Minutes from April 17, 2018 West End Open Board Meeting-Greg Devereaux, Worthington Partners

Tuesday, April 17, 2017

 Open Board of Directors Meeting
3200 Inland Empire Blvd.
Ontario, CA 91764


Present: Patti Arlt, Carole Beswick, Dennis Cota, Sandra Cuellar, Adam Eventov, Louis Goodwin, Mark Kaenel, John Magness, P.T. McEwen, Dan Murphy, Roman Nava, Tom Nightengale, Jon Novack, Brian Reider, Thomas Rice, Kristine Scott, Paul Shimoff, David VanVoorhis and Ray Wolfe.

Guests: Peggi Hazlett, Blair Howie, Mathew Kane, Dan Lebouf, Frank Reyes, Arnold San Miguel.

Announcements:  1) The reservation form for the 2018 Washington, D.C. advocacy trip was made available to members in attendance with the reminder that the final date for registering is here.  Members are encouraged to make their own air travel.  The group will again stay at the Palomar Hotel in D.C. where we have a group rate.

M/S/P: Minutes from April 10, 2018.

John Magness introduced Greg Devereaux managing partner of Worthington Partners, and former San Bernardino County CEO. Greg is a25-year resident of the Inland Empire. He has had a huge influence in our region, restoring confidence in our government in his role as SB County CEO. Worthington Partners is now his focus, where he is working behind the scenes at Ontario International Airport (ONT), and he is still doing work for the County and City of Ontario.

Today’s visit resulted from lunch with Beswick, Scott & Goodwin where interest was expressed in learning more about what is going on at ONT.

In 1967 the City of Ontario entered into a Joint Powers Agreement with LA World Airports (LAWA). Although some criticized this move, it made sense as Los Angeles International Airport (LAX, run by LAWA) was using ONT for weather diversions, so major aircraft and many passengers could be accommodated. This was before deregulation and decisions about where aircraft landed and which regions they served were made in DC. The feeling was that ONT would have more clout in this arrangement with LAWA. Had they seen deregulation coming, they may not have done it; but it made sense then.

For a long time, the relationship worked. Growth was slow but steady. Projections showed ONT would continue to grow and that LAX would cap out at 66M passengers. Expectation was that when LAX hit their cap, ONT growth would be exponential. At its height, ONT reached 7.2M passengers; at 10M a new terminal would have been built. But the great recession hit, and passenger count went to 4M. ONT experienced the most severe drop in the entire So Cal region. The LAX Executive Director at the time had a good relationship with the City of Ontario. She made an effort to connect; and traffic increased. When she left, the focus shifted to LAX. That airport was under pressure to modernize and the director was given the directive to “fix” LAX. This made sense, but it seemed to draw all attention away from ONT.

About 2008/9 there was a feeling that what was being told to Ontario about declines in passenger count was not accurate. Costs of running ONT was the excuse given (there was significant debt load) but something seemed odd. As LAX’s costs went up, so did ONT’s costs. It made no sense. Ontario decided to examine the premise. Experts said it wasn’t the debt service. It was tied to an excessive number of employees and the cost structure that resulted. LAWA had breached their fiduciary responsibility to Ontario. The city sued LAWA; it led to years of frustration. LAWA was asking for $500 to $600 million for the airport. The cost structure would have been impossible to sustain. It would force continued greater expense to fly out of ONT vs LAX. The high asking price never shifted. At length, the case was settled in Ontario’s favor, although they had to take over some debt and put in $30M out of City of Ontario’s general fund. ONT was returned to the City of Ontario in Nov. 2016.

There are 5 members serving on the Airport Authority. 2 City council members, a county supervisor and 2 public members, including Ron Loveridge, former Riverside mayor.

ONT is one of the busiest cargo airports, ranking number 6 in the nation. Cargo saved the airport during the downturn. UPS and FedEx have been great tenants. ONT is a double residual airport, so cargo and passenger sides have to fill any revenue gap. This creates multiple layers to go through to make decisions. Airlines have a say-so on major expenditures/decisions. And the FAA is involved, as well as the Authority Board. There are lots of players, which complicates things.

In July 2017 Mark Thorpe became the airport director. That is when Greg got involved, too. He was asked to come in to deal with real estate development. Greg began looking at the airport’s economics, to understand what he needed to do. A master plan concept had been proposed, but it would take too many years to complete. Instead, they did a simpler plan looking at needs and uses. It was found that $1.5B was needed for improvements. LAWA did no work to prepare for real estate development. They could have taken down outdated, unused buildings. $80M is needed for demo and preparing for development. Airfield improvements need to be made; $170M to refurbish these. ONT is blessed with a long runway, making it possible to accommodate transpacific flights. Terminals are now 20 years old and need updating. They were built before current TSA needs and don’t function well.

Demand is rising. Frontier is in now using ONT. Southwest is increasing flights with more non-stops. A new service will be announced next week. China Air is doing daily flights to Taiwan. Originally it was going to be 5 days a week, but before they began the flights, demand drove them to 7 days. Their customers prefer ONT. This creates synergy with other airlines. Asia is a significant market, and Europe is showing interest. It could be that international growth outpaces domestic. A $100M new customs facility is required and should be ready in 2 years.

ONT has 50 acres in parking. That will likely be too much long term: Uber, Lyft, bus, autonomous, etc.

There is very good demand in this market for cargo growth. Amazon will be in the market. LAX would be happy to lose some cargo. It’s great for the regional airports that have the room and facilities.

So, it’s a cash flow and financing challenge. More from feds, more from increased use, but there is a need for financial partners. The work needs to be done to prepare for the growth. Cargo can go anywhere and be good for the area; it needn’t be at ONT. ONT doesn’t have room to accommodate the demand for cargo.

A Q & A period followed.
Meeting adjourned at 8:30 a.m.