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LOAN SHARKS

The bomb dropped March 4 at United Airlines headquarters back East. Two weeks later it exploded in Denver--where there's still a whole lotta shaking going on.

Most of the fallout centers on United's deal with the city to delay the opening of Denver International Airport. On February 28 Mayor Wellington Webb emerged from a marathon meeting with United and Continental officials and reported that the airlines had "agreed to contribute" the costs of the postponement, estimated then at about $30 million. In announcing the delay, Webb put the best possible spin--for the city--on the situation, explaining that since the balky baggage system was the culprit, airlines were willing to ante up rather than face hordes of luggageless customers.

United's agreement was dependent on a vote by its board, which is why the airline put the best possible spin--for United--on its internal "employee newsline" memo of March 4:

"Good morning...Although delaying the opening of Denver International Airport from March 9 to May 15 requires a financial commitment from United, the benefits of waiting until the airport is fully functioning outweigh the costs.

"United's pro-rata share of the pre-opening maintenance costs will total about $15 million, based on the company's proposed level of operations at DIA compared with other carriers. The $45 million loan that United is making to the city is a combination of cash and the proceeds from bonds issued previously for United facilities at the airport. By borrowing this money from United and $25 million from Continental Airlines, the city avoids having to sell more airport bonds to finance the airport until it opens--a move that could have jeopardized the rating of current airport bonds and increased United's costs."
The memo went on to quote Larry Nagin, executive vice president of corporate affairs and general counsel: "While United will incur some expenses due to the delay, we were not willing to have DIA open in an unfinished condition that would have greatly inconvenienced our customers. United also will recover the money it is loaning to the city by way of rental credits--with interest--over the term of its lease at the airport."

Although Denver officials were considerably less forthcoming with the nitty-gritty details of the deal, a few shook loose. Within days of Webb's announcement, it became clear that the cost of the delay was not $30 million, but closer to $68 million--and no way were the airlines going to pick up the whole tab. Particularly since Continental soon dropped its own bomb: The airline was transferring 1,400 jobs out of Denver, and could come up with only $6 million toward the cost of the delay. The $30 million figure that had been floated as Continental's contribution was contingent on a new bond issue, and the airline was in no position to do that. And as a special, inexplicable added bonus, United had been allowed to dump its promised reservation center at the abandoned Stapleton.

On March 2, when City Auditor Bob Crider wrote Webb to request a full accounting of the city's new financial arrangements with the airlines, it was written off as political posturing. Like the city's previous auditor--Wellington Webb--Crider may run for mayor. Two weeks later, though, when Crider repeated his request, he added plenty of nonpartisan details. Exhibit A was United's "employee newsline" item, copies of which had landed in the auditor's office and the Westword office, but have yet to appear in either of Denver's dailies. Backing up United's contention that its contribution was actually a "loan" were several comments from bond companies, including Moody's note that "the delay calls into question airport management's effectiveness in evaluating the appropriate resources needed to complete this project." In other words, management having to borrow money from its major tenant in order to complete the airport. For an as-yet-untallied price, United flew to the rescue of a city with two months of construction left--and no cash. "It has been represented that DIA is receiving this money from the airlines through tough negotiating that occurred at the end of February," Crider wrote Webb. "If what the airport is doing is taking a loan from the airlines as United Airlines, bond companies and your own staff at DIA have said, let's call it what it is and move forward."

But instead, the city keeps running around in circles. DIA officials torture Webster's unmercifully as they attempt to redefine the word "loan." The $45 million, they say, is actually divided into two obligations: one is United's "payment up front" to cover the cost of facilities built with DIA bond money (the payment will be deducted over the next thirty years from "rates and charges" the airline otherwise would have paid after DIA opened); the other is a $20 million "advance rent payment" that stretches over ten years. Unlike either an up-front payment or an advance rent payment, though, both deals give United 8.5 percent interest.

That this feature alone makes United's $45 million sound very much like a loan apparently is lost on Webb. So is the fact that the city has to subtract $45 million from its DIA revenue projections in addition to paying that interest. Instead, on Peter Boyles's radio show Friday, the mayor wondered about the ominous timing of the memo's release--on the very day that bond people were in town checking the health of the airport's financing.

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