# ' 

# ' 

# Continental Aidines

t ,en ShannOn



# ~~k.·J **Pro~ideni** Corporole Reo! Estote & Environmental Affairs Con!lnental Airlines, Inc. 

# 1600 Smith Street HQSVP Houston TX 77002 

# Tel 713 324 2245 

# Fox 713 324 6954 

# April 7, 2003 

# Mr. Michael DeCotiis, Esq. ChiefCounsel Office ofthe Governor StateHouse 125 W. State Street · Trenton, NJ 08625 

# Mr. Anthony R. 

# Coscia Windels, Marx, Lane & 

# Mittendorf, LLP 120 Albany StreetPlaza New Brunswick, NJ 08901 

# DearMike and Tony, Thank you for your time lastweek. We are grateful foryour attentionandthatof GovernorMcGreewy. Pursuantto the Governor'srequest, we enclose a sununaryofour proposals onrate reliefinitiatives thatwe hope the PortAuthoritywillundertake in recognition oftheextraordinary situation facing us. 

# Jh.opethe material is selfexplanatory andreflective ofthe directionwe understoodweneededto take onthe specificproposals, We lookforwardto yourresponse. · Tony, we do agree that theNew Yorkmarket shouldbe agreat oneforus, butwewant you to knowthat during the last 12months, Continental andExpressJet (formerly ContinentalExpress) operations atNewarkresulted in

# anet loss of$103 million. That was beforethewarin

# Iraq, whichhas reducedpassengerdemand evenfurther. Even beforethe startofthe war, Continental was forced to reducethe numberofflights out of EWRto Europe, Tel Aviv and Sao Paulo, among others
..

.I, along withNene Foxhall, am availableto answer any questions orprovidefurther background as youmayneed. Myphone numbers are 713-324-2245 (work), 713-501· 4176 (cell) and hers are 713-324-SHO 

# (work) and 832-978-5306 

# (cell). Sincerely,



# ~~ Cc: JamieFox JimDavy

EXHIBIT PP

# .Gl

**~.** 

# . 

# .



# N 0 

# 0 

# w •• ' Rate Relief initiatives for EWR

· ................................................................................................................

_. ............................................

, .. Apply existing and future. EWR Passenger Facility Charges (PFC) to rates and charges currently paid at the airport. The PANYNJ and CO would work cooperatively

to allocate PFCs to existing project charges. + Airline rate relief generated
by using EWR PFCs is a win-win situation because: + Applying EWR PFCs to EWR expenses does not negatively impact the State of New Jersey nor the NY airports since these PFC funds are not available for their use today. The Newark lease requires PFCs derived from that airport to be used exclusively

at EWR. + Utilizing PFCs to offset EWR rates does not reduce net operating income of the PANYNJ since PFCs are not included

in general operating revenue. + Each airport has a unique use for its PFCs (e.g. JFK's AirTrain and LGA's modernization program.) Because EWR has generated sufficient PFCs to pay for its existing projects and has privately bonded many of the recent renovations through CO's Global Gateway program, EWR's PFCs are unencumbered
and available for,application

to existing airport expenses. + Necessary capital projects undertaken

in the future can be funded through private bonds or airport rates and charges. Reduce overhead coverage
of up to 60% today to 15% for Security and Police costs. + The sudden rise in direct Security and Police &Traffic costs post-September 11th has had the unintended effect of creating overhead allocations

in excess of what is required
to cover indirect costs. + Based on the increase

in overtime wages and other direct costs between the years 2000 and 2002, coverage collections for security alone have increased 44%, or $4.8MM, on a base of $11 MM. We believe that the proposed 15% coverage factor is sufficient
to pay for the indirect costs associated with these services due to the increase

in base spending.

· + PA Staff represents that the 60% level of coverage

is unique to EWR. **~·**

**''~'"'' ~,§** 

.,.,,a

1• • Rate Relief Initiatives for EWR
**~~~** Defer the portion of the EWR 2003-2007 Capita/Improvement
Plan associated with EWR capacity expansion. This represents $340 million of the proposed $870 million. +With Continental's expansion

at EWR Terminal c·and subsequent relocation from Terminal B, gate capacity
at EWR has increased significantly. This has Cieated sufficient growth capacity for both incumbent carriers and new entrants. +Deferring these projects until they are truly necessary will have the added benefit of reducing demands
on PFC revenue which may be viewed as another funding source. Reevaluate overhead coverage on Airport Service Factor components

of Fixed Charges, O&M Expense, and the Manager's Office. + The escalation
of the security overhead coverage highlights the potential for similar situations

in other cost items comprising the Airport Service Factor. + The events of the last two years have taken the rate model
in a direction not considered when

it was created

in the early 1970s. + ln order to satisfy the financial needs of the PANYNJ and the carriers serving EWR, each component

of the model must be reviewed for reasonableness. .... ,.:d;_j/

**~**

qz(;,)

2