=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2004/04= /08/BUG1S61VTN1.DTL --------------------------------------------------------------------- Thursday, April 8, 2004 (SF Chronicle) SFO, United agree to extend leases/Airport renegotiates rent-payment plan, = firms up terms to keep airline as tenant David Armstrong, Chronicle Staff Writer In a move designed to shore up finances on both sides, San Francisco International Airport and its biggest tenant, UAL Corp's United Airlines, have renegotiated the airline's long-term leases at SFO and agreed on a new rent payment schedule for the bankrupt airline. The agreement, which still has to be approved by the San Francisco Board of Supervisors and a U.S. Bankruptcy Court judge, extends United's leases at its vast SFO maintenance center, Terminal 3, an air cargo facility, service equipment and flight kitchen center, and an aircraft hangar. The pact also puts United on a three-year payment schedule for nearly $10 million of past due rent, at 2.5 percent interest. Airport and airline spokespeople said the deal will give SFO the long- term stability and money it needs from its major tenant, and provide United the wiggle room it needs at SFO, an international gateway it uses as a passenger hub and prime maintenance center. "It's a very strong sign of United's commitment to San Francisco," said the airport's director, John Martin. "The fact they were willing to assume all of their long-term leases is a positive sign. Overall, it's a good deal for the city and the airport." "SFO is an important hub for us," said United spokesman Stephan Roth. "We have a lot invested there, and we're looking to continue. We're very pleased. It's a mutually beneficial agreement." Forging an agreement with United, which has been in Chapter 11 bankruptcy protection since December 2002, was not a given, said Deputy City Attorney Adrienne Go, who helped negotiate for the city-owned airport. City and airport officials, she said, saw what happened in Pittsburgh, where US Airways, which also went into Chapter 11 , refused to honor its airport leases. Anxious San Francisco officials didn't want that to happen here, Go said. Talks between SFO and United began quietly in January, said Go, who added that locking in all of United's long-term leases and collecting rent were the city's prime goals. "We gave slight concessions to make United more economically healthy," Go said. Rent rates, she said, remain substantially unchanged, but the city gave United three years to pay $9.95 million in past due rent, with interest, to help lift the carrier. United, in turn, extended all its major leases until at least 2011, with an option to renew them through 2023. United, with about half of all flights and passengers, is the dominant airline at SFO. It accounts for 27 percent of the airport's annual revenue, Go said. The SFO deal could bolster United's chances of landing a $1.8 billion federal loan guarantee from the Air Transportation Stabilization Board, which UAL Corp. executives have said is vital if it is to emerge from Chapter 11 by the end of summer. Industry observers say stabilizing its relationship with a key hub like SFO would strengthen United's reorganization plan and enhance its prospects. SFO has had economic difficulties of its own in the past three years. Passenger traffic at the airport plunged to 31 million in fiscal year 2002, from 40 million in the boom year of 2000, although airport officials say travelers are beginning to return. SFO was badly hurt by the high-tech downturn, the 2001 terrorist attacks, the SARS outbreak in Asia and the war in Iraq. It relies on United for lucrative transpacific traffic, but has recently persuaded U.S. low-fare carriers such as ATA and AirTran to increase service and offered service to several cities on United's low-fare carrier, Ted. The SFO-UAL agreement will get its second reading by the finance committ= ee of the Board of Supervisors on Tuesday and should go up for a vote by the full board then. The federal Bankruptcy Court will rule on the deal on April 16. United's unsecured creditors committee has until Friday to object to the deal. SFO is a nonvoting member of the unsecured creditors' committee, said Martin, who said he is not aware of any objections to the pact. E-mail David Armstrong at davidarmstrong@sfchronicle. com. -------------= --------------------------------------------------------- Copyright 2004 SF Chronicle