MacArthur Airport struggling to reverse losses

Long Island MacArthur Airport, once touted as a major economic boon for Islip Town and the region, has lost nearly $4.2 million in the past three years and is projected to be down another $1.4 million in 2013.

The trend could endanger the financial health of the town, which owns and operates the facility, officials and experts said.

The 2013 projected loss on top of $2.07 million in 2012, $776,000 in 2011 and about $1.31 million in 2010 has forced Islip to use funds from a recent property sale to compensate for the deficits, according to figures provided by the town. Before 2010, the airport consistently made more money than it spent.

But if the airport loses more than $600,000 in 2014, Islip will have to dip into its general fund surplus to fill the gap.

"There will be a tipping point if this starts bleeding into millions of dollars a year that we're losing," said Islip Councilman John C. Cochrane Jr., liaison to the airport. "That's common sense -- the taxpayer is not going to have it, and we're going to have to do whatever we can."

MacArthur is seen as a vital part of the Long Island economy. Islip Supervisor Tom Croci, who ran his 2011 campaign partially on restoring flights there, has said it generates between $500 million and $1 billion annually in economic activity for the region.

But it has suffered the same fate as other small- and medium-sized airports since the recession hit in 2008.

When fuel prices soared in 2008 and never came back down, airlines began cutting destinations and redundant flights, especially at smaller airports, to improve their bottom lines.

Low-cost carrier Southwest Airlines -- MacArthur's bread and butter, providing 13 of the airport's 22 daily flights -- has been cutting down its service there for years. The Dallas-based airline's service at MacArthur peaked in 2007 with 11,416 departures and hit a low in 2012 of 5,875. Overall departures at MacArthur have fallen from 14,784 in 2007 to 7,930 in 2012.

While departing flights from Islip are 92 percent filled, Cochrane said, the number of times passengers boarded planes at the airport has dropped dramatically. In 2007, passengers boarded planes at MacArthur 1,183,576 times. By 2012, the number had dropped to 678,848, according to town data.

The airport's financial woes come as Islip Town is facing its own financial challenges. In 2012, Croci and the town board approved a 28 percent town property tax hike to cover a $26 million budget deficit.

Like other municipalities in the post-recession economy, the town has consistently used its general fund surplus to balance its overall budget.

In the past three years, the airport has been able to pad its financial shortfalls with money from a parcel of airport land the town sold for $11 million to the Long Island Rail Road in 2009, officials said. Town officials said the town kept about $5 million of that, leaving the airport with about $6 million. But that money is quickly running out.

"If we have a loss and we don't have the money in the airport, then it goes back to the general fund," Cochrane said. "We don't want that to happen -- but we realize that that is the fallback, to go into the capital fund."

To save and generate money at MacArthur, town and airport officials are making several moves, he said. They include: layoffs of airport staff, cuts in overtime, last year's addition of a general aviation landing fee, collecting rent from other town and county agencies using space at MacArthur, and attracting businesses to lease storefronts in the airport -- now at 100 percent occupancy, Cochrane said.

Officials want to lure more airlines by extending another of MacArthur's runways to 7,000 feet. Lengthening the runway from 5,100 feet could allow bigger planes to use the airport. "Once we get the master plan and get that one runway extended out . . . the airlines will look at us in an even more positive manner," Cochrane said.

The town and the airport "are doing everything we can to make sure we get over this spell that the airport has been in for the last five or six years," Cochrane said. "We need that next American Airlines or Delta or JetBlue. If we get that, then it'll be happy days like it was 10 years ago."

Private route suggested

If none of the town's solutions pan out, experts say, encouraging private investment is an option.

Though the airport has lost money, aviation consultant Michael Boyd of Colorado-based Boyd Group International said there is potential for investors to be interested in a public-private partnership at MacArthur.

"It's an operating airport, it's got roughly 8,000 departing flights a year," Boyd said. "It's a live airport; a live airport means there's always an opportunity there."

Andrew Vasey, owner of Indiana-based Vasey Aviation Group LLC and who is employed by Islip as an airport consultant, recently was involved in the privatization of publicly owned Luis Munoz Marin International Airport in San Juan, Puerto Rico.

Vasey was a senior adviser to Aerostar Airport Holdings, which in July 2012 won a public bid to become the airport's private operator. Aerostar signed a 40-year lease under the Federal Aviation Administration's Airport Privatization Pilot Program, created 17 years ago to give state and local governments that own most commercial airports a private funding option.

Experts, such as Samara Barend, public-private partnership development director for the engineering firm Aecom, say the pacts can be game-changers for struggling airports without the capital to invest in infrastructure improvements.

But there is often strong pushback against privatizing, said Michael Wittman, a research assistant in MIT's International Center for Air Transportation, a leading research center for the aviation industry.

"In the U.S. there's been an incredible amount of opposition toward privatization of airports, particularly because there are often multiple airports in a metropolitan region and if one becomes privatized, it creates this rivalry," Wittman said.

But idea faces turbulence

In Chicago, which is facing what Mayor Rahm Emanuel called "a huge structural deficit" in its budget, a controversial plan that would have privatized the operations of Midway International Airport fell through when Emanuel pulled the plug in September. Emanuel said he was afraid prices at the airport would increase too much if it was privatized.

A source familiar with town deliberations said there have been conversations among board members in recent months about potentially privatizing the airport.

But Cochrane said privatization is not an option now, partly because of a long lease on the airport's parking lot that ends in 2029 and would be costly to buy out. That lease has cost the airport a lot of missed income over the years, Cochrane said, and parking lot income can be vital.

"At small airports, the parking lot can be 25 percent or more of your revenue," said Boyd, the consultant. "A lot of small airports have found, 'I'll pay someone $12 an hour to stand there and take tickets rather than lease it out to someone to run it for me.' "

At Islip, the parking lots brought in about $2.8 million in 2013, about 23 percent of the airport’s revenue.
 
Cochrane said one of the town’s future goals is to try to buy out the lease. “You can’t lease an airport or sell the airport or rent the airport when the future buyer doesn’t have a parking lot,” he said.
 
In fact, Islip officials have tried to sell the airport in the past, sources said.
 
In 2009, officials held preliminary talks with JPMorgan Chase about selling the airport, and several regional development players were brought in. But, according to the sources, negotiations between the bank and the town stalled early on — the airport was expensive and laden with baggage, such as the parking lot lease and the millions of dollars still owed to Southwest Airlines for the building of eight gates at the new East Concourse, a project that started in the early 2000s.
 
Selling an airport is nearly impossible, experts say, because it receives billions of dollars in federal funds across its lifetime — money that would have to be paid back if the airport went private.
 
In 2012 alone, MacArthur received $15 million in improvement grants from the FAA, officials said.  Those annual grants date back to MacArthur’s beginnings as a commercial airport in the 1960s.
 
“It’s very hard to sell an airport, to completely privatize an airport, because you’ve taken federal dollars,” Boyd said. “Once you do that, the FAA says you can’t sell this, the taxpayers put money in here.”
 
The number of flights at MacArthur has remained stable this year, with the addition of two new daily flights to Boston from Alaskan carrier PenAir and two weekly flights to Punta Gorda, Fla., from Allegiant Air, Boyd said.
 
Next year Southwest will begin flying a fleet of larger jets, which can seat more passengers, Boyd said. More passengers mean more money for the airport.
 
“The bottom line is that there are going to be 8 percent more seats than last year, that’s a good sign,” Boyd said. “Is it going to turn around the economy in Ronkonkoma? I don’t think so.”