Tangled web surrounds United's aborted Atlantic City routes

AP News
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Posted: Sep 28, 2015 2:44 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, ports 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.

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.

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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, back to Newark Monday morning — were part of a scheme to entice the Port Authority to grant United its requests at Newark. United ended the half-filled flights just three days after Samson resigned his Port Authority post. Possible conflicts between Samson's work at his law firm and at the Port Authority also are being examined.

Christie's office declined comment Friday about the Atlantic City airport deal. 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.

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, which is controlled by Christie and New York Gov. Andrew Cuomo, 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. The airline and Port Authority negotiated over fees at Newark through the summer and fall.

The talks officially failed on Nov. 4.

Three days later, 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 against 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.

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.

On Nov. 19 — Fox's first meeting as head of the South Jersey authority — board members went into a closed executive session to discuss United's termination of the Atlantic City route.

According to minutes of that meeting, 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.

In response to questions about potential conflicts of interest, Schapiro said 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."

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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