The Humboldt County government is rushing to catch a plane. Or a jet, actually — an Embraer 140 regional jet equipped with a pair of Rolls-Royce turbofan engines so powerful they can propel up to 44 passengers (in leather seats) from the Arcata-Eureka Airport to LAX in just 90 minutes. American Eagle, a wholly owned subsidiary of American Airlines, would like to provide this service to and from Los Angeles twice a day, starting as early as June, as long as the county can do two things: put up at least $1 million to guarantee the airline’s revenues for the first two years, and do it fast.
What’s the rush? Brett Hooyerink, a market development manager for American Airlines, explained that after some schedule shuffling in Los Angeles, one of American’s five hubs nationwide, the company has a jet available. Executives want that jet plugged into the airline’s summer schedule, and to accomplish that they need to select a route by this week.
This has placed county officials in the difficult position of needing to move both cautiously and quickly. One the one hand, the region is in desperate need of expanded airline service. Delta Air Lines, which provided flights to and from Salt Lake City, Utah, for less than two years, abandoned the region in 2010 after collecting $500,000 in prepaid tickets, another $500,000 in revenue guarantees and $62,000 in deferred landing fees. Last April, Horizon Airlines discontinued its service to and from L.A., leaving Humboldt County with a single commercial airline, United.
Adding to the urgency: A major construction project will close one of San Francisco International Airport’s two main runways from June of this year until 2015, promising countless flight delays and cancellations.
But on the other hand, county officials don’t want to get burned again, like they did with Delta. Over the last two weeks, county staff and the Board of Supervisors have been working furiously, negotiating with airline representatives and meeting with local agencies to see if the deal can come together.
Last week, the board of directors for the Headwaters Fund, the county’s unique pot of economic development money, agreed to finance a loan for the $1 million revenue guarantee. That’s down from the airline’s original request for a $2 million guarantee. The contract that’s currently on the table includes a monthly revenue target for American Eagle’s service to and from L.A. If the airline fails to hit that target — which so far is publicly undisclosed — during any given month, it will make up the difference by withdrawing money from the $1 million in revenue guarantees. At last week’s Board of Supervisors meeting, 3rd District Supervisor Mark Lovelace asked if the county would get to share in the profits if the airline ever exceeds its target revenue. The answer was no. Furthermore, American Eagle wouldn’t have to pay landing fees, terminal rental fees or a variety of other standard expenses thanks to a fee waiver program that the county offers to attract new airline service.
Hooyerink, the American Airlines rep, told the Journal that such guarantees and fee waivers are industry standard. “It’s a way for us to ensure we don’t sustain the heavy losses that are typical in the first two years or so of getting a new service up and running,” he said.
From the county’s perspective, these concessions may be a risk worth taking (again), given the potential economic benefits of the new service. Many local business owners say their economic growth depends on reliable transportation in and out of the area.
“Look, we just need it,” said Briar Bush, general manager of Lost Coast Brewery. Humboldt County Film Commissioner Cassandra Hesseltine said the county pulled in $1 million last fiscal year from TV commercial productions, print ad shoots and independent movie projects. She predicted that direct flights to L.A. would vastly expand those revenues. HSU President Rollin Richmond said airline service is vastly important to the nearly 90 percent of Humboldt State University students who come here from outside the area.
There are a number of reasons to believe things will work out better this time around.
Gregg Foster has worked as hard as anyone to attract another airline to the region. Chair of the county’s airport advisory committee and former executive director of the Redwood Region Economic Development Commission, Foster pointed out that Delta’s service started amid record high fuel prices and just months before the worst recession in more than 60 years. Plus, Delta arrived as the third airline at Arcata-Eureka Airport, while American would be effectively replacing Horizon Airline’s L.A. flights. Horizon was trying to fill 148 seats per day while American would only need to fill 88. “We have data we can rely on from 2005 that shows that if [American Eagle] can just capture what was the existing traffic, they will fill their two planes per day.”
Last week, the Board of Supervisors unanimously directed staff to develop a funding package to finance the $1 million revenue guarantee with the following stipulations: It can’t obligate any money from the county’s strapped general fund, and it can’t violate Federal Aviation Administration restrictions on how airport division funds are spent.
Public Works Director Tom Mattson said that in order to do that, the funding package will have to be handled through a separate agency. On Monday Mattson and other county officials met with the executive committee of the Redwood Region Economic Development Commission, the agency that handled Delta’s revenue guarantee, and the committee expressed preliminary support. (The decision is ultimately up to the commission’s board of directors.)
Complicated, right? While county government and local economic development agencies have all expressed enthusiasm for the American Airlines deal, the big questions remained unanswered as the Journal went to press Tuesday afternoon. Foremost among these is: Who will ultimately pay for the $1 million revenue guarantee? “That is up to negotiation,” Mattson said earlier in the day. It could wind up being county funds (though not from the aviation division), or it could come through a grant, or the private sector might be able to pony up much of the money, he said. “That all has to be negotiated still.”
The county has been working since Delta left to increase regional airline service. Sounding beleaguered but optimistic, Mattson said one thing’s certain: “This is the closest we’ve been in a long time.”
This article appears in School Lunch 2.0.
Who am I to argue as to whether two daily flights from LA will “vastly expand” the county’s revenues from the film industry, as Humboldt County Film Commissioner Cassandra Hesseltine suggests. (Humboldt County Film Commissioner?)
OK, that’s great. How much of American Airlines revenue is the Film Commission willing to guarantee, knowing that it will come out of their salaries and budget if it is called?
Same question for the other businesses that want to skyjack the Headwaters Fund.
Mark Lovelace asked the only intelligent question your article mentions: how much of American Airlines’ profits do they intend to contribute to Humboldt County, if their new route is profitable? The answer, to no one’s surprise, is none. Heads they win, tails we lose.
Is this the way things are done in today’s version of “capitalism?” Yes. Should Humboldt taxpayers contribute to the kickbacks? No.
Maybe if private industry steps forward and provides two-thirds of the revenue guarantee, Humboldt could step up and fill in any missing part, with taxpayer funds to be used only after the private industry part of the guarantee is paid.
Otherwise, this is a case of theft from the taxpayers.
A re-reading of the article turns this up: the Headwaters Fund “agreed to finance a loan for the $1 million revenue guarantee.”
What does that mean? What does financing a loan for a guarantee mean, and how is that different from implementing a guarantee. What collateral has the Headwaters Fund obtained to ensure it is repaid? And from whom?
Otherwise, why do you refer to this as financing a loan, as opposed to contributing to a revenue guarantee for an outside private company?
Is it a hint that the article refers to American as generously providing “an Embraer 140 regional jet equipped with a pair of Rolls-Royce turbofan engines so powerful they can propel up to 44 passengers (in leather seats) from the Arcata-Eureka Airport to LAX in just 90 minutes.”
Ooh. Leather. Power. Rolls fucking Royce.
So Ryan, which LA airline-advocate are you tied-to???
You can do waaay better!
Where’s the balancing opinion to: “…guarantees and fee waivers are industry standards”? Financial and auto industry execs can now say the same for the continuing bailouts!
Not one word detailing the existing costs of our “inconvenience”?
Not one word about “faith-based economics”?
Keeping an elementary school open in this county’s largest city; ensuring its college remains accredited; making sure local police forces are well-staffed and trained; providing funding for affordable housing construction, investing in walkable downtowns….and much more, make cities livable, safe, create educated workforces and a quality of life that attracts capital investment.
The uncomfortable truth that public wealth has always been looted for the benefit and comfort of the rich remains routinely self-censored in the “free-press”. Even in small town papers!?
Honestly, ending that hour lay-over in SF will deliver millions of dollars to Humboldt and alleviate the undo hardships on HSU students?
With hundreds of people in an HSU classroom, a student in LA will learn as much watching it on a video-stream.
There’s never-ending pressure by an elite-few to keep on consuming like it’s 1999, and as long as they can continue to dominate local campaign financing….they can get the public to subsidize it.
As a recent LA transplant who finds it cost prohibitive to visit back home, I wonder how much these flights will cost?
But if Humboldt is easier to get to, won’t that increase the drug trade and eco-groovy tourists to come here and spend money?
Mitch: A loan differs from a guarantee in that, with a loan, the Headwaters Fund would be reimbursed by whomever actually supplies the guarantee. Initially it looked like the county would supply that guarantee, but due to FAA restrictions on airport funds it will have to be supplied by a third party, perhaps RREDC, as Tom Mattson said.
But your point is well taken. In what other industry can a company demand guaranteed revenues before delivering any goods or services?
Lilylola: At the March 20 Board of Supervisors meeting, Public Works Director Tom Mattson said American Airlines reps have estimated tickets to L.A. will cost $250-$400. I should have included that in the story.
One-way or round-trip?
Is it real leather seating, or PVC?
Articles like this one, that fail to challenge the thread-bare financial basis for this huge expenditure, (amid the darkest economic times in 80 years), answers another question:
Where’s the public outrage??
Scrap this ludicrous, unimaginative idea, and start a Humboldt County flight fee for “Super High Intensity Transportation”.
Humboldt County can finally offer first class service for a modest fee used to actually improve the local economy….they can board first, enjoy freshly sprayed leather scent on their seat, and wear a complementary blindfold when they disembark on the SF tarmac.
Thanks for the explanation of why it is a loan, Ryan.
I guess my suspicion is that, if the time comes for the guarantee to be exercised, the county will come up with a reason that the money needs to come from the HWF after all. A loan from one gov’t pocket to another doesn’t seem quite the same as a loan based on someone pawning their wedding ring.
I live in Humboldt and my work requires that I travel a lot. I logged over 120,000 miles last year. My trips always start and end at ACV.
I really don’t see the point of going into business with American Airlines. That’s really what this amounts to. The guarantee (however it is funded) will be whittled down over time when seats are unfilled and when the pot is empty, American will fly away just like Horizon.
I can’t imagine that movie makers will be more enticed to come here because they can fly direct from LA. The reasons they come here really don’t have to do with ease of transportation.
Data from 2005? I was flying then and the planes were full. Now, it’s not uncommon for me to be one of less than 20 people. Don’t forget, 2008 happened, right? People aren’t flying as much.
Seems like a waste of money based on a lot of assumptions and out-of-date data.
In the mid-90s, there was a short-lived carrier that flew to SJC. It was a real convenience for me at the time, and I think it was created by local people. Unsurprisingly, United lowballed things until they died.
I don’t know that I’d advise the county to use funds to assist a local startup carrier, but I do think it would be enormously preferable to using them to guarantee an outside mega-corp’s profits.
It would probably be a good investment for local businesses to fund such a startup, even if it were destined to go bankrupt, because it would get them lower fares until driven out of business.
I am very disappointed in the supervisors for this act of corporate welfare. This is basically picking economic winners and losers in the local airline industry. You can fly in our out of Humboldt any day of the week on carriers that are already servicing us. How is it fair to United Airlines that we subsidize their new competition? Are we guaranteeing revenue for United too? Where can I find documentation that this new route will generate enough new revenue for the county to justify the investment?
I personally don’t care what airline as long as it’s another option! Especially if the rates are better than United. I don’t get to come home as often as I like because it is to expensive to fly and to far to drive.
Ryan Burns said: But your point is well taken. In what other industry can a company demand guaranteed revenues before delivering any goods or services?
There is quite a few really. From Bus routes to mass production. Unless you aren’t wording, or thinking out your answer/question completely.