Trend in the Region

Runway Project Rolling in Florida

BRADENTON, Fla. — After nearly two decades of planning, a major runway extension project at Fort Lauderdale-Hollywood International Airport in South Florida is finally nearing takeoff.

The project, supported by the sale of around $800 million of revenue bonds over the next three years, will provide the airport with a longer second runway to relieve congestion and accommodate more traffic and larger aircraft.

The additional debt load was one reason cited by Fitch Ratings on Monday for its downgrade of the airport’s bonds, which are sold by Broward County, the owner and operator of the facility.

Fitch downgraded $555 million of outstanding airport system revenue bonds to A from A-plus and dropped $138 million of passenger facility charge convertible-lien bonds to A-minus from A. The outlook is stable.

Standard & Poor’s rates the airport system revenue bonds A-plus and the PFC bonds A with a stable outlook. Moody’s Investors Service assigns A1 ratings to both types of bonds.

In addition to the stress of new debt, Fitch said the downgrade reflected the airport’s weakened financial position, lower debt-service coverage levels despite relatively solid enplanement growth during the past decade, and reluctance to increase airline rates and charges.

The airport historically retained a range of $30 million to $50 million in unrestricted cash and cash equivalents, Fitch said.

In fiscal 2010, the cash position trended down to  $15 million, though rating analysts noted that the airport maintained an additional $66 million in noncurrent unrestricted investments on its balance sheet as well.

“Despite improving financial margins in 2009 and 2010, debt-service coverage ratios remain relatively low, ranging from 1.44 times to 1.59 times, including the use of transfers,” Fitch said.

Broward chief financial officer Dinah Lewis said she was disappointed by Fitch’s downgrade.

She noted that coverage remains “well above” required levels, and liquidity exceeds any year since 2004.

“Under the residual model, which is common in this industry, excessive cash accumulations are rare and do not imply a credit weakness as airport debt is back-stopped by the airlines,” she said.

County Commissioner John Rodstrom said he believed the downgrade would lead to higher interest costs, but the runway project has been part of the airport’s planning for years.

“We knew this was a massive undertaking,” said Rodstrom, who is a managing director of public finance for Sterne Agee & Leach Inc.

The firm does no business with Broward County.

Additionally, Rodstrom said the project has the potential to increase costs per enplanement. Low costs have led to Fort Lauderdale’s success in attracting low-cost carriers.

Rodstrom said airlines requested that unrestricted cash and equivalents be spent down to keep the cost of rates and charges from rising.

According to Fitch, the airport has a well-balanced and diverse market share with no single carrier having more than 20% of total enplaned passengers.

Enplanement growth has been traditionally driven by carriers such as JetBlue, Spirit, Southwest Airlines, and AirTran.

Growth in airline seats was 4.25% in fiscal 2010. So far this year, enplanements are 9% higher than last year. Airline cost per enplanement has been stable since 2008 at around $5.00.

“Management views keeping the airport’s cost structure low of critical importance,” Fitch said.

The U.S. Justice Department gave antitrust clearance Tuesday to the merger between Southwest and AirTran. Rodstrom said he felt it would not have a large effect on Fort Lauderdale-Hollywood because of the merger’s potential to open new routes for Southwest, such as to Atlanta and New York.

On Monday, the Federal Aviation Administration awarded the county a $21 million grant toward construction of the runway project.

Additional grants for the project are anticipated from the FAA.

The Fort Lauderdale-Hollywood is on Florida’s southeast coast, about 20 miles from the larger Miami International Airport. Planning for the runway extension to fight the pains of congestion began nearly two decades ago.

The project has survived complaints about noise from neighborhoods, delays from appeals filed by nearby cities, as well as the effects of the Sept. 11, 2001, terrorist attacks, the most recent recession, and competition from Miami, though that airport has a much higher cost per enplanement.

In December 2008, Broward County received the FAA’s authorization to proceed with the expansion and elevation of runway 9R-27L.

The runway will be lengthened to 8,600 feet from its current 5,275. It will require the new runway to be elevated by 64 feet to extend over a railway and the famous U.S. 1 highway.

In addition to the runway work, the project includes acquiring additional land, constructing a taxiway and an instrument landing system, related terminal renovations, and a substantial noise-mitigation program for area neighborhoods.

The new runway is expected to open in September 2014.

Broward currently anticipates issuing $335 million of bonds in fiscal 2012 and $465 million in fiscal 2013-2014.

“The details of the financing plan for the runway expansion project are still being developed,” Lewis said.

The “$800 million includes the runway along with the necessary terminal redevelopment and airfield improvements.” she added.

A detailed schedule for the issuance of the bonds has not yet been developed, and each borrowing must be approved by the County Commission, according to Lewis.

The runway project is the major part of the $1.2 billion, five-year capital improvement plan.

“We expect to very actively market the transactions as we do with all of our bond sales, and believe the market would favorably receive these opportunities,” Lewis said. The airport “has maintained a strong and improving share of the South Florida market despite economic and other challenges,” she added.

“This is due in large part to the low-cost structure of our business model and the diversity of carriers that serve the airport,” Lewis said. “These projects will enhance the competitive position of this airport and we will seek the most cost-effective methods to finance these ­improvements.”



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