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As costs rise, is KCI terminal project in trouble? Or moving right along?

Next steps in KCI project

Airlines have expressed concern about the $1.64 billion project cost for a new terminal at KCI and have paid for a consultant to review the city’s numbers.
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Airlines have expressed concern about the $1.64 billion project cost for a new terminal at KCI and have paid for a consultant to review the city’s numbers.

It’s been more than a year since voters resoundingly approved a new terminal for Kansas City International Airport, and yet in many ways it still feels like the project is frozen in time.

Last week’s revelations of yet another skirmish as airlines sought to double-check growing costs ushered in a renewed sense of confusion about the project, the type of uncertainty that reigned in the days leading up to the city’s selection of a developer for the new single terminal.

It started on Tuesday — publicly anyway — with a statement from Mayor Sly James’ office that airlines using KCI wanted a consultant to take yet another look at the line items that make up the project’s $1.64 billion price tag, a statement that prompted more questions than answers.

It led to that familiar feeling that has surrounded KCI: Will this project ever get done?

To be clear, there is no reason to believe Kansas City won’t eventually get its new terminal. But the road to get there likely will remain bumpy until it opens.

James’ statement on Tuesday was spurred by two developments: One was a conference call with seven of the eight airlines in which they insisted upon reviewing the project costs with their own consultants. Another was a phone call the mayor had with Southwest Airlines chief executive Gary Kelly.

The conversation with Kelly, which James initially denied but Southwest confirmed, happened early in the week. James, through a spokeswoman, said the conversation was about cost sharing among airlines for a baggage handling system at the KCI terminal, a $20 million element in the project but a fraction of the overall cost.

Sources familiar with the conversation say Kelly also expressed reservations about the overall growing cost of the KCI project. The city had initially insisted that it was smaller low-cost carriers that objected to KCI’s increasing project cost, but the concern is shared among larger airlines, too.

“The fact we’re hearing the last three weeks that there’s a question about the number, that’s kind of taken us by surprise a little bit,” Aviation Department director Pat Klein said. “We knew the baggage handling system was out there, but we didn’t know there were concerns about the $1.64 (billion).”

Dan Landson, a Southwest spokesman, said “the information the mayor put out this week following the broader call with the airlines was the nature of the conversation.”

That broader call included representatives of all the airlines except Frontier. Also on that call were top city officials including James, his aide Joni Wickham, city manager Troy Schulte, Airport Committee chair Jolie Justice and Klein.

During the call, the airlines said they wanted Connico, a Kentucky-based construction firm, to evaluate the $1.64 billion figure.

The projected cost of the new KCI started at $964 million in 2015, back when the terminal was more of a concept. Those figures grew to $1.2 billion, later to $1.4 billion earlier this year and then $1.6 billion in the fall. Much of the price increase has been due to expanding gates and holding rooms.

The good news from the city’s standpoint: James asked each airline on the call if they would agree to move ahead if Connico could validate the costs on the terminal. Of the seven airlines on the call, all agreed except for two.

“We asked the airlines one by one, if they had a problem with the overall price tag,” Justus said. “Everybody said if they could do this independent audit and it came back with no problems they would be fine. Except Spirit and Allegiant. They had a problem with the price.”

While cost concerns are shared among the airlines at KCI, Spirit and Allegiant have been the most vocal about it. That’s likely for two reasons: As ultra-low cost carriers, they’re the most sensitive to price. Also, as airlines that occupy low market shares at KCI, they have the least amount of leverage in the negotiations.

Matt Klein, a senior vice president for Spirit Airlines, said in a letter to city officials that the terminal was “too costly for smaller new entrant carriers to bear and still deliver the value that we deliver to the community in terms of low airfares.”

Allegiant also said it could not support the current terminal proposal.

During the campaign to earn voter approval for a new terminal, boosters were careful not to say that a new terminal by itself would lead to more flight options. But they did dismiss the possibility that it could lead to fewer flight options if terminal costs were too high.

Pat Klein said the city is trying to keep the small carriers’ interests in mind.

“We’re working to protect all of the small carriers,” Klein said. “That’s why we have taken the stance that we have.”

Klein said the letters from Spirit and Allegiant may be attempts to improve their leverage in negotiations.

“From the (aviation) department point of view, that makes it difficult because it strains relationships when six of the groups are working collaboratively in a negotiation — contentious, but working together — but you have people who are trying to increase their leverage from the outside,” Klein said.

Part of the cost concerns is how the airlines pay for baggage handling.

Alaska Airlines wrote a letter to James on Nov. 21 saying that a proposed cost sharing formula for baggage “would result in a huge imbalance of costs to smaller carriers like Alaska.”

The letter by Shane Jones, vice president of airport affairs for Alaska Airlines, said the proposed formula would have Frontier, which has less than 2 percent of passengers at KCI, paying $15.88 per bag. Southwest, which has nearly half of the flying passengers at KCI, would pay $2.21 per bag.

Jones’ letter asked the city to adopt a more equitable pricing model for baggage handling.

The city and the airlines are taking advantage of a still-pending environmental assessment at the airport property, which is required by the Federal Aviation Administration, to continue negotiating baggage handling and the overall price.

During an Airport Committee meeting on Thursday at City Hall, James bristled at the suggestion that there was a delay in the project caused by negotiations among the airlines. He said the environmental assessment was still going to be happening into January.

The environmental assessment was supposed to have been done by October, according to an earlier timeline for the project. Financial close was scheduled for November.

Taken together, the project is substantially delayed from its original completion date of 2021.

But the latest developments, at least so far, don’t make for a grave delay in a timeline that has the new terminal opening in late 2022.

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