Wednesday, May 28, 2003 | 10:55 a.m.
Southwest Airlines is concerned that two legal judgments against Las Vegas' McCarran International Airport totaling more than $28.5 million are precedents that could result in fee increases cutting into airline profits.
If fees are raised dramatically to pay court-awarded damages, Southwest Airlines says "service disruptions" could result at McCarran -- meaning the airline may cut flights or won't grow as fast as it otherwise would.
Dallas-based Southwest has an average 166 flights in and out of McCarran daily, more than one-third of the airport's total commercial air traffic. The airline has announced expansion plans that would add nine more daily flights.
Bob Montgomery, vice president of property and facilities for Southwest and the chairman of an airline committee at McCarran, has recommended that the airport fight the lawsuits, which involve damages claimed as a result of the setting of height restrictions on buildings on the airport perimeter.
Clark County imposed height restrictions on land zoned "H-1" to keep takeoff and landing corridors clear. The Federal Aviation Administration has its own height-restriction parameters, but the county can impose its height restrictions through County Commission action, which occurred in the early 1990s.
In a letter to Randy Walker, director of aviation at McCarran, Montgomery said the two judgments are the first that he's aware of in the nation in which someone has successfully sued an airport for damages resulting from height restrictions imposed by a local government.
"These two cases, if used as a precedent, expose the airport, and therefore the airlines serving (McCarran), to similar judgments on over 3,000 acres of land," Montgomery wrote. "The potential impact to (airport expenses) is close to $2 billion, effectively doubling the landing fees at McCarran. For Southwest Airlines, two customers on each flight represent our entire profit. This potential landing fee impact would effectively reverse our fortunes, turn a profit into a loss and would result in service disruptions for McCarran."
But plaintiff land owners and their attorneys say the airport and Southwest are engaging in scare tactics to sway public opinion. They say their land, acquired before Clark County imposed height restrictions, has been devalued and that they are entitled to compensation.
"This is typical 'the-sky-is-falling' talk," said Steve Sisolak, a property owner who was awarded a $6.5 million jury award in March for damages to his property on Las Vegas Boulevard South. The airport has appealed that judgment. "The land was damaged (by Clark County's imposition of height restrictions). It was just a matter of determining how much it was damaged."
Sisolak, a member of the state Board of Regents, was the second property owner to be awarded damages. Los Angeles businessman Tien Fu Hsu, who owns land off Tropicana Avenue on the northern edge of the airport, was awarded $13 million in March 2001. Interest, attorney fees and court costs have raised that amount to about $22 million and the Hsu case will be heard in an appeal before the Nevada Supreme Court June 25.
Four other similar cases are pending, and airport officials say there are 3,554 acres within a 20,000-foot radius of airport boundaries that have zoning similar to that of the the land on which damages were awarded.
Clark County Attorney Lee Thompson, who is leading the defense and legal appeals for the airport, said the four active cases in which plaintiffs are seeking compensation because of height restrictions have been filed by Hotels Nevada, which operates the Alexis Park Hotel; McCarran Plaza Suites, a property on Las Vegas Boulevard, south of Interstate 215; the Mohler 1973 Trust, which has land near Sisolak's property; and Vacation Village, whose case is part of that property's bankruptcy proceeding.
Thompson said attorneys have agreed to put the Alexis Park case on hold until the Tsu appeal is heard by the Supreme Court; a trial date has been set for later this year on for McCarran Plaza Suites; the Mohler 1973 Trust case was recently filed and won't be heard until next year; and the Vacation Village case will be determined when the U.S. Bankruptcy Court judge resolves the rest of that case.
Dennis Mewshaw, airport planning manager, said his staff was asked to calculate potential liability resulting from existing and potential litigation.
Mewshaw said using the Tsu and Sisolak cases to calculate an average amount of damages awarded, airport officials concluded they'd pay $11.50 per square foot. Based on the 3,554 acres zoned "H-1" or masterplanned for tourism uses, which would be eligible for H-1 zoning, Mewshaw concluded the airport could be liable for $1.77 billion in damages.
Walker said because payment of those damages could be bonded over time, he calculated payment to be about $130 million a year. Based on the number of passengers boarding at McCarran annually, he said the per-passenger charge would have to be raised by $7.22, to $12.32, which could be assessed either as a landing fee, a gate-use charge or for renting counter and ramp space at the airport.
McCarran currently charges airlines about $5.10 per passenger for their use of the airport, one of the lowest rates in the nation. But if it were raised to $12.32 per passenger, it would "put us on the high side," Walker said. He said Denver International Airport, one of the highest charging airports in the nation, assesses fees of about $14 per passenger.
Southwest Airlines doesn't fly to Denver International, frequently citing the high cost of operating there as the reason why.
Southwest would be the airline most affected by any rate increase since it's the largest carrier in the city.
"This could be a serious situation, depending on what happens in court," Montgomery said from his Dallas office Tuesday. "The precedent has been set and because the Nevada court system has a relatively short appeals process, we wanted to get on this right away."
Montgomery said he would not speculate on whether Southwest, which last week announced a series of new flights for Las Vegas to begin in August, September and October, would cut service to McCarran.
"At $160 a flight (the approximate cost to the airline if fees were doubled), it certainly adds up," Montgomery said. "And in this economy, raising fares is not an option for anything."
Montgomery said Southwest would not offer its legal resources to battle appeals, but would keep the Air Transport Association apprised of what happens. That association, which monitors aviation issues involving commercial carriers, has a membership that includes most of the airlines serving McCarran.
A spokeswoman for Tempe, Ariz.-based America West Airlines, the company with the second-largest presence at McCarran, had no comment on the issue. America West operates a hub at McCarran and averages about 79 daily flights, about 19 percent of the Las Vegas market.
But Sisolak and attorneys representing other plaintiffs say the airport is manufacturing a smokescreen and playing on the tourism industry's fears of losing flights to sway opinion that could reach Nevada Supreme Court judges.
Las Vegas attorney Laura FitzSimmons, who represented Tsu, Sisolak, Vacation Village and Alexis Park, said the airport isn't as legally exposed as it claims and that the airport has had ample opportunity to settle the Tsu and Sisolak cases for a fraction of the judgment awards.
"In court, they said they had the reserves to handle the judgments," FitzSimmons said. "If they were worried, they should have settled."
FitzSimmons said in the Tsu case, the airport received a settlement offer of about one-third the amount of the judgment in the case. And Sisolak, she said, was turned down when he asked for a land exchange that would have put his property in county hands.
FitzSimmons said the airport has overestimated its legal exposure because most of the height restriction problems occur at the ends of the airport's north-south runways and not its east-west runways. She also said she felt the timing of Walker's delivery of fee-increase information to the airlines was meant to influence the appeal to be heard by the Supreme Court next month.
Sisolak said he couldn't believe that his request to trade land was ignored.
"I practically begged them to make a trade, but they wouldn't give me the time of day," Sisolak said.
He said if the airlines are worried about expenses, they should be concerned about the millions of dollars the airport is paying to outside law firms to help defend their cases.
archive
