Airport Finance - The Money Folks Talk

MADISON, WI - The Airport Council International-North America (ACI-NA) Airport CFO Summit, held here in July, drew some 30 industry professionals. Airport Business caught up with a group of finance executives to discuss how the airport finance arena has...

“If you went back 25 years ago, for the most part, the airlines had the stronger position and could say ‘no’ to a lot of things. Now the trend with a lot of lease agreements, or lack thereof, is to shift more control to airports.”

Adds Poinsatte, “The reason we exist is to grow the economy; I think our number now, and it’s been the same number since I’ve been at the airport … there is more than $16 billion in economic activity generated from DFW; this year alone we’ve added nine new international flights.”

Getting green

Driving some financial consideration more now than ever is sustainability and the shift of focus on the environmental aspect of operating an airport, says Jones. “It’s not always cheap, but there are a lot of communities that have initiatives to move forward with as many environmentally sustainable projects as possible.”

Poinsatte agrees that building and operating with a focus on environmental sustainability can come with a higher cost up front, but the long-term benefits are clear. “We put the triple-bottom-line [three pillars for measuring organizational success: economic, ecological, and social] in everything we do; we’ve cut our emissions by a considerable amount over the last 25 years.”

Benefits of variable-rate

With regard to financing and how airports issue debt, Nichol says things were once very plain vanilla — 30-year fixed rate debt that was either taxable or tax-exempt. “Now we have AMT (alternative minimum tax) in the mix which is not completely functional perhaps right now,” she remarks.

“Airports had the two-year AMT holiday, which helped a lot with airport financing,” adds Nichol. Airports also have a much more diversified portfolio of the kinds of debt they can issue.

“We now have GASB 53, which governs how we report our derivatives on our books,” she relates. “That affects our financial standing; it’s just a lot more to manage.

“At SFO after 9/11, being able to really harness variable-rate debt saved the airport a ton of money. It’s not like we went nuts on that … we won’t have more than 20 percent of our total portfolio in variable-rate, but it saved millions of dollars.”

Poinsatte agrees, commenting, “DFW has probably saved $70 or $80 million over the course of time by using variable-rate products.”

Carrier leases and facility utilization

On AIP funding, Poinsatte relates that there are a lot of airports that would be happy to get out of the program altogether for the trade-off of the ability to charge a PFC, while letting airports finance in the same way as the Canadian model — that is as opposed to relying on federal government grant assurances.

Says Nichol, “We came off a 30-year lease agreement in June, and are now in a ten-year agreement. Compared to DFW, we have no land, and that one thing makes a huge difference because we have to control our terminal facilities … we have to have a different philosophy.

“The one significant change — we are still a residual airport, but we’ve gone from having exclusive-use gates for the airlines in the domestic terminal to preferential and common-use. That enables us to get much better use of our facilities.

“We also have airfield capacity issues that we are going to start experiencing around 2030 ... so we really need to get the most out of our facilities.

“SFO has the philosophy of not turning over development outside of the terminal area to third-party developers; we need to control that.”

Remarks Poinsatte, “We use third-party developers all the time. We came off a 35-year residual lease to a hybrid where we control all of the non-airline revenue sources. We have a different situation since American is 85 percent of our passengers … we really do want an agreement with them.

“That said, we have much more of a sharing than we did before; airlines really controlled everything. American maintains two of the terminals in Dallas; we would like to take that because we think we are more focused on ensuring that the facilities are maintained well and that the customer experience is good.”

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