Wednesday, October 07, 2015

Is Cleveland-Hopkins International Airport (KCLE) Reducing Staffing Because It's Running Out of Money?

By Daniel McGraw

When the U.S. Federal Aviation Administration slapped the City of Cleveland with $735,000 in fines last month for failing to plow and de-ice runways at Hopkins International Airport during the past few winters, there didn't seem to be too much consternation about planes becoming disabled because the runways were too iced up for their brakes to work. After all, the city can't plow streets very well, so how can it plow airport runways, and besides, the Republican National Convention will be here in the summertime, so who cares?

In fact, at the Cleveland City Council's Transportation Committee meeting two weeks ago, no one even raised the issue of Cleveland being the subject of the FAA's largest fine in such matters to date. Only city councilman Jeff Johnson even tried to ask a few questions, but he never got clearance to voice his criticisms of the Jackson administration in this matter.

The question not being asked is why the city slimmed down its winter runway maintenance crews to below FAA standards in the first place. The standard theory put forth has been that the former director of the city's airports, Ricky Smith (who conveniently bailed out in July and took a new airport job in Maryland), had merely mismanaged the airport's day-to-day workings and had failed to fill some open maintenance positions. But when looking at Hopkins' declining numbers of flights since United Airlines de-hubbed here, maybe those positions went unfilled because Hopkins is running out of money.

According to Abdul-Malik Ali, the former manager of field maintenance at Hopkins and the one who informed the FAA of the problem (and who is also suing the city for being subsequently demoted), the airport was short six full-time foremen ($23.33 an hour), 12 full-time workers ($19.86 an hour) and 16 seasonal workers (800 hours annually each, at $17.99 per hour). The amount of salary and benefits off the books for the airport for those 34 workers was $1.4 million, according to Ali. But Ali also says that Smith shortchanged his department $2.2 million out of $2.5 million budgeted for de-icing chemicals, bringing the total to $3.6 million in annual savings.

This may not seem like much, as the Cleveland airports (Burke is also included) had $124 million in operating expenses for 2014. But the key factor is that the airports have gone from running a $6.2 million surplus in 2010 to a $9.5 million loss in 2014. The reason those numbers are important is that the Cleveland airport system is run as an enterprise fund, meaning it has to pay for itself. The city can't move money from the road repair budget if the airport comes up short; the airport has to raise fees for airlines to land or parking rates and rents for businesses operating in the terminal.

Cleveland mayor Frank Jackson and former director Smith have been throwing each other under the bus in recent weeks, with Jackson claiming the positions were budgeted and that Smith didn't fill them on his own accord. Smith has countered that the mayor's office directed him to cut the budget and the snow removal employees were a part of that. Neither Jackson not Smith were available for interviews for this story.

Ali's attorney, Subodh Chandra, said the issue of budget never came up between his client and Smith, and said the decision to cut personnel to clear the runways and the de-icing chemicals was a "bizarre autocratic edict" by Smith. "[Ali] was never told there was a budget problem that the airport had to deal with, and it doesn't make any sense to cut in this area," Chandra said. "It is a service that airports do for safety reasons. It would be like a police department trying to save money by not having anyone to answer 911 calls. It wouldn't even be considered."

Maybe Smith was looking down the road at budget problems, based on recent numbers, and didn't inform his staff about it. That would be the huge dropoff in the number of flights to and from Hopkins after United cut their schedule, numbers the media hasn't reported because, some suspect, of their pro-Cleveland RNC coverage. In 2013, before United de-hubbed at Hopkins, there were 181,340 total flight operations at the airport. In 2014, after the de-hubbing, there were 130,762 flight ops. Based on data from the FAA through the end of August, Cleveland will have about 117,000 fights in 2015. That's a 35 percent drop in fights in just two years.

To put that into perspective, Cleveland will now be a smaller airport based on the number of flights than Pittsburgh, Cincinnati, Memphis, Columbus, Louisville and St. Louis. Cleveland had 1,789 flights out of Hopkins in July 2010, and just 991 in July of this year, a drop of 45 percent.

Fewer flights mean fewer passengers, which means less money. The number of "enplanements" (the FAA term for ticketed passengers) coming through Hopkins was about 4.4 million in 2013. That number dropped to 3.7 million last year. Prorated numbers (based upon flight data through Aug. 31) indicate the number of enplanements will drop to around 3.3 million for 2015. That's a 25 percent drop in just two years.

Hopkins gets about $20 in fees per passenger (money from landing and ticket fees, and other sources) according to the city's own numbers. The figure is very high in the industry: Columbus is at $8 per passenger, for example. A drop of one million passengers from 2013 to 2015 for Hopkins would mean about $20 million less in revenue. That's one-sixth of the operating revenue from 2014.

The City of Cleveland expects the number of passengers to go up at Hopkins this year, despite the number of flights decreasing. "Although the number of commercial flights is lower than before the Hub termination, the closing of the Hub permitted the city to outreach to other airlines," said City of Cleveland spokesperson Dan Williams in an email. "As a result, more airlines are serving Cleveland and legacy airlines have expanded operations. As a result, a higher percentage of passengers enplaning in Cleveland are originating in Cleveland. The projection for 2015 is that enplanements will exceed 2014."

Cleveland is basing those rosy figures on the fact that, with the United hub gone, each plane now has more passengers (fewer small aircraft flying into Hopkins from smaller markets). But in order for Hopkins to hit the 2014 passenger numbers in 2015, it would have to average 34 passengers per plane, six more than in 2014, and quite a bit higher than other airports in the region. Preliminary numbers say may be close to hitting that goal, but everything changes again starting in January, when many current airline agreements end and have to be renegotiated.

All of this becomes more complicated given that debt payments and separate airline agreements for how much they pay to use the airport vary and change over time, not to mention how accountants transfer money from one column to another in very complicated ways. But one thing is certain: Hopkins needs to lower its fee structure to attract more airlines but at the same time needs to raise more money from its non-aeronautical revenues to balance the books. Perhaps that's why they have raised the parking fees twice in the past two years (a total of $2.50 a day at city-owned lots).

The financial analysts are already taking note. Fitch Ratings downgraded the airport's bonds to "negative outlook" last May because of the decreased revenue from passengers compared to the $20 million borrowed for the terminal makeover currently underway. The negative outlook, Fitch Ratings wrote, "reflects continued concerns over enplanement levels after United Airlines announced service reduction in 2014 ... . Traffic through the first two months of 2015 is down a further 8.2% but management is expecting traffic to rebound later in the year such that full year 2015 enplanements will surpass those in 2014. To the extent this is realized, concerns over operational risks may diminish."

Of course they could solve Hopkins' entire financial problem very easily. The city could close Burke (not many fly out of there anymore, either) and sell the 450 acres of lakefront property to some developer who wants to develop more hipster apartments and craft breweries. The result would be clear runways and free parking and lower airfares for flying public. Once again, wishful thinking.

Original article can be found here: