Mayor Wellington Webb Tears Up United's Demands

Set the stage:

After all, Wellington Webb wasn't Denver's mayor when the city and county was begging UAL to dig Denver International Airport out of the hole its cost overruns and delays had dug. Denver International, one may remember was the baby of then-Mayor Pena (who soon left Denver to be President Clinton's first Secretary of Transportation, and later of Energy) and then-Governor Roy Romer (who soon left, to become chairman of the Democratic Party). The airport was conceived largely as a 'jobs and patronage' program, ostensibly to lift Denver out of the oil-bust slump of the late 1980s.

Denver International, you may recall, was pitched as a necessity: convenient Stapleton was too snowy; it caused too many delays; it wasn't safe; it couldn't handle the anticipated traffic. DIA, as it is called locally (officially it's DEN), was the $1.8 billion solution.

That $1.8 billion grew to over $6 billion after the voters approved the project (and as Pena's political debts were repaid through special consulting and construction contracts and an 'interesting' routing of the airport's one access road, for instance). Additional funding, through municipal bonds, was hurriedly offered, several times -- and UAL was strongarmed into buying a whole mess of that debt. In return, United got the best gates, the best slots, and so on -- useful, if DIA would ever live up to its volume-hype.

The $1.8 billion, $6 billion airport on the prairie

Anyway, United's corporate memory goes a lot farther back than Webb's municipal memory. When the mayor received a July 14 letter from United, he called a press conference.

The mayor, late Tuesday, when reporters had assembled, then read parts of the rather tersely-worded document... and tore it up, on-camera.

The letter made demands totaling about $85 million, which the airline claimed Denver owed, on parts of numerous deals.

Denver, for its part, has been dragging its feet on the issues in that letter, feeling a bit put out that United's prepetition (pre-December 9, 2002) debt is on hold until the bankruptcy court makes a final ruling, which could be months, or even a year or more, away.

 Denver says it's holding back until United confirms or repudiates its lease, which has 22 years to run. Debtors in Possession (Chapter 11 companies) have that option, under bankruptcy rules; United hasn't tipped its hand. The two sides haven't talked for two weeks.

Court deadline looms for UAL

United needs to tell the Court what it plans to do by August 7, and Denver, according to the airline, has been stonewalling negotiations. United says it will file for an extension... which has sent Denver's people into fits.

The mayor, who is in his last week in office (he was term-limited), said, "United wants to stick us up for whatever they can get. They should be working with us. United's people didn't even have the courage to sign this letter."

The mayor-elect, brewer/restauranteur John Hickenlooper, said through a spokeswoman that he's aware of United's demands, and that he believes something can be worked out. "It is definitely a top priority of the mayor-elect to find a solution that benefits Denver, United, Frontier and the flying public," Linda Lent said.

ANN talked with Jeff Green, United's Manager of Media Relations, who explained that the letter was sent by the big Chicago law firm of Kirkland and Ellis, to try to get something done before United's court dates become problematic. "We have been negotiating for several months with the City and County of Denver, specifically to have the City make good on several contractual obligations. We sent the letter on July 14, to try to move these negotiations forward, and to protect our position, should we have to take these issues before the bankruptcy court."

He explained what was behind it: "We want a modern, efficient home at Denver International Airport. We're definitely commited to Denver, we will keep Denver as a United hub. What we are looking for in the letter, are things that Denver is obligated to do: the construction of a commuter concourse -- that's in the current lease agreeement; repairs to the apron; reimbursement for costs that United incurred for remediation in the automated bagggage system."

Some of the problems are long-standing: "There are also some mis-charges for some space usage," he continued. "Some space that we don't use at all, and exclusive charges, for space we don't get exclusive use of."

Not citing the contract specifically, but noting what the airline sees as a disparity, he continued, "United is charged for space that other airlines aren't even charged for, when they use identical space for identical purposes."

The delays in the talks have driven the lawyer letter. "These are not new demands; we are eager to reach an agreement; we're committed to keeping Denver as a hub," he reiterated.

When you're in Chapter 11, the rules are different.

One thing about Chapter 11: the rules of the game aren't always intuitive. Any debts incurred before the filing date ("prepetition debts") are automatically put on hold. "We are paying current rent only; any prepetition debt must, by law, not be paid," Mr. Green said.

Some issues, though, must get a judge's touch. For instance, December (2002) rent was due on December 1, and United didn't pay it -- and filed for Chapter 11 on December 9. Is the rent from the 9th to the 31st "prepetition" or "post-petition" debt?

Is rent that big a deal? You becha. Annual rent for United is over $158 million. That post-December 9 bill for 2002 comes to over $9.5 million.

Green points out that United is court-ordered to stay current on everything post-December 9: "We pay landing fees; we employ over 600 people in and around Denver.  In 2002, we had 11 million PAX, on 131,000 flights to and from DIA."

What about all those municipal bonds? That's debt, right? "As for the bonds, we feel that the bonds, which are prepetition debts, are different from lease agreements," Green said. Some things are going to require that judge's hand...

FMI: www.United.com; www.denvergov.org