In an anticipated, but no less surprising move, the City Council of the City of Los Angeles (“Los Angeles”) agreed to transfer Ontario International Airport (“ONT”), currently owned and operated by Los Angeles, to the Ontario International Airport Authority (“OIAA”) and its members which include the City of Ontario (“Ontario”).  The transfer occurs in settlement of a currently pending lawsuit in the Riverside County Superior Court in which Ontario, the OIAA, and other parties challenged the legal right of Los Angeles to ownership and operation of ONT.  

The major provisions of the Settlement Agreement include the following:

(1) An immediate release of all of Ontario’s damage claims that were the subject of the litigation in the Riverside Superior Court;

(2) Upon satisfaction of certain conditions, including payment of certain bonds to Los Angeles World Airports (“LAWA”), the Los Angeles agency that operates its various airports, and approval by the Federal Aviation Administration (“FAA”), ONT will be transferred to the OIAA;

(3) If the FAA approves the transfer of ONT, the following payments must be made to LAWA before ONT is transferred:

(a) Reimbursement to Los Angeles of all outstanding ONT bonds, currently approximately $60 million;

(b) Payment by OIAA to Los Angeles of $30 million in cash;

(c) Transfer by LAWA of $40 million from ONT’s unrestricted cash accounts to the cash account for Los Angeles International Airport (“LAX”);

(4) After transfer of ONT, the OIAA will make the following additional payments to LAWA:

(a) No later than five years after transfer, OIAA will pay LAWA $50 million;

(b) No later than ten years after transfer, OIAA will pay LAWA an additional $70 million;

(5) OIAA must provide commercially reasonable assurances of these post-transfer payments before ONT is transferred;

(6) The Settlement Agreement’s Appendix F provides protections for LAWA and other ONT employees;

(7) When the transfer is completed, the pending litigation will be dismissed with prejudice.  

Clearly, there are hurdles of be crossed before the transfer is complete, not the least of which is obtaining approval from the FAA.  As FAA has provided most of the funding for the development of ONT, it has a “dog in the fight” with respect to the potential operator.  The transaction is made even more complex by its uniqueness.  While Los Angeles and Ontario are currently members of a Joint Powers Agency that has operated ONT nominally, it has been Los Angeles that has been directing the development and operation of ONT for the past 20 years.  Moreover, the transfer of an operating airport is almost unheard of in the annals of airport operation throughout the nation.  In the final analysis, only time will tell if the transaction will gain FAA approval and all the benchmarks to enforcement of the Settlement Agreement achieved.