Mayor announces 10-year airline agreement to extend airportannual service payment, pledges $330 million over term

The San Francisco mayor and airport officials on Tuesday announced a negotiated 10-year lease-and-use agreement with airlines serving San Francisco International Airport that they say will extend the city's annual service payment and generate an estimated $330 million over the life of the new agreement.

The mayor, speaking at a City Hall news conference, said the agreement was negotiated to replace the city's prior settlement that had governed the airport's annual service payment for 30 years and that the new deal will bring roughly $330,000,000 to the city over the next 11 years inclusive of the remaining year on the old contract.

The agreement keeps the structure under which the city receives 15 percent of concession revenues as the annual service payment. "We are now here, the culmination of such with this announcement that we have a 10 year agreement which over the next 11 years because we still have 1 year left of the old agreement to generate another $330,000,000 of revenue to the city and county of San Francisco," the mayor said.

John Martin, Airport Director, described business and operational elements of the agreement. He said the deal sets the method for calculating airline rates and charges and establishes a preferential gate allocation system that will allow annual reallocation and gate sharing to make gate use more efficient. "One other new component of the lease and use agreement I want to highlight is a new preferential gate allocation system under which we will reallocate gates on an annual basis to the airlines and under which we will be able to have airlines share gates," John Martin said.

Laurie Peters, representing United Airlines and the airlines negotiating group, said carriers committed to the agreement with a 10-year investment horizon despite difficult market conditions. "We set some very ambitious goals. The process wasn't easy. The negotiation at times was very difficult, but we do prefer a negotiated settlement over a litigated one, and we achieved that success," Laurie Peters said.

Officials emphasized the revenue implications for the city's general fund under the annual service payment. The mayor noted the airport's concession revenues previously produced about $26.8 million in the annual service payment in the most recent year and that the city has received about $449 million over three decades under the earlier arrangement.

Airport officials and the mayor framed the agreement as protecting the city's revenue stream while enabling the airport to manage capacity and keep airline rates competitive. John Martin said the gate allocation system and the ability to share gates should reduce near-term capital investment in new gates by better using existing facilities and thereby support lower airline rates.

The officials also discussed the agreement's expected economic effects. The mayor cited earlier remarks that a direct international flight to Asia can generate substantial economic activity and tax revenues for the region. Airport staff said 25 of the 39 carriers had signed the new lease-and-use agreement at the time of the announcement and predicted additional carriers would sign in the coming months.

Questions from supervisors and the public were taken after the announcement; airport staff said they had obtained signed waivers from legacy carriers to enable the new deal and expected most remaining carriers to sign. No formal Board of Supervisors vote on this negotiated agreement was recorded in the meeting transcript; the session covered the announcement, staff remarks and a public question-and-answer period.

The mayor and airport officials said the agreement was negotiated without litigation and was intended to provide stable revenue to support city services that rely, in part, on the annual service payment.