Photo by Hotels by Hilton
Wednesday, June 2, 2021 by Jo Clifton

Council to consider loan for Airport Hilton

When Austin’s airport lost 63 percent of its passengers last year due to Covid-19, the Airport Hilton lost 60 percent of its business. Now, Austin-Bergstrom Landhost Enterprises, or ABLE, the nonprofit corporation that operates the hotel, is asking for City Council approval to borrow up to $2.6 million from the city’s Aviation Department. The item is on Thursday’s Council agenda after being postponed.

The airport’s interim chief officer, Tracy Thompson, also serves as development vice president for ABLE. She and Rajeev Thomas, the airport’s deputy CFO, advised the committee on why the loan is needed and how the hotel will pay back the funds.

ABLE was created to issue the tax-exempt bonds that paid for the construction of the hotel. One of the important purposes of the loan is to assure the bond trustee and auditors that ABLE remains a going concern that can be trusted to pay its bills.

During the worst of the pandemic, Thomas said, airport traffic fell to about 20 percent of normal. As he told Council’s Audit & Finance Committee last week, the hotel’s revenues are almost a direct reflection of airport revenues. When staffers were making their financial projections a year ago, they realized that the hotel would likely run out of money in February of this year. As anticipated, the hotel has not been able to pay either Hilton or Prospera Hospitality, the hotel operator, among others, since March or April.

While some hotels shut down entirely during part of the pandemic, the Airport Hilton did not in order to honor contracts to provide rooms for airline personnel. In addition, the hotel’s restaurant had to stay open in order to serve the flight attendants and pilots who were staying there.

“Still, we reduced the hotel operating expenses by 44 percent last year,” Thomas said. “We did this obviously as the demand went down through reductions in staff. We tried to renegotiate some contracts. We reduced the scope of some of the work – for example, the landscaping company.” In addition, they postponed some capital projects.

Prospera Hospitality agreed to lower its monthly charge from $37,000 to $18,000 for six months, Thomas said. He said they deferred payment of invoices from Prospera as well as from Hilton, Harney Partners and the hotel’s legal counsel. Those have not been paid since spring of 2020. Harney Partners is the restructuring consultant that was brought on to help with the restructuring of ABLE’s bond debt.

When the hotel received its first Paycheck Protection Program loan under the CARES Act, management was able to rehire 75 employees out of the 123 who lost their jobs when the pandemic eliminated most of their customers. Thomas said those employees were able to come back to work doing jobs such as painting and refurbishing the hotel. The Airport Hilton received $907,555 in its first federal loan and $1,270,573 in its second loan. Thomas said they expect the entire amount to be forgiven this year.

Like other employers, the hotel has had to raise wages in order to get enough employees. Thomas said Hilton is now paying $14 an hour. He did not say how much employees were being paid prior to the pandemic.

Members of the Audit & Finance Committee seemed satisfied with the answers they got at last week’s meeting. According to documentation from the meeting, the base loan amount from the Aviation Department of $1,350,000 will be disbursed to ABLE to pay any outstanding accounts payable resulting from Covid-19 impacts through May 1. The loan agreement will provide for a contingency line of credit of up to $1.25 million. This amount is intended to address any potential operating shortfall through the end of 2022. The Austin Airport Hilton will pay 2 percent per year in interest, with the interest due and payable on April 1, 2024. The final payment on principal and interest is expected to start on April 1, 2025, and be paid off over a term of three years.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Austin City Council Audit and Finance Committee: a sub-group of the Austin City Council. It's members are charged with oversight of city fiscal operations and anything that falls under the purview of the Office of the City Auditor.

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