(Bloomberg) -- The city of Austin said it will pay $88 million to settle a dispute with the private company that operates an auxiliary terminal at the local airport that municipal officials sought to seize and demolish as part of an expansion project.

Under the deal, LoneStar Airport Holdings will soon begin to transfer management and operations of the terminal, the city-run airport said Thursday in a statement. The facility will remain operational as a hub for low-cost carriers Frontier Airlines and Allegiant until construction on the new facility begins in 2025, airport officials said.

LoneStar entered into a 40-year contract in 2016 to renovate and operate the auxiliary terminal, but just a few years later, city officials sought to acquire the leasehold interest and initiated eminent domain proceedings. 

The Austin-Bergstrom International Airport has struggled to keep pace with a surge in passengers seeking flights as the city’s population continues to grow. Municipal officials have argued that the expansion plan will help address that need by adding at least 10 new gates.

The case is LoneStar Holdings vs. City of Austin, 1:22-cv-00770, US District Court, Western District of Texas (Austin)

(Updates with details of deal and background on dispute.)

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