Should Houston Allow United’s Renovation Plan to Take Flight?

United Airlines, which recently merged with Continental, is proposing to spend $686 million to expand and renovate Bush Intercontinental Airport Terminal B.  The city will be expected to pay $288 million, $55 million of which (for phase 1) we already have from the $3-per-passenger fee Houston Airport System (HAS) has been collecting since the end of 2009.  The city would likely have to issue bonds for the subsequent phases.  So is this plan worth it?  There are many pros and cons to consider:
 
Pros:

  • There is no way the city could expand the airport without United’s $686 million help.
  • Under the deal, United will gain control over the concession contracts.  You might remember that in 2007 City Council awarded no-bid contracts to JDDA Concession Management in Terminal C (see here).  This company’s owner, Jason Yoo, and his relatives donated at least $30,000 to council members.  Under this deal, United will pick the contracts.  Likely to be no kickbacks, but since they will be looking for lots of profit, hopefully that won’t mean higher prices for travelers.   Under the circumstances, however, it might be better for United to choose.
  • According to the State of the Airports 2010, Houston is poised to become one of four airports worldwide with nonstop service to all six major world regions.  HAS is looking into more services in Shanghai, Mumbai, Sao Paolo, Panama City, Santiago, Johannesburg, Hanoi, and Seoul.  Renovations on this terminal will help Houston to expand to new areas.
     

Cons:

  • The city will have to issue bonds.
  • 18 current HAS workers will have to reapply for their jobs.  Although any workers not hired on will be reassigned to other locations, it is not clear if United will hire local companies for this deal.
  • The city will get 10% of United’s food and merchandise revenue, up to $1 million a year.  Since the city currently breaks even on terminal operations, this will be new money.  Although new money coming in to the city is a good thing, I would try to get more money from the deal.  Maybe 10% with no cap.  If this renovation brings in lots of travelers, the city might be able to make much more than $1 million a year and would be able to pay down the debt from this venture much faster.
     
    Houston City Council tagged this measure to allow extra time for review.  That was probably the best move for now because it seems there are a few more items to consider before allowing this deal to take off.
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2 Responses to Should Houston Allow United’s Renovation Plan to Take Flight?

  1. Bubba says:

    Wait, I cannot fathom it being so striaghtorfawrd.

  2. Denver says:

    That’s more than senisble! That’s a great post!

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