David S. Mackey
Interim CEO Report to the Massport Board
June 21, 2012
Good morning and welcome to the June meeting of the Massport Board.
Fiscal Year 2013 Operating Budget
Today, we will be asking the Board to adopt Massport’s Business Plan and
Operating Budget for Fiscal Year 2013. The plan authorizes $380.4 million in
spending to support Massport’s Aviation and Maritime business lines. This amount
represents a $4 million, or 1%, decrease from the current year’s FY 12 operating
expense budget.
The spending plan before the Board accommodates steady but modest growth, as
the airline industry works through consolidations, bankruptcy filings, and the
sluggish national economy. We do expect passenger levels will reach a new alltime high at Logan Airport in FY 13. This budget also adjusts to the lower
container volumes at Conley Terminal, following the loss of the COSCO service
through the Suez Canal.
Even if savings associated with lower service levels at Conley Terminal are
factored out, the net $8 million in additional FY13 expenses are only 2.6% above
budgeted costs from last year. This is in line with inflation and below the 3%
target established by the Board last February.
Total budgeted revenues for fiscal year 2013 will be $578 million, a $10 million or
1.8% increase over last year’s budget. The $197.2 million difference between
revenues and operating expenses is disbursed according to our Trust Agreement:
$101 million to Massport’s bond holders, nearly $60 million (or 1.5% of our
assets’ replacement cost) into the Maintenance Reserve Fund, and $37 million
dedicated to Massport’s FY12-16 Capital Program approved by the Board in
February.
The FY13 business plan and operating budget were presented to the Audit and
Finance Committee of the Board last week, and we urge the Board to adopt them.
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Bond Issue
Later today we will also ask the Board to approve the issuance of $225 million in
refinancing bonds, and another $150 million in new money bonds, most of which
would be used for terminal renovations to accommodate airline growth and
relocations.
We’ve received the good news that Moody's has assigned to these bonds an Aa3
rating, Fitch has assigned a AA rating , and yesterday we received word that S & P
had affirmed Massport’s AA- rating.
The rating was based on Massport’s strong market position, stable revenues and
strong debt service coverage. Moody’s also cited passenger growth at Logan that
outpaced national averages in FY11, when passengers grew by 8%, and in the first
nine months of FY12, when traffic increased 3.7%. The broad mix of airlines at
Logan that serve a strong and diversified economy, together with the growth of
low-cost carriers at the airport, were also cited as foundations of Massport’s
financial strength.
Silver Line “On Us” Program
In June, the MBTA and Massport teamed up to promote public transit ridership to
and from Logan with a three-month “On Us” pilot program, that allows Silver Line
passengers to ride free when they board at Logan Airport. The pilot program began
on June 6 and runs through September 3. The program was featured in USA
Today, which described the free service from the airport to downtown as a “first
for a North American airport.”
So far the pilot has gone smoothly. We’ll be carefully measuring the results and
will report back to the Board in July. We hope that this pilot, along with better
signage, “next bus” arrival signs, and our team of intern Silver Line ambassadors,
will substantially increase the number of our passengers who use mass transit. This
is a very high priority for us, given our growing passenger numbers, parking
demand which regularly outstrips supply, and congestion on our curbs.
War of 1812 Commemoration
Beginning next Thursday, Massport will once again play host to a fleet of tall ships
and naval vessels, as Boston enjoys a weeklong celebration commemorating the bi2
centennial of the War of 1812. Our maritime staff is ready for the hundreds of
thousands of visitors who will see the tall ships docked at the Fish Pier, and the
foreign and U.S. active duty naval vessels docked at the North Jetty and Black
Falcon Terminal.
The bi-centennial promises to be a great event, including a visit from the Navy
Seals and a flyover by the Blue Angels, and a parade of vintage aircraft. But for
Massport it will also be a working holiday. Conley Terminal will be open for
business and there will be cruise ships in Port for five of the seven days of the
celebration, including a visit from the Queen Mary II. We will be ready to ensure
our visitors have a safe, secure and enjoyable experience, while the working port
stays open throughout the week with minimal disruption to our tenants.
It will be a very busy week for our maritime team.
Carnival Glory
Speaking of our maritime team, on June 3, the 3,000-passenger Carnival Glory
began the first of a series of 4, 5 and 7-day itineraries to New England and Atlantic
Canada during June and July. It’s Carnival Cruise Line’s first extended cruise
schedule from Boston using the Glory, and her addition to the schedule is one of
the highlights of a 2012 cruise season filled with new itineraries. This season we
should easily set a passenger record at Black Falcon Cruise Terminal, and more
than half of the passengers using the terminal are now taking an embarking cruise
instead of just making a quick port-of-call.
International Air Service Roundtable
On June 7th, Governor Patrick hosted an International Air Service Roundtable at
the State House, with more than 50 top business leaders from the Commonwealth.
Betty Desrosiers and I had the opportunity to describe the “Asia Task Force” that
led to nonstop JAL service to Tokyo, our strategy for marketing Logan and New
England to other international carriers, and our remaining top air service targets
around the globe, including China, Mexico, South America, and the Middle East
and India.
These target markets appear to match very closely the priorities of the business
community here, and several of the business leaders present seemed interested in
participating directly in future task force efforts.
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Our air carrier incentive programs, which the Board will consider later this
morning, are important components of our marketing efforts both internationally
and domestically, and we urge the Board to adopt them.
FAA Administrator Visit
Last week, FAA Acting Administrator Michael Huerta and Congressman Michael
Capuano visited Logan to discuss the latest safety programs at Logan, particularly
FAA’s Next Generation ADSB technology, and a satellite-based system that links
vehicle transponders with ground radar to give drivers enhanced situational
awareness of other vehicles and planes on the airfield. The system is based on the
same system air traffic controllers have.
Administrator Huerta also announced the awarding of a $10 million FAA grant to
complete the expanded runway safety area at the end of 33L. The $65 million, 600foot EMAS extension includes an upgraded ILS system to allow landings in near
zero visibility.
Both Congressman Capuano and Administrator Huerta praised Massport’s
partnership with the FAA on these important safety enhancements.
Staff Notes
Phil Orlandella
Late last month Massport said goodbye to the long-time public face of Logan
Airport, Phil Orlandella, who retired on June 1. It’s hard to know whether the best
way to measure Phil’s tenure as the airport’s Director of Media Relations is
chronologically, or meteorologically. Should we do it by the 32 years Phil was
actually here? Or, should we do it by the number of feet of snow Logan’s crews
had to plow while Phil reassured the media that, of course, Logan was still open,
but that passengers should double-check with their airlines anyway? Phil cared
about this airport passionately and he will be missed. We wish him and his family
the very best in the future.
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George Hertz
And finally, a week from today, we will also say goodbye to another important
member of the Massport team, George Hertz, who has served as Executive Vice
President or Chief of Staff to three executive directors and CEOs.
You will not find a greater advocate for public service than George Hertz. George
returned to the public sector in the months following 9/11 to help Massport recover
from the aftershocks of that tragedy. It was not the first time George served in
government during a period of turmoil. George was the state’s budget director in
the early 1980s when the passage of Proposition 2 ½ forced the state to pick up a
larger share of the financial burden for municipal services, when city and town
governments were limited in the property taxes they could collect.
George was known for his business savvy, his openness and his candor. And I
will always be grateful for the support and wise counsel he gave to me as Chief
Legal Counsel and during my past year as interim CEO. George always held those
who committed their lives to public service in very high regard, and I know I speak
for everyone here when I say the feeling is mutual. George, we appreciate all
you’ve done for us over the last 10 years. You will be missed. And we wish you
and your family all the best in the future.
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