WASHINGTON -- Pending legislation to reauthorize the airport construction grant program will probably keep a controversial provision that some contend may jeapordize airport bond ratings, the chairman of the House aviation subcommittee said Monday.
The provision would divert any disputed airport fee increase into an escrow fund for a maximum of 120 days or until resolution of the dispute. Several rating agencies have found fault with the escrow aspect of the provision, saying it could lead to technical defaults of airport bonds.
"Given the results we've had on this matter in the Senate, we don't have a lot of flexibility to open up and radically change ... the escrow provision" in the conference committee, said James Oberstar, D-Minn., chairman of the House Public Works and Transportation Committee's subcommittee on aviation.
Oberstar's remarks came during a legislative conference held on Monday that was sponsored by the American Association of Airport Executives and the Airports Council International - North America.
The controversial provision was added to the Senate version of the bill during floor debate in June. The House avoided such controversies in passing its version of the reauthorization bill last October.
The bill is headed to a conference committee where the differences in the two versions will be hammered out. It is expected to be wrapped up by the mid-August recess, congressional aides said.
The House bill would authorize $6.48 billion in airport construction grants over three years. The Senate bill would authorize $5.74 billion over three years.
"In the final analysis, I think that in working out the negotiations on fees, it's not going to work significantly different than it did in the past," Oberstar said, adding that those negotiations rarely. go to the Transportation Department for resolution.
If the dispute does go to the transportation secretary for resolution,"it seems [unlikely] the escrow issue will tie up the funds necessary to pay bondholders. First of all, it's only the incremental fee that would be put in escrow and ... it's limited to 120 days," Oberstar said. It could be worse, he said.
"If we reopen these issues, then airlines will feel, through their respective voices in the Senate, that it's okay" to open up many of the issues they "have in their cauldron to cook for this soup we're brewing up," Oberstar said.
Keep in mind, he told the airport executives, it only takes one senator to hold up debate on the bill indefinitely, and it is in everyone's best interests to move the bill through conference by mid-August and get final passage before the new fiscal year begins Oct. 1.
Transportation Secretary Federico Pena also addressed the conference and, in doing so, tried to calm the airport executives' fears of his third party involvement in airport fee disputes.
"The Department of Transportation is committed to try to head off the kinds of problems and confrontations such as we have seen in this country. [But] we expect that airlines and airports will continue to resolve rates and charges issues, as they have for many years, at the local level without federal intervention. The federal government should be the court of last resort," Pena said.
Still, a lot of attendees and speakers expressed concern over the escrow provision in the airport improvement reauthorization bill.
The financial markets react negatively to any perceived uncertainties, and the escrow provision is a good example of what could create doubt about the soundness of an airport bond investment, said Michael Lexton, a managing director of Lehman Brothers.
"The [financial] marketplace in and of itself will extract a penalty for any uncertainties they see in the bond market," Lexton said. "They will require higher interest rates on their bonds than in normal circumstances. Uncertainty comes at a COSt."
Ernie Perez, a vice president in the airport bond rating division of Standard &Poor's Corp., echoed Lexton's concerns about the current legislation.
"We're going to have a major problem with it," he said.
Airlines have been in financial trouble for several years now, and even though they are in partnership with airports when it comes to capital improvements, the key consideration when rating bonds is the airport's ability to raise its rates and charges, Perez said.
"With this legislation, I'm not sure that we're going to be able to rate airports with the same legal structure that we have in the past. It opens up the question of whether or not the debt will be paid ... on a timely basis.
"I don't know how we're going to get over that hurdle, and it's going to have an effect on ... the whole mechanism of how you finance airports," Perez said.
