Legislature(2009 - 2010)SENATE FINANCE 532

03/23/2009 01:30 PM Senate FINANCE


Download Mp3. <- Right click and save file as

Audio Topic
01:37:07 PM Start
01:38:11 PM Aviation Industry Presentation by Christine Klein, Deputy Commissioner of Aviation, Department of Transportation and Public Facilities.
03:00:07 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Aviation Industry Presentation TELECONFERENCED
by Christine Klein, Deputy Commissioner,
Aviation and Airports
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  SENATE FINANCE COMMITTEE                                                                                      
                       March 23, 2009                                                                                           
                         1:37 p.m.                                                                                              
                                                                                                                                
1:37:07 PM                                                                                                                    
                                                                                                                                
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stedman called the Senate  Finance Committee meeting                                                                   
to order at 1:37 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Charlie Huggins, Vice-Chair                                                                                             
Senator Johnny Ellis                                                                                                            
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Christine Klein, Deputy Commissioner  of Aviation, Department                                                                   
of Transportation and Public Facilities.                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
^Aviation  Industry Presentation  by Christine Klein,  Deputy                                                                   
Commissioner  of Aviation, Department  of Transportation  and                                                                   
Public Facilities.                                                                                                              
                                                                                                                                
1:38:11 PM   AT EASE                                                                                                          
1:38:23 PM   RECONVENED                                                                                                       
                                                                                                                                
CHRISTINE KLEIN, DEPUTY COMMISSIONER  OF AVIATION, DEPARTMENT                                                                   
OF   TRANSPORTATION  AND   PUBLIC   FACILITIES  briefed   the                                                                   
committee  on  the  Aviation  Industry  with  the  PowerPoint                                                                   
presentation,  "Alaska   International  Airports"   (Copy  on                                                                   
File).                                                                                                                          
                                                                                                                                
     Overview:                                                                                                                  
     I. System Advantages & Strengths                                                                                           
                                                                                                                                
          1. Alaska System Global Advantage                                                                                     
          2. Airport System Strengths                                                                                           
          3. Economic Impacts                                                                                                   
                                                                                                                                
     II. Traffic, Trends, Concerns                                                                                              
                                                                                                                                
          1. Growth of Past 10 Years                                                                                            
          2. Weakening of 2008 Events                                                                                           
          3. AIAS Responses                                                                                                     
                                                                                                                                
     III. Future Outlook                                                                                                        
                                                                                                                                
          1. AIAS Tie to Global & National Markets                                                                              
          2. Responsiveness and Competitive                                                                                     
          3. Cautious Stable Growth                                                                                             
                                                                                                                                
1:39:25 PM                                                                                                                    
                                                                                                                                
Ms. Klein  discussed Slide  3, "Alaska International  Airport                                                                   
System" (AIAS):                                                                                                                 
                                                                                                                                
   · Established in 1961                                                                                                        
   · Airports of Anchorage International Airport (ANC) and                                                                      
     Fairbanks international Airport (FAI)                                                                                      
        o Shared Assets and Resources                                                                                           
        o Capital and Bonding Capability                                                                                        
                                                                                                                                
   · Aviation Support across vast and remote distances                                                                          
        o Aircraft Alternate and Diversion Options for                                                                          
          weather/disasters.                                                                                                    
                                                                                                                                
   · Serving Alaska and World                                                                                                   
        o Part of the National Priority International                                                                           
          Airport system.                                                                                                       
                                                                                                                                
1:41:55 PM                                                                                                                    
                                                                                                                                
Ms.  Klein  discussed  Slide 4,  "Alaska's  Global  Advantage                                                                   
Payload  versus  Range."  She  explained  the  advantages  of                                                                   
Alaska's   location,  with  both   Fairbanks  and   Anchorage                                                                   
approximately  nine hours  distance from  all centers  of the                                                                   
industrialized  world.  Alaska's location  allows  profitable                                                                   
transport for air  carriers traveling across the  globe.  She                                                                   
cited an example  of a freighter traveling from  Hong Kong to                                                                   
Chicago,  explaining  that  a  stop in  either  Anchorage  or                                                                   
Fairbanks  earns double  the revenue.  A  direct flight  from                                                                   
Hong  Kong  to  Chicago  must carry  more  fuel  without  the                                                                   
paying commodity.                                                                                                               
                                                                                                                                
1:43:04 PM                                                                                                                    
                                                                                                                                
Ms. Klein discussed Slide 5, "Alaska System Advantages":                                                                        
                                                                                                                                
   Regulatory:                                                                                                                  
     · Progressive Clearance                                                                                                    
     · International to International Cargo Transfers                                                                           
     · United States Department of Transportation awarded                                                                       
        Cargo Transfer Flexibility in 1996                                                                                      
     · Expanded Cargo Transfer 2003                                                                                             
                                                                                                                                
   Location and Cost:                                                                                                           
     · Strategic Location for Trans-Pacific Asia Cargo                                                                          
     · Pay-load versus Range                                                                                                    
     · Growing Asia Market and Base of Chinese Freighters                                                                       
     · Close alternate airport                                                                                                  
     · No Slots or Curfews                                                                                                      
     · Parts exchange program                                                                                                   
     · Competitive airports: each with same low rates and                                                                       
        fees                                                                                                                    
                                                                                                                                
1:45:04 PM                                                                                                                    
                                                                                                                                
Ms. Klein discussed Slide 6, "AIAS Strengths":                                                                                  
                                                                                                                                
   · One Revenue System                                                                                                         
   · Two Large International Airports                                                                                           
   · Competitive Rates and Fees                                                                                                 
   · Diverse Revenue Sources                                                                                                    
   · Wide Mix of Air Carriers                                                                                                   
   · Air Cargo center for Asia                                                                                                  
   · Long-term Commitments                                                                                                      
   · System Capacity for Growth                                                                                                 
   · Economic Engines for the State of Alaska and the Local                                                                     
     Communities                                                                                                                
                                                                                                                                
Ms. Klein mentioned the expansion potential in Alaska in                                                                        
comparison to other urban areas. Anchorage maintains                                                                            
traffic and revenue because of expansion potential.                                                                             
                                                                                                                                
1:47:02 PM                                                                                                                    
                                                                                                                                
Ms.  Klein discussed  Slide  7, "Strength:  Diverse  Business                                                                   
Revenues"  (Pie Chart).  She discussed  diversity of  revenue                                                                   
sources. Landing  fees generate  over 42 percent  of revenue.                                                                   
The  certificated maximum  gross  take-off weight  determines                                                                   
the landing fee.                                                                                                                
                                                                                                                                
Senator Huggins  requested a  reciprocal approach  to landing                                                                   
fees. He wondered  if there were disparities  in landing fees                                                                   
for  different   airports.  Ms.  Klein  answered   that  each                                                                   
international  airport is  different. The  United States  use                                                                   
similar landing  fee structures,  but international  airports                                                                   
outside  of  the  United States  have  widely  different  fee                                                                   
structures.                                                                                                                     
                                                                                                                                
Ms. Klein  noted that  nearly two  thirds of revenue  include                                                                   
cargo  and passenger  sources.  Fuel  flowage is  the  second                                                                   
largest  revenue source.  The final  revenue sources  consist                                                                   
of  concession   fees,  parking   fees,  federal   inspection                                                                   
service, and land rents.                                                                                                        
                                                                                                                                
1:49:12 PM                                                                                                                    
                                                                                                                                
Ms. Klein  stated that the total  budget is $112  million for                                                                   
the  system   including  operating   and  maintenance   costs                                                                   
ranging  from $49  million  to  $70 million  in  the last  10                                                                   
years. Currently,  the FY09 budget  is $71 million,  which is                                                                   
similar to the FY06 budget.                                                                                                     
                                                                                                                                
Ms.  Klein  discussed  Slide   8,  "Cargo  and  Diversity  of                                                                   
Carriers":   She  informed   that   Alaska  has   thirty-five                                                                   
different  air cargo  carriers.  She noted  that 14  carriers                                                                   
were  from  the  United  States   while  16  are  from  other                                                                   
countries.  She informed  that 35 percent  of cargo  carriers                                                                   
serve China.                                                                                                                    
                                                                                                                                
1:50:29 PM                                                                                                                    
                                                                                                                                
Ms.  Klein discussed  Slide  9, "Overall  Statewide  Aviation                                                                   
Economic Contribution  to Alaska." She noted that  the Alaska                                                                   
Aviation System  is the largest  system in the  United States                                                                   
with  mort   airports  than   the  Russian  Federation.   The                                                                   
aviation industry  provides over 47 thousand jobs  in Alaska,                                                                   
and is  the fifth  largest provider  of Alaska's gross  state                                                                   
product equating  approximately #3.5 billion of  Alaska's $44                                                                   
billion economy.                                                                                                                
                                                                                                                                
Ms. Klein  discussed Slide  10, "Anchorage Specific  Economic                                                                   
Impact:                                                                                                                         
                                                                                                                                
   · One in eight jobs                                                                                                          
   · about $562 million direct annual payroll                                                                                   
  · Another $288 million in annual community jobs payroll                                                                       
   · $2.36 billion total annual Anchorage Impact                                                                                
                                                                                                                                
Co-Chair  Stedman questioned  the accuracy  of the  estimates                                                                   
for  payroll  for annual  community  jobs.  He asked  if  the                                                                   
aviation  industry  used  a  multiplier  including  bands  of                                                                   
comfort.  Ms. Klein  responded  that an  Institute of  Social                                                                   
and Economic  Research (ISER) update provides  necessary data                                                                   
biyearly.  The standard  deviation  or  margin  of error  for                                                                   
this particular report is unknown.                                                                                              
                                                                                                                                
1:53:25 PM                                                                                                                    
                                                                                                                                
Senator   Huggins  introduced   the   debate  about   airport                                                                   
parking. He  opined that a  great demand for  airport parking                                                                   
exists,  but  he  requested  an  expert  opinion.  Ms.  Klein                                                                   
answered that  excess airport parking, although  disconnected                                                                   
from the terminals, exists.                                                                                                     
                                                                                                                                
Senator  Olson  clarified  the  location  of  the  additional                                                                   
parking  as   east  of   the  Department  of   Transportation                                                                   
facility near Anchorage International Airport.                                                                                  
                                                                                                                                
1:54:41 PM                                                                                                                    
                                                                                                                                
Ms.  Klein   addressed  Slide   11,  "Traffic,  Trends,   and                                                                   
Concerns":                                                                                                                      
                                                                                                                                
      Traffic, Trends, and Concerns                                                                                             
                                                                                                                                
          1. Growth Past 10 Years                                                                                               
          2. Past Year 2008 Weakened                                                                                            
          3. Traffic Downturn & Concerns                                                                                        
          4. AIAS Responses                                                                                                     
                                                                                                                                
Ms.  Klein discussed  Slide 12,  "Traffic: Passenger  Growth"                                                                   
(Graph):  She  stated  that  growth   has  been  steady.  She                                                                   
informed that last  year showed 5 percent growth,  while this                                                                   
year shows 0.5 percent growth.                                                                                                  
                                                                                                                                
Co-Chair Stedman  asked about Slide 12 and  the final portion                                                                   
of 2008. He  requested data through February  2009. Ms. Klein                                                                   
replied that the  requested information is included  later in                                                                   
her presentation.                                                                                                               
                                                                                                                                
Senator  Olson  asked  about   the  classification  of  cargo                                                                   
carriers  used  in  Alaska's  aviation  industry.  Ms.  Klein                                                                   
reported that  traffic is  measured using certified  activity                                                                   
reports for 121 cargo carriers.                                                                                                 
                                                                                                                                
1:57:46 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked for  a definition  of a 135  carrier.                                                                   
Ms. Klein  answered that  there are  different categories  of                                                                   
cargo  carriers.  Those with  greater  than sixty  seats  are                                                                   
termed  "121 carriers,"  while "135  carriers" contain  fewer                                                                   
than 60 seats.                                                                                                                  
                                                                                                                                
Ms. Klein discussed  Slide 13, "Fairbanks": a  Star in Winter                                                                   
International  Passenger  Enplanements." She  attributed  the                                                                   
increasing  international  enplanement numbers  in  Fairbanks                                                                   
to winter tourism from Asia.                                                                                                    
                                                                                                                                
Ms. Klein  discussed Slide 14,  "Traffic: Cargo  Growth." She                                                                   
discussed  the measurements  of  aircraft and  the effect  on                                                                   
revenue. She  informed of the  4 to 6 percent  annual growth.                                                                   
The  bar  graph  illustrates  the  take-off  weight  used  to                                                                   
measure  revenue. The  landing  portion of  the graph  varies                                                                   
from year  to year due to  holidays in other  countries, down                                                                   
markets, and fuel cost variables.                                                                                               
                                                                                                                                
1:59:54 PM                                                                                                                    
                                                                                                                                
Ms. Klein  discussed Slide  15, "International  Cargo  is big                                                                   
business":                                                                                                                      
                                                                                                                                
     Air Cargo dominates airfield activity at Anchorage                                                                         
     International Airport and generates most of the                                                                            
     aircraft landing fees.                                                                                                     
                                                                                                                                
        · Nearly 35 percent of International Cargo traffic                                                                      
          is from China                                                                                                         
        · 2000-15 landings per week.                                                                                            
        · 2006-198 landings per week.                                                                                           
        · 2007- 260 landings per week.                                                                                          
        · Total China-US air cargo market in 2007 is equal                                                                      
          to 36.7 percent of all Asia North America air                                                                         
          cargo.                                                                                                                
                                                                                                                                
2:01:33 PM                                                                                                                    
                                                                                                                                
Ms.  Klein  discussed  Slide   16,  "International  Cargo  at                                                                   
Anchorage."  She  named  nine   international  carriers  that                                                                   
account for over  55 percent of cargo revenue.  These include                                                                   
Cathay  Pacific,   China  Airlines,   Korean  Airlines,   Eva                                                                   
Airways  Corporation,  Japan Airlines  International,  Asiana                                                                   
Airlines,  Singapore Airline  Cargo,  Nippon Cargo  Airlines,                                                                   
and  Air  China.  She  mentioned  that  Federal  Express  and                                                                   
United  Parcel  Service  are major  players  in  the  Alaskan                                                                   
market as they are Anchorage hubs.                                                                                              
                                                                                                                                
Ms. Klein discussed  Slide 17, "2007 ACI Cargo  Traffic Stats                                                                   
(Metric  Tons)."  She  stated that  Anchorage  ranked  number                                                                   
three in 2007.                                                                                                                  
                                                                                                                                
Senator Huggins  asked why Memphis  was such a  key location.                                                                   
Ms.  Klein answered  that Memphis  is in  close proximity  to                                                                   
manufacturing as  it has roads available  for transportation.                                                                   
Alaska does not  have the same base of exports.  Memphis will                                                                   
continue as a strong competitor.                                                                                                
                                                                                                                                
2:04:18 PM                                                                                                                    
                                                                                                                                
Senator  Huggins   asked  how  much  business   compared  for                                                                   
domestic   versus  international   in   Memphis.  Ms.   Klein                                                                   
admitted that she did not know.                                                                                                 
                                                                                                                                
Senator  Olson  added  that  Memphis   was  headquarters  for                                                                   
Federal  Express. He  asked if  there  were differences  that                                                                   
would create  a fee structure  in Anchorage competitive  with                                                                   
Memphis, enabling  higher revenues. Ms. Klein  responded that                                                                   
she had  reviewed the items and  would address them  later in                                                                   
the  presentation.  She  noted   that  other  US  ports  with                                                                   
manufacturing and exports are competitors.                                                                                      
                                                                                                                                
2:05:32 PM                                                                                                                    
                                                                                                                                
Ms. Klein discussed Slide 18, "Weakening in 2008":                                                                              
                                                                                                                                
     Weakening in 2008                                                                                                          
                                                                                                                                
          • US Economic Recession                                                                                               
          - Passenger downturn elsewhere                                                                                        
          • Aviation Industry in Crisis                                                                                         
          - Airline Bankruptcies & Mergers                                                                                      
          - High Fuel Costs                                                                                                     
          - Fewer Flights & Capacity                                                                                            
          • AIAS Activity & Revenue                                                                                             
          - Cargo Activity Declines                                                                                             
          - Fuel Flowage Down                                                                                                   
          - High Debt                                                                                                           
                                                                                                                                
                                                                                                                                
Ms.  Klein  spoke  about  the   US  economic  recession.  The                                                                   
decreases in  traffic began in  June 2008, increasing  as the                                                                   
year progressed.  Other airports  in the  US began  to follow                                                                   
Alaska's  trends.  High  fuel  costs  added to  the  fall  in                                                                   
international  as well  as rural  traffic. Many  bankruptcies                                                                   
and mergers  were seen and many  older aircraft taken  out of                                                                   
service.  She noted that  multiple communities  lost all  air                                                                   
service, a tragedy that would devastate Alaska.                                                                                 
                                                                                                                                
2:08:34 PM                                                                                                                    
                                                                                                                                
Ms.  Klein stated  that  when United  pulled  out of  Alaska,                                                                   
while  Delta  and  Northwest  Airlines  merged.  When  United                                                                   
Airlines  pulled out,  existing  air carriers  such as  Delta                                                                   
and Northwest Airlines picked up the traffic demand.                                                                            
                                                                                                                                
2:09:11 PM                                                                                                                    
                                                                                                                                
Ms. Klein  discussed Slide 19,  "Summary of Fiscal  Year 2008                                                                   
Alaska International Airport System (AIAS) Activity":                                                                           
                                                                                                                                
     Summary of Fiscal Year 2008                                                                                                
     AIAS Activity                                                                                                              
     • Total Landings = 101,863 (-05%)                                                                                          
     • Cargo by Landings = 46,965 (-5.4%)                                                                                       
     • Passengers by seats = 5,380,811 (+4.4%)                                                                                  
     • Fuel Flowage = 865 million gallons (-6.6%)                                                                               
                                                                                                                                
Ms. Klein  discussed Slide  20, "AIAS  FY06-FYO9 YTD  Monthly                                                                   
Passenger Enplanements."  The monthly passenger  enplanements                                                                   
equate the number  of people entering an aircraft.  The noted                                                                   
decreases are consistent with the rest of the country.                                                                          
                                                                                                                                
Ms. Klein  discussed Slide 21,  "Landing Revenue  by Aircraft                                                                   
Certified Maximum Gross Take-Off Weight":                                                                                       
                                                                                                                                
     Landing Revenue by Aircraft                                                                                                
     Certified Maximum Gross Take-Off Weight                                                                                    
     • Cargo aircraft                                                                                                           
     • Passenger (Pax) aircraft                                                                                                 
     • Airport's as a standard, charge landing fees to air                                                                      
     carriers for use                                                                                                           
     • Airport Landing Fees are charged by the aircraft                                                                         
     manufacturers                                                                                                              
    Certified Maximum Gross Take-Off Weight (CMGTW) for                                                                         
     each use                                                                                                                   
     • Air Carriers are required to report aircraft weights                                                                     
     monthly in certified                                                                                                       
     Activity reports (CAR's) to the airport's they utilize                                                                     
                                                                                                                                
2:11:41 PM                                                                                                                    
                                                                                                                                
Ms.  Klein  discussed  Slide  22, "AIAS  FY06  and  FY09  YTD                                                                   
Monthly  Combined   Cargo-Pax  CMGTW":  She   referenced  the                                                                   
trends  exhibited  in the  graph  that follow  global  market                                                                   
trends.  She informed  that  the  monthly combined  cargo  is                                                                   
down 19  percent in  the beginning  of the  fiscal year.  The                                                                   
months varied,  yet the  system's average  is 19 percent.  In                                                                   
Fairbanks,  the  average  is 2  percent  higher.  Traffic  by                                                                   
weight is  down 12  to 28 percent.  The international  market                                                                   
in   December,  referred   to  as   an  airfreight   collapse                                                                   
throughout the world, shows a 26 percent decline.                                                                               
                                                                                                                                
Co-Chair  Stedman inquired  about the  availability of  March                                                                   
data. Ms. Klein  answered that the requested  data lags about                                                                   
one  month because  the carrier  must send  in the  certified                                                                   
activity reports.                                                                                                               
                                                                                                                                
Co-Chair Stedman  asked if Ms. Klein expected  changes in the                                                                   
trends.  He asked if  the estimation  was continued  downward                                                                   
momentum or an increase in March.                                                                                               
                                                                                                                                
2:14:02 PM                                                                                                                    
                                                                                                                                
Ms. Klein projected  a 20 percent decline through  the end of                                                                   
this year.                                                                                                                      
                                                                                                                                
Ms. Klein  stated  that with a  comparison  seen on Slide  23                                                                   
"Airport CMGTW Concerns and Comparisons":                                                                                       
                                                                                                                                
   AIAS:                                                                                                                        
     · Month of December CMGTW compared to same month of                                                                        
        prior year down 22.50 percent                                                                                           
     · FY09 ( with 7 months of year) shows a CMGTW average                                                                      
        decline of 19.92 percent                                                                                                
                                                                                                                                
   Other Airports in the US:                                                                                                    
     · San Francisco freight for December down 43 percent                                                                       
     · Los Angeles freight for December down 24.3 percent                                                                       
     · IATA reports "22.6 percent collapse in air freight                                                                       
        volumes for December as export volumes fell 20-30                                                                       
        percent in the US, Asia, and Europe"                                                                                    
                                                                                                                                
Ms.  Klein  explained   that  the  market  is   dependant  on                                                                   
products coming  from Asia to  the US. She admitted  recently                                                                   
learning that  market trends follow the  housing construction                                                                   
market.                                                                                                                         
                                                                                                                                
2:16:19 PM                                                                                                                    
                                                                                                                                
Ms. Klein  discussed Slide  24, "AIAS  FY06-FY09 YTD  Monthly                                                                   
Fuels." She informed  about declines in fuel  consumption for                                                                   
several  years. She  added that  the consumption  in FY09  is                                                                   
414  million   gallons,  which   correlates  with   decreased                                                                   
traffic.  Since fuel  is one  of  the greatest  costs in  the                                                                   
Aviation  Industry,  many  airlines   are  reducing  aircraft                                                                   
weight  improving fuel  efficiency.  The  cargo carriers  are                                                                   
only required  to carry  enough fuel to  get to an  alternate                                                                   
location and  many airlines carry  less fuel as  lower weight                                                                   
raises fuel efficiency.                                                                                                         
                                                                                                                                
Ms. Klein discussed Slide 25, "AIAS Fuel Trends":                                                                               
                                                                                                                                
     Fuel Flowage Fees                                                                                                          
        · Charged on each gallon of fuel                                                                                        
        · $0.027    per   gallon   for   aircraft    >12,5000                                                                   
          (signatory carriers)                                                                                                  
        · Accounts for ~20% of the AIAS Revenue                                                                                 
                                                                                                                                
     Changes                                                                                                                    
        · Cargo Freight Down                                                                                                    
        · Old Aircraft Being Parked                                                                                             
        · Airlines Improved Efficiencies                                                                                        
        · Carrying Less Fuel Weight                                                                                             
                                                                                                                                
2:19:21 PM                                                                                                                    
                                                                                                                                
Senator  Huggins  asked  about  the price  of  fuel  and  the                                                                   
flying habits  of large carriers.  He wondered  if commercial                                                                   
carriers  are  bound  to  change  to  a  blend  fuel  as  the                                                                   
military  is. Ms. Klein  answered that  the Federal  Aviation                                                                   
Administration,  which is looking  for alternative  fuels for                                                                   
commercial   aircraft,  regulates   the  commercial   market.                                                                   
Senator  Huggins  stated  that  Alaska  would be  part  of  a                                                                   
demonstration  project for  aviation fuel.  He wondered  if a                                                                   
certain gas price attracts carriers landing in Alaska.                                                                          
                                                                                                                                
2:21:12 PM                                                                                                                    
                                                                                                                                
Ms.  Klein  discussed  Slide  26,  "Trends  in  International                                                                   
Freight." She reminded  that the tragedy of  September 11 had                                                                   
a  huge  impact   on  the  aviation  industry.   The  current                                                                   
recession  has not  led to  that level  of traffic  decrease.                                                                   
Most airports  took years to  recover from September  11, yet                                                                   
Alaska recovered in six months.                                                                                                 
                                                                                                                                
2:22:36 PM                                                                                                                    
                                                                                                                                
Ms.  Klein  discussed  Slide 27,  "AIAS  Responded  Early  to                                                                   
Trends":                                                                                                                        
                                                                                                                                
     Reduced Operating Costs:                                                                                                   
        · June: reduce 2008 budget spending                                                                                     
        · July: defer, delay, and cut capital projects by                                                                       
          $300 million                                                                                                          
        · August: projected year traffic declines of 15-20                                                                      
          percent                                                                                                               
                                                                                                                                
          1. Cut development funds                                                                                              
          2. Hold utility increases and costs flat                                                                              
          3. Put TSA reimbursement to debt                                                                                      
                                                                                                                                
        · October: reduce 2009 operating budget by $3                                                                           
          million (3%)                                                                                                          
        · March further containment                                                                                             
                                                                                                                                
     Stay Competitive:                                                                                                          
        · September: Initiated independent third party                                                                          
          Asian Cargo Analysis Report…(Keiser Phillips)                                                                         
        · Assess and track Other US Competing Airports…                                                                         
        · December: Airport Operating Agreement Lease                                                                           
          completed in partnership with airlines                                                                                
                                                                                                                                
Ms.  Klein noted  the industry's  decreases and  projections.                                                                   
She discussed  cutting some development funds  collected from                                                                   
airlines and placing  those funds toward debt.  She mentioned                                                                   
significant  utility  increases,   although  staff  preformed                                                                   
superbly  finding  efficiencies  to keep  impacts  flat.  She                                                                   
reported  receiving $8  million  in TSA  reimbursement  funds                                                                   
for  security screening  allocated to  airport debt  equaling                                                                   
more  than  half  of the  industry's  operating  budget.  She                                                                   
shared that  a 3 percent  reduction of the operating  budget,                                                                   
using the  supplemental budget  as part of negotiations  with                                                                   
the airlines, presented a solution.                                                                                             
                                                                                                                                
Ms.  Klein informed  about an  industry  consultant hired  to                                                                   
aid  in  better  understanding   of  the  Asian  market.  The                                                                   
aviation   industry  monitors   other  airports  across   the                                                                   
country for  useful competitor  data. She informed  about the                                                                   
recent  completion of  an  airport operating  agreement  with                                                                   
the airlines that was in holdover for three years.                                                                              
                                                                                                                                
Co-Chair  Stedman asked  if Ms.  Klein was  a state  employee                                                                   
listed in  the state financial  directory. He noted  the debt                                                                   
level of  50 percent. Ms. Klein  clarified that the  debt was                                                                   
between $39 and $40 million.                                                                                                    
                                                                                                                                
2:26:25 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  asked if  cash  flow from  operations  was                                                                   
positive or negative.  He requested a debt service  report on                                                                   
the previously requested financial document.                                                                                    
                                                                                                                                
Ms. Klein  surmised that  the debt  service was $39  million,                                                                   
but  she  would  respond  to the  committee  with  the  exact                                                                   
information.  Ms.  Klein  referred   to  the  35  percent  of                                                                   
operating  expenses   illustrated  in  Slide   7,  "Strength:                                                                   
Diverse  Business Revenues"  as  the possible  debt  service.                                                                   
Co-Chair  Stedman asked  for a  breakdown  of the  industry's                                                                   
depreciation,  amatorization, and debt  service, as  they are                                                                   
three separate components.                                                                                                      
                                                                                                                                
Ms.  Klein  stated  that  she  would  verify  that  the  debt                                                                   
service  is  $39   million.  She  intended  to   provide  the                                                                   
requested information to the committee as soon as possible.                                                                     
                                                                                                                                
2:28:11 PM                                                                                                                    
                                                                                                                                
Senator  Huggins asked  about  the $300  million for  capital                                                                   
projects.   He  asked   about   capital  expansion   projects                                                                   
including  the   main  terminal   connecting  to   the  north                                                                   
terminal. Ms. Klein  responded that the connection  is one of                                                                   
the main  projects in the  five-year program currently  under                                                                   
construction, for completion in June 2009.                                                                                      
                                                                                                                                
2:29:36 PM                                                                                                                    
                                                                                                                                
Ms. Klein discussed Slide 28, "AIAS and the Future                                                                              
Outlook":                                                                                                                       
                                                                                                                                
     III. AIAS and the Future Outlook                                                                                           
                                                                                                                                
          1. Tied to National & Global Economy                                                                                  
          2. Responsive & Competitive Airport                                                                                   
          3. Cautious Positive Growth                                                                                           
                                                                                                                                
2:30:45 PM                                                                                                                    
                                                                                                                                
Ms. Klein discussed Slide 29, "AIAS Linked to the World":                                                                       
                                                                                                                                
     Global Economy                                                                                                             
          · AIAS tied to World and US trends                                                                                    
          · Economic recession                                                                                                  
                                                                                                                                
     Response and Vigilance                                                                                                     
          · Respond to Market and Costs                                                                                         
          · Track Airport Competition                                                                                           
          · Assess Over-flights to US                                                                                           
                                                                                                                                
     Realize Limitations                                                                                                        
          · Surface and Intermodal Limited                                                                                      
          · Northern Climate Disadvantage                                                                                       
          · No local manufacturing                                                                                              
          · Limited air exports                                                                                                 
                                                                                                                                
Ms. Klein discussed Slide 30, "Alaska Tied to World Air                                                                         
Trade":                                                                                                                         
                                                                                                                                
     Projections:                                                                                                               
        · Air Freight Growing Worldwide by 6 percent a year                                                                     
        · Market size doubles every 10 years                                                                                    
        · World Air Cargo will Triple over next two Decades                                                                     
          (Boeing)                                                                                                              
        · US Cargo Share of Air freight Revenue:                                                                                
             o 5 percent Domestic Majors                                                                                        
             o 15 percent European Majors                                                                                       
             o 20-50 percent Asian Majors                                                                                       
                                                                                                                                
2:33:02 PM                                                                                                                    
                                                                                                                                
Ms. Klein discussed Slide 31, "AIAS on the Forefront":                                                                          
                                                                                                                                
     AIAS on the Forefront                                                                                                      
     Responsive:                                                                                                                
        · Early Response to USA Economic Downturn                                                                               
             o Responded to Carrier's Requests for Relief                                                                       
               (Fuel)                                                                                                           
             o Focused on Debt and Rate Stability (Finance)                                                                   
             o Reduced Operating Expenses                                                                                     
             o Lower Landing Fees                                                                                             
                                                                                                                                
        · International trade Impacts                                                                                           
             o Asian Producers                                                                                                
             o USA Consumers                                                                                                  
                                                                                                                              
2:34:29 PM                                                                                                                  
                                                                                                                                
Ms.  Klein discussed  Slide  32  "Asian Market  Projected  to                                                                   
Lead  Growth."  The expectation  is  that  Anchorage  remains                                                                   
competitive.                                                                                                                    
                                                                                                                                
Ms. Klein discussed  Slide 33 and AIAS  Remains Competitive":                                                                   
She stated  that the  landing fee was  lowered by  ten cents.                                                                   
She provided  an example of  other airport fees.  Competitors                                                                   
include Memphis and Chicago.                                                                                                    
                                                                                                                                
2:36:24 PM                                                                                                                    
                                                                                                                                
Ms.  Klein   concluded  her   presentation  with   Slide  34,                                                                   
"Conclusion: AIAS Leads the Way":                                                                                               
                                                                                                                                
     Responsive, Vigilant, and Serving                                                                                          
                                                                                                                                
        · Assess the Competitors                                                                                                
             o Other USA Cargo Airports                                                                                         
             o Asian Cargo Carriers and Markets                                                                                 
                                                                                                                                
        · New Carrier Partnerships                                                                                              
             o NCA- JFK Station                                                                                                 
             o Cathay Pacific- New freighters and new                                                                           
               stations                                                                                                         
             o Evergreen/Kalitta- New China designation                                                                         
             o UPS-   Anchorage    Training   Center,   China                                                                   
               frequencies                                                                                                      
                                                                                                                                
Ms. Klein  noted that the  international airport  must remain                                                                   
a low  cost airport  system in  order to remain  competitive.                                                                   
The  declines  observed  link  with  the  recession  and  the                                                                   
economy, with some recovery anticipated in the coming year.                                                                     
                                                                                                                                
Ms. Klein  disclosed some  new carrier  partnership with  the                                                                   
United  Parcel   Service  (UPS)  adding  20  pilots   to  the                                                                   
Anchorage station.  She concluded that Alaska remains  on the                                                                   
major world crossroad.                                                                                                          
                                                                                                                                
Co-Chair  Stedman  asked  about  the  last  annual  financial                                                                   
statements.  He  asked if  Ms.  Klein received  quarterly  or                                                                   
yearly  updates.  Ms.  Klein replied  that  annual  financial                                                                   
audits occur as required by the legislature.                                                                                    
                                                                                                                                
2:39:04 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked for the financial statement  for June                                                                   
30, 2008 along with any updated statements.                                                                                     
                                                                                                                                
Senator  Huggins  asked  about   the  carrier's  request  for                                                                   
relief.  He asked  where Anchorage  was nationally  regarding                                                                   
retail fuel pricing.  He asked where the money  originates to                                                                   
provide the  requested relief.  Ms. Klein answered  that fuel                                                                   
dispensers match  the spot price, which for  Anchorage is Los                                                                   
Angeles, California.  Airlines buy  fuel in great  quantities                                                                   
to remain competitive.                                                                                                          
                                                                                                                                
Senator  Huggins   repeated  that   the  price  of   fuel  in                                                                   
Anchorage  International Airport  matches the  spot price  in                                                                   
Los Angeles,  California. He  asked how  to reduce  the price                                                                   
of fuel in order  to provide relief. Ms. Klein  answered that                                                                   
the slide was  referring to other relief reducing  the impact                                                                   
of the  high fuel  cost. She cited  an example of  escalating                                                                   
fuel costs leading to cost increases on terminal rents.                                                                         
                                                                                                                                
2:41:34 PM                                                                                                                    
                                                                                                                                
Senator  Huggins  asked  if  most of  the  aviation  fuel  in                                                                   
Anchorage  came from  Flint Hills.  Ms.  Klein answered  that                                                                   
the  fuel originates  from  multiple  locations  such as  the                                                                   
Tesoro, Nikiski, Valdez, and Flint Hills.                                                                                       
                                                                                                                                
Co-Chair Stedman  asked Ms. Klein  to reply to  the committee                                                                   
regarding the origin  of fuel at the Anchorage  International                                                                   
Airport.  He requested  the  information  presented in  total                                                                   
gallons and percentages.  Ms. Klein responded that  she would                                                                   
retrieve   the  requested   information   from  the   fueling                                                                   
consortium. Co-Chair  Stedman explained that  the information                                                                   
ties   many  of   the  legislators'   considerations   during                                                                   
legislative session.                                                                                                            
                                                                                                                                
Senator Huggins  asked if Flint  Hills closed  tomorrow would                                                                   
concern  her. Ms. Klein  answered by  submitting an  example.                                                                   
The response from  the fueling consortium was  that there was                                                                   
ample  storage capacity  for the  fuel.  She understood  that                                                                   
the storage capacity exists.                                                                                                    
                                                                                                                                
2:44:28 PM                                                                                                                    
                                                                                                                                
Senator  Ellis  asked  about the  selection  of  the  airport                                                                   
director. Ms. Klein  answered that the airport  system has an                                                                   
airport manager  for many years.  The prior airport  director                                                                   
had  the  position  currently  termed  system  director.  She                                                                   
stated  that she  posted  the vacant  position,  but has  not                                                                   
selected  a  replacement. Currently,  two  competent  airport                                                                   
managers exist, one in Fairbanks and one in Anchorage.                                                                          
                                                                                                                                
Senator  Ellis observed  oddities in  the selection  process.                                                                   
He opined  that the selection  process was not  efficient. He                                                                   
hoped  for an  airport administrator  more  capable than  the                                                                   
previous one.                                                                                                                   
                                                                                                                                
2:47:29 PM                                                                                                                    
                                                                                                                                
Ms.  Klein appreciated  the  committee's  confidence in  her.                                                                   
She   suggested   that   the    AIAS   adequately   addressed                                                                   
challenges. She  stated that she connected  with competitors;                                                                   
many are  past coworkers  of hers. She  added that  she would                                                                   
continue to search for the right manager.                                                                                       
                                                                                                                                
Senator  Ellis appreciated  the  ability to  speak. He  asked                                                                   
about the  Capstone Loan  Program, with  only six loans  made                                                                   
since the  beginning of  this legislative  session. He  asked                                                                   
if this level  of performance was adequate or  low. Ms. Klein                                                                   
answered  that the  Capstone  Loan  Program was  slower  than                                                                   
expected. She  offered to provide  the committee  with future                                                                   
information  regarding   the  program.  She  felt   that  the                                                                   
program  was successful,  as it  remains  focused on  Alaska.                                                                   
Co-Chair Stedman echoed the request for a program update.                                                                       
                                                                                                                                
2:50:43 PM                                                                                                                    
                                                                                                                                
Senator  Olson appreciated  Ms. Klein's  approach and  style.                                                                   
He opined  that the  airline industry is  in distress  due to                                                                   
the thin margin  necessary for stockholder comfort.  He asked                                                                   
about  accounts receivable  and  how many  carriers have  not                                                                   
paid.  Ms.  Klein  stated  that  she  could  not  answer  the                                                                   
question,  but  stated  that AIAS  accomplished  much  as  an                                                                   
international  airport.  Some  small regional  carriers  have                                                                   
greater difficulty.                                                                                                             
                                                                                                                                
Co-Chair Stedman asked  Ms. Klein to include the  30, 60, and                                                                   
90-day   interest  calculation   for   presentation  to   the                                                                   
committee. He clarified his interest in dollar amounts.                                                                         
                                                                                                                                
Senator  Olson asked  about mergers  with  Era Aviation.  Ms.                                                                   
Klein responded that  even in the economic downturn  there is                                                                   
ability  to  lease.  She stated  that  the  commissioner  for                                                                   
Military and Veteran's Affairs understands the merger.                                                                          
                                                                                                                                
Senator Olson asked  about trends in Alaska  General Aviation                                                                   
within the Anchorage International Airport.                                                                                     
                                                                                                                                
2:54:50 PM                                                                                                                    
                                                                                                                                
Ms. Klein  stated that  General Aviation  numbers remain  the                                                                   
same. Additional  parking  North of Lake  Hood, replaced  the                                                                   
previous  parking   situation.  The   wait  list   for  float                                                                   
operations   is  3-5  years   rather  than   20  years.   The                                                                   
operations  may  be  down  but  the citing  and  use  of  the                                                                   
airport remains the same for General Aviation.                                                                                  
                                                                                                                                
Senator  Olson asked  about plans  for the  Lake Hood  Strip.                                                                   
Ms. Klein  responded that  the Lake Hood  Strip has  about 50                                                                   
percent  of customers  requesting  pavement.  She thought  it                                                                   
ill advised  to pave the  strip, with paved runways  existing                                                                   
on the  international side of  the airport already  providing                                                                   
that option.                                                                                                                    
                                                                                                                                
2:56:37 PM                                                                                                                    
                                                                                                                                
Senator  Thomas   asked  about   a  similar  chart   for  the                                                                   
Fairbanks International  Airport. Ms. Klein answered  that no                                                                   
chart  exists for  the Fairbanks  International Airport.  She                                                                   
communicated  that she intends  to create  such a chart.  She                                                                   
anticipated an  economic impact assessment for  the community                                                                   
of Fairbanks through a system plan.                                                                                             
                                                                                                                                
Senator  Thomas asked  about the  study's  projected date  of                                                                   
completion.  Ms. Klein  replied that  the necessary  approval                                                                   
granted  by  the Federal  Aviation  Administration  (FAA)  to                                                                   
utilize grant  funds. She  hoped for  a completed study  with                                                                   
information available  prior to the next  legislative session                                                                   
in January.                                                                                                                     
                                                                                                                                
Senator  Huggins  asked  about   volcano  eruptions  and  the                                                                   
decision  process for  airport closure.  Ms. Klein  responded                                                                   
that the  airport  is always open.  It is  the discretion  of                                                                   
the pilot and airline to fly during a volcano eruption.                                                                         
                                                                                                                                
Co-Chair   Stedman  expressed   gratitude  for  Ms.   Klein's                                                                   
presentation.                                                                                                                   
                                                                                                                                
Ms.  Klein  stated   that  AIAS  successfully   sold  a  bond                                                                   
refinancing  the variable  debt  in January,  which she  felt                                                                   
illustrates  the  confidence  in  Alaska  aviation.  She  had                                                                   
great  confidence in  Anchorage  International and  Fairbanks                                                                   
International airports.                                                                                                         
                                                                                                                                
Co-Chair Stedman  asked for a  debt schedule included  in the                                                                   
requested financial statements.                                                                                                 
                                                                                                                                
3:00:07 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 2:59 PM.                                                                                           

Document Name Date/Time Subjects
Letters Economic Stimulus SB161.pdf SFIN 3/23/2009 1:30:00 PM
SB 161
AIASlegisUpdate3-23-09.pdf SFIN 3/23/2009 1:30:00 PM
SB 125 Sponsor Statement (S FIN).pdf SFIN 3/23/2009 1:30:00 PM
SB 125
SB161 Econ Stimulus Summary from OMB.pdf SFIN 3/23/2009 1:30:00 PM
SB 161