=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/c/a/2006/07/21/BUGJ1K2NAF= 1.DTL --------------------------------------------------------------------- Friday, July 21, 2006 (SF Chronicle) United shuts gate on S.F. David Lazarus After publicly flirting with the idea of moving its headquarters to San Francisco or Denver, United Airlines announced the other day that it'll stay in the Chicago area after all -- and score some very lucrative perks from Illinois officials. So San Franciscans in particular and Californians in general have every reason to wonder: Did we get played? "We might have been," acknowledged Dennis Conaghan, executive director of the San Francisco Center for Economic Development, which worked with Mayor Gavin Newsom in attempting to woo United to the Bay Area. "They held their cards close to the vest," he said of a pair of United execs -- including the company's chief financial officer, Jake Brace -- who sat down with state and local officials at San Francisco City Hall last month. "They were very polite and professional," Conaghan recalled, "but they never were specific about their plans. We couldn't get anything out of them." Jean Medina, a United spokeswoman, said the company held "serious conversations" with representatives of San Francisco and Denver. But she declined to say whether the airline ever seriously considered leaving the Midwest. "This was about looking at all our options and doing what's best for United," Medina said. What's best for United, it turns out, is $5.25 million in tax incentives from the city of Chicago, not to mention $1.35 million in infrastructure improvement and job-training funds from the state of Illinois. These were part of the deal cut to keep the airline in the neighborhood. United will move its headquarters only a few miles, from suburban Elk Grove Township to downtown Chicago. But sources familiar with the matter say the tax incentives and other handouts were secondary to what United was really determined to get -- a reduction in the ever-increasing cost of jet fuel paid by the airline. As part of the deal to keep United from leaving, Chicago and Illinois officials pledged to introduce legislation that would limit the amount of city and state taxes paid by the carrier for fuel. The tax relief -- the scope of which remains undetermined -- would last five years. According to the Chicago Sun-Times, United paid the city $14.7 million last year in jet-fuel taxes. The sources say that once the company received pledges from Chicago and Illinois for a cap on jet-fuel taxes, a top United exec placed a call to Gov. Arnold Schwarzenegger's office asking if California would match the offer. The governor's office said no, the sources say, and that pretty much end= ed the discussion. Darrel Ng, a spokesman for Schwarzenegger, confirmed that United sought tax breaks on jet fuel in California. "It's not something we could have unilaterally done," he said. "It would have required the cooperation of the Legislature." Ng added: "California is a great place to do business without the state giving millions of dollars in tax breaks to a specific company." In San Francisco, Newsom's office directed calls for reaction to Jesse Blout, director of the mayor's Office of Economic and Workforce Development. He said the city took last month's visit by United's senior managers "to mean that they were serious" about a move. "We went in with our eyes wide open," Blout said. "We knew that United relocating an entire corporate office to San Francisco was a longshot. But it was still worth trying for." Word that United may be shopping for a new home emerged in May when a Chicago business publication ran an anonymously sourced story saying that the airline favors Chicago but "is also scouting other cities where it operates hubs, including San Francisco and Denver." Conaghan of the economic development center, which is affiliated with the chamber of commerce, said United's interest in relocating was taken seriously enough to prompt a full-court press of municipal hospitality. Among other efforts, the chamber of commerce had officials from about 60 local companies write letters to United singing the city's praises. "We gave a professional presentation," Conaghan said. "The business community rose to the occasion." It looks now, though, like we never had a chance. Glenn Tilton, United's chief exec, said in a statement that the decision to move the company's headquarters to downtown Chicago "strengthens our long relationship with our hometown." "San Francisco probably feels like a pawn," said Mari Frank, a Southern California attorney who teaches the art of negotiation at UC Irvine. "But this sort of thing is very, very common." She stressed that she has no way of knowing United's true intentions or the seriousness with which the company explored moving its HQ elsewhere. "But adding an element of competition adds leverage to a negotiation," s= he said. "It's a tool. And United knew that Chicago would do anything to keep it from leaving." United emerged in February from 38 months of bankruptcy protection and hasn't made an annual profit since 2000. Conaghan said United never pressed for specific incentives from San Francisco or California officials during last month's face-to-face talks -- even as the company was negotiating its package of perks with Chicago and Illinois. "We offered an incentive from the governor's office that was a tax credit for new jobs that they create here," he said. "It was probably worth a couple of million dollars." United's execs, Conaghan said, asked a few questions and toured a few buildings, but never entered into detailed negotiations. One site visited by the United execs was the top floor of the new downto= wn shopping mall on Market Street, which will house a Bloomingdale's department store and other retail outlets. United wouldn't be able to call the property the United Building. It will, on the other hand, have naming rights for the site in Chicago it has selected for the company's headquarters -- the former R.R. Donnelley & Sons building at 77 W. Wacker Drive. The building, one of the tallest in Chicago, has 49 floors but skips the 49th floor on its directory so it can claim the more grandiose-sounding distinction of being a 50-story building. It was also used as the setting for a 1998 movie starring Samuel L. Jackson and Kevin Spacey. The title of that film? "The Negotiator." David Lazarus' column appears Wednesdays, Fridays and Sundays. Send tips or feedback to dlazarus@xxxxxxxxxxxxxxxx ----------------------------------= ------------------------------------ Copyright 2006 SF Chronicle