Governor Proposes $50M to Lift Dulles

Governor Terry McAuliffe’s proposed budget includes $50 million over two years to help Loudoun County’s largest employment center.

The $25 million-per-year supplement, McAuliffe said, will help Dulles Airport push down ticket prices as it struggles to compete with other major airports—and local leaders say that includes its sister airport in the Metropolitan Washington Airports Authority, Reagan National Airport.

“Dulles Airport is one of Virginia’s premier economic assets, and this critical investment will make it even stronger,” McAuliffe stated. “This funding will help support 45,000 direct and indirect jobs related to the United [Air Lines] Hub at Dulles and encourage other carriers to provide enhanced air travel offerings.”

Leaders of every political leaning and at every level of government agree that Dulles is essential to Loudoun County and the region.

“This airport has to survive,” U.S. Rep. Barbara Comstock (R-10) said. “Failure is not an option.”

“It’s a fundamentally important economic agent in Loudoun County,” agreed Loudoun Supervisor Kristen C. Umstattd (D-Leesburg), noting it provides almost $5 billion a year in direct labor income alone.

Supporters say this $50 million will help set Dulles on the right path. Dulles has struggled to compete for major budget airlines and domestic flights, and carries a heavy debt load.

Why? It’s complicated.

Debt and Downturn

The cost to keep Dulles running is higher because of debt service payments on a heavy debt load reaching back years, including a $4 billion expansion that wrapped up just as the recession hit.

“It stems from a number of things,” MWAA spokesman Christopher Paolino said. “It stems from a lot of work that was done on Dulles, improvements, major capital investments—those actually date back, in some cases, as much as 20 years.”

Dulles Airport felt keenly the downsizing and conglomeration of the airline industry in the early 2000s, explained Loudoun Supervisor Matthew F. Letourneau (R-Dulles), whose district includes the airport.

At the turn of the new millennium, Atlantic Coast Airlines, based in Loudoun County, operated regional flights for United Airlines, the major anchor of Dulles to this day. United entered bankruptcy in 2002 as it felt the pinch as the airline market shrank and began renegotiating all its contracts. United and Atlantic Coast couldn’t reach an agreement, and Atlantic Coast couldn’t renew the contract.

The historic Dulles Main Terminal at sunset. Photo by J. David Buerk
The historic Dulles Main Terminal at sunset.
Photo by J. David Buerk

So in 2004, Atlantic Coast’s contract with United expired; that same year, another contract with Delta expired. Finding itself with a large fleet of planes and pilots and no major airline to contract, the company announced it would operate as a low-cost regional carrier, Independence Air, based at Dulles.

The new carrier did not last long. It started operations in June 2004, filed bankruptcy in November 2005, and ceased in January 2006.

“So they survived maybe two years, then went out of business, and took with them 30 or 40 percent of daily operations of Dulles,” Letourneau said.

It was bad timing for Dulles. The airport was going through major expansions when Independence Air shut down. The United terminal (concourses C and D), which Letourneau said was built in the 1980s to be temporary, is still in operation to this day.

The airport’s heavy debt service payments, which are rooted in those expansions, drive the cost to airlines—and therefore to airline customers—higher than other regional and East Coast airports. And with a higher cost-per-passenger to airlines, Dulles has a harder time attracting more domestic routes and service, since both airlines and passengers have other, lower-cost options available. Paolino said Dulles has the second-highest cost-per-passenger in the country, behind only Newark.

Competing Against a Sister Airport

Dulles also faces regulatory hurdles. It and Reagan National Airport in Arlington County are both managed by MWAA, but federal regulations and airline contracts have historically pitted the two airports against each other.

“They are handcuffed by the government,” Letourneau said.
Reagan operates under two unusual restrictions intended to limit airport-related noise and congestion at Reagan National and encourage growth at Dulles: The slot rule and the perimeter rule.

The slot rule, which exists at five crowded U.S. airports, limits the number of flights per hour from the airport to ease congestion. The perimeter rule limits the distance of non-stop flights from Reagan National. Both measures are meant to push long-haul business to Dulles, which is further from downtown Washington, DC, but less crowded and has room to grow.

The problem, Letourneau said, comes when Congress grants exceptions to these two rules—which it has done with alarming regularity. Since 2000, Congress has authorized 54 daily slot exemptions and approved direct service from Reagan to Austin, Denver, Las Vegas, Los Angeles, Phoenix, Salt Lake City, San Francisco, San Juan, Seattle, and Portland.

Finally, until 2014, the airports’ contracts with airlines prevented MWAA from sharing debt between the two airports. The new contracts do allow it, but negotiating those contracts was not easy, since it involved getting airlines at Reagan to agree to rules that help Dulles—therefore benefiting United, one of their major competitors.

“That’s a very big deal, and it took several years to get to that point,” Letourneau said.

The exceptions mean Reagan saps business from Dulles, and the debt segregation meant Reagan also outcompetes Dulles on prices.

A $50M Kick

Everyone agrees that Dulles is essential to Loudoun and could use the $50 million, but not everyone agrees with how the governor proposes to go about it.

“Most people don’t realize, for every dollar of taxes we send to Richmond, we get 21 cents back,” said Supervisor Suzanne M. Volpe (R-Algonkian). “So if somebody actually wants to help, I think at this point in time, we need to take that help, and every single one of us have people in our district that are relying on a job that’s either at the airport or associated with that airport.”

But Supervisor Ron A. Meyer Jr. (R-Broad Run) is worried about the precedent of giving taxpayer money to the airport with no strings attached. As local politicians, he said, it’s hard to turn down a check to the local economy, but he wondered if a $50 million check does anything to fix systematic problems at Dulles.

“We have to step out of our parochial shoes and realize what this does for our state,” Meyer said. “Are we going to want this sort of thing to happen if the Richmond airport goes through the same issue?”

Letourneau argued that Dulles has made structural changes, and the money will give airport managers options.

“In this case, the state government is trying to eliminate or reduce the impact of some of the problems that the federal government has caused,” Letourneau said, later adding: “It gives them the flexibility to be able to invest and attract new air services by buying down their fees.”

The money could be used in a number of ways, Paolino said. It could subsidize fees to airlines in the near term, acting as an incentive to attract more air service. It could be used to develop other services around the airport. At the end of two years, the airport could be on its way to more hotels on airport property, more concessions inside the terminals, more flights, and more income.

“Dulles has a lot going for it in the long run,” Paolino said. “It’s the only major airport on the East Coast that I’m aware of that has room to grow. … This is a potentially short-term challenge, but it could become a long-term challenge if we don’t address it.”

2 thoughts on “Governor Proposes $50M to Lift Dulles

  • Pingback: General Assembly Wraps Up; Budget Includes Money for Dulles – Loudoun Now

  • 2016-02-10 at 5:42 pm

    Original critics of Dulles said the airport was too far from the city center to succeed. They were correct. Dulles is a failure. It only survives on a concoction of government welfare that attempts to manipulate the market to drive traffic to an airport that people don’t want to use. Now, we are giving direct cash injections to it. Supervisor Meyer is right. What will be next? MWAA made a big bet on a “build it and they will come” expansion that completely failed. They are mired in debt.

    Here is my prediction. The bankruptcy lawyer that Metro just hired to sort out WMATA’s issues will move on to MWAA and the airports next. Bondholders, prepare for a haircut. Likely the only reason they haven’t hired him yet for MWAA is they need to issue bonds to complete the Silver Line. You’d have to be a fool banker to put money into those bonds.

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