San Diego Airport’s Terminal 1 Project Gets a Big Financial Boost: Nearly $1.1B

The San Diego International Airport's biggest project ever — a new, expanded Terminal 1 — just got a major financial boost with the completion of a successful billion-dollar bond sale that will keep construction humming for the next couple of years.

The new bond financing of $1.062 billion, in combination with an earlier sale in 2021 that now brings the total to $2.35 billion, will go a long way towards covering the $3.4 billion cost of the new Terminal 1. Together, they should carry project financing at least through mid-2025, when the Airport Authority will likely need to arrange another bond sale. That is also when the first phase of the new terminal will open.

Because the project will be constructed over a six-year period, it made sense to secure bond financing in increments to avoid the huge interest cost of carrying billions of dollars in debt over an extended period of time, airport officials said. While interest rates are now higher, there is also a limit to how long the airport is permitted to have unspent bond proceeds still on the books while maintaining a tax-advantaged status of the bonds, officials explained.

The replacement of the 1960s-era Terminal 1 with a new 30-gate facility, along with planned airfield improvements and new roadways, is triple the cost of the $1 billion redevelopment of Terminal 2 a decade earlier.

"The bond sale will help us realize our collective purpose to create an exceptional airport experience for the community and the world," said Kimberly Becker, president and CEO of the San Diego County Regional Airport Authority. "This will also help San Diego International Airport to continue to serve as an economic driver for the region in terms of jobs and tourism."

Given the current higher interest rate environment that favors bond purchasers, the airport's sale attracted considerable interest, with investors placing more than $3.4 billion in orders for the bonds.

The interest cost to the airport for the bond sale was 5.18 percent, which includes the cost of issuance. By comparison, the 2021 bond issue carried an interest rate cost of 3.34 percent, a record low for the Airport Authority. That bond sale also drew strong interest from investors, who placed more than $7.7 billion worth of orders.

In addition to adding 11 more gates, the Terminal 1 project will feature an expanded and much-improved lineup of food and retail concessions, a 5,200-space parking garage, and a baggage handling system that will be able to process up to 2,000 bags per hour during peak periods. Also part of the redevelopment is a new three-lane airport access road from Laurel Street and North Harbor Drive that airport planners say will remove 45,000 vehicle trips per day from Harbor Drive.

Southwest Airlines and Delta will be using the new Terminal 1, as will some other airlines still to be determined. Terminal 2 is also used for domestic flights operated by a number of other airlines and is also where international flights depart and arrive.

The first 19 gates in the new terminal, now under construction, will open first, and demolition of the old terminal will follow. The additional 11 gates should be ready by 2027.

Since construction got underway in 2021, there has been considerable progress — and unavoidable disruptions for air travelers. The steel framework for the first phase of the new terminal building is over 90 percent complete, and a topping-out ceremony is planned for for Nov. 15 to celebrate 100 percent completion.

In addition, the new parking garage is 50 percent complete and is on target to open in 2024. Meanwhile, the first section of a new on-airport entrance roadway will open Oct. 27. That roadway will take motorists to the front of the existing Terminal 1 where they will exit at ground level.

At a future date, the western end of that roadway will be realigned to go to the newly constructed terminal, airport spokesman Jonathan Heller explained. As it approaches the terminal, it will split into an elevated departures roadway and a ground-level arrivals roadway.

In addition to bond financing, the Terminal 1 project is also relying on more than $500 million from the airlines as part of a 10-year lease agreement. The Airport Authority also has been awarded multiple federal grants totaling more than $150 million.

This story originally appeared in San Diego Union-Tribune.

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