Southwest and LAX Plan $400M Renovation

LOS ANGELES — Southwest Airlines and Los Angeles International Airport will fund up to $400 million in improvements at the airport's Terminal 1 if the Los Angeles City Council approves the plan.

Under the proposal approved by the Los Angeles World Airports board Jan. 14, Southwest would build a new inline baggage screening system, remodel the ticket lobby and passenger screening area, create new Transportation Administration Security checkpoints and renovate the terminal lobby.

The changes will enable Southwest to size the security screening area appropriately, said Ryan Yakubik, LAWA's director of capital development and budget.

"All the terminals were built before current TSA rules," Yakubik said. "Generally, the security screening area is an open area they had to stick the passenger lines and screening into."

The renovations will enable the airline to create a more efficient design that will improve passenger flow, he said.

The Terminal 1 gates will be reconfigured to accommodate the wing clearances of the new, slightly larger aircraft, which could mean eliminating a gate or two.

To make room for the changes, US Airways will move its operations out of Terminal 1 and into space vacated by Alaska Airlines when that airline moved into Terminal 6. Alaska Airlines absorbed space vacated by United Airlines after its merger with Continental. Yakubik expects that the shuffling of airlines between the various terminals could continue for several years since LAX is in the midst of a $4.11 billion renovation and improvement program that includes the expansion of Tom Bradley International Terminal expected to be completed by 2014.

The proposed improvements at Terminal 1 are part of the lease agreement between Southwest and LAX. The deal stipulates that the airline would also drop all outstanding legal claims against LAWA, Yakubik said.

Southwest was one of several other airlines that sued LAWA in 2007 over rate changes. The airline, which had filed an administrative claim with the Department of Transportation, will be the last one to settle its claim, he said.

Southwest's new lease that would extend through June 30, 2024 is contingent on the proposed remodel being approved by the City Council, according to a staff report.

The airline will initially fund the improvements, but LAX will pick up the costs, repaying the airline as each segment is completed.

LAWA has executed similar agreements with Delta and Alaska for the terminals they occupy. Delta has completed between $60 million and $70 million worth of improvements in a $200 million project. The airport has repaid Delta for the work done, Yakubik said.

It makes more sense for the airlines to control the construction schedule and manage the projects, Yakubik said, because "they can control the business interruption risk by organizing the construction schedule around their operation schedules."

LAX finances the improvements with short-term commercial paper and cash initially, then periodically terms that out with long-term debt, he said.

"We have already financed a good chunk of the work on Terminals 5 and 6," Yakubik said.

Southwest would absorb about $16 million of proprietary improvements, according to documents.

For reprint and licensing requests for this article, click here.
Transportation industry California
MORE FROM BOND BUYER