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ECONOMICS Last modified on September 18, 2014

Invest USA

How are US airports dealing with the need to upgrade their infrastructure in the face of ongoing funding restraints? Benet Wilson investigates.

In its 2013 Capital Needs Survey, ACI-NA found that US airports need to complete $71.3 billion worth of essential infrastructure projects between now and 2017 in order to keep pace with demand.

The figure amounts to $14.3 billion a year, with 54% of the total allocated for projects to accommodate traffic growth and an increase in the use of larger aircraft, and the remainder on the rehabilitation, maintenance and repair of existing infrastructure.

It revealed that large hubs will account for $37 billion or 52% of the total; medium hubs for $9.3 billion (13%); small hubs for $5.8 billion (8%); non-hubs for $5.1 billion (7.2%) and other commercial airports for $700 million (1%).

The survey of 3,400 aviation facilities also found that the top three states by airport capital needs are Texas ($8.3 billion), Florida ($7 billion) and California ($6.6 billion). 

The big spend in the three states is certainly borne out by a new survey of the top airport construction projects nationwide, which reveals that Dallas/Fort Worth (DFW), Tampa (TPA), Los Angeles (LAX) and San Diego (SAN) alone are responsible for projects totalling nearly $10 billion.

Carried out earlier this year by Reed Construction Data’s chief economist, Bernie Markstein, the survey discovered that the biggest airport project underway in the US is the $5.6 billion extension of the Washington DC Metrorail system (see next issue of Airport World) to Dulles International Airport.

It is followed by the $4 billion second phase of a terminal expansion programme at LAX; the ongoing $3 billion upgrade of Denver (DEN), where work includes the creation of a new hotel and transit centre;
DFW’s $2.3 billion TRIP programme; and a $1.8 billion airport reconstruction project at Salt Lake City (SLC).

Looking at ACI-NA’s survey, he says there is a crying need for improvement to the US airport system and has no hesitation in stating that the government isn’t doing enough in terms of funding.

“We haven’t seen support at the federal level to fill airports’ needs,” warns Markstein. “There’s been a lot of politics over spending money. It’s about the view that spending any government money is bad. But this ignores the difference between infrastructure investment versus spending for consumption.”

It’s the difference between spending money on a new roof for the house or taking a trip to Disney World, quips Markstein. “Taking the trip is enlightening and fun, but once it’s consumed, it’s gone,” he notes. “But the new roof shows benefits long after it’s done.”

Infrastructure projects underlie the ability for the economy to grow, adds Markstein. “Until 2012, airports were hurt by a series of continuing resolutions until Congress passed a transportation bill,” he says. 

“Under continuing resolutions, airports couldn’t make plans because they were not sure of funding. Ironically, one of the reasons airports aren’t getting money is because Congress wants to save money on government spending, but by not having long-term funding, you actually drive up costs.”  


Source of funding

Passenger Facility Charge (PFC) revenue, Airport Improvement Program (AIP) grants and bonds are, of course, the three main ways US airports fund development projects today.

And the pot appears to be getting smaller because the AIP budget – which is funded by passengers – has been cut twice in the past two years, first in the FY2012 appropriations process from $3.5 billion to $3.35 billion and most recently by an additional $253 million in FY2013.

The latest cut brought an end to FAA furloughs, despite that fact that airports must fund more than $70 billion in safety, security, noise, capacity and passenger service projects during 2013 to 2017.

While Congress has so far refused to bow to industry demands to raise the cap on PFC revenue from $4.50 per boarded passenger to provide airports with a much-needed cash injection to fund new facilities.

Indeed, ACI-NA has gone on record in registering its disapproval at the government’s reluctance to increase the PFC.

“The average annual of $14.3 billion in needs is still significantly higher than the funding available through annual AIP grants and new PFC revenue,” states the 2013 Capital Needs Survey.

“It is clear that the existing federally mandated funding system simply fails to meet US airport capital needs for modernising and expanding airport capacity, which is critical for a safe, efficient and globally competitive aviation system.”

And perhaps more directly, in a policy document it says: “In order to help make airports whole, Congress should increase the Passenger Facility Charge (PFC) to $8.50 to restore its purchasing power. This would allow airports to have the ability to raise money locally to fund critical infrastructure needs.”

Annie Russo, senior director of government affairs for ACI-NA, adds: “We have been advocating for an increase in the PFC for a long time, and will continue to do so going forward. 

“We’d also like more money for AIP, but we understand the realities of the federal budget.”

Without doubt it is a tough operating environment, but as Markstein’s survey shows, the ongoing restraints in federal funding have failed to stop many of the US’s biggest airports investing billions of dollars in upgrading their facilities.

Below we highlight a handful of infrastructure development projects that gained funding and are making headline news in the US.



Texas TRIP

Dallas/Fort Worth International Airport is in the middle of its seven-year, $2.3 billion Terminal Renewal and Improvement Program (TRIP). 

“Honestly no one needed a lot of convincing to do this project,” says David Magana, senior manager of public affairs for the airport. “After opening Terminal D in 2005, it clearly showed that the original terminals needed a refresh because the oldest one is 40 years old. 

“We needed things like self-check kiosks and new concessions. The airport board and the airlines were ready to do it.”

In getting funding in place for TRIP, DFW faced the same challenges that other airports face: having to take on debt, said Magana. 

“PFCs don’t keep pace with airport infrastructure needs. But we felt strongly that the scope of TRIP had to fit within our financial realities,” he tells Airport World.  

“It became a matter of aligning our goals with the airlines’ goals. TRIP started at $1.9 billion, but we added things like new parking garages and more energy-efficient infrastructure, so the project is now at $2.3 billion. 

“These are not cost overruns, but an expansion of our scope. We’re still staying within our costs.”


Tampa time

To the south-east of Texas, Florida’s Tampa International Airport is in the design phase of a $2.5 billion, 20-year airport master plan to upgrade a facility that first opened in 1971. 

CEO, Joe Lopano, has set his goals for the airport – adding new flights, growing passenger revenues and completing the master plan. 

On convincing stakeholders that the programme was needed, Lopano started by conducting a two-year study on the airport’s needs. 

“We wanted to make sure we understood all the issues and opportunities,” he explains. “Once we did that, we began outreach efforts to as many people as we could to show our solutions. If a plan is well articulated and explained often enough, it’s an easy sell.”

Lopano says his job was to convince stakeholders, including federal, state and local legislators, chambers of commerce, local businesses and anyone who makes money with the airport. 

“The airport is an economic driver in the region,” he notes. “It opened in 1971, and now is the time to invest in its growth. I emphasised that our plan was affordable and would create 9,000 construction jobs and give us what we need to grow for the next 20 years.”

The first phase of construction will include: decongesting roadways and passenger drop-off and pick-up kerbsides; building a consolidated rental car facility; providing connections to regional transportation systems; adding spaces to the long-term parking garage; increasing opportunities for commercial development on the south part of the airport campus to diversify the airport’s revenue stream; and creating new concession opportunities.

The airport lined up various forms of financing for the project, says Lopano. “We actually refinanced existing debt using direct bank loans. Banks weren’t interested in that before the economic meltdown but they are now, and we got some great rates.

“Our credit ratings is A+, and in order to let the bond community know what we needed, we met with the three rating agencies and the bond buying community in New York City, told them what they would be buying and they were happy. We made an articulate and compelling case on why we’re doing what we’re doing.”

Tampa International’s 20-year plan is broken down into three phases, according to Lopano. “We didn’t need to do it all at once and won’t do phase two or three unless they’re necessary,” he admits. 

“That will be driven by if we get more international growth. We can stay in our current international facility for another 10 years.”


San Diego’s Green Build

Going west, San Diego International Airport completed its $1 billion Green Build construction project in August 2013. 

And president and CEO of San Diego County Regional Airport Authority, Thella Bowens, admits that getting local residents onside was crucial to the success of the project.

“One of the most important things we did in garnering support for the project was an effort to help the community understand the value of the airport to the region’s economy,” she says. 

“In our case, this translates into an annual economic impact of $10 billion, and this certainly helped everyone see it from a different perspective.” 

Highlights from the Green Build included: 10 new gates to reduce terminal congestion; enhanced kerbside check-in, allowing passengers to print their own boarding passes, check baggage and view gate information at an easy-to-use kerbside kiosk; more security lanes to improve flow of passengers through the terminal; and expanded concessions.

The Green Build started construction during the global recession, but the airport had been planning it for 10 years, so although the timing wasn’t perfect, it was necessary, concedes Bowens.  

“As we began to conceptualise our design, we had stakeholder groups at the table to get their input,” she says. “Our airlines had a seat at the table from the very beginning, which was one of things that made it possible to move ahead with the project even after the recession had set in.”

The airport authority thought that funding the project might be a problem, but the airport had a strong history of prudent finances, which did not go unnoticed by the three rating agencies, reveals Bowens.  

“We had an A+ and A rating and those spoke volumes on the management of our finances. You don’t garner those kinds of ratings based on one point in time,” she enthuses. 

“We were fortunate to have good ratings from all three agencies. And because the construction business was in real trouble, we were able to take advantage of lower costs to build the project.”


What next for US airports?

As for future funding prospects for US airports, ACI-NA’s Russo notes that the current FAA Reauthorization Bill expires in September 2015. 

She says: “There was a hearing [recently] before the US House of Representatives Transportation Committee on airport financing, the first one that’s been held. There was also one on airports in small communities. That shows that Congress is beginning to think about FAA reauthorisation.”

Russo insists that ACI-NA will focus on total airport financing during the next FAA reauthorisation process.  

“We’ll show members of Congress how airports are financed and the options available for their capital needs,” claims Russo. “We’ll also make sure AIP remains a strong programme, especially for smaller airports that need it as a lifeline.”

Airports can certainly be assured that both ACI-NA and the American Association of Airport Executives (AAAE) are working to make sure that their voices are heard on Capitol Hill, according to Russo.

“We’re working to make sure airports are represented in the conversation and that Congress understands the capital needs of airports and the importance of air service to communities across the country,” she says.

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