Legislature(2009 - 2010)SENATE FINANCE 532
02/03/2010 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Presentations: Alaska International Airport System; Alaska Railroad Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
February 3, 2010
9:04 a.m.
9:04:12 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:04 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Charlie Huggins, Vice-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
MEMBERS ABSENT
None
ALSO PRESENT
Christine Klein, Deputy Commissioner of Aviation,
Department of Transportation and Public Facilities (DOTPF);
John Parott, Airport Manager, Ted Stevens Anchorage
International Airport; Patrick Gamble, President & CEO,
Alaska Railroad Corporation (ARRC); Bill O'Leary, Chief
Financial Officer, Alaska Railroad Corporation (ARRC)
PRESENT VIA TELECONFERENCE
None
SUMMARY
^PRESENTATIONS: ALASKA INTERNATIONAL AIRPORT SYSTEM; ALASKA
RAILROAD CORPORATION
9:04:25 AM
ALASKA INTERNATIONAL AIRPORT SYSTEM
CHRISTINE KLEIN, DEPUTY COMMISSIONER OF AVIATION,
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOTPF),
introduced John Parott, the Anchorage Airport Manager. She
related that the Alaska International Airport System (AIAS)
consists of Anchorage International Airport and Fairbanks
International Airport, which share many assets, resources,
and capital and bonding capabilities. The AIAS has existed
by statute since 1961 because of the need for a back up
airport in case of bad weather.
Ms. Klein related that both airports are major hubs in the
national transportation system. Anchorage International
Airport is number 3 for cargo in North America and number 5
in the world. The aviation industry in Alaska provides over
47,000 jobs statewide, $2 billion in direct expenditures,
and $3.4 billion in indirect expenditures, which is 40
percent higher than the national average.
Ms. Klein referred to a handout entitled "Alaska
International Airports System" (copy on file). She stressed
the importance of operating as a "system" due to the unique
conditions in Alaska.
9:07:56 AM
Ms. Klein turned to slide 2 - Airport System Advantages.
She listed the advantages; regulatory issues, location, and
cost. She highlighted Alaska's global advantage regarding
payload versus range - slide 3. Cargo aircraft can stop at
the Anchorage or Fairbanks airports with a full load and
pick up fuel. She listed AIAS's competitors: Vancouver,
Seattle, Los Angeles, Oakland, San Francisco, and
Sacramento. She said that AIAS has been very successful
keeping rates competitive.
Ms. Klein noted that AIAS currently has 34 cargo carriers,
and a very diverse mix. New cargo carriers have joined AIAS
recently; Great Wall Airlines, World Airways, and Quantas.
There are more than 50 different airlines that use the
Anchorage Airport.
9:11:30 AM
Ms. Klein referred to slide 5, the comparison of AIAS's
competitive rates, both for terminal rent and for landing
fees. Landing fees reached a high point of $1,700, but are
now lowered to about $1,200. For the first time in eight
years, AIAS has been able to lower costs in order to remain
competitive.
9:13:04 AM
Ms. Klein spoke about the strengths of having diverse
business revenues - shown on slide 6. She pointed out that
the largest source of income is from landing fees. Fuel
flowage fees are the second largest source of income,
followed by terminal rents. Revenue sources are very
diverse.
Ms. Klein spoke about AIAS's expenses. She noted that debt
service of about $50 million makes up the highest cost. The
current total debt is about $600 million.
9:14:21 AM
Ms. Klein shared information about the cargo operations,
the majority of AIAS's revenue source - slide 7. The graph
shows the growth rate for all-cargo aircraft landings.
Ms. Klein skipped ahead to slide 9, a graph depicting
combined passenger and cargo certificated maximum gross
take-off weight (CMGTW) from FY 06 until FY 10. She spoke
of declines and increases during those years. She
emphasized that Anchorage Airport was the first in the
country to identify problems and respond to them. The drop
in April 2009 was due to the eruption of the Redoubt
Volcano. The green line shows a slight increase in FY 10.
She reported the first positive increases in cargo in
thirty months in November and December.
9:18:03 AM
Ms. Klein described the monthly enplanements (passenger
numbers) as shown on slide 8. The numbers have been fairly
stable with an increase last summer followed by a drop.
Ms. Klein reported that slide 10 shows the annual fuel
consumption by air carriers at Anchorage International
Airport. She reported on a recent upturn which is a
positive sign. She shared aircraft landing statistics.
Ms. Klein showed slide 11 - Fairbanks International
Airport's annual fuel consumption from FY 04 through FY 10.
She spoke of a decline during FY 05 through FY 07, followed
by an increase and recovery.
9:21:33 AM
Ms. Klein shared information about total regional freight -
slide 12. Most airports were 10-40 percent down in cargo
and passengers; Alaska was 23 percent down. She described
freight reductions from various regions. In November and
December Alaska's cargo increased by 11 percent, higher
than most airports. She listed regional reductions.
Ms. Klein highlighted ways that AIAS responded to the
declines - slide 13. She listed ways that AIAS remained
competitive and assessed the competition. She spoke of a
reduction in the operating budget by $7 million, as well as
a hiring freeze and nine layoffs.
Ms. Klein reported on the results of AIAS's commitment to a
new operating agreement and the addition of six air
carriers - slide 14. A new business model has been adopted,
as well.
9:27:02 AM
Ms. Klein shared improvements made at the Fairbanks Airport
- slide 15. There was an increase in winter passengers and
cargo flights. She reviewed the status of construction in
the Fairbanks terminal, which came in on-schedule and
under-budget and was financed without the use of general
funds or federal funds - slide 16. She mentioned four new
heavy cargo positions.
9:29:51 AM
JOHN PAROTT, AIRPORT MANAGER, TED STEVENS ANCHORAGE
INTERNATIONAL AIRPORT, turned to slide 17 to report on the
completion of construction on Anchorage Airport's A & B
Concourses. He shared 2008 ACI cargo traffic statistics -
slide 18. Anchorage is currently fifth in international
cargo trade.
Mr. Parott reported on the specific economic impact to
Anchorage from the Anchorage Airport - slide 19. A 2007
Institute of Social and Economic Research (ISER) report
listed 18,000 jobs at or related to the airport. He
described the annual total economic impact as $2.3 billion
flowing through Anchorage and the state - slide 20.
Mr. Parott showed, by airline, the economic impact of
international cargo at the Anchorage Airport - slide 21. He
shared the successes and bright spots in the airport market
- slide 22. In the past the airport has not had to provide
incentives for international carriers. Now, there is a
reduced fee structure for China Airlines. Japan Airlines
operated 17 charters this past season. Concessions at the
Anchorage Airport was recognized as a "Top Performer".
9:36:26 AM
Mr. Parott spoke of marketing team highlights at the
Anchorage Airport - slide 23. Marketing materials and
methods were improved and coordinated. He termed the Cargo
Transfer Authority as important and "value added".
Mr. Parott summarized the statistics from FY 09 and FY 10,
so far, as compared to prior years - slide 24. He shared
future plans - slide 25. He spoke again of "value added"
services. He said most of the revenue comes from landing
fees and fuel flow. He shared AIAS's goals to continue with
capital improvements, such as runway 7-R extension. He
spoke of continued efforts with the marketing team. He
mentioned that Kulis International Guard Base will be
incorporated into the airport property.
9:43:21 AM
Co-Chair Hoffman was interested in how the Anchorage
International Airport services Alaskans. He requested more
information on whether air cargo operations and
enplanements include Alaska destinations such as Barrow,
Kotzebue, Nome, Dillingham, Sitka, etc. He commented that
the airport was a good design for flights headed south, but
did not necessarily serve rural passengers headed to
villages. He termed the concourse "unuser-friendly".
Mr. Parott recognized and shared those concerns. He spoke
of improvements in the concourse for regional carriers and
the addition of a hot food service for rural passengers.
The fuel flow numbers by regional carriers tend to be
dwarfed by the international carriers. The enplanement
numbers do include regional and domestic passengers. Rural
passengers no longer board after a long outside walk, but
now use an inside gate.
Co-Chair Hoffman asked if the current system was now user
friendly for rural passengers. Mr. Parott believed that
significant progress had been made. He offered to continue
to make improvements.
9:50:42 AM
Senator Thomas asked how much airport fuel comes from
Alaska and what the price of fuel was. Ms. Klein replied
that Alaska produces 49 percent of the fuel consumed at
AIAS. She related that obtaining Alaskan fuel was a
challenge due to availability. It is difficult to track the
price of fuel because airlines pay for it themselves.
Alaska's fuel cost is significantly higher than
competitors' costs.
Senator Thomas asked about some of the landings at AIAS
such as Federal Express. He referred to slide 24, which
shows a downward trend in the numbers of landings in FY 09.
Mr. Parott reported an upward trend the past few months,
which, if it continues, would bring FY 10 above FY 09.
Senator Thomas requested information from last year's AIAS
budget for capital projects. Mr. Parott listed one project,
a runway extension and resurfacing project, which would
total close to $100 million.
9:53:53 AM
Co-Chair Stedman requested future predictions related to
AIAS. Ms. Klein shared that she was leaving her job. She
predicted a very slow recovery. She stated that the budget
was balanced through June 31. Cargo recovery projects a
modest 2 percent increase for this year. The combined
passenger and cargo green line on the graph should increase
very slowly due to changes in the business model. She did
not see a return to previous levels for several years.
9:56:22 AM
Senator Ellis thought that overall, AIAS was doing a good
job. He shared small complaints about the airport, such as
a lack of hooks in the stalls and nowhere to put computer
bags in the bathroom. He suggested installing more
electrical outlets for today's modern technology needs. He
also expressed frustration about lack of a cab line in
front of the terminal.
10:01:02 AM
Mr. Parott said he would tend to those suggestions. He
offered to take another look at the cab situation.
Co-Chair Hoffman asked a question on behalf of Senator
Menard who suggested that luggage carts be free of charge
like they are at European and Asian airports.
Mr. Parott explained that international travelers in the
customs area are provided a free cart because they have not
yet been in the vicinity of a money exchange center. In
Europe and Asia, advertising on the carts offset the
expense of providing them for free. That idea has not
worked for the Anchorage Airport. He noted that most
airports in the United States charge for carts. The
Anchorage Airport works to keep prices down because
Alaskans travel with more baggage than most travelers. He
offered to continue to look at the issue.
10:04:17 AM
Senator Huggins appreciated the wild game displays at the
airport, the improvements in the rental car area, and the
facilities for the military. He spoke highly of the customs
area at the Anchorage Airport. He encouraged Ms. Klein to
look at the north terminal parking expansion. He questioned
if only 49 percent of the jet fuel came from Alaska.
Ms. Klein said that was correct. She related that Alaskan
fuel came from Tesoro, Flint Hills, and Petro Star. Senator
Huggins asked about the cost of fuel from Alaskan
refineries versus the cost from refineries outside the
state. Ms. Klein responded that fuel comes from many
sources and the issue is complex. She reported that she is
working with the airlines and the refineries to facilitate
improvements. She thought the spot price differed by 20
cents.
Senator Huggins asked which was more favorable. Ms. Klein
replied that it was currently more favorable at other
airports. Senator Huggins wondered if the airport was
subsidizing fuel. Ms. Klein responded that it was not.
Ms. Klein explained that airports bid long-term contracts
for the volumes of fuel they expect to use. If that
calculation changes suddenly they must purchase spot fuel,
which is more expensive. Recently, there was sudden
increase in flights and fuel was not available and it was
more expensive due to shipping.
Senator Huggins spoke of a concern of not having adequate
fuel. He wondered if Ms. Klein shared that concern.
10:08:57 AM
Ms. Klein did have a concern about the refined Jet A fuel
supply in Alaska. The commissioners from DOT, DEC, and DNR
are looking for solutions.
Co-Chair Stedman requested follow-up information about fuel
production and refinery location in recent years in Alaska.
Senator Thomas asked a question for Senator Egan who had to
leave the meeting. He wondered if the 8 percent number
regarding FY 09 revenue income from investment income is
typical of airport operations in other states.
Ms. Klein noted that investment income has decreased in the
past year. She deferred to the comptroller to answer
further.
Senator Thomas asked about the cost of fuel as it relates
to royalty oil. He reported that Flint Hills maintains that
the premium for royalty oil increases the cost of fuel. He
requested Ms. Klein's opinion.
10:12:12 AM
Ms. Klein could not comment about contract agreements
between the state and the refineries. She suggested that
pricing is a concern and Alaska must remain competitive.
Pricing is not controlled by the airport, but rather
contractual business obligations between private
businesses.
Senator Huggins asked if moving the airport is part of the
strategic plan. He asked where MatSu fits into the
strategic plan.
Ms. Klein responded that airport construction is costly. In
the last 40 years there have only been two major airports
constructed in the United States. Since Anchorage and
Fairbanks have just improved airport capacity, it would be
difficult for the state to finance a new airport. She
suggested that private enterprise could come in and build
another airport.
Senator Olson expressed concern about his constituents and
the need to focus on Alaskans' needs. He wondered if
"leveling the playing field" included having "135
operators" paying the same landing fees as "121 operators".
Co-Chair Stedman requested definitions of 121 and 135.
Senator Olson explained that 135 operators are smaller than
121 operators, who can carry cargo and passengers, such as
Alaska Airlines.
Ms. Klein noted that AIAS is very focused on rural Alaska
and has put much attention on the smaller regional
carriers. The lighter aircraft receive the benefits of
lower rates and fees. She noted that there was still work
to do on the terminal infrastructure to make things easier
for regional carriers and passengers.
ALASKA RAILROAD CORPORATION
10:20:00 AM
PATRICK GAMBLE, PRESIDENT & CEO, ALASKA RAILROAD
CORPORATION (ARRC), referred to a handout entitled, "About
the Alaska Railroad" (copy on file). He noted that there
was also a memorandum on bonding debt, which answered
questions from a previous meeting (copy on file). He turned
to slide 3 - Alaska Railroad quick facts. The only items
that have shown an increase are the total assets of the
railroad and the average age of employees. Everything else
has decreased. He described the historical downward trend
beginning in FY 05. The projected net earnings are down by
about 19 percent in FY 09. He predicted that FY 10 would be
the toughest year yet. The corporation has been preparing
for FY 10 for several years, which today's briefing will
show.
Mr. Gamble commented that the Alaska Railroad is different
from other state agencies - slide 4. It is not a part of
the Executive Budget Act, and its employees are not in the
state system. The railroad is more like a private business
and needs to make a profit, which is its capital program.
This model enables the railroad to respond in a competitive
market.
10:23:55 AM
Mr. Gamble skipped to slide 6 in order to emphasize safety.
He discussed statistics related to safety.
Mr. Gamble shared strategies involved with security
management - slide 7. The railroad is making use of federal
dollars for security purposes and is using a camera system.
Many agencies do inspections or provide exercises in order
to promote security.
10:26:15 AM
Mr. Gamble discussed the 2009 budget background - slide 13.
There was an unsettled environment related to fuel costs
and fuel volume. He predicted a further drop in volume by
Flint Hills.
Mr. Gamble reported that the 2009 budget was for $16.8
million. There was a reduction in passengers, a reduction
in fuel volume, and higher fuel prices, which led to a loss
of net earnings of 19 percent. He noted that this was
unaudited information. He discussed the impact from
personnel eliminations and expenses related to reductions.
Mr. Gamble explained that slide 14 depicts personnel
impacts. He reported on a hiring freeze from 2007 to 2009
where 200 positions were eliminated. Eight management
positions were eliminated, management pay was frozen, and
departments were reorganized.
Mr. Gamble showed the ARRC fund flow model of 2009 data -
slide 15. It shows how the railroad gets its money and what
it does with it.
10:31:26 AM
BILL O'LEARY, CHIEF FINANCIAL OFFICER, ALASKA RAILROAD
CORPORATION (ARRC), began with slide 16 - a history of
freight revenue from 2004 - 2008, which is half of the
total revenue for the Alaska Railroad. It shows the
difference between the expected budget and the actual
budget in 2009. There was a significant weakness in the
petroleum haul from North Pole and Flint Hills refineries.
There were also weaker results from the interline barge
service. Income from coal exports was a positive number.
Mr. O'Leary reported that slide 17 is a graph showing the
fuel shipment history on the Alaska Railroad by Mapco,
Williams Petroleum, and Flint Hills Resources from 1994 -
2009. There was a strong growth curve averaging about 9
percent up until 2003, followed by a loss which averaged
about 8 percent annually.
10:33:52 AM
Mr. O'Leary talked about slide 18 - the exportation of coal
in metric tons by year. Coal is mined in Healy and moved on
the railroad to Seward where it is shipped to international
destinations. He reported that 2009 was a record year, and
even better results are expected for 2010. He mentioned a
possible lawsuit related to the Clean Water Act, which
could have an effect on the budget.
Mr. O'Leary reported that slide 19 shows passenger revenue
grew until 2008 and then had a decline. Slide 20 depicts
real estate revenue, the most consistent performer.
Mr. O'Leary related that slide 21 depicts controllable
expenses which were reduced by $8 million over the last two
years. He explained that slide 22 shows a graph of
unaudited net income. In 2009, that amount was $13.6
million.
Co-Chair Stedman asked about expectations for operational
cash flow. Mr. O'Leary replied that corporate net income
was $13.6 for FY 09, and $8 million of net income is
budgeted for FY 10, which would result in a loss of roughly
$4 million. Co-Chair Stedman emphasized that it was cash
flow from operations, not net income. Mr. O'Leary agreed,
but added that there would be positive cash flow.
Mr. Gamble clarified that was the amount made from train
operations, principally made of up labor costs and fuel.
Co-Chair Stedman noted that item was reflected in the
chart.
10:38:17 AM
Mr. O'Leary turned to slide 23 - balance sheet highlights.
He emphasized that the railroad has managed its balance
sheet even with diminished earnings. The asset base has
grown, liquidity is good, and debt is low - $27 million of
recourse debt. There is about $157 million remaining on
bonds backed by federal monies. The ARRC generated $31.2
million in total cash in 2009.
Mr. Gamble explained slide 24 - the 2010 preview. He
pointed out that FY 10 would be a tough year. There is a
pending lawsuit and Flint Hills continues to decline.
Passenger numbers are expected to drop again. The challenge
is to continue expense reductions in an effort to offset
revenue declines. The bottom of the chart shows projections
for operating and capital expenses. The capital program is
more robust due to federal entitlements.
10:40:40 AM
Mr. Gamble related that slide 25 shows the capital
investment 2010-2014 five-year plan. The railroad is
currently in the second five-year plan from 2008-2012.
There are three large capital projects: the Tanana River
Bridge for $100 million; the line rebuild between Anchorage
and Fairbanks; and a collision avoidance system for $75
million.
Mr. O'Leary noted that slide 26 shows a breakout of capital
spending by fund source. The biggest piece is from the FTA
monies and bond proceeds. Slide 27 further breaks down the
capital funding sources.
10:42:27 AM
Mr. O'Leary pointed out that slides 28 and 29 show ARRC's
five-year plan for capital projects. Mr. Gamble noted that
the reports are required by law and are submitted to
legislative offices yearly.
Mr. O'Leary related that there were a number of slides on
the employee benefit package, defined benefit pension plan,
and retiree medical trust fund. He jumped to slide 39 - the
2009 status of benefit trust funds. He reported on a good
recovery since the crash of 2008. Before the crash the
pension fund was 114 percent funded and the medical fund
was 75 percent funded. He expected both to be fully funded
by the end of FY 09.
Mr. Gamble called slide 40 "wild cards" which could lead to
possible gains and losses. He spoke of environmental issues
and legislation as potentially negative factors.
10:44:53 AM
Co-Chair Stedman expressed appreciation for the information
in the presentation which would allow the committee to make
good decisions. He requested information about the fuel
component of ARRC's business. Mr. Gamble elaborated on the
relationship of fuel to ARRC; he called ARRC a mover of
fuel, comparable to the pipeline. Flint Hills previously
provided 50 percent of the fuel. Currently, ARRC expects to
move half of that amount. There is concern about getting
fuel back on its feet, or finding more business such as the
pipeline or offshore drilling. The plan is to hunker down
for the next two years in anticipation of the next five
years. Mr. Gamble pointed out that corporate health is in
good shape.
10:48:49 AM
Senator Thomas commented on moving the southern bypass
project forward. He requested information about Flint
Hills' plans. Mr. Gamble addressed the southern bypass. He
reported that he recently met with the assembly for a
discussion about the southern bypass. There will be a
meeting to "scope the project", which will lead to an
Environmental Impact Statement (EIS).
Senator Thomas drew attention to the Healy Subdivision
issue and requested more information about how the land
would be released by the railroad and returned to original
owners. Mr. Gamble recognized those concerns.
10:51:52 AM
Senator Olson spoke, as a pilot, about the frustration of
the inability to get fuel. He recalled that the Anchorage
Airport ran out of fuel and could not provide fuel for some
of the carriers. He wondered if the railroad cut costs by
decreasing the number of cars carrying fuel. Mr. Gamble
agreed that the number of cars were decreased due to less
refined fuel being produced. He reported that he called
Flint Hills who said the airport contract stipulated a
certain amount of fuel. Flint Hills wanted to shut down the
third tower in the refinery in order to cut costs and until
the contract requested more fuel.
Senator Olson said his information was from the private
sector. He wondered about the status of claims against the
railroad. Mr. Gamble related that the issue of land
ownership is the "lightening rod issue". He stressed that
ARRC is the steward of the land and, according to the
Corporate Act, cannot sell land.
Senator Olson restated the question. He was referring to
private landowners whose property is crossed by the
railroad. Mr. Gamble used the North Pole as a hypothetical
example. If the railroad were moved, the vacated property
would go back to the state. It would be necessary to
involve the attorney general because, currently, there is
no legal way to dispense that property to the adjacent
landowners.
10:56:54 AM
Senator Huggins agreed that the railroad was a good
economic weather vane. He listed examples. Mr. Gamble
reiterated that he thought the railroad was a good weather
vane because most of its business deals with Alaskan
issues. He gave examples. He emphasized that there was not
much the railroad could do until the economy changes and
goods and services move again.
10:58:38 AM
Co-Chair Hoffman requested a history of Flints Hills'
providing fuel to the airport. He surmised that there was a
fuel storage problem at the airport. He also requested
information about the railroad's fuel capacity and costs
over the last five years.
ADJOURNMENT
The meeting was adjourned at 10:59 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AIAS legis Update 2010.02.02 final.pdf |
SFIN 2/3/2010 9:00:00 AM |
|
| 02_03_2010 Senate Finance Cmte briefing.pdf |
SFIN 2/3/2010 9:00:00 AM |
|
| SOA Debt Book 12-31-09 Letter.pdf |
SFIN 2/3/2010 9:00:00 AM |
ARRC |
| 2010_02_09 DOT response to questions.pdf |
SFIN 2/3/2010 9:00:00 AM |
DOT Aviation |
| 2010 02_17_10 ARRC response to questions.pdf |
SFIN 2/3/2010 9:00:00 AM |