Bond issuance and a flood of federal aid during the pandemic allowed major air hubs to continue an unprecedented pace of construction as traffic continues to recover.
From New York to San Diego, airports across the country were in various stages of bond-financed construction or planning when the pandemic struck the U.S. in March 2020.
“Some airports sought to restructure some near-term payments and others front-loaded savings to mitigate the impacts of lower traffic as part of a strategy that included the use of relief funds,” said Ken Cushine, principal at Frasca & Associates, financial advisor to several major airports.
“While uncertainties remain, the outlook for airports is positive with strong recovery of leisure and domestic traffic and most major airport capital programs are advancing.”
Airport bond volume rose 5% in 2021 to $14.2 billion from $13.5 billion in 2020, the first year of the pandemic, according to data from Refinitiv. Issuance in both years came during the worst downturn in aviation since the 911 terrorist attacks of 2001.
Bond issuance for airports in a typical year runs from about $10 billion to $12 billion, Cushine told The Bond Buyer.
“While issuance slowed dramatically in the first months of the pandemic in 2020, it recovered in the second half of the year as airports took advantage of historically low rates and favorable market conditions,” he said.
In December, San Diego International Airport Authority priced $1.94 billion of bonds for the airport’s $3.4 billion Terminal 1 overhaul. The deal, which included refunding bonds for 2013 debt, ranked as the largest for a California airport.
Due to continuing low interest rates, the airport said it was able to cut its financing costs by $386.5 million over the life of the project. It also reported $52.7 million in present-value savings from the refinancing.
“The Airport Authority continues to be in a strong financial position and this bond sale reflects the market’s confidence in our ability to recover from the COVID-19 pandemic,” the authority’s chief executive, Kimberly Becker, said in a statement after the deal. “These funds allow us to continue the momentum of the New T1, providing funds for construction and in turn benefiting the region through jobs and economic investment.”
To the north, Los Angeles International Airport is continuing its $11.5 billion redevelopment through 2026 with $1 billion more on tap in 2022.
Upcoming deals are designed to lower debt and operating costs, while traffic remains well below normalized performance levels, according to Fitch Ratings, which conferred ratings of AA-minus on the upcoming deals.
“These actions are indicative of non-traditional steps utilized by LAX management during these pandemic times and similar actions may still be considered but will be linked to the pace of activity recovery,” Fitch noted.
Through refunding, Dallas-Fort Worth International Airport has locked in savings of about $1 billion since 2019, said DFW’s chief financial officer, Chris Poinsatte.
“I think we made the right moves, looking back on it,” Poinsatte told The Bond Buyer. “If we hadn’t gotten that federal relief, we would have done some other things. At the end of the day, we were able to keep the airline rates flat. We used the federal relief money as a budget balancer.”
The American Rescue Plan Act, signed into law on March 11, provided $8 billion to support airports during the pandemic.
Poinsatte said that three relief packages confirmed his reassurance to investors that the federal government would not leave airports high and dry in a crisis.
“I thought we would get one federal relief bill,” he said. “I never expected we would get three.”
Salt Lake City International Airport was in the midst of a $4.5 billion redevelopment when the pandemic hit. The grand opening of the first phase of the project came in September 2020 when traffic was still in a deep slump.
Denver International Airport was also amid a major airport redevelopment when the pandemic struck. After abandoning a public-private partnership due to conflict over construction issues, the airport went its own way, completing the first phase of its so-called “Great Hall project” in October.
“It is essential that we continue the work we have started to better protect our passengers, upgrade our aging facility and prepare it for the future,” airport chief executive Phil Washington said in an October statement. “We are recovering quickly, and our growth will continue to be robust over the next 10 to 20 years. Time is of the essence and these improvements must happen now before it’s even more expensive and disruptive to passengers later.”
The Denver City Council in December approved another $700 million of bonds for the next phase of the project.
Airport Chief Financial Officer Sylvester Lavender, who arrived in March from Birmingham Airport Authority, said Denver’s next airport bond issue is likely in June.
After Denver passenger volume fell 51% in 2020, traffic in 2021 was down less than 15% compared to the pre-pandemic year of 2019, Lavender told The Bond Buyer.
“As a result, during the pandemic, the airport reprioritized certain elements of the capital program, but has continued with the major capital projects and did not impact the bond financing strategy,” he said.
Nationwide, passenger traffic in April 2020 plummeted 96% below that of April 2019, and stayed 60% below 2019 levels in 2020, according to an Oct. 26 report from the General Accounting Office.
“Effects cascaded across airports, repair shops, and the supply chain,” the report noted. “For example, in response to reduced demand, airlines parked or retired many aircraft, which reduced demand for maintenance.”
While leisure travel has experienced a strong comeback, the lucrative business travel sector is still in the doldrums, the GAO said.
“Operational challenges and concerns about the COVID-19 Delta variant have slowed recovery,” the report said. “Forecasts suggest that industry recovery will be uneven as business and international air travel — the most profitable segments — are likely to lag.”
Airport stakeholders have called for strengthening aviation workforce pipelines and developing a national aviation-preparedness plan for communicable disease, as GAO recommended.
In August, Fitch affirmed its ratings on 18 major hub airports across the nation.
“While exposures remain with regard to traffic and revenue improvement, the progress suggests lessened fiscal strains, with airports better positioned to restore metrics to levels consistent with current rating levels,” analysts said.