BRADENTON, Fla. — With solid financials and resiliency during the recession, Charlotte Douglas International Airport is in the midst of a $511 million multi-year capital program.
When the North Carolina airport embarked on the program in October, Moody’s Investors Service upgraded its general revenue bonds to Aa3 from A1 and cited its “extraordinary” financial operations in spite of the economic downturn.
The capital plan calls for improvements to be done with a combination of bond financing, federal funds and other revenues.
Future projects include additional road, terminal and baggage system improvements, new gates and additional valet parking, a new international terminal to accommodate future growth, a new control tower and a fifth runway.
The biggest concern analysts cite about Charlotte is its airline traffic mix — 90% belongs to US Airways and its affiliates, which have a major hub there.
In upgrading the airport, Moody’s said it believes the facility can withstand a complete loss of connecting traffic and “still remain on solid financial footing” because it relies less on airline revenue and has room to boost revenues from other sources.
The biggest uncertainty about US Airways’ future is the possibility that it will acquire American Airlines, which filed for bankruptcy in November.
US Airways officials have previously confirmed that they are studying the option.
Other airlines are also reportedly interested in purchasing American, whose executives hope to remain independent after bankruptcy.
Officials at Tempe, Ariz.-based US Airways last month said that it does not need to merge with another airline to survive, and cited Charlotte as a core city that provides it with a competitive advantage.
Some analysts have said that a merger could negatively impact Charlotte Douglas, which carries the CLT airport code.
The airport, operated by the city, broke its passenger traffic record last year with 39 million travelers, up 2% over 2010. About 75% of enplanements are connecting passengers.
When the record was announced in February, aviation director Jerry Orr said the increase in passengers proves the economic value of the airport. CLT is second-largest hub on the East Coast.
“We’re in a great location for a hub, and we run an extremely low-cost operation here,” Orr said. “That’s what a business needs to be successful.”
Last fall, Charlotte issued $110.35 million of general airport revenue bonds and $60.3 million of special facility revenue bonds as partial funding for a number of projects that are under construction.
They include a new 7,000-space general parking and consolidated car rental facility, expansion of the international terminal, a new entrance road, and relocation of a large intermodal center to the airport from downtown to enhance the transfer of freight between planes, trucks and trains.
Fitch Ratings and Standard & Poor’s affirmed their A-plus ratings for the general revenue bonds. The special revenue bonds, sold for the consolidated car rental facility, were rated A3 by Moody’s and A by Fitch and S&P.
Rating agency analysts said CLT’s credit strengths include good financial management practices, strong historic traffic and liquidity, a low-cost structure and low leverage, conservative financing, and manageable capital plans. Their biggest concern was the concentration of traffic with US Airways.
Moody’s, however, said a key aspect of its upgrade to Aa3 was the belief that should the airport lose all connecting traffic, officials still could maintain debt-service coverage over 1.75 times by increasing passenger facility charges to $4.50 from $3.
“We believe the airport has a number of other financial resources, such as decreased operating expenses, increased parking rates, or use of unrestricted cash that would further cushion the financial impacts of this event,” Moody’s analysts wrote.
Charlotte Treasurer Scott Greer said the city worked hard to achieve the rating upgrade.
He also credited much of the airport’s financial success and low costs to management and good planning policies.
“They are very frugal in their management and I think they maximize the value of the businesses that are in the [airport],” Greer said. “They run a very tight ship.”
Greer also said he believed the airport’s credit is strengthened due to the fact that it is a component unit of top-rated Charlotte and run by the city.
“The city has very strong financial credit and liquidity, and that means the airport falls under our wing,” he said. “When we see rating agencies for the airport, we’re the same people they see for our GO or revenue bonds. As a result of that, we have broader knowledge of the business and how to run a debt portfolio.”
There is no schedule for issuing the bonds.
“In our program, generally we try to focus on when the cash flow is needed, as opposed to focusing on a specific project,” Greer said.
The airport is poised to benefit from the area’s economic growth outside the banking sector.
Many people perceive Charlotte, with its population of 731,424, as primarily a banking center. It is home to Bank of America and Wells Fargo’s East Coast investment banking and wealth management divisions.
However, Greer said the city’s economic base is diversifying.
The number of direct flights available at CLT was a primary reason Chiquita Brands International Inc. decided recently to relocate its headquarters to Charlotte from Cincinnati.
The banana giant said it expects to invest $14.1 million and create more than 400 jobs over the next three years.
Siemens AG currently produces and repairs generators and steam turbines for nuclear and steam power plants in Charlotte.
The company is adding a $135 million expansion to its existing manufacturing facility and plans to add more than 800 jobs to its 780 existing workforce in the next 5 years.
Charlotte is also in the process of considering a $1 billion capital plan for general government projects such as street and neighborhood improvements, according to Greer.
If the plan is approved during the budget process, Charlotte will hold four referendums every other year to ask voters to approve general obligation bonds.
The city is also working on a more than $1 billion extension of its light-rail system and planning to build a streetcar system in the downtown area.
