DALLAS — Dallas-Fort Worth International Airport plans to issue $381 million of new-money bonds Wednesday for its $2 billion terminal remodeling program.
This week’s issue is the second for the airport’s Terminal Renewal and Improvement Program, or TRIP, that is expected to be completed by 2017. The inaugural $304 million came in 2010.
The bonds are actually issued jointly by the cities of Dallas and Fort Worth. The airport, designed to serve both cities and split evenly between the two, was completed in 1973, with operations beginning the next year.
The TRIP program is the first major renovation of the original terminals since then.
Unlike DFW’s previous issue this year, the new bonds will be subject to the alternative minimum tax, which will affect their marketing, said Michael Phemister, vice president for treasury management at DFW.
“This is my first venture into the AMT market since 2009,” he said. “I’m looking for a good response, but this is a pretty big AMT issue.”
The upcoming bonds will priced through negotiation with Barclays Capital, Siebert Brandford Shank & Co., Citi and Stifel, Nicolaus & Co. First Southwest Co. shares financial advisory duties with Estrada Hinojosa & Co. McCall Parkhurst & Horton and Newby Davis are co-bond counsel.
That DFW’s largest tenant, American Airlines, is reorganizing in bankruptcy court and considering merger partners should not affect how investors — primarily institutional — respond to the offering, according to Phemister.
“We feel whatever happens in the reorganization that we’ll be fine,” he said.
In advance of the issue, DFW took a road-show presentation to institutional investors in New York, Boston, Chicago and San Francisco.
“We had good responses and good attendance,” Phemister said. “We feel pretty positive.”
The bonds carry ratings of A-plus from Standard & Poor’s and Fitch Ratings and A1 from Moody’s Investors Service. Moody’s and Fitch have negative outlooks on the debt, citing the bankruptcy of American’s parent, AMR Corp.
“In light of AMR’s current bankruptcy situation, prudent management of capital spending and borrowings will be critical to credit maintenance,” Fitch senior director Seth Lehman wrote.
Fitch noted that since the American bankruptcy filing, the airline has maintained a relatively stable level of operations at DFW.
While new domestic and international destinations have been announced for DFW, the airport is likely to experience flat to slightly negative growth for fiscal 2012.
Although enplaned passenger traffic levels declined by 2.7% and 3.8% in fiscal 2008 and 2009, respectively, those decreases were less severe than those seen at other airports, due largely to smaller reductions in connecting passengers, according to S&P.
Traffic rebounded in fiscal 2010 by 1%, and increased by 2.4% in fiscal 2011.
An airport consultant’s report forecasts that enplanements will rise to 31 million in 2020 from around 29 million in 2011, or by an average annual rate of less than 1%.
“We consider the forecast to be reasonable, assuming American Airlines does not change its strategy,” analysts at S&P wrote. “The airport is American Airlines’ largest hub and represents approximately 40% of American’s total traffic. American has a dominant market share of 85% of traffic at DFW.”
AMR chief executive Tom Horton last week met with US Airways Group chief executive Doug Parker to discuss a possible merger last week, according to reports. Tempe, Ariz.-based US Airways, the fifth-largest airline in the United States, is considered the only major carrier available to merge after the combinations of United with Continental, and Delta with Northwest.
However, AMR has said it is also considering other merger partners, including JetBlue Airways Corp., Alaska Air Group Inc., Virgin America and Republic Airways Holdings Inc.
As the world’s eighth-busiest airport in terms of enplanements, Dallas-Fort Worth is looking beyond the travails of American Airlines to expanding its role as an international connecting hub.
The airport anticipates adding eight airlines to serve 26 new international destinations over the next five years. Destinations would include Beijing, Shanghai, Istanbul, Abu Dhabi, Barcelona, Istanbul, Lima, Quito, Bogota and other cities.
Airport consultant Mike Boyd recently told an international airport symposium that competition to serve as connecting points between the continents will increase among top U.S. airports. In Texas, DFW faces growing competition from George Bush Intercontinental Airport in Houston, which is also undergoing a costly remodeling project as a major hub for United.
Closer by, DFW will face competition on more U.S. routes in 2014 when Dallas-based Southwest Airlines will be allowed to fly nonstop to any destination from its base at Dallas Love Field Airport.
Love Field is also undergoing a bond-financed remodeling in anticipation of the new service that is currently forbidden by the so-called Wright Amendment. Its provisions are being gradually removed and will be completely gone by 2014.
As DFW anticipates more debt issuance for its terminal renewal program, it is also planning to capture the historically low interest rates in today’s market through refunding issues.
A $285 million refunding deal next month is expected to be followed by two $300 million issues in September and October, Phemister said.
DFW’s $3.8 billion capital improvement program will result in peak outstanding debt of $6.1 billion, according to S&P analyst Todd Spence.
The largest component of the CIP is TRIP, which is estimated to cost around $1.9 billion between 2010 and 2018. TRIP currently has $468 million under contract, and DFW expects the project to continue on schedule to wrap in 2017.
“We view the overall program, which includes other infrastructure and maintenance projects, as achievable — but there is exposure to increases in both cost and scope, as well as inflation,” Spence noted, citing debt of $200 per enplaned passenger by 2015, up from $135 in 2011.
