Tangled web surrounds United's aborted Atlantic City routes

AP News
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Posted: Sep 28, 2015 2:38 AM
Tangled web surrounds United's aborted Atlantic City routes

NEW YORK (AP) — Desperate to draw visitors to Atlantic City, New Jersey officials gave United Airlines more than $100,000 in incentives to fly to the seaside resort for at least a year. Then, when United abruptly canceled the money-losing routes eight months later, the officials appointed by Gov. Chris Christie decided not to enforce a contract provision that required the airline to repay the money, The Associated Press has learned.

The Atlantic City flights and the debt forgiveness are just two elements of the tangled relationships between the Christie administration, the Port Authority of New York and New Jersey, and United Airlines — New Jersey's eighth-largest employer. For instance, it was a public agency headed by Christie's Transportation Commissioner Jamie Fox — a former United lobbyist — that forgave the airline's debt.

United agreed to fly to the struggling Atlantic City airport at a time when the airline was trying to please the New Jersey politicians who also control the much larger Newark Liberty International Airport, where 68 percent of the passengers fly United. The airline was seeking major concessions at Newark — lower rent, lower fees and a $1.5 billion extension in train service between the airport and New York City on the Port Authority's PATH rail line.

When negotiations broke down in November, United canceled the flights and filed a complaint with the Federal Aviation Administration, contending the Port Authority was illegally overcharging the airline at Newark and improperly diverting airport revenue to Christie's pet projects elsewhere in New Jersey.

Those interwoven connections are part of an ongoing federal investigation into possible abuse of power at the Port Authority, which controls major airports, bridges and tunnels in the New York-New Jersey region. The wide-ranging investigation began after Christie appointees at the Port Authority purposely created a traffic jam on approaches to the George Washington Bridge to punish a small-town Democratic mayor who had declined to endorse the Republican governor for re-election.

Federal prosecutors have expanded their inquiry to include other Port Authority actions, some dealing with United. The airline's board ousted CEO Jeff Smisek and two other senior executives earlier this month. United would not comment on the sudden firings except to say that the decision was reached after its own internal investigation.

The U.S. attorney for New Jersey and the Manhattan district attorney have both subpoenaed records related to operations at Atlantic City International Airport, according to Port Authority financial documents.

The Port Authority, which is controlled by Christie and New York Gov. Andrew Cuomo, also operates LaGuardia and JFK airports, the Lincoln and Holland tunnels, ports in both states and the World Trade Center.

New Jersey transportation officials say incentives are standard practice at airports nationwide and that the United deal was far less generous than other such deals related to the Atlantic City airport before and since. Two tiny airlines also saw their debts forgiven — although for smaller amounts — when they abandoned Atlantic City prematurely in 2010 and 2011.

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FLIGHTS AND FAVORS

Much attention has been focused on United's creation of a special route to Columbia, South Carolina, near the weekend home of the Port Authority's then-chairman, David Samson, a close friend and mentor to Christie, who is seeking the Republican nomination for president.

Prosecutors are examining whether the 50-seat flights — to Columbia on Thursday evenings, with a return flight to Newark each Monday morning — were part of a scheme to entice the Port Authority to grant United its requests at the Newark facility. United ended the South Carolina route, which government data show was usually only half-filled, just three days after Samson resigned his Port Authority post.

The resignation was announced the day after the release of a Christie-organized internal investigation of the bridge scandal that cleared the governor and didn't even include an interview with Samson, who by then also was the focus of questions about possible conflicts between his law firm and his work at the Port Authority, which manages the Atlantic City airport.

Christie, whose office declined comment Friday about the Atlantic City airport deal, has suggested Samson left the Port Authority job only because he wanted to retire. Samson spokeswoman Karen Kessler said Samson, whose law firm handled the South Jersey Transportation Authority's bond transactions since 2010, recused himself from any Port Authority vote that might have been a conflict of interest.

While of interest to investigators, the South Carolina and Atlantic City flights are bit players in a larger drama revolving around potential conflicts of interest, self-dealing and trading favors. United was looking to save millions at Newark plus gain a better rail connection. Samson was able to get to his weekend home faster. And Christie wanted good news, no matter how small, to support his campaign to "save" the declining resort once called "America's Playground."

In November 2013, United agreed to fly to and from Atlantic City once a day from its hubs in Chicago and Houston. Three months later, the Port Authority announced plans to extend the PATH line two miles from downtown Newark to the airport, which would create a faster and more direct ride from lower Manhattan.

As part of the Atlantic City deal, United was to receive discounts on its landing fees and a portion of its terminal rent from the airport's owner, the South Jersey Transportation Authority, an agency whose board is appointed by Christie. The authority also promised to spend tens of thousands of dollars marketing the new service.

The United contract said that if the airline abandoned the flights in less than a year, it would be obligated to pay back the transportation authority's marketing money and forfeit the fee refunds.

When the Atlantic City flights started April 1, 2014, it was immediately clear how few people wanted to fly there. According to the Bureau of Transportation Statistics, the two 50-seat jets used by United were averaging just 26 passengers a day. Throughout the summer, as United lost money on the route, the airline and the Port Authority negotiated over fees at Newark, one of United's most important airports, which attracts nearly 25 million passengers a year and serves as a key gateway for lucrative international flights.

One sticking point involved the Port Authority's decision to use 280 highly paid police officers for a new airport rescue and firefighting program, a move United said cost the airline an extra $25 million a year for its share of the cost. The union that represents the officers had given a valuable re-election endorsement to Christie in early 2013.

United and the Port Authority continued to negotiate until Nov. 4, but the talks failed.

Three days later, Chicago-based United announced it would end the Atlantic City flights on Dec. 2.

With the relationship in tatters, United filed a complaint on Dec. 10 with the FAA, asserting that the Port Authority was charging outrageously high aviation fees at Newark to support other projects, like the rehabilitation of the Pulaski Skyway, a New Jersey roadway not even owned by the Port Authority.

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TANGLED WEBS

Under the terms of United's agreement with the South Jersey Transportation Authority, United was liable to repay "any marketing incentives provided by the airport." But the AP has learned that United was never asked to make good on that money, which totaled about $104,000.

The board of the Atlantic City airport had new leadership — Fox, who had spent the previous four years working as a lobbyist for United and other clients. His former lobbying firm, Fox & Shuffler, was paid $45,000 a year by United from 2010 through 2014, according to filings with the state of New Jersey. The firm paid Fox $1.7 million during that period.

In September 2014, Fox was appointed by Christie as commissioner of the New Jersey Department of Transportation, which also made him the chairman of the South Jersey Transportation Authority. Fox had spent years in New Jersey politics, including serving as chief of staff to a prior governor, chairman of New Jersey Transit and the deputy executive director of the Port Authority.

On Nov. 19, 2014 — Fox's first meeting as head of the South Jersey Transportation Authority — he and the commissioners went into a closed executive session to discuss United's termination of the Atlantic City route.

According to minutes of that meeting — released in response to an AP request because key sections initially had been redacted — Deputy Airport Director Timothy Kroll advised the board that, under the airport incentive contract, the agency would "recover a portion of its marketing dollars since United did not provide service for a full year."

But a discussion with the authority's general counsel ensued, and after "weighing all litigation factors, the SJTA determined at that time not to pursue reimbursement from United for the marketing funds," Stephen Schapiro, spokesman for New Jersey's Department of Transportation, said in an email. Fox declined to speak directly with the AP.

In subsequent statements to the AP, Schapiro said SJTA board members had taken note of "the significant cost to United" for operating the flights and the adverse impact that pursuit of reimbursement of the marketing incentives could have on other carriers who might consider serving Atlantic City.

It had cost United about $5 million to run both daily flights over the eight-month period, according to AP calculations based on industry data, with some of those costs offset by ticket purchases. Because the airline had not kept the routes active for one year, the SJTA did not refund United the $115,881 it had paid in landing fees and other airport charges.

In response to questions about potential conflicts of interest, Schapiro said in a follow-up email that although no formal vote was ever taken, "the consensus in the room" was to not require United to pay back the money. He said Fox was present but "doesn't recall participating in the conversation."

He also said Fox has never voted on any matters affecting United since becoming commissioner in September 2014. In another interview, Schapiro said the fee reimbursement issue was a "staff decision," which, he acknowledged, Fox agreed with. He added that since the matter had never been subject to a board vote, Fox never recused himself, which would usually be required under conflict-of-interest rules because of his prior work for United.

Just Thursday, the Port Authority adopted new rules that ban commissioners from directly negotiating with vendors. The guidelines also require commissioners to recuse themselves from voting on matters involving clients of their law or consulting firms.

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Associated Press writers David Porter in Newark, New Jersey, Josh Cornfield and Michael Catalini in Trenton, New Jersey, and AP researcher Rhonda Shafner contributed to this story.

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The AP National Investigative Team can be reached at investigate@ap.org