibrary.com/coms2/summary_0286- 23807072_ITM (Last visited Dec. 16, 2008). 31 Brown Company, supra note 13, at 55. 32 Observations on Planned Airport Development Costs and Funding Levels and the Administration’s Proposed Changes in the Airport Improvement Program, GAO-07-885 (June 2007), at 3, 8, http://www.gao.gov/new.items/d07885.pdf. 33 ACI, supra note 25. 34 Trends in Airline Use Agreements–Rates/Charges and the Allocation of Risk, slide 4, www.jacobs-consultancy.com/ pdfs/publications/Trends_In_Airline_Agreements.pdf. See also, Robert S. Kirk, Airport Improvement Program: Issues for Con- gress, Feb. 26, 2007, http://cstsp.aaas.org/files/RL33891.pdf. 35 Charlotte County Industrial Development Authority, In- dustrial Development Revenue Bond Financing Guidelines and Procedures, www.pureeconomics.org/New_Shtml_Files/PDF_Folder/CCIDA _Guidelines.pdf. 36 NICHOL, supra note 6, at 18. 37 See, e.g., Kenton County Bondholders Comm. v. Delta Air Lines, Inc. (In re Delta Air Lines, Inc.), 374 B.R. 516 (S.D.N.Y. 2007), in which the Kenton County Airport Board issued bonds on behalf of Delta Air Lines, with lease payments from Delta passing to the Bond Trustee. bond transactions affects the security of the bonds in the event of bankruptcy: The structure and security of special facility transactions vary considerably, from a simple guarantee of the airline, in which case the investor's claim ranks behind secured creditors with limited chance for recovery, to secured structures, such as mortgage, and leases, which may pro- vide the investor with a much higher likelihood of recoup- ing their investment.38 The United cases, infra, illustrate the extent to which the transaction structure may affect the security of debt recovery in the event of airline bankruptcy.39 These bonds are backed solely by airline lease pay- ments, with those payments structured to cover the bonds’ debt service.40 United Air Lines, which had con- structed improvements at San Francisco International Airport (SFO), New York John F. Kennedy Interna- tional Airport (JFK), and Los Angeles International Airport (LAX) financed by special facility bonds that were structured as lease-leaseback transactions with the airports, obtained rulings during its bankruptcy proceedings recharacterizing those leases. By recharac- terizing those leases as “disguised financings,” United— the first airline in bankruptcy to do so—was able to transform about $600 million in rent into $248 million in prepetition debt.41 Given the potential financial im- pact of avoiding bond obligations, the possibility of lease recharacterization is an emerging issue to be aware of.42 See Section II.D, Cases, infra. Since the United rulings, fewer of these bonds have been issued.43 In fact, one aviation analyst stated, “airline backed financing of airport facilities will face increased scrutiny and proba- bly increased yields, which will likely increase the diffi- culty of bringing airline-backed debt to the market.”44 Although at least one bankruptcy expert has observed that the United Airlines recharacterization cases may 38 Fitch Places Delta U.S. Hub Airports on Negative Outlook, supra note 15. If the bonds are unsecured debt, in the event of bankruptcy the bondholders may be reduced to receiving dis- tribution as an unsecured creditor. See Massport 2007 Bond Issuance, at 68, A-47, www.massport.com/about/pdf/ac_07_os.pdf. 39 Id. 40 ACI-NA, Primer: Airport Financing, available at www.aci-na.org/index/issues_financing_primer (Last visited Dec. 16, 2008). 41 Brian E. Davis, Lease Recharacterization in Bankruptcy: United Air Lines Recharacterization Cases Bolster the Debtor- Tenant’s Cause, PRATT'S JOURNAL OF BANKRUPTCY LAW 135, 135–36 (2006). Delta Air Lines had also sought to recharacter- ize a lease at LAX, but ultimately filed a motion of dismissal. Delta Form 8-K, 2.7.07, Ex-99.1, at 58, available at www.secinfo.com/d1488v.uab.d.htm (Last visited Dec. 16, 2008). 42 See, e.g., Daniel S. Reimer, 1 AIRPORT MANAGEMENT 97, 99–100 (Sept. 2006), www.kaplankirsch.com/data/Legal_and_Regulatory_Dev_USA. pdf. 43 ACI–NA, supra note 40. 44 Ash, supra note 11, at 24.

7 have doomed special facility bonds as a viable financing mechanism,45 these bonds are not entirely dead.46 To the extent that such bonds are issued in the future, the issuer may retain a substantial economic interest to deter recharacterization of the leases.47 2. Precarious Airline Financial Condition There were difficulties in the airline industry even before the terrorist attacks on 9/11, including the reces- sion that began earlier that year.48 That situation be- came worse in the wake of those attacks,49 as airlines suffered a massive decrease in traffic.50 A number of airline bankruptcies ensued, including those of United Air Lines, US Airways, and Hawaiian Airlines.51 The SARS outbreak and increasing fuel prices also hurt the airline industry.52 Other legacy carrier bankruptcies since deregulation include TWA (Chapter 7), which resulted in lease rejec- tions;53 US Airways (Chapter 11), which resulted in lease rejections54 and lease modifications; 55 and Delta 45 Jodi Richards, Growing the Bottom Line: Opportunities, Challenges for the Airport Finance Side of the Ledger, AIRPORT BUSINESS MAGAZINE, Apr. 2006, available at www.airportbusiness.com/print/Airport-Business- Magazine/Growing-the-Bottom-Line/1$5981 (Last visited Dec. 16, 2008). 46 Chicago City Council OKs $108 Mln Airport Bonds, Reuters, June 13, 2007 (Chicago approved $108 million reve- nue bond refunding for American Airlines at O'Hare, refunding 1994 debt that in turn refunded bonds issued in 1984), avail- able at http://uk.reuters.com/article/marketsNewsUS/idUKN13385232 20070613 (Last visited Jan. 3, 2009). 47 Fitch Report: UAL Bankruptcy's Impact on Airport Spe- cial Facility Debt, BUSINESS WIRE, Apr. 27, 2004, available at http://www.allbusiness.com/banking-finance/financial-markets- investing-securities/5598379-1.html (Last visited Jan. 2, 2009). 48 Ash, supra note 11, at ES-7, 5-6. 49 Indianapolis Airport Authority, Comprehensive Annual Financial Report, Fiscal Year Ended December 31, 2004, at 40, www.indianapolisairport.com/uploads/docs/2004- cafr_1C7T3T.pdf. 50 Fitch Update: U.S. Airports, Attacks’ Impact on PFC Debt, BUSINESS WIRE, Oct. 5, 2001, available at http://findarticles.com/p/articles/mi_m0EIN/is_/ai_78920493 (Last visited Jan. 2, 2009). 51 See, e.g., San Francisco International Airport Competition Plan Update, Dec. 10, 2003, at 8, www.flysfo.com/web/export/sites/default/download/about/compe tition/pdf/Competition_Plan_Update_Final_-_121003.pdf. 52 Ash, supra note 11, at ES-7. 53 See Fitch: TWA Bankruptcy Filing May Affect Aircraft Se- curitizations, BUSINESS WIRE, Jan. 11, 2001, available at http://www.allbusiness.com/banking-finance/leasing-industry- capital-equipment-leasing/6033867-1.html (Last visited Jan. 2, 2009). 54 E.g., Allegheny County Airport Authority (A Component Unit of County of Allegheny, Pennsylvania), Financial State- ments as of and for the Years Ended December 31, 2007 and 2006, and Independent Auditors’ Report 16, http://www.pitairport.com/UserFiles/File/pdf/2096890_12.pdf. Air Lines (Chapter 11), with a proposed reorganization plan allowing Delta to default on $1.2 billion of its spe- cial facilities revenue bond debt.56 As of the beginning of 2008, the airline business had again entered into a financially turbulent period, pri- marily due to sharply increased fuel prices.57 One indus- try analyst expected the industry to lose $1.2 billion in the first quarter of 2008,58 although by the end of the second quarter airlines were projecting as much as a $10 billion loss for 2008, due in large part to fuel costs.59 Four small airlines, Frontier Airlines, Skybus Airlines, ATA Airlines, and Aloha Airgroup, all filed for bank- ruptcy within a few weeks of each other,60 although Frontier said it had filed Chapter 11 for protection from a credit card processor that was seeking to substan- tially increase the amounts the processor withheld from ticket sales.61 Skybus, ATA, and Aloha, however, ceased all operations/passenger operations.62 55 Id. 56 Yvette Shields, Judge OKs Delta Reorganization; Airline Set to Shed Bankrupt Status Monday, THE BOND BUYER 360.32618, Apr. 26, 2007, at 30. 57 Andrew Ross Sorkin & Jeff Bailey, Delta-Northwest Merger Talks Pick Up Pace Again, N.Y. TIMES, Apr. 14, 2008, available at www.nytimes.com/2008/04/14/business/14deal.html?ref=busine ss (Last visited Dec. 16, 2008). 58 Graham Bowley, Frontier Airlines Files for Bankruptcy, N. Y. TIMES, April 12, 2008, available at www.nytimes.com/2008/04/12/business/12frontiercnd.html?ref= business (Last visited Dec. 16, 2008). 59 John Crawley, Major U.S. Airlines See $10 Billion Loss in 2008, Reuters, June 17, 2008, available at http://www.reuters.com/article/ousiv/idUSWBT0092012008061 7 (Last visited Jan. 2, 2009). 60 Jeff Bailey, Aging Jet Fleets an Added Strain on U.S. Air- lines, N.Y. TIMES, Apr. 12, 2008, available at www.nytimes.com/2008/04/12/business/12air.html?ref=busines s (Last visited Jan. 2, 2009). 61 Bowley, supra note 58 (Last Visited Dec. 16, 2008); Simon Kennedy, Frontier Airlines files for Chapter 11 bankruptcy, MARKETWATCH, Apr. 11, 2008, available at www.marketwatch.com/news/story/frontier-airlines-becomes- latest-irline/story.aspx?guid=%7B3518C93E&2D5AAE&2D 4AED%2D8D36%2D1D4781A515D6%7D&siteid=bnb. (Last visited Dec. 16, 2008). Rising fuel costs are also causing airline retrenchment short of bankruptcy. E.g., Mary Schlangenstein, American Air, Eagle to End Flights to Eight Airports, Bloomberg, June 25, 2008, available at www.bloomberg.com/apps/news?pid=20601087&sid=aTHuLky Rm.0E&refer=home (Last visited Dec. 16, 2008). 62 ATA Airlines Files for Bankruptcy (ceases all operations), CNN Money.com, Apr. 3, 2008, available at http://money.cnn.com/2008/04/03/news/companies/ata_bankrup tcy/index.htm (Last visited Jan. 2, 2009); Jim Kelly, Aloha Airlines Goes Out of Business, EAST BAY BUSINESS TIMES, Mar. 31, 2008 (ceases all operations), available at www.bizjournals.com/eastbay/stories/2008/03/31/daily1.html (Last visited Dec. 16, 2008); Skybus Airlines to Cease Opera- tions, USA Today.com, Apr. 4, 2008, available at www.usatoday.com/travel/news/2008-04-04-skybus- shutdown_N.htm (Last visited Dec. 16, 2008).

8 3. Importance of Airlines to Airport Finances As noted above, airline-based revenues back, in whole or in part, several critical financing mechanisms for capital improvements. Landing fees, aircraft park- ing and hangar charges, terminal service fees, cargo service charges, security charges, and ground handling charges all provide airline-based revenues that are critical to airport operations.63 A 2007 report noted that the percentage of airport operating revenues derived from airline revenues ranges from 55.9 percent for large hub airports to 44.7 percent for small hub airports,64 although a more recent source reported an overall share of nonaeronautical revenue of 50 percent, with up to 60 percent at larger airports.65 In addition to being significant sources of revenue for airports, airlines often exercise control over airport projects through majority-in-interest (MII) pro- visions or other provisions in airport use agreements.66 Under such provisions, specified capital expenditures cannot be factored into airline fees such as terminal rental rates and landing fees unless they receive MII approval from the airlines that have signed the use agreements.67 In fact, at some airports, the MII clause prevents the capital expenditure altogether.68 MII is defined under airline agreements and considers such factors as percentage of payment of landing fees and percentage of landing weights.69 The type of use agreement in effect at a particular airport will affect the impact of airline bankruptcies on the airport. Use agreements—which govern the use of terminal buildings, concourses, airfields, and related facilities for air transportation, covering obligations including debt service, deposit requirements, operating expenses, and ground rent70—may be residual, compen- 63 RICHARD DE NEUFVILLE & AMEDEO R. ODONI, AIRPORT SYSTEMS: PLANNING, DESIGN, AND MANAGEMENT 198–99, 261– 68 (2003). See also DEMPSEY, supra note 22, at 178, 197; ACI- NA, supra note 40. 64 NICHOL, supra note 6, at 25. 65 Joshua Zumbrun, How Airports Profit from Your Wait, USA TODAY, June 13, 2008, available at www.usatoday.com/travel/flights/2008-06-13-forbes-airport- vendors_N.htm (Last visited Dec. 16, 2008). 66 For example, at O’Hare under the Airport Use and Lease Agreements, the carriers must approve the issuance of GARBs. Ash, supra note 11, at 30. 67 See Brown Company, supra note 13, at 54. 68 FAA/OST Task Force, Airport Business Practices and Their Impact on Airline Competition, Oct. 1999, at 8, 29, http://ostpxweb.dot.gov/aviation/domav/airports.pdf. 69 For example, the STL airline agreements define MII as the “signatory airlines that have more than 50 percent of the aggregate landed weight that represent at least 50 percent in number of airlines signatory to the use agreements”; MSP air- line agreements define MII as “the signatory airlines who (a) represent at least 50 percent in number of the then-operating signatory airlines, and (b) paid at least 40 percent of the pre- ceding year’s signatory airline landing fees.” Brown Company, supra note 13, at 54, 73. 70 See id. at 19, 52. satory, or a hybrid of the two approaches,71 although more recently the trend is toward compensatory agree- ments.72 Historically, residual agreements provide airlines with long-term gate leases, MII clauses, and return of excess revenues.73 Under the residual cost approach, an airport authority “first deducts from its expenses the income that it receives from non-airline sources (such as parking and concessions) and then divides the re- maining expense amount among the airlines, on a rat- able basis, through rents and landing fees.”74 For exam- ple, the Allegheny County Airport Authority explains its residual agreement as follows: Airline revenue at [Pittsburgh International Airport (“PIT”)] is based upon a residual arrangement as deter- mined in the [Airline Operating Agreement]. Airlines that sign this agreement (“Signatory Airlines”) agree to pay for the operations of the airport based upon a Rates and Charges calculation that takes into account all revenues, expenses and debt service at PIT, as well as creating cer- tain funds to be used for capital expenditures. The agreement is designed to minimize the landing fee, ter- minal rent and ramp fee costs to the Signatory Airlines while assuring the payment of all net operating costs and debt service related to PIT.75 Because of the pro rata nature of the airline contri- butions, when one airline decreases its flight volume at an airport, the expenses for the other signatory airlines increase. Moreover, if one airline decreases its flights and the decrease in flight volume is not made up by other airlines, the concomitant decrease in nonairline revenue will further increase airline expenses.76 Such agreements tend to mitigate the economic effects of in- dividual airline economic woes on the airport, although it is possible that the other signatory airlines will not be able to absorb increased costs.77 Thus, airline bankruptcies can adversely affect air- port finances by decreasing revenues due to decreased traffic and renegotiated leases. In addition, bankrupt- 71 Trends in Airline Use Agreements, supra note 34. Air- ports also have nonsignatory operating agreements, see, e.g., Non Signatory Airline Operating Agreement at Orlando Inter- national Airport, www.orlandoairports.net/avleasing/non- sig_agreement.pdf. Since those types of agreements do not require the same sort of commitments as signatory use agree- ments, they are not discussed here. 72 John F. Infanger, Focus on Airport Economics (Managing Airports Today), 21 AIRPORT BUSINESS 8 (July 2007). 73 DEMPSEY, supra note 22, at 187. 74 United Air Lines v. U.S. Bank Trust (In re UAL Corp.), 346 B.R. 456, 464 (Bankr. N.D. Ill. 2006). See also DEMPSEY, supra note 22, at 197. 75 Allegheny County Airport Authority (A Component Unit of County of Allegheny, Pennsylvania), Financial Statements as of and for the Years Ended December 31, 2007 and 2006, and Independent Auditors’ Report 2, http://www.pitairport.com/UserFiles/File/pdf/2096890_12.pdf. 76 United Air Lines 346 B.R. at 464. 77 See, e.g., Indianapolis Airport Authority, supra note 49, at 10, 69.

9 cies can increase airport expenses because of resultant bad debts.78 Finally, the link between airlines—including their financial situation—and airports’ credit rating is clear. The mere presence of a dominant carrier can be detri- mental. For example, early in 2008 Moody’s rating ser- vice revised its outlook on the bond rating for Midway Airport from positive to stable, based in part on Mid- way’s “growing dependence” on a single carrier, South- west Airlines.79 The presence of a hub can affect even generally stable GARB ratings.80 However, the effect of airline bankruptcy on airport credit ratings will vary depending on assessment of the airport’s overall strength, including level of competition from other air- ports and percentage of origin and destination traffic.81 4. FAA Study In 2003 Congress directed FAA to study “the impact that airlines emerging from bankruptcy could have on hub airports, as well as the ramifications on airport systems and U.S. capital bond markets.” 82 As part of its study, FAA commissioned four case studies on the fol- lowing airports: Pittsburgh International Airport (PIT), STL, Minneapolis St. Paul International Airport (MSP), and San Francisco International Airport (SFO). These case studies describe airline competition, passenger trends, and financing and facilities for the airports in question. While airport counsel may find these case studies of interest in their entirety, for purposes of this report, the discussion of airline bankruptcies’ effect on the airports’ bond financing and credit ratings are most relevant. The summary that follows is deemed current as of November 2003. PIT operates under a residual rate-making agree- ment: the airport authority collects fees from the air- 78 See, e.g., Allegheny County Airport Authority, supra note 54, at 6, 16. 79 Moody’s U.S. Public Finance–2008 U.S. Airport Sector Outlook, Feb. 2008, at 12. See also Brown Company, supra note 13, at 62, noting presence of dominant carrier as risk factor for credit rating, Webcast replay available at http://v2.moodys.com/cust/event/eventdetail.aspx?id=44000000 00876&mod=2 (Last visited Jan. 2, 2009). 80 Fitch Ratings: Public Finance, Airline Bankruptcies and Airport Bonds: 2003–2006 (Revenue Special Report), at 4, available at http://www.fitchratings.cl/Upload/airlinebank03.pdf (Last vis- ited Jan. 2, 2009). 81 See, e.g., Brown Company, supra note 13, at 103; BUSINESS WIRE, supra note 15. See also Fitch Rates Wayne County Airport Authority, Michigan’s $145MM Revenue Re- funding Bonds ‘A’, Reuters, Apr. 15, 2008 (Not specifically dealing with bankruptcy, but rating factors nonetheless), available at www.reuters.com/article/pressRelease/idUS226153+15- Apr20088+BW20080415 (Last visited Dec. 16, 2008). 82 H.R. REP. NO. 108-76 [see p. 2 of 2003 USDOT report], cited by FAA, Request for Public Comment on the Impact of Airlines Emerging From Bankruptcy on Hub Airports, Airport Systems and U.S. Capital Bond Markets, 68 Fed. Reg. 38108 (June 26, 2003). lines to meet operating costs minus nonairline reve- nues.83 PIT was a hub airport for US Airways. The case study illustrates the negative fallout of the bankruptcy of a hub airline. The county had financed through GARBs airline facilities usually financed by the air- lines, including US Airways exclusive use facilities.84 Nonetheless, when US Airways entered Chapter 11, the airline threatened to reject its PIT leases, using that threat of rejection to force a renegotiation of 18 leases at PIT: “AOA, hangar maintenance leases, one Rockwell hanger lease, hangar and simulator center general of- fice/administration leases, two hydrant fuel system leases, two cargo leases, a lift-use agreement, and three terminal-related leases.”85 US Airways then sought to have PIT reduce PIT’s outstanding debt from $676 mil- lion to $176 million by refinancing the debt and to pro- vide infrastructure improvements ($115 million), a maintenance hangar and training center ($40 million), and rent relief ($140 million). Allegheny County and the Allegheny County Airport Authority agreed to settle all their bankruptcy claims against US Airways by ac- cepting a $211 million general unsecured claim.86 As described in the case study, US Airways’ bankruptcy and subsequent lease rejection led to downgrading of the airport’s credit rating and withdrawal of the air- port’s line of credit.87 STL has compensatory rate-making for its airline terminals88 and residual rate-setting for its landing fees.89 STL’s hub carrier is American Airlines; STL is also a focus city for Southwest Airlines.90 In addition to federal funding, STL has used GARBs and PFC reve- nues to fund its capital development program.91 TWA, STL’s original major hub carrier, assumed its leases in its first two bankruptcies and received approval to sell most of its assets to American Airlines under TWA’s third bankruptcy filing. US Airways rejected two PIT leases under its Chapter 11 plan.92 When American an- nounced service reductions to STL, the ratings agencies placed STL on their watch lists for negative action, with Standard & Poors going so far as to drop STL’s bond rating.93 MSP’s major hub airline is Northwest Airlines. The Minneapolis-St. Paul Metropolitan Airports Commis- sion (MAC) owns the airport.94 As of June 1, 2003, 19.57 percent of MAC’s capital funding sources derived from 83 Brown Company, supra note 13, at 30. 84 Id. at 15. 85 Id. at 31. 86 Id. at 33. 87 Id. at 3–4, 26, 35–37. 88 Id. at 39, 53. 89 Id. at 54. 90 Id. at 41. 91 Id. 92 Id. at 56. 93 Id. at 40, 62. 94 Id. at 64.

10 pay-as-you-go PFCs and 57 percent from bonds.95 Al- though historically MAC financed capital construction at MSP through general obligation revenue bonds, since 1998 it has relied on GARBs (except for refinancing the original bonds). MAC also has authority to issue gen- eral commercial paper, which it refunds from GARB proceeds.96 MSP’s airline agreements run for about 10 years. Under the agreements, terminal rentals are cal- culated under a compensatory methodology, while land- ing fees are set under a cost-center residual methodol- ogy.97 As of 2003, MAC lost about $450,000 out of $570,000 in prepetition obligations owed by Sun Coun- try, a Chapter 11 carrier that rejected its airline lease agreement and was in dispute with United Airlines over whether approximately $86,000 in facility rentals constituted a prepetition or postpetition obligation.98 Although rating agencies had lowered the credit rating of Northwest Airlines, the dominant carrier, MAC’s credit rating had not suffered.99 SFO has reprogrammed PFC revenue from a runway program to reduce airlines’ costs by helping to pay debt service on master plan projects.100 SFO has a 30-year residual airlines lease and use agreement.101 United defaulted on a special facility lease and had refused to pay stub period rent on rejected leases. Both issues are discussed in detail in Section II.D, Cases, infra. Rating agencies have downgraded/kept on negative watch SFO’s credit rating, in part due to United.102 Most of the cost of SFO’s capital projects from the 1990s was funded through GARBs. SFO’s PFC revenue has for the most part gone to pay debt service on those bonds.103 As part of its efforts to monitor United’s bankruptcy proceed- ings, SFO obtained a nonvoting position on the Unse- cured Creditors’ Committee.104 FAA also requested public comments centered on four issues: (1) How airport's operations have been affected by air car- riers going bankrupt and emerging from bankruptcy; (2) the financial impact that carriers' bankruptcies have had on airports; (3) the impact that carriers emerging from bankruptcy have had on markets for airport debt; and (4) actions that the federal government or airports them- selves could take to ameliorate any significant financial disruption from airline bankruptcy.105 95 Id. at 69. 96 Id. at 70. 97 Id. at 72–73. 98 Id. at 74–75. 99 Id. at 82–83. 100 Id. at 84–85. 101 Id. at 85. 102 Id. at 86, 102. 103 Id. at 90–91. 104 Id. at 101. 105 Docket No. FAA-2003-15481, Request for Public Com- ments on the Impact of Airline Bankruptcy on Hub Airports, Airport Systems and U.S. Capital Bond Markets, 68 Fed. Reg. 38108 (June 26, 2003). The FAA made available its discussion of the 16 comments (from the Montgomery Airport Authority (MAA); the Sarasota Manatee Airport Authority (SMAA); the Metropolitan Nashville Airport Authority (MNAA); Mr. Joshua Telser; the Kansas City Aviation Department (Kansas City); Delta Air Lines; the Air Transport Association (ATA); the American Association of Airport Executives (AAAE) jointly with the Airports Council International–North America (ACI-NA); City of Chicago, Department of Aviation (Chicago for O’Hare and Midway airports); Frontier Airlines; the Kenton County Airport Board (KCAB); the Sacramento County Airport System (SCAS); the Ithaca Tompkins Regional Airport (Ithaca); the Massachusetts Port Authority (Massport); the City of Atlanta (Atlanta); and the Met- ropolitan Washington Airports Authority (MWAA)) re- ceived in response to the 11 questions the agency had posed in its June 26, 2003, Federal Register Notice.106 The portions relevant to airline bankruptcy were as follows: 1. Is an airport’s health tied to a particular carrier: Seven of the respondent airports replied yes, two of them indicating they were tied to airlines either in or emerging from bankruptcy; four airports indicated they were not tied to a particular carrier. Delta and the ATA asserted that residual agreements spreading costs and airport reserve accounts meant that airline bankruptcy would not necessarily harm an airport. 2. What actions have airports taken to aid airlines emerging from bankruptcy: Five of the respondent air- ports had come up with payment plans for prepetition debt for carriers in and emerging from bankruptcy. An- other airport had suspended landing fees for all carriers for 3 months after 9/11. Another airport had entered into a large bond refinancing to reduce airline charges, and had to date foregone discontinuing its dominant airline’s use of exclusive gates, despite the carrier’s failure to make required bond payments. 3. Has any airport canceled or deferred any capital development projects based on the financial condition of a particular carrier: Two airport respondents noted that they had canceled or deferred projects because of a spe- cific carrier, in one case because of its sole carrier, which had recently emerged from bankruptcy. All but two of the remaining airport respondents had reas- sessed their capital programs due to generally poor op- erating environments. Frontier indicated that it had been precluded from accessing gates it needed for ex- pansion at Denver because of United’s bankruptcy. 4. What carriers that have filed for bankruptcy have defaulted on lease payments or rejected leases and con- 106 Impact of Airline Bankruptcy on Hub Airports, Airport Systems and U.S. Capital Bond Markets, Discussion of Com- ments Received In Response to Federal Register Notice, Sept. 12, 2003, available at www.regulations.gov/fdmspublic/component/main?main=Docke tDetail&d=FAA-2003-15481 (Last visited Dec. 17, 2008). The comments themselves are available at the same location.

11 tracts: Eight of the airport respondents had had carriers defaulting on or rejecting leases or contracts. Four of these respondents had been able to work out subleasing arrangements with the bankrupt airlines or to reclaim facilities, and therefore were able to reallocate facilities to some degree to other carriers. One airport had been unable to reclaim facilities from Vanguard. Frontier noted that remaining carriers at Denver (including Frontier) had had increased costs to cover United’s prepetition debt. 5. What financial impact did the airport experience from those carriers filing for bankruptcy or emerging from bankruptcy: Two airports indicated significant losses directly attributable to a single carrier’s bank- ruptcy. Other airports indicated losses mitigated by cutbacks and reassigning facilities. Several respondents indicated concern that decreased PFC revenues would affect airport development projects. Six respondents claimed that FAA’s policy of allowing commingling of PFC revenue with other airline revenue made it diffi- cult to collect PFC revenue from airlines in bankruptcy. [The commingling issue was addressed in Section 124 of Vision 100—Century of Aviation Reauthorization Act.107] The ATA asserted that airline reorganizations have had limited effects on airports. 6. What would be the financial impact to the airport if the bankruptcy carriers defaulted on lease and con- tract agreements, rejected these agreements, or reduced or ceased service: Two airports merely indicated reve- nue losses would occur. Two airports indicated that the loss of their dominant airline would be devastating. Another airport was concerned that the loss of signa- tory carriers to its residual cost agreements would hurt its dominant carrier. Three large airports expected short-term fee increases under their residual agree- ments, but thought they would be able to attract re- placement carriers. One compensatory airport foresaw substantial losses if all of its bankrupt carriers actually stopped serving the airport. The other compensatory airport, with no dominant hub airline, indicated that it would be able to attract replacement carriers. 7. Has any airport changed any of its policies regard- ing leases and operating permits due to a carrier bank- ruptcy: Four of the respondent airports had changed policies. The changes cited were: upon rejection, replac- ing long-term exclusive leases with short-term common- use or preferential leases; using other financial instru- ments for security deposits to avoid having cash depos- its become part of the bankrupt estate; increasing a rainy day fund; and requiring line of credit deposits and holding PFCs in trust under new leases. Other respon- dents are considering policy changes. 8. Have the bankrupt carriers caused an airport to incur higher debt and service costs: Six of the airport respondents indicated no. One had to borrow money to cover for carriers, thus increasing its cost. One had in- creased borrowing costs due to downgraded credit rat- ings related to its dominant carrier’s bankruptcy. Two 107 108 Pub. L. No. 176, 117 Stat. 2502 (Dec. 12, 2003). others had significant bond insurance increases, and one of those also had an increased rate for its debt on its May 2003 bond issue. A compensatory airport noted it was covering debt service and operating costs for space vacated by a bankrupt carrier. 9. Have the carriers’ recent financial problems caused any airports to defer or cancel Airport Improvement Program or Passenger Facility Charge funded develop- ment programs: Seven airport respondents indicated “no.” One indicated “yes.” Two others indicated “possi- bly” depending on circumstances. 10. Do the benefits that carriers obtain from bank- ruptcy help or hurt airports: Several airport respon- dents noted that continued service benefits their com- munities. Cited drawbacks included: “rejected leases, discontinued or reduced services, non-payment of rates and charges, non-payment or reduction in PFC receipts, extended uncertainty with leaseholds, and the attempts to reject payment on a special facility bond obligation while continuing to operate at the SFB-financed facility, paying only non-capital costs.” One airport respondent noted the unfair competitive advantage afforded a bankrupt carrier that is able to avoid paying the capital cost of the facilities it occupies. Two respondents refer- enced the attorney’s fees required to protect PFC reve- nues as a significant negative for airports. The effects of the various drawbacks were described as ranging from “inconvenient to potentially devastating,” depending on airport circumstances. Delta and the ATA asserted that access to AIP grants and PFCs as well as the ability to spread costs under airline agreements minimize the effects of airline bankruptcy. 11. What actions, if any, could the federal govern- ment take now to help airports adjust to their current financial environment: [bankruptcy-related responses only]: • Clarify PFC legislation to ensure that PFCs are not interpreted as air carrier assets; prohibit commin- gling of PFCs so that they are not commingled with other air carrier revenue. • Issue the final PFC handling fee rule. • Enact regulations to ensure that leases are not re- assigned during bankruptcy procedures without airport approval. • Foster accounting changes to preclude airlines in bankruptcy from using unremitted PFC revenue as a pledge of liquidity. • Permit airports to charge less than comparable rates for use of facilities rejected by bankrupt airlines. • Require that airlines post a letter of credit to se- cure airport payments. • Change bankruptcy laws to: • give airports greater control of gate usage during and following bankruptcy; • treat lease-backed special facilities as integrated transactions, so that an airline can’t assume a ground lease and reject the rest; • reduce uncertainty by reducing the routine ex- tension of time allowed to assume or reject leases; and