DALLAS - The New Orleans Aviation Board can begin the process of seeking bids for a long-term lease on Louis Armstrong International Airport following initial federal approval of the proposal to turn the city-owned facility into the first privately operated major passenger airport in the United States.

The Federal Aviation Administration has approved the board's preliminary application, which allows the city to issue a request for proposals for the privatization plan.

Once the city has identified interested firms with the financial resources to take over the airport and the expertise to operate it, it will seek bids on leasing the facility.

The privatization plan must include provisions for debt service on the airport's $144.4 million of outstanding senior-lien debt, or retirement of the debt. The privatized airport could continue to receive FAA entitlements and grants for airport improvements, collect passenger facility charges, and charge reasonable fees.

The aviation board's revenue bonds are rated A3 by Moody's Investors Service, BBB-plus by Standard & Poor's, and A-minus by Fitch Ratings. The airport's debt also includes $10.8 million of outstanding Federal Emergency Management Agency disaster loans and $35.4 million of taxable Gulf Opportunity Zone tax-credit bonds.

Dan Packer, chairman of the aviation board, said at a news conference that it is too early to tell how much revenue the city could expect from the lease arrangement. He noted that a recently withdrawn proposal to lease Chicago's Midway Airport, which has twice the annual number of passenger boardings as the New Orleans airport, was for $2.5 billion.

"That does not mean we'll get $1 billion, but it gives us a feel," he said. "We look forward to working through this process in the best interest of the entire region."

In its 320-page application to the FAA, the city said lease payments it receives would finance the construction and maintenance of essential infrastructure projects throughout New Orleans, and improve its fiscal health and stability.

Airport officials said they expect to issue a request for proposals by early November, with a determination on which applicants are qualified in February 2010. A request for bids from those firms is expected in March, with final determination of the winning proposal in late 2010 or early 2011.

Any offer for privatizing the airport must be approved by the aviation board, the New Orleans City Council, the FAA, and the airlines providing 65% of the passenger service, determined by landed weight of its airplanes.

The Louisiana Legislature last year created the Southeast Regional Airport Authority to investigate a state takeover of the New Orleans airport. That plan called for the city to be compensated with up to $500 million in proceeds from state bonds supported by gambling revenues. The authority is scheduled to report its findings to the Legislature later this year.

State Rep. Jeffery J. Arnold, D-New Orleans, said privatization could be the solution to financing upgraded facilities at the airport.

"The New Orleans airport was once a model operation, but we've never kept it up," he said. "A private operator might do a better job. I think we should look into it."

The airport is owned by New Orleans but located in the Jefferson Parish suburb of Kenner, which has caused jurisdictional problems, Arnold said.

"Maybe privatization will take the politics out of it," he said. "I just hope the money that the city receives from the lease will be re-invested, and not frittered away."

Congress authorized FAA's airport privatization program in 1996 as a demonstration effort for public airports, with slots for only one large commercial hub airport but up to four smaller hub commercial airports or general aviation facilities.

The FAA's privatization plan allows the owning entity to use lease revenues for non-airport projects, in contrast to existing regulations.

Chicago received preliminary approval from the FAA as the large commercial hub facility in the program, before its leasing deal fell through in April when the private consortium that won the bidding process failed to come up with financing.

Armstrong International is considered a medium hub. It had 3.9 million passenger boardings in 2008, up 6% from 2007. Nine airlines provide scheduled passenger service, with Southwest Airlines accounting for 50% of the passengers.

In January, the New Orleans Aviation Board refunded all of its outstanding variable-rate debt and paid swap termination fees of $16.7 million for five related interest rate swaps with proceeds from a negotiated sale of $144.4 million of fixed-rate airport revenue bonds.

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