WASHINGTON — Some airport bond ratings could be hurt by the congressional stalemate over funding the Federal Aviation Administration, according to credit rating analysts.
The FAA can no longer send out grants under its Airport Improvement Program and has issued stop-work orders for projects worth hundreds of millions of dollars, causing concerns that airports will not get expected funds and may need to increase their borrowing.
House Democrats on Tuesday introduced a separate FAA extension bill that would authorize aviation programs through Sept. 30.
The Republican-sponsored reauthorization bill has been stalled in the House and Senate since May.
Lawmakers are in dispute over aid to certain small airports and a House provision on unionization votes.
“Our concern about the impact here will grow the longer this impasse lasts,” said Kurt Krummenacker, a vice president at Moody’s Investors Service who follows airports.
Fitch Ratings analyst Seth Lehman agrees. “The question is how long is this going to last, where the airports can’t get the reimbursements and the construction funds that they were budgeting and planning from the FAA,” he said.
Airports get grants for modernization and safety projects from the FAA’s Airport Improvement Program. The AIP is funded by the Airport and Airways Trust Fund.
The fund receives money from a 7.5% ticket tax and a 4.3-cents-per-gallon aviation fuel tax, which the government now can’t collect because the 20th extension of authorization legislation for the FAA expired on July 22.
Without new authorization from Congress “the FAA is unable to get roughly $2.5 billion out the door for airport projects in all 50 states,” the agency said in a release.
Among other examples, it cited $31 million to build a new control tower at Oakland International Airport and $6 million to tear down the old control tower at at New York City’s LaGuardia Airport.
Airports Council International vice president Jane Calderwood pointed to the other end of the size scale — Glacier Park International Airport in Kalispell, Mont.
“They are waiting because they’ve been expecting $5 million from the FAA for taxiway rehab,” she said. “If it’s not awarded by Aug. 1, they’ll have to delay the project for a year because of their construction season.”
Delays can affect project costs, Krummenacker noted.
“It depends on how the contracts are structured. If they have to rebid, [or] renegotiate contracts, that could increase costs,” he said. “The additional costs of carrying the debt without the benefit of the facilities completed is more of a customer-service loss than a financial loss.”
Smaller airports are often more dependent on FAA funding for their improvement programs, but Krummenacker says size alone doesn’t determine an airport’s credit risk.
“The impact will be airport-specific,” he said. “It really just depends on those airports that are more reliant on federal grant payments in the coming months.”
Some airport managers may plug the hole left by the FAA with short-term financing. That would have different credit effects, depending on the facility.
“Increasing leverage for an airport can be an issue for some airports,” said Fitch’s Lehman. “When we think about where it would affect credit would be where an airport’s rating was premised on lack of need for additional debt for their capital programs, and now they would have to shift gears [and] would have to borrow either temporarily or for long-term debt.”
All airports may have to shift their expectations. The FAA said it’s losing $30 million a day in taxes and the longer that lasts, the less money it will have for future airport aid.