Austin's airport takes its growth story to the bond market
The Austin, Texas, airport will tap the bond market for capital funding as it demonstrates strength compared to its nearest peer.
Only 83 miles apart, Austin-Bergstrom International Airport and San Antonio International Airport are close enough to be considered competitors.
Over the past five years, Austin's traffic growth has outstripped San Antonio’s, despite a slightly smaller population base, according to the Federal Aviation Administration.
The San Antonio airport, serving the nation’s 24thlargest metropolitan population, ranked 46thamong U.S. airports in enplanements. Austin’s airport, serving the nation’s 30thmost populous metro area, ranked 34th, per the FAA.
Austin’s finance experts noted the competitive closeness of the two airports in a roadshow presentation for nearly $319 million of bonds expected to price July 23 and close on Aug. 13.
“AUS has far outpaced SAT in growth,” the roadshow presentation says, using the three-letter codes for the airports. “From fiscal year 2010 to FY 2018 passengers at AUS grew by 79.9% compared to 20% at SAT.”
As the state capital, home to the University of Texas System and a hive of high-tech companies, Austin has some built-in advantages over San Antonio. However, San Antonio's large military presence and well-developed tourism industry work in its favor.
Austin, hub of the nation's fastest-growing metropolitan area among the top 35, expects airport growth to continue at a 3.7% pace through 2025.
To keep pace, the airport is issuing $19 million of Series A tax-exempt revenue bonds and $300 million of Series B tax-exempt revenue bonds that are subject to the alternative minimum tax provisions of federal tax law.
Belinda Weaver, interim treasurer for Austin, is supervising the sale after Art Alfaro, treasurer for 13 years and a city employee for 31, moved to the Texas Public Employees Retirement System as executive director.
The negotiated deal is led by book runner Citi and co-senior manager Morgan Stanley, with Jefferies, and Raymond James as co-managers.
Dennis Waley, managing director at PFM Financial Advisors, is the city’s financial advisor, with Bracewell as bond counsel and McCall Parkhurst & Horton as disclosure counsel.
The serial bonds carry three ratings: A1 from Moody’s Investors Service, A from S&P Global Ratings, and AA-minus from Kroll Bond Rating Agency. S&P has a positive outlook on its rating, indicating a potential upgrade, while Moody’s and KBRA have stable outlooks.
"The outlook revision indicates that we could raise the rating in the next two years if we believe Austin Bergstrom International Airport maintains a strong financial risk profile as it issues additional debt to fund capacity enhancement projects that address rising enplanement levels," said S&P Global Ratings credit analyst Ken Biddison. “We expect clarification regarding the additional debt needs and related impacts following the city's completion of the airport's master plan update over the next two years.”
In S&P’s ratings report, Biddison cited “historically robust demand characteristics that we expect to remain favorable despite modest competition from surrounding airports.”
The airport celebrated its 20thanniversary on May 23. Moving the city's airport to the site of the former Bergstrom Air Force Base in southeast Austin in 1999 allowed redevelopment of the outdated Robert Mueller Municipal Airport into a northeast Austin residential and commercial area.
On June 10, Jacqueline Yaft became the city's executive director of aviation. Previously she was the deputy executive director of operations and emergency management at Los Angeles World Airports and has more than 20 years of experience in airport management, including positions at Denver International Airport and John F. Kennedy International Airport.
A bond-funded, nine-gate expansion opened for business on Feb. 21 increasing the size of the airport by nearly 175,000 square feet. The project was considered Phase 1 of the remodeling project, with Phase 2 projects financed with the upcoming issue.
Phase 2 includes the removal of temporary jet bridges used during construction of four gates, additional apron work and the completion of the concession and store locations. The nine new gates to the terminal increase the total to 34 and triples the number of international flight gates from two to six.
As an international airport, Austin boasts nonstop flights to Toronto, London, Frankfurt and Mexico.
The airport generated $7.6 billion in economic activity in 2017 and supports more than 74,000 jobs in the Austin area, according to a study by the Texas Department of Transportation. The economic impact has increased by 212%, up from $2.4 billion 2010, according to the study.
Counting arrivals and departures, ABIA recorded more than 15 million passengers, compared to more than 10 million at San Antonio in 2018. Both airports achieved record traffic last year.
“ABIA has scored well in customer surveys,” KBRA analyst Harvey Zachem wrote. “Passenger activity has continued to set records. Since bottoming out in FY 2009 at 4.2 million enplanements during the Great Recession, traffic has increased at a compound annual growth rate of 7.2% to 7.7 million in FY 2018. KBRA believes this growth trend necessitates the capital program the ABIA has embarked on.”
After this bond sale, the airport will have about $1.08 billion in outstanding debt. All debt is in the form of fixed-rate obligations, with final maturity in FY 2050.
The airport’s $1.1 billion capital improvement program through fiscal year 2023 finances the initial cost of a new North Terminal building, new utility installation, airfield taxiway design, terminal and landside projects, and information technology projects. The plan also includes a 6,000-space parking garage to be completed this year.
“Additional bond issuance of about $325 million is expected in 2021,” Zachem said. “Given the pace of passenger growth, Department of Aviation officials anticipate further borrowing for expansion projects in less than 10 years. KBRA believes that ABIA is not a candidate for a scenario in which capital projects are undertaken and the growth does not materialize.”
While debt levels are rising, the impact on debt metrics will likely be moderated by increased passenger activity, Zachem said.
Meanwhile, in San Antonio, officials continue to work on a strategic development plan to make the airport more competitive.
In 2018 the airport opened a consolidated rental car facility, a short-term parking garage, a new gas station, and launched live music and art programs for the Alamo City's tri-centennial.
“In 2016, we were tasked to embark on an air service development plan that targeted 15% capacity growth in five years,” said Brian Pratte, chief air service development officer. “We exceeded that goal in just two years. None of this could have been possible without the partnership between our community, airline partners and airport team all working together towards one goal.”