Good evening.
It is my pleasure to be here with you tonight as we examine funding as a key ingredient for growth of airports during these challenging times. We all know that the airport industry has been significantly impacted over the past couple of years by airline bankruptcies, increased security costs due to the tragic events that occurred on September 11th of 2001, decreases in passenger traffic, and the resulting disproportionate drop in revenues.

Our current operating structure has been influenced not only by the events of September 11th, but also by SARS and the War on Iraq. The economic recession that officially began in March of 2001 (but which was felt by the airline industry as early as 2000) is a significant factor. Additionally, the burst of the Internet bubble in the late 1990s definitely has impacted operations. While I view SARS and the war as temporal events, they nevertheless have produced the effects that I refer to as a “double-triple” storm on all areas of airport operations.

Given the very difficult economic conditions in which the airport industry finds itself, it would not make much sense for me to dive into a discussion on airport funding without first reviewing and affirming the outlook for the airline industry which serves as the major partner in airport development. Then I will speak on lessons learned from past downturns in the economy and how we as airport managers might benefit from those lessons in how we challenge existing business methodologies and how we implement new ones as we adapt to what can only be described as a paradigm shift of major proportions. I will also share with you my thoughts on the changing landscape and competition among airports that may result in a rethinking on how we decide on future capital investments and expansion opportunities.

The U.S. airline industry is expected to continue to suffer substantial losses for an indeterminable period. United Airlines has filed for Chapter 11 bankruptcy protection; US Airways has recently emerged from bankruptcy, and TWA has been acquired by American, which according to a key airline executive “is [itself] in bankruptcy, they just don’t know it”. Obviously, the financial health of the airlines does have an impact on airport operations. Increases in passenger traffic at Hartsfield-Jackson, and indeed the world, will depend partly on the profitability of the U.S. airline industry and the ability of individual airlines going forward to make investments in aircraft capacity.

The 1990-1991 economic recession, coupled with increased operating costs and security concerns during the Gulf War, generated then-record financial losses in the U. S. airline industry. These losses put particular pressures on financially weak or highly indebted airlines, forcing many to seek bankruptcy protection, sell productive assets, lay off workers, reduce service or discontinue operations in the early 90s.

In the downturn of the early 1990s, five airlines entered bankruptcy: Continental, Pan Am, Eastern, America West, and TWA. Pan Am and Eastern perished, reducing system capacity, which permitted the surviving airlines to increase prices and improve yields. In the present downturn, the United States government has stepped in to help mitigate this situation by enacting legislation to provide the airline industry with grants and loan guarantees. To offset some of the extraordinary financial losses associated with the loss of passenger traffic since 9/11, the U.S. government awarded grants totaling $5 billion to U.S. airlines at the end of 2001. The government also established a $10 billion loan guarantee program. Among the major airlines, America West and US Airways have been granted loan guarantees.

Additionally, in April of this year, President Bush signed into law an emergency supplemental appropriations bill that provides approximately $2.9 billion in extra aid to the airline industry for security and other expenses. Such financial assistance, however, does not eliminate the risk that continuing losses could force airlines to retrench, seek bankruptcy protection, discontinue marginal operations, or liquidate.

The result is that airlines that perhaps would not have survived bankruptcy this time around have remained intact, with no reduction in capacity or routes being gained other than those forced by economic realities. Those realities have produced changes driven by the need to save cash to stay afloat, but they are clearly insufficient to allow any appreciation in pricing.

Between 1995 and 2000, the airline industry as a whole was profitable, but as a result of the 2001 economic recession and the disruption of the industry that resulted from the 9/11 attacks, the industry has again experienced huge financial losses.

In 2002, U.S. airline industry traffic, as measured by revenue-passenger-miles, was about 10% lower than in 2000; yields (revenue per passenger mile) were about 15% lower; and revenues were about 24% lower. The 10 largest airlines collectively recorded net losses totaling $7.6 billion on revenues of $87.2 billion in 2001 and $11.3 billion on revenues of $80.8 billion in 2002.

There is a story told by an influential investor that if a venture capitalist had been present at the Wright brother’s inaugural flight at Kitty Hawk nearly 100 years ago, upon the successful completion of the flight he should have stepped forward and shot the two brothers, thereby saving investors the pain of the tremendous losses incurred by the airline industry over its entire existence. If you think about it, when you factor in all of the losses suffered, not one dollar of net income has been generated by the industry since its inception.

Let me next segue to examine airline bankruptcies and the resulting implications for airport operations. In August 2002, US Airways filed for Chapter 11 bankruptcy protection. In March of this year, US Airways successfully emerged from bankruptcy protection. US Airways’ decision to terminate its leases at Pittsburgh International Airport created great anxiety for airport management. US Airways Chief Executive Officer David Siegel maintains that the carrier had no other choice. He said that because of arrangements with its principal financial backers, US Airways had to exit bankruptcy March 31 or lose millions in loan guarantees and equity financing. He cited very expensive facilities as the reason to pull out of Pittsburgh. The cost per enplanement at Pittsburgh is $7.26, according to a report released this month from Leigh Fisher Associates in California.

According to sources at one of the three major rating agencies, “All things, considered, their per passenger cost is less than 10 bucks and it’s not going up. They don’t have big capital needs in contrast to a large number of other airports.” This same source has also expressed concern that US Airways, before emerging from bankruptcy, canceled its agreements at Pittsburgh when its airport lease, in the view of an objective analysis, is one of the best in the country for carriers at large hub airports. US Airways has what is known as a “residual lease” at Pittsburgh, in which all non-airline revenues, such as parking, rental cars and concessions, are first utilized to cover operating and debt expenses, with any balance remaining then charged to the airlines.

One key lesson from this experience is that as with all producers of goods and services we must contain costs in a way that permits us to continue to deliver excellent customer service, but also to weather adversarial conditions that we encounter during every business cycle. As airport executives and managers, we must establish best practices in regard to maximizing funding opportunities and share them with our colleagues and peers in the airport industry.

Hartsfield-Jackson’s passenger traffic resilience has historically always rebounded when it has been compromised. With the onset of the Gulf War in 1991 and then shortly after that, the Eastern Airlines bankruptcy, passenger traffic returned to 1990 levels within 10 months of those occurrences. Hartsfield-Jackson experienced rapid passenger growth until the year 2000, during which we processed close to 80 million passengers. This year we anticipate handling 79 million, and if we do in fact rebound from the current downturn this year, our expectation is that next year we could very well exceed 2000 passenger traffic numbers.

Hartsfield-Jackson is one of the most efficient airports in the U.S. In fact, one measure of our efficiency is that we have one of the lowest landing fees of any major U.S. airport: $0.45 per 1,000 pounds of landing weight. Another efficiency metric is the cost per enplaned passenger. Presently at Hartsfield-Jackson the cost is $2.55. Of all major hub airports, only Charlotte Douglas has a lower cost per enplaned passenger than Atlanta.

Additionally, among the reasons Hartsfield-Jackson received its first-ever credit rating upgrade and most recently the highest rating by top bond rating agencies is directly related to the strength of our financial performance and the strength of our management team.

I am proud to tell you that in a survey conducted recently by the International Air Transport Association, passengers identified Hartsfield-Jackson as the best “very large” airport in overall passenger satisfaction. The survey is part of the ninth edition of IATA’s Global Airport Monitor (GAM) survey. The information collected in the GAM report documented the perceptions of over 80,000 international passengers in nearly 20 service categories for 52 airports worldwide.

Hartsfield-Jackson has a strong balance sheet and an excellent liquidity position. We finished the year 2001 with $530 million in unrestricted cash reserves out of a total of $1.4 billion in cash and cash-equivalent securities. We finished 2002 with over $330 million in unrestricted cash, even after the investment of over $400 million in the Hartsfield-Jackson Development Program. Hartsfield-Jackson also benefits from the presence of Delta Air Lines, which some say is the prettiest puppy in a bad litter. Like Hartsfield-Jackson, Delta too has a very strong balance sheet and excellent liquidity to weather the current storm.

Hartsfield-Jackson also happens to enjoy a very strong origination and destination market. In fact, just on the strength of O&D traffic, Hartsfield-Jackson would rank number fourth behind LAX, ORD, and LAS. We at Hartsfield-Jackson also are encouraged by the success of low-cost carriers such as AirTran, and the recent additions of Hooters Air and Jet Blue. I am delighted to announce that Song, Delta’s low-cost carrier, is having its inaugural media event this weekend at Hartsfield-Jackson.

At Hartsfield-Jackson Atlanta International Airport, we are enthusiastic about the challenges we face to maximize funding levels that will in turn allow us to better serve the traveling public. We are energized by the knowledge that of the 30 largest airports, Hartsfield-Jackson has experienced one of the lowest percent changes in scheduled flights and available seats. It is interesting to note that Hartsfield-Jackson’s post-9/11 recovery leads that of the top 10 U.S. airports. In 2002, Hartsfield-Jackson was the only top 10 U.S. airport to experience passenger growth. Another development in Atlanta that excites us is the prospect of becoming the home of the Secretariat of the FTAA (Free Trade Agreement of the Americas.) The City of Atlanta has officially bid for the headquarters of the prestigious Americas-wide trade group. The proposed free-trade area would stretch from Canada to Chile and include every country in between except for Communist Cuba. A free market would facilitate the movement of capital and manufactured goods among the region's 800 million consumers. Presidents and trade ministers are scheduled to approve the trade zone in early 2005. A decision on the trade group's headquarters is also expected by then. Atlanta, Miami, Mexico City, Panama City, Panama, and Port of Spain in Trinidad and Tobago are all angling for the coveted headquarters. It will bring 200 employees to the chosen city, and thousands of ancillary jobs --- lawyers, bankers, freight forwarders --- will follow. I am pleased that our Hartsfield-Jackson Development Program, the largest public works project in the history of the state of Georgia, is being carried out successfully. As the economic engine for the Southeast, Hartsfield-Jackson is the state’s largest employment center. Atlanta’s economy and its success in attracting companies is directly related to its ability to provide international transportation. Access to domestic and international markets made possible by Hartsfield-Jackson creates a business hub. Hartsfield-Jackson’s business revenue impact to the region is almost $19 billion annually. By the year 2015, this will reach more than $32 billion annually.

Hartsfield-Jackson’s Development Program is a massive $5.4 billion program that is resulting in job creation as well as improved facilities. Our most recent economic impact study estimates that Hartsfield-Jackson is responsible for almost 650,000 jobs within the Southeast region of the U.S.

Elements of the Hartsfield-Jackson Development Program include a new Fifth Runway, which will include the largest runway/taxiway bridge structure in the U.S.; the East International Terminal, which will provide 10 wide-body gates initially with a new entrance to the airport from the east side of town; the consolidated rental agency complex (CONRAC), which will, at a minimum, accommodate ten existing rental car companies operating at Hartsfield-Jackson, with room for expansion in the future; enhancements to the existing central passenger terminal complex, a proposed South Gate Complex, which may include approximately 31 gates that would be connected to the existing terminals via an expanded Automated People Mover System; Facilities Maintenance Program and other elements including capital and facility projects.

At Hartsfield-Jackson, totals for original Capital Improvement Program sources of funds include:
· $695 million in grants
· $566 million in Retained Earnings
· $728 million in tenant funds
· $2.1 billion in PFCs
· $1.3 billion in general revenue bonds
Result: A total of $5.4 billion

In closing, I must reiterate that I am optimistic about the future of our industry. We are facing significant hurdles; however, by working closely with industry partners and suppliers we can foster a mutually beneficial environment for everyone. We must work together to achieve our common objective: to provide the most efficient and effective air transportation system possible while ensuring the safety and security of all parties at the highest level of customer service possible.

Thank you for your time and for your attention.
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