DALLAS — Dallas-Fort Worth International Airport will launch a seven-year project to remodel its four original terminals next month. But despite the $2.3 billion cost, officials do not expect 2011 to be a year of heavy bond issuance for new money.
“It is unclear if we will need any new-money bonds, but if we do, it will not be until the fourth quarter,” said Chris Poinsatte, chief financial officer for DFW. “A likely amount is $300 to $500 million. The exact timing of these issuances depends on construction schedules and the crazy world of [alternative minimum tax] and municipal rates.”
The AMT exemption for airports that expired Dec. 31 was part of the federal stimulus program and was considered especially helpful for airports in lieu of Congress authorizing an increase in passenger facility charges.
Interest payments on any such new-money bonds issued this year will be subject to the AMT, assuming that Congress does not renew the program.
Federally subsidized Build America Bonds, which also expired last year, were more commonly used for highway and other construction projects rather than airports.
DFW issued its first $301 million of revenue bonds for remodeling of Terminal A in November, taking a downgrade from Fitch Ratings in the process.
Fitch lowered the credit one notch to A-plus from AA-minus, while Standard & Poor’s affirmed its A-plus. Moody’s Investors Service rated the bonds A1 with a stable outlook but warned that future issuance “will likely cause debt metrics to deteriorate beyond the parameters of the current rating level.”
As part of a new, 10-year operating agreement with its airlines, DFW is restructuring its debt to keep costs from spiking in any given year, according to Poinsatte.
“Right now we plan to refund approximately $1.2 billion in 2011, divided about 25% in the first quarter, 25% in the second, and 50% in the third quarter, depending on rates and AMT legislation,” he said.
“Although airline costs will rise over the next 10 years as DFW borrows money to fund the TRIP [Terminal Renewal and Improvement Program], DFW will remain one of the lowest-cost large hub airports in the country,” Poinsatte noted. “This was very important to the airlines during the negotiations.”
Poinsatte said he expects interest rates to remain relatively low this year, but he thinks the market will have a reduced appetite for large single issues of $1 billion or more.
“I have been advised to break that kind of issuance up into three or four smaller issues,” he said.
Construction at Terminal A is scheduled to begin immediately after the Super Bowl in Arlington on Feb. 6. The remodeling of terminals A, B, C and E is the first since the airport opened in 1974.
While DFW is undergoing its makeover, the airport it replaced, Dallas Love Field is also being redesigned under the direction of its major tenant Southwest Airlines. The $500 million remodeling of Love Field is part of a 2006 agreement between the two airports and the cities of Dallas and Fort Worth to limit the number of gates at the smaller facility as restrictions on air service are being lifted.
The Love Field Modernization Corp. last year issued $300 million of tax-exempt bonds that carried ratings of BBB from Standard & Poor’s with a negative outlook and Baa3 from Moody’s with a stable outlook.
Southwest is preparing for unrestricted flights from Love Field beginning in 2014. That is the year when remaining route restrictions under the so-called Wright Amendment will be lifted and Southwest will be allowed to fly nonstop to long-haul destinations such as New York and Los Angeles.
Currently, Southwest’s Boeing 737s can fly passengers under one ticket from Love Field to any of its destinations, as long as the passengers change planes in another airport in Texas or nearby states.
Aircraft with 56 or fewer seats can fly anywhere in the United States from Love Field, but there are few commercial flights by the smaller regional jets.
The Wright Amendment, named for former Texas Democratic congressman and House Speaker Jim Wright, was passed by Congress in 1979 to protect the newly opened DFW from competition from Love Field.
DFW opened in 1974, fulfilling a federal court order that the cities of Dallas and Fort Worth jointly build a new airport serving the two cities.
While Love Field remains an irritant to DFW’s dominant carrier, American Airlines, because of the Southwest competition, it is only a minor airport compared to DFW.
Love Field has only three runways, the longest measuring 8,800 feet. DFW, the third busiest in the world in terms of operations, has more operational capacity than any airport in the world, with seven runways, four of which measure 13,400 feet in length.
In addition to boarding an anticipated 57.3 million passengers this year, DFW serves as one of the world’s major cargo hubs.
Its cost per enplanement is expected to rise slightly this year to $6.90 from $6.78 in 2010, which was lower than the $7.29 that was budgeted and less than the $7.17 from fiscal year 2009.
Debt service is not projected to increase during the current fiscal year because all interest associated with new borrowings is expected to be capitalized.
The airport’s bond ordinances require a coverage ratio of revenues running 1.25 times debt service. In the future, ratios should run between 1.4 and 1.6 times debt service, according to the airport’s annual report.
Over the next five years, DFW expects to issue about $2.2 billion of new money while refunding up to $2 billion over three years, Poinsatte said.
“The goal of our refunding is to restructure our debt, and not necessarily for savings,” he said.
