The state is assessing airlines operating at Baltimore-Washington International Thurgood Marshall Airport $25 million in new charges, including $13 million it says is owed by dominant carrier Southwest Airlines.
Airport officials said the additional charges were being imposed to cover increased expenses, including higher security and utility costs. In Southwest's case, the state said it found that it had been undercharging the airline for its new terminal space.
Southwest Chief Financial Officer Laura H. Wright disclosed the "surprise audit settlement charge" that it is negotiating with the Maryland Aviation Administration during the airline's first-quarter earnings conference call yesterday. The charge is in addition to the $32 million in rent and fees Southwest paid the airport in fiscal 2007, an amount BWI officials expect the airline to also owe this year.
The additional charges could affect Southwest's growth plans at BWI, given the industry's current challenging financial climate, company spokeswoman Whitney Eichinger said.
"It does raise concerns about the cost of the airport for Southwest moving forward," Eichinger said. "The discovery was a surprise."
BWI officials discovered the $25 million shortfall about six months ago as they were preparing the airport's annual budget, said Timothy L. Campbell, who oversees the airport as executive director of the aviation administration.
Under a five-year agreement BWI signed with the airlines in 2003, terminal rents and landing fees can be increased as airport operating and maintenance costs rise. Before this contract, no mechanism was in place to require airlines to pay more as the airport's costs rose.
"We had not been adequately charging the carriers in these areas," Campbell said. "Some of the space was not properly accounted for."
In particular, BWI had not adequately charged Southwest rent on the more than a half-million square feet of new space created when the airline's $264 million terminal opened in May 2005. Rent is $103.49 per square foot under the airport's terminal lease.
AirTran Airways, the second-largest carrier after Southwest, faces the next-highest charge after BWI, Campbell said. He said the exact figure was unavailable but would be in the millions.
Other airlines' decisions to fly smaller regional jets and cut flights into BWI reduced the amount of landing fees that BWI expected to collect, Campbell said. The airport's landing fees have risen to $2.97 per 1,000 pounds of landed aircraft weight.
Airports annually review their cost recovery system and often pass additional back-rents and fees on to the airlines to meet their budgets, Campbell said. But Eichinger said the $13 million charge for Southwest was unprecedented.
The Maryland Aviation Administration pledged to increase reviews and audits to ensure that it is fully recovering adequate rents and fees from the airlines.
Campbell said BWI is negotiating a repayment plan with the airlines, which he expects to work out in the next 30 to 60 days. The airport is also working to reduce operating costs to lower the rents and fees the airlines will owe in the future as they pay back these charges, he said.
"Our goal through these cost reductions is to maintain our low-cost competitive advantage," Campbell said. "We think we'll still be the lowest-cost airport in this region."