Denver International Airport has scored a win in a legal battle against United Airlines over a lease agreement backing $261 million in bonds.
At risk in the suit was millions of dollars due in lease payments. The 7th U.S. Circuit Court of Appeals in Chicago upheld the lease in a ruling Thursday.
“This is wonderful,” said Douglas Jessop, special bankruptcy counsel for the city and county of Denver. “It’s good for Denver, and it’s good for the airport.”
The 31-year lease is a deal United struck with Denver in 1992 to operate at then-incomplete Denver International Airport. United leased ground space, along with facilities at the airport that had not yet been built.
Denver agreed to issue municipal bonds to raise $261,415,000 for United to build the facilities. United’s lease payments for facilities were used to repay bondholders.
But after United went into Chapter 11 bankruptcy protection in 2002, it tried to split off the bond part of the agreement and reclassify it as an unsecured loan, allowing United to pay pennies on the dollar.
United stopped making lease payments for the facilities while the case was being considered, instead putting funds into an escrow account.
The appeals court ruled that the agreement must be treated as a true lease, affirming previous rulings by bankruptcy and district courts.
United does not plan to take the case to the Supreme Court.
“We are moving on, and look forward to continuing our long-standing and productive relationship with the City of Denver,” United spokesman Brandon Borrman said in an e-mailed statement. He said payment details will be worked out with the city.
United prevailed in rulings on San Francisco, Los Angeles and John F. Kennedy International airport bonds. Denver’s unified lease agreement with United was structured differently from the other airports’ leases.
“They swung for the bleachers and were pretty successful with Los Angeles, San Francisco and New York,” Jessop said.
The DIA agreement combined ground and facilities leases because the facilities for United were not yet built. The ruling on the Denver lease is a positive note for special facilities bonds and the structure DIA used, said Jessop.
“Some people thought it was dead, and others thought it was seriously injured,” Jessop said.
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
