Dallas Forming New Entity to Issue $300M for Love Field

DALLAS - The Dallas City Council is expected today to establish a local government corporation that would issue more than $300 million of lease revenue bonds to finance a six-year terminal modernization effort at Love Field Airport.

Daniel Weber, the city's director of aviation, said the preliminary planning budget for the terminal project is $571 million if it is built as a conventional city project but drops to $519.7 million if the project is managed by Southwest Airlines, the primary tenant at the city-owned airport.

"The benefit of having Southwest manage the project is that they can negotiate contracts with contractors and suppliers," he said. "Time is also important. Southwest won't have to wait 90 days after it gets a bid until it can award it. They can get right to work."

Project cost estimates are only preliminary at this point, Weber said.

"These are our planning numbers," he said. "We haven't even begun the actual design."

The proposed Love Field Airport ModernizationCorp. would issue $323.6 million of tax-exempt bonds for the modernization effort if it were managed by Southwest. Weber said he did not know if additional bonds would be required if the council opts to make it a city project.

Weber said the use of the local government corporation means any debt issued for the project would have ratings based on Southwest's finances, not airport revenues. The airline currently has an issuer credit rating of A-minus from Standard & Poor's. Its senior unsecured notes are rated Baa1 by Moody's Investors Service.

In late October 2007, Standard & Poor's raised its rating on the city's $27 million of airport revenue bonds issued in 2001 for Love Field from BBB to BBB-plus, citing a 20.5% increase in annual enplanements and improved financial performance. The city's airport revenue bonds are rated Baa2 by Moody's.

The current planning schedule calls for the first tranche of the airport bonds to be issued in September 2009. The revamped terminal is to be operational by 2014.

The bonds will be supported by a lease agreement with Southwest. In the agreement, Southwest pledges to pay the debt service on the bonds.

Weber said the city would not cede its oversight of the project to Southwest if the airline manages the expansion effort.

"We're not just going to turn it over to them and say 'Let us know when it is finished.' We'll be working with them side-by-side," he said. "The City Council will also have to approve any bond sales."

The modernization effort is part of a five-party agreement in 2006 to repeal the 1979 Wright Amendment, which originally restricted Southwest from flying passengers from Love Field to destinations beyond the four states bordering Texas. The federal law was later loosened, to allow Southwest to fly from Dallas to destinations in Alabama, Mississippi, and Missouri.

The repeal agreement allowed Southwest to issue tickets for passengers traveling from Dallas to cities it served anywhere in the United States until 2014, when all restrictions on passenger flights from Love Field are to be removed.

Parties to the repeal agreement included the cities of Dallas and Fort Worth, Dallas-Fort Worth International Airport, American Airlines, and Southwest.

Weber said the modernized terminal will have a capacity of approximately 5 million passengers a year. Currently, about 4 million passengers a year pass through the terminal.

Weber said it will be a challenge to keep the passenger terminal operational during the years of construction, but he is confident it can be done.

"It's always a challenge, but we're not the first airport to have a terminal expansion project underway while remaining open," he said. "It's just a matter of planning."

Financing is also expected to include $85 million of federal airport grants, $61.2 million of passenger facility charges, $27.7 million from the city's aviation equity funds, and $22.7 million from Southwest.

The main terminal will remain intact, but all three passenger gate concourses will be demolished and replaced with a single T-shaped concourse containing all 20 operational gates.

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