Indebted airport discovers gas, cash

Planes fill the gates at Pittsburgh International Airport in this 2001 file photo. Natural gas royalties from drilling beneath the runways and terminals will generate about $20 million per year for the airport, officials estimate.
Planes fill the gates at Pittsburgh International Airport in this 2001 file photo. Natural gas royalties from drilling beneath the runways and terminals will generate about $20 million per year for the airport, officials estimate.

Correction: The annual revenue of Dallas-Fort Worth International Airport is $650 million. The amount was incorrect in this article.

PITTSBURGH -- Where 600 flights used to take off and land every day at Pittsburgh International Airport, there are now about 300. Partway down Terminal B, the moving sidewalk that used to lead to a dozen gates now stops abruptly at a plain gray wall.

Pittsburgh's airport is struggling financially and mired in debt, with sharply lower traffic ever since US Airways began phasing it out as a bustling hub in 2004. Long gone are the days when British Airways flew 747s to London and TWA flew to Frankfurt from Pittsburgh.

For salvation, airport officials are looking down -- about 6,000 feet. The runways, it turns out, are sitting on enough natural gas to run the whole state of Pennsylvania for a year and a half, and this month, Consol Energy will drill its first well here to tap the gas, which county officials say will bring them nearly half a billion dollars over the next 20 years.

The well is just outside the airport fence and, with horizontal drilling, will extract the rich deposits that lie under the terminals and runways.

"It's like finding money," said Rich Fitzgerald, the county executive of Allegheny County, which owns the airport. "Suddenly you've got this valuable asset that nobody knew was there."

The discovery could not have come at a better time for the airport, which devotes 42 percent of its annual budget to pay off its large debt, much of it incurred to build out the gates it no longer uses. The airport has 75 gates; 62 are still available, but many of those are actually vacant, marked with the airport logo and not an airline's.

After the drilling, which uses a process called hydraulic fracturing, or fracking, begins in earnest and the natural gas royalties kick in, the airport will receive about $20 million per year, a hefty portion of an annual operating budget now below $91 million.

Pittsburgh is not the only airport with oil or gas exploration on its grounds. Dallas-Fort Worth International Airport has done it for years, and there were oil and gas wells at Denver International even before the airport was there.

But no other airport relies on oil and gas revenue the way Pittsburgh will. Dallas-Fort Worth, by comparison, earns $8 million from the 100 wells on its property, a fraction of its annual revenue of $6 billion. And Denver International brought in $6.2 million in 2012, about 1 percent of its revenue, from its 76 wells.

Fitzgerald and others have recognized for a while that their chunk of southwestern Pennsylvania lies atop the vast Marcellus Shale, a driller's paradise that is among the most productive in the world. But it wasn't until the last few years that airport officials got serious about extracting the gas.

The airport offers conditions just about ideal for fracking. For example, the airport sits above four separate layers of shale, each containing natural gas and related liquids. All of it can be reached by a single set of drilling pads, delivering their gas to the same pipelines, and trucked away on a single set of roads.

With a single well, drillers can bore down a few thousand feet, turn sideways and drill lateral wells up to 2 miles long. In other areas of Pennsylvania, that can mean having to secure permission from hundreds of property owners. The airport, though, is 9,000 acres with a single landlord.

The need for new revenue would not be so great had it not been for the relentless consolidation in the airline industry, something Allegheny County did not anticipate when the airport was expanded.

Kent George, head of the airport authority from 1998 to 2007, said that when US Airways told county officials that it wanted to build a hub in the 1980s, the reply was, "We'll do whatever you need." George said that the local government acted "without taking a look at what the long-term exposure was," and soon, "the airport was fat, dumb and happy with 600 flights a day."

But then came consolidation, leaving the surviving airlines with too many hubs. A wave of bankruptcies followed, allowing airlines like US Airways to break their long-term leases. The result was a decline in landing fees, gate rentals and passenger spending.

"A million passengers here, a million passengers there, and before you know it, we had dropped considerably," said Jay Kruisselbrink, vice president of Airmall, which manages the airport's retail space. The terminal was built for 30 million passengers per year. The peak was just under 21 million, in 1997. Last year, there were 8 million.

In response, the airport, like others, has sought to increase revenue from sources that have nothing to do with aviation.

Just about anything will be considered, as other airports have found. "It could be warehouse development," said Bob Hazel, a former vice president for US Airways and now a consultant. "It could be grazing."

Business on 08/13/2014

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