30 days more for airlines to sign accord

The Commonwealth Ports Authority board has approved a 30-day extension for airlines to sign a new airport agreement after getting no response from most of them on the yearly contract.

CPA executive director Clyde Norita said that, as of this week, only Taga Air has signed the airport use agreement. He said Continental Micronesia and Cape Air have not given any response, while Northwest Airline “is still reviewing the agreement.” As for Asiana Airlines, “my understanding is they will sign it.”

“My job is to work with the airlines to have them sign the agreement. Right now, they are all signatories. If they don’t sign that, they become non-signatory, which means higher rates for them. It is for their benefits to maintain the status,” said Norita.

He said the new airline agreement does not aim to increase airport rates, although it was recommended by a financial consultant. The new agreement, however, includes a language that allows CPA to raise the rates by informing the airlines 30 days in advance. But CPA is trying to avoid increasing the rates amid the reduced air seats in the CNMI.

“We are looking at cuts internally to avoid raising the rates for the airlines. We are trying to avoid raising the airline rates,” said Norita.

As to why the airlines have not signed the agreement, Norita said, “That’s why I need to talk with them personally, to see what their concerns are.”

Faced with declining revenues, the CPA was earlier advised to revise its user agreement with airlines for increased rates.

Ricondo & Associates said this would allow CPA to recover from its financial slump and meet all its obligations, especially its bond payment. CPA is currently under a negative bond rating, ‘B+’, for its lack of resources to meet debt service coverage.

“Based on CPA’s inability to meet its debt service coverage requirement, CPA should consider increasing airline rates,” said Ricondo & Associates senior vice president Geoffrey A. Wheeler in a June 23, 2006, letter to CPA.

The consultant said that airline cost per enplanement in the CNMI is much lower than Guam. In fiscal year 2004 and 2005, he said that enplanement costs were calculated at $11.63 and $11.52, respectively. In FY 2006, it was set at $11.09. In Guam, the cost per enplanement in FY 2004 was $16.66.

Wheelers said that due to the fragile financial status of the airline industry in the last few years and direct pressure from the airlines, CPA has been concerned that increasing rates could cause airlines to reduce service.

“As a result, airlines have not paid the true share of their requirement,” said the financial consultant.