The RDU Experience

Phase 2 expansion culminates a decade of defining the needs, the costs

“It wasn’t suited to be an O&D terminal at all.”

RDU officials subsequently negotiated with American to purchase the facility, which it had backed with special facility bonds, for $27 million and a reduction of its 40-year lease to 15 years, effectively cutting the term by ten years, according to Brantley.

“The other thing that we got was, because American was in effect paying the bonds off, all they were paying were ground rent and landing fees,” says Brantley. “They agreed they would pay the same rent as everybody else; they would pay the same charges.

“The lease they got isn’t materially any different than the month to month deals that every other carrier has.”

In fact, RDU has maintained month-to-month leases with all its carriers (except American) since 1977, a somewhat leading edge approach, Brantley admits, to a practice that is becoming more commonplace.

He explains, “The only reason there’s a lease with American is because when the facilities were built for their hub; they were built with what was then the debt of choice, which was special facility revenue bonds. That required there be agreements in place.

“The truth is, all of our rates and charges are essentially done by ordinance. We keep them low intentionally. Our cost per enplaned passenger here is about $5.50 at the present time, and it isn’t going to change much even with the completion of the terminal. And that’s pretty much at the low end of the spectrum for medium hub airports.

“So we don’t get much discussion with the airlines. I couldn’t even tell you when the last airline affairs committee meeting was here. It’s been years ago.

“Because neither party is standing there with a piece of paper waving it in the face of the other, we tend to get along pretty good. Actually, I think it’s the right way to run an airport or to run a business.”

The American terminal encompassed some 350,000 square feet; the new terminal will have a footprint of 900,000 square feet.

The $570 million terminal overhaul will bring the airport’s total debt to $700 million. The debt load, while necessary, runs counter to RDU’s philosophy of banking the money first prior to construction, says Brantley. Some 75 percent of the debt will be repaid via passenger facility charges.

“The great majority of what has been done out here preceding the Terminal 2 project was financed by a pay-as-you-go basis,” says Brantley. “My dad taught me a long time ago that if I didn’t have it, I couldn’t spend it. We sort of operated on that basis. We’d make it first and then used it to create the things that needed to be created.

“And the other thing that we did over the years is we never really tried to undertake capital improvements of an overwhelming breadth at anytime. We’ve sort of taken this airport and said, OK, there are different parts of it. So let’s take a part and fix it. We get through with that part and go to the next part. And you can do that and finance, pay as you go.

“When you get to a major facility like that terminal, a $570 million undertaking, it takes a long, long time to be able to accrue the funding. That’s when we started using debt. Our overall debt today is not bad at all for an airport for our size.

“There are a lot of others out there our size that have got a lot more debt than I would care to be saying grace over.”

Lessons learned
When in the late 1990s officials here recognized that terminal expansion would need to be addressed, they hired Jacobs Consulting and other consultants to perform a project definition study to determine what was needed and the cost, relates Brantley.

“We wanted to figure out exactly what we want; exactly how it goes together and fits with everything else; exactly what the specifications for it are; and then we’ll go hire an architect and say, ‘Here’s the plan’, explains Brantley. “In effect, design an envelope to go around what we’ve given you and put together the finishes — that’s your role.

We Recommend