A tack to lay down tracks - Business

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Sep. 10, 2008
Copyright © Las Vegas Review-Journal

A tack to lay down tracks

Monorail operators say route extension would help move tourists, but system seems headed for default

By BENJAMIN SPILLMAN
REVIEW-JOURNAL

A Las Vegas Monorail train leaves the Sahara Station on Tuesday. The monorail's chief executive officer told board members of the Las Vegas Convention and Visitors Authority that the train system could ferry as many as 8,000 riders per hour if its route were extended from MGM Grand to McCarran International Airport.
Photo by Craig L. Moran.

Operators of the Las Vegas Monorail are looking forward to an extension to McCarran International Airport even as the rail system's debt rating points toward default.

In a presentation to a Southern Nevada tourism booster board, Las Vegas Monorail Co. President and Chief Executive Officer Curtis Myles said ridership is up to about 8.5 million people annually and the rail system generates more fare revenue than rail transit systems in San Francisco, Los Angeles and Boston.

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Myles told board members of the Las Vegas Convention and Visitors Authority that a monorail extension from MGM Grand to the airport would make the system more convenient for visitors by ferrying as many as 8,000 riders per hour -- the equivalent of nearly 2,700 cab rides.

"This is one of the few places where you can fly in and see what you want to do," Myles said of how airline passengers en route to Las Vegas can see their hotel destinations from the plane. "What people don't realize is it is going to take an hour, an hour and a half, to get there. That is not great service."

But before the monorail gets an airport extension, it will need a credit extension to stay afloat. And that's unlikely to happen without an infusion of government money, debt analysts say.

That's because the monorail is already failing to meet the terms of some of its approximately $649 million debt load and could default on the bulk of its loans by the end of 2010.

If that happens, the system would fall into the hands of Ambac Assurance Corp., the company that insured $451.4 million in first-tier, tax-free monorail bonds, according to analysts at Fitch Ratings.

It creates an awkward situation for the Las Vegas tourism community.

On one hand there is little to no appetite among resorts or local governments to dump more money into a transit system that is headed toward default.

On the other hand, if the monorail were to grind to a halt it could create demand for more than 22,000 cab rides during major conventions in an area that is already congested. It would also leave an abandoned, elevated rail system east of the Strip between Tropicana and Sahara avenues and in front of the Las Vegas Convention Center.

Resort operators and local government officials don't relish the prospect of shifting tens of thousands of monorail riders into buses, cabs and rental cars in an area already clogged with traffic.

"I certainly look forward to moving tourists around quicker so we can get their money out quicker," said convention authority board member Tom Collins, who is also a Clark County commissioner.

Myles, who didn't mention the monorail's financial state during his presentation, told the authority the company is working with Bombardier, which operates and maintains the system, and Goldman Sachs on a financing plan for the airport extension.

Construction of the extension would coincide with construction of a third terminal at McCarran, which is scheduled for completion in 2012. The extension would be both above and below ground. It would run along the south side of Tropicana, beneath the northern end of the McCarran airfield before turning south to the airport terminals.

Although the monorail can't continue long in its current state, there is evidence the system isn't a complete fiscal black hole.

Fare box revenue produces 129 percent of the cost to operate and maintain the system. That's the best return among 31 rail transit systems listed during the presentation.

That margin could appeal to investors, Fitch Ratings analyst Chad Lewis said.

"There is definitely some incentive to run this to the airport," Lewis said.

However, when debt service is included, the monorail only earns about 60 percent of what it needs to remain viable.

That's why Fitch tagged the $451.4 million in first-tier monorail debt with a "CC" rating, meaning, "default of some kind appears probable."

The monorail company is still servicing $149.2 million in second-tier debt, but just barely, Lewis said. And investors in $48.5 million in third-tier debt, a group mostly made up of Las Vegas resorts, have probably given up on getting a return, Lewis added.

Private investors aren't likely to put money in the system as long as the current debt cloud lingers.

"It does produce a net positive cash flow, so clearly there is some money," Lewis said. "But the debt is high."

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. Michael wrote on September 23, 2008 07:43 AM: Give the money for monarail to airport, I'm tired of cabbys trying to rip me off on a ride to strip. I tell them quickest way and they don't listen. Cab fare from airport has varied as much as 12$ to same casino. John D wrote on September 22, 2008 07:59 AM: I always use the Monorail when I am in Vegas. I usually get the unlimited 3 day pass. Worth the money I say. My first time in Vegas in 2006 I must have spent over $100 on cab rides alone. That to me is a waste. So what I am at the front doors by cab. Seems ok for everyone to walk 10 miles to their rooms at the hotels but complain about walking to the Monorail stops? I live in Toronto where transit is high priority here. And we have 3 Subway systems and a above ground rail line. So many people here hate piling on buses or taking overpriced cab rides to their destination. I would think Vegas visitors would want convenience that doesn't cost alot. Cab rides from the airport are the joke there. Most times you get longhauled, get stuck in traffic and end up paying $20+ for the ride. The Monorail extension to the Airport would be the best thing to ease that. When I stay at MGM Grand, I take the Monorail up to the Sahara, not a cab ride. But then again I guess I am one of them cheapo tourists who likes to save money on costs so I can spend more on gambling, eating and shopping while in Vegas. The Monorail and walking are the best options than taking cab rides. I'd love to take the monorail from the airport than cab rides or shuttles. But we have only two options. V. wrote on September 21, 2008 04:19 PM: We loved the monorail when it was free. It was ok when the cost to ride was low. But there's no interest whatsoever in, 1st, walking several miles to get on the monorail at any of the stops, and then paying what now amounts to cabfare after walking those miles. It doesn't cost that much to ride the Metro in DC. The Metro goes everywhere in the DC area, and it always puts you on the main streets, not several miles into the city's underbelly. Easy on, easy off, and cheap to ride. If the monorail fails, Las Vegas you only have yourself to blame. Cut the cost in half and you'll more than double monorail users. Tommy wrote on September 10, 2008 04:02 PM: Why they didn't have the monorail go down the middle of the strip is a joke. If it defaults and shuts down, there is probably enough copper wiring in it to get most of the money back. Sheldon Smith wrote on September 10, 2008 03:53 PM: The monorail is the only hope in LV to avoid the congestion on the strip! Just wait until City Center, etc., opens! Then the word congestion will take on a whole different meaning! MB wrote on September 10, 2008 02:49 PM: Las Vegas needs this monorail, point blank. Who cares were the CEO and executives are from (RTC, Airport etc…) what is the point in mentioning any of that. At least these people were brought in locally instead of being some outsiders from another state trying to dictate things. Either this monorail was ahead of its time OR was over due….. But the true fact is that it needs to be MORE than what it is now. The only negative I see is that I should have been planned more strategically. It must extend to the Airport (with viable trains that can accommodate passengers with luggage) and to the west side of the strip. As well extend further north and south of the strip. If were going to have a monorail then lets do it right!!!! Not half a$$ed! Then maybe it will make more than just operational profit. If any city needs this most and could make it succeed its Las Vegas. RonNV wrote on September 10, 2008 02:02 PM: We need this monorail system..the traffic without will become unbearable. As much as I hate government subsidy I think in this rare instance money should go towards extending the rail system. What is going to happen when City Center gets up and running. We need this for the Las Vegas economy. jt wrote on September 10, 2008 12:00 PM: Exactly- We need to keep this in perspective. There is no other urban rapid transit system in this country and probably none in the world that generates a very significant operating profit that can be used to help amortize all or a major part of construction cost. There is probably no other urban transit system in the country operating at a higher level of reliability. And ridership and revenue is steadily increasing. All done without using a penny of scarce tax revenues. If that is not "Success", then what is? Even the most highly touted toll roads in this country have had to go through a refinancing just like the monorail is going to have to do -- and it makes sense that the highly productive airport link will make the refinancing much better than otherwise would be the case. Finally, let's stop living in the past -- the teething problems they had in 2004 were solved a long time ago -- not much different from the start-up problems that many new resorts have had through the years --but which are quietly and efficiently solved. If any other city could do what this monorail is doing and will do for Las Vegas, they would and could. But there is only one Las Vegas. ths wrote on September 10, 2008 10:29 AM: So Paul you are saying take over the monorail and invest in it with public funds? Do all the road work with public funds? I agree the monorail needs to be more then it is, but it is a good start and we should not abandon it but expand it and help get it there if need be. Just because it could not pay its debt back is not a bad thing as it does turn an operational profit. For that reason we should assist in ways that might get more private money to step in. Even if not it is showned to be feasible. Please name one mass transit that has paid its debt plus interest back? Name more then 5 mass transits within the US that turn an operational profit. I will help you with the first, NYC subway. Find 4 more please. Actually name me one private bus system, airline or train that is not carrying debt? Also a public mass transit does not pay taxes for the bus turn outs and bus shelters. If it is public why should they pay taxes on its buildings? I am just a little lost on that arguement. It is setup as a nonprofit which means if it was paying its debt off it would either need to take the extra funds for expansion and upgrades or lower ticket fairs. CJ wrote on September 10, 2008 10:27 AM: As Paul said, the senior mgt there are all RTC people. Curtis Myles reported directly to RTC head Jacob Snow, and Ingrid Reisman reported to Curtis Myles. They both need to get out and let professionals do the job. And salaries...my GOD- I know for a fact that we are talking mid six figures for Curtis Myles, and low six figures for Ingrid Reisman. Read All Comments