DALLAS — A legal battle over use of a gate at Love Field will delay $110 million of revenue bonds for an urgently needed parking garage at the Dallas airport, officials said.
The deal, which was previously expected to go to market the week of June 29, will now come sometime after a July court ruling on use of the contested gate, according to people involved in the deal.
The lawsuits involve the City of Dallas, Southwest Airlines, and Delta Airlines. Dallas is seeking guidance in U.S. District Court over a dispute between Love Field's major tenant, Southwest, and Delta over Delta's right to continue using a gate where its lease expires July 6.
Under a compromise announced June 24, Southwest will allow Delta to continue using the gate as the court case continues. Industry executives involved in the bond deal who asked not to be quoted by name said there was no firm date for issuing the debt.
The legal dispute does not directly prevent sale of the bonds, one said.
Regardless of how the case is resolved, all of the 20 gates at recently remodeled Love Field will be used to maximum capacity.
The Love Field terminal is freshly remodeled, with financing from $446 million of tax-exempt bonds issued in 2010 and 2012, backed by Southwest Airlines.
The upcoming bonds for expanded parking would be supported by airport revenues not already pledged to the previous bond issue. Love Field itself is technically debt-free after bonds used to build a second parking garage were retired in 2011.
In court, deadlines for responses and replies to the lawsuits originally set for June 25 and 26 were delayed until July 17 and July 31.
Southwest Airlines sought a temporary restraining order in U.S. District Court forcing Delta to turn over the gate, accusing Delta of "trespassing."
Delta leases the gates under an agreement with Southwest that expires July 6.Delta has said that the city is obligated to provide the airline a gate and has threatened a lawsuit if it is forced to abandon the airport. Delta flies nonstop between Love Field and Atlanta with five scheduled flights a day, according to its website.
Southwest has "already sold in excess of 25,000 tickets to passengers who will fly on five new flights that will be run out of the gates that Delta is currently utilizing," according to the lawsuit. Southwest's suit called Delta's plan to continue using the gate an "imminent disaster." After the compromise announcement, Southwest's rhetoric was less dire.
"We have an agreement in principle to temporarily extend Delta's license agreement while we await the opportunity for the court to hear our arguments," an airline spokesman said.
The Dallas city attorney has asked for the federal court's help in deciding which airline should be allowed to use the gate. Southwest plans to operate 10 flights a day from 18 of Love Field's 20 gates as of July 7.
Delta cites two letters from the U.S. Department of Transportation's general counsel who said Dallas had to continue accommodating an airline already operating at Love Field. That airline could not be pushed out simply because the airline holding the lease was expanding its operations, according to the letters.
The Love Field remodeling reduced the number of gates to 20 under terms of an agreement lifting restrictions on long-haul flights imposed under the so-called Wright Amendment.
After years of negotiations, Southwest, American Airlines and Dallas-Fort Worth International Airport, along with the cities of Dallas and Fort Worth agreed on the limited gate capacity at Love Field in return for freedom to fly anywhere in the U.S. from Love.
Southwest planned to use 18 of the 20 gates, including the one it provided to Delta under its expanded flight schedule. Dallas agrees with Southwest's interpretation of the law but sought the federal court's validation.
Further complicating the issue is American Airlines' interest in returning to Love Field, which it was forced to abandon under its merger with U.S. Airways. American is the dominant carrier at DFW Airport. Southwest has no flights at DFW.
Officials involved in planning the bond sale said they want to get the debt issued as soon as possible, not only to capture the low interest rates available but also because the additional parking space is so urgently needed.
In October, the end of Wright permitted flights from Love Field to anywhere in the U.S, and Southwest took immediate advantage.
On the first Thanksgiving weekend after the Wright Amendment was completely lifted the two existing parking garages were full, forcing passengers to park off-site. The airport has approximately 7,723 spaces available in its two parking garages, A and B. Love Field retired its last debt for Parking Garage B in 2011.
The airport gained 36 more departures every day than under the Wright Amendment. Also, with passengers flying to more distant cities, they tend to keep their cars parked in the garages for longer periods of time, officials said.
This year, the number of flights leaving Love Field each day is expected to grow from 148 daily departures to 190. A 2008 forecast anticipated that the airport would have enough parking spaces to meet demand through 2018. However, demand outstripped supply, even though a light-rail station provides nearby service.
Dallas anticipates that the new parking garage will cost about $179.9 million and open in 2018. In addition to the $110 million expected in July, the city plans to cover remaining costs with $92.8 million in airport revenue bonds in 2016. The debt will be backed by all airport revenues, not just those from the parking garage, analysts said. The corporation pledges coverage of debt at a ratio of at least 1.25 times.
Issued in the name of the Love Field Modernization Corp., the upcoming 20-year serial bonds will price through negotiation with senior managers Stern Brothers and Goldman Sachs with seven co-managers.
Financial advisers are First Southwest Co. managing director Wayne Placide and Estrada Hinojosa chief executive Noe Hinojosa Jr.
The co-bond counsel firms of McCall Parkhurst & Horton and Escamilla and Ponek provided the opinion that the bonds qualify as a tax-exempt issue.
The bonds drew ratings of A from both Standard & Poor's and Fitch Ratings and A1 from Moody's Investors Service.
"The A1 rating is based on the low cost and low leverage of the airport along with the economically thriving and growing service area," according to Moody's lead analyst Earl Heffintrayer.
"The rating is also supported by limited capital needs of the airport after the construction of the garage being funded by this and next year's issue given the complete reconstruction of the terminal facility," he wrote.
"We believe traffic growth at the airport will support a stable and sound financial profile," S&P lead analyst Anita Pancholy wrote. "Traffic trends at the airport have generally correlated to the national economy, though growth has been substantial since restrictions from the Wright Amendment were lifted."
Enplanements have grown 46.4% since 2005 to 4.4 million in fiscal 2014, Pancholy said, and declined annually only once, in 2009, as a result of the recession.
The airport notched a 20.5% increase in traffic in 2007, when national through ticketing allowing connections at Love was permitted for the first time as the Wright Amendment began to ease.
Love Field expects about 6.2 million enplanements for fiscal 2015.
Southwest was the only carrier at Love Field after American Airlines quit flying from the airport in 2007. Service began on Virgin America and Delta in 2014, following the lifting of the final restrictions from the Wright Amendment in October.
As a result of the new competition, Southwest's market share at Love has declined through 2015 as a result, to 91% from 97%. Virgin America and Delta have each enplaned 6% and 2%, respectively, year to date.
The Wright Amendment, named for the late U.S. House Majority Leader Jim Wright, was designed to protect the newly opened Dallas-Fort Worth International Airport from competition out of Love Field. When DFW opened in 1974, some airlines continued to operate out of Love Field. Southwest originally built its business plan around in-state service based at Love.
