INSIDE THE BELTWAY

THE BAE BAGGAGE SYSTEM COST HALF A BILLION DOLLARS AND DELAYED DIA'S OPENING FOR MORE THAN A YEAR. AND IT STILL ISN'T WORKING.BAG IT WILL THE CITY HAVE TO PACK IN DIA'S AUTOMATED BAGGAGE SYSTEM?

It's Friday afternoon, one of the busiest times for any airport. But at Denver International Airport's Concourse A, the throngs of business travelers who should be celebrating the end of a long week are nowhere to be seen. The hallways are mostly empty, only two airplanes are parked at the 22 gates, and at Lefty's Colorado Trail Grille, only one customer is sitting at the bar. "The people who travel through this concourse call it the morgue," he says with a rueful smile.

For bartenders, travelers and airport officials alike, Concourse A has become a virtual purgatory. Unfortunately, their dream of a fleet of jets parked on the now-empty tarmac is bedeviled by a hulking pile of metal 100 feet below the perpetually shiny floors: the infamous BAE automated baggage system.

The gremlin-plagued BAE system has been largely out of sight and out of mind since DIA's opening last February. But the state-of-the-art engineering feat, designed to zip bags to and from airliners using a complex system of bar codes and computer-operated carts, remains the $593 million question at the new airport.

The city shelled out $232 million to build the BAE system and incurred another $361 million in interest charges when problems with the byzantine underground network delayed the airport's opening by more than a year. And now DIA officials are preparing to issue another $100 million in bonds--with $6 million earmarked for an "interface" between the hemorrhaging BAE system and the traditional tugs and carts that actually deliver most of the airport's luggage. The city is also spending millions of dollars in legal fees to fend off lawsuits from private bondholders and a probe by the federal Securities and Exchange Commission, whose regional office recently recommended the city be sanctioned for fraudulently withholding information about baggage-system snafus.

Meanwhile, seven months after the city opened DIA, the gleaming new baggage system on Concourse A still doesn't work. If the airlines that fly out of A have their way, it never will. Those carriers will likely never use the system BAE installed. But beginning November 15, they'll have to start paying for the idle machinery in the basement anyway--to the tune of $8 million per year.

Over on Concourse B, where United Airlines is rapidly establishing a fortress hub, BAE's system works only about 80 percent of the time--and then in just one direction. "Only a small percentage of the system works," says one DIA contractor who's still doing business with the city. "And it's not working well." That's the airline's problem now--the city last year gave up trying to sort out the mess and signed a deal that puts United in charge of haggling with BAE.

And out on Concourse C, where BAE ripped up a brand-new baggage system in a desperate attempt to get the B system running, airlines say they're content with the tug-and-cart system the city installed to get DIA up and running--and don't ever want the automated system put back in.

The city and BAE were the butt of innumerable jokes as they missed deadline after deadline in the struggle to get the new airport open. And the laughs have kept on coming.

So far this year, BAE, the Dallas-based subsidiary of Britain's BTR conglomerate, has already blown two more deadlines: a July date to have its system working properly on Concourse B and a similar August deadline on Concourse A. The company's efforts to get United's system on Concourse B up to speed have been so haphazard that the airline has given up on setting a deadline, deciding to simply let BAE keep trying until it can get it right. And the higher costs the BAE system has brought to Concourse A also have scared away potential carriers, despite the city's increasingly frantic efforts to lure airlines to what was supposed to be DIA's crown jewel. Those efforts reached an absurd peak last month when Denver unsuccessfully tried to convince DIA carriers to subsidize a move to A by MarkAir, a bankrupt company that recently lost one of its six planes when a leasing company repossessed it.

Today David Letterman no longer fires nightly barbs at the botched BAE system, and the Denver media have discontinued their deathwatch on the stillborn technological marvel. But the best joke of all may have been saved for last: Many of the people who helped build DIA now believe the BAE system will never--ever--work as it was intended.

"The industry doesn't believe the BAE system will ever work," says one engineer who worked as a consultant on the baggage system. "The city may have to throw in the towel and tear out the whole thing."

The makings of BAE's Denver baggage system had a little to do with engineering--and everything to do with politics.

The project had its roots in former mayor Federico Pena's decision to give Continental Airlines a bonus for being the first major airline to sign on to DIA. Pena rewarded Continental with prime space on Concourse A, a concession that later backfired when the airline turned tail and ran, pulling most of its flights out of Denver before DIA even opened.

At the time, however, United was angry that Continental would get the gates closest to DIA's main terminal and decided to ask for a concession of its own: a space-age baggage system that would allow it to funnel passengers in and out of Concourse B at lightning speed. When other airlines squawked that they were being left out, the city had little choice but to extend the automated system throughout the airport.

When BAE was awarded the original baggage contract in May 1992, the Texas firm promised Denver a technological sensation that would serve all three concourses with the most advanced baggage system in the world. Since BAE already had an international reputation as a designer of such systems, few scoffed when it proposed building an automated system at DIA that would make the system used at Stapleton look like the horse and buggy. Behind the scenes, however, electrical contractors and others privy to the technical details immediately questioned whether the system could work, especially given Denver's insistence that the job be completed in a scant nineteen months.

What followed, of course, was a series of hugely expensive delays in opening DIA as the baggage system failed repeated tests. Eventually, the city decided to put in a back-up system, using the old-fashioned tugs and carts--an "alternate" system that now serves every airline at the airport.

Today there is only one place the BAE system is in use at DIA: United's crowded Concourse B. Last fall the city handed management of the baggage system there to United, which agreed to pay BAE $35 million to "upgrade" the failed system. As part of that project, BAE tore up the machinery it had installed in Concourse C, leaving its tracks in place only on the A and B concourses.

In public statements, BAE now insists everything is going well in Concourse B. Executives at the firm declined to comment for this story, saying the company is in the midst of complex negotiations with the city and with United. But over the past few months, BAE has issued a flurry of press releases touting the system's reliability. "Automated baggage system passes major test with flying colors," the firm proclaimed last February.

Since then, BAE has missed its July deadline on Concourse B. And the baggage system doesn't even work properly in moving luggage from the terminal to the concourse--the only leg of the system that works at all. The system is supposed to scan computer bar codes on each bag and automatically route the luggage to the appropriate gate. But a spokesman for United says some manual sorting is still required after passengers drop off their bags in the terminal, exactly the point where BAE's high technology was supposed to take charge. "Some of the automated scanning is working and some isn't," says Tony Molinaro of United.

Molinaro adds that only about 80 percent of the gates on Concourse B are served by the automated system. "It works for certain types of aircraft, depending on where they are and which gates," he says. Luggage bound for planes at the outer gates on United's busy concourse must still travel by tug and cart. "At this point, it's partly automated and partly manual," concedes Molinaro. "We'd like to get a fully automated system."

The automated system is also being used to move bags between planes. But all luggage coming into Denver on United still moves via the back-up system to the main terminal, a difference the airline's passengers don't seem to notice. "From the customer point of view, it's working well and things are fixed," Molinaro notes dryly.

It's hard to believe United can be pleased after pouring millions into an automated system that only works in one direction. The airline runs up to 280 flights per day through Concourse B--its second-largest hub after Chicago's O'Hare--and pays nearly $200 million per year to use 44 gates at DIA. Still, the airline doesn't seem in any great hurry to have BAE complete the Concourse B system.

The contract United signed with BAE last fall allowed the carrier to withhold a final payment of $17.5 million until United certifies that the system is complete. The airline hasn't set any new deadlines for BAE. But it claims not to have lost confidence in the baggage-handling company. "As long as we see progress, no deadline is hard and fast," says Molinaro.

DIA's other airlines have watched BAE's performance on Concourse B and made one thing clear about the high-tech baggage system: They want nothing to do with it.

American Airlines runs 21 flights a day out of Concourse C. Before DIA opened, American feared the automated baggage system would give United a huge advantage over its smaller competitors. Now it's content with its dependable tugs and carts.

"Maybe the baggage system is not as ideal as we first thought it might be," says Tim Smith, a spokesman for American. "We've worked with BAE at numerous locations, but this one may not do what was originally envisioned. It's a tried-and-true method we're using now. We've had to adapt it, but we're making it work."

Smith says American wants to stay on Concourse C, despite Denver's efforts to attract carriers to the almost-empty Concourse A. "We don't think it makes economic sense to move," he says. "Concourse A has a semblance of an automated system and the costs are higher. We're staying at Concourse C for the foreseeable future."

The handful of major airlines using Concourse A--Continental, Frontier and America West (Mexicana and Martinair Holland also offer sporadic service)--say they don't want to use the system even if it can be made to work. The leases for Concourse A carriers specify that rents will rise November 15 to pay for the useless machinery in the concourse tunnels. When that happens, operating costs for Concourse A airlines will soar to a rate 30 percent higher than those of competitors on Concourse C--a potentially crippling blow for carriers already burdened by the high cost of doing business at DIA.

"It would put Concourse A carriers at a competitive disadvantage," says Sam Addoms, president of Frontier Airlines. "That would be ridiculous. If the BAE system places us at a cost disadvantage, you can't pass it on to your passengers." Addoms believes the manual baggage system is working adequately and says he fears smaller carriers like Frontier will be hurt most by the new charges.

Vicki Braunagel, DIA's deputy director of aviation for administration and finance, insists that carriers on A have no choice but to foot the bill for the automated system. "It's a capital cost," she says. "Just like we bought the land for twelve runways and the cost is being borne now, even though we won't build those runways until well into the next century."

Braunagel says the city is negotiating with Continental over what exactly to do with the baggage system on Concourse A. However, a source at Continental who asks not to be identified makes it clear the airline doesn't want to use the automated system--especially without more carriers on A to share the cost. And Continental could have the final word. Among the items being discussed by the airline and the city: turning over management of Concourse A's manual and automated systems to the carrier in what would essentially be a repeat of the United deal.

The carriers on Concourse A will have to pay more than $1 million in debt service on the BAE system this year alone. To actually get the automated system up and running would require even more money. "We're trying to figure out what makes the most sense," says Braunagel. "Should we spend the money now or wait until we have somebody who actually wants to use the automated system?"

The money BAE has cost the city is a continuing source of irritation to Denver officials--and it is the fuel for what could one day explode into a massive lawsuit. So far, though, neither side seems to have the energy--or the legal ammunition--to go to court.

Especially frustrating for city officials is the realization that Denver could have saved hundreds of millions of dollars if it had simply bypassed the BAE system at an earlier date. Because of the city's decision to stick with the automated system, as well as massive change orders from the airlines, the cost of the airport rose from the originally planned $1.93 billion to well over $4 billion. By contrast, the tug-and-cart system that Mayor Wellington Webb eventually used to get the airport open cost $63 million.

"The airport could have opened with a manual system early on," says George Doughty, the city's former aviation director who had a falling-out with Webb and left Denver in 1992. "If they'd made a decision in November of 1993, they could have opened DIA in the spring of 1994. Webb just wasn't focused on the main issue of getting DIA open. They were up to their ass in alligators, and they forgot they needed to drain the swamp."

The city was roundly criticized for not listening to the airlines when it built the airport, adds Doughty. "Unfortunately, the baggage system is the place where we listened to the airlines and gave them everything they wanted."

The tension between the city and BAE reached critical mass in the summer of 1994. City officials were hosting meetings with BAE and United Airlines executives that quickly turned into screaming matches. The city blamed United for many of its troubles, since it was the huge carrier's insistence on a fully automated system that led Denver to contract with BAE in the first place.

Denver threatened to sue BAE last fall, demanding that it pay the city $90 million in damages, an amount that would cover the cost of the alterations to the automated system in Concourse B as well as construction of the manual system. BAE responded with a $40 million claim against Denver, maintaining that the city was to blame for the failed baggage system due to its frequent changes in construction plans.

A stalemate ensued, and after weeks of angry negotiations, Denver agreed to drop its claims if BAE got a one-way system running for United by DIA's February 28 opening date. The agreement also called for BAE to have its automated system in Concourse B "substantially complete" by the end of the summer and its system running in Concourse A by August 31. Some observers say the city's decision not to sue BAE was made under pressure from United, which works with the company at several airports across the country and was concerned about BAE's financial health.

Today BAE maintains its system in Concourse B is functioning properly and says it hasn't been able to work on the system in Concourse A because the manual system was installed directly over its machinery. Airport officials acknowledge that the manual system in A would have to be rerouted to allow access, a process that could take several months. As a result, they haven't held BAE to its August deadline on that concourse.

When Denver turned management of the automated system over to United, it also gave the carrier authority to determine whether BAE had fulfilled its agreement with the city to create a fully operational system in Concourse B. That means the legal future of the baggage system is now in United's court.

"United has taken over as construction manager," says Norman Witteveen, Denver's deputy aviation director for planning and engineering. "BAE has to satisfy the level of service United expects. We would depend on United's position on that."

According to Witteveen, it's not clear whether Denver will eventually sue BAE. "It's premature to comment on whether there will or will not be litigation," he says. "I don't have a crystal ball."

For Linda, the bartender at Lefty's Colorado Trail Grille, all the talk about moving baggage seems like so much hot air. While the lawyers argue and the engineers tinker, business is still miserable.

"We don't care about the automated system," says Linda, a nineteen-year veteran of Stapleton who asks that her last name not be used. "We just want passengers. We need bodies out here. It's about survival."

The city obviously agrees. But when it comes to luring carriers to Concourse A, Denver's options are severely limited. After all, why would American, Delta, Northwest or any of the other major airlines now flying out of Concourse C want to move to A just to be saddled with the higher costs of the BAE system?

Airport officials have responded by trying to woo the airport's little sisters of the poor. Last month the aviation department proposed using $4.5 million in airport concession revenues, which are split between the city and the airlines, to subsidize a move to Concourse A by MarkAir, Midwest Express and the Sun Country charter service. After that plan met with a decidedly cool reception from other carriers, the city backed off last week and offered a back-up proposal: to pay for the move with money allotted for the Concourse A baggage system.

MarkAir, Midwest Express and Sun Country were targeted by the city for relocation because they haven't signed leases at DIA. But how much of a financial boost they could actually provide Concourse A is debatable. MarkAir is flying under Chapter 11 bankruptcy protection and recently sparked the ire of its unsecured creditors when it began offering steeply discounted fares that critics labeled a "cash grab." Wisconsin-based Midwest Express runs a light schedule of flights into DIA from Milwaukee. And the booking agency that arranges Sun Country's charter flights to Minneapolis, Las Vegas and Los Cabos, Mexico, recently announced it was pulling out of the Denver market, making it likely that Sun Country itself will soon depart.

Like her fellow employees on Concourse A, Linda eagerly trades rumors on carriers that might be convinced to settle in the slowest part of the airport. The latest buzz is that American Airlines might shift its operations from the busier Concourse C--a bit of wishful thinking that American vehemently denies.

Along with other U.S. airports, DIA is on high security alert these days, bracing for a possible terrorist attack from Middle Eastern extremists. But the rows of empty seats running up and down Concourse A make it seem as though the building has already been evacuated. It might be a scene from TV's The X Files but for Linda's mischievous laugh over at Lefty's.

While she wipes down a counter that's barely been touched and rearranges some bottles, Linda looks out over the empty corridor and sighs. "Usually all the business guys are coming home or going home on a Friday afternoon," she says. "Where are they?

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