How airports are cutting their reliance on federal funding

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WASHINGTON — Airports are getting creative when it comes to funding projects, turning more to privatization as federal funding becomes less certain.

Airport privatization options are becoming more accepted in the U.S., according to a Fitch Ratings report this month. Analyst Seth Lehman said airports are comfortable borrowing in today’s environment, with big and midsize airports expected to issue bonds as they feel the limitations in what the federal government offers.

Lehman said the airport sector in the U.S. is primarily owned and operated by local governments. Outside the U.S., there is more private sector involvement and financing for airport facilities.

“The U.S. has always been a little bit more of a challenge because local governments have always wanted manage the process themselves,” Lehman said. When privatization does happen, private companies with infrastructure expertise would propose terminal redevelopment projects and help fund them with a combination of debt and equity. Lehman said it’s still unlikely that airports would be sold to the private sector.

“Fitch does not view PPPs (public-private partnerships) as a panacea for all projects, but in the right situation, a PPP can be an effective means of project delivery,” analysts wrote in the report.

Earlier this month, Kansas City International Airport reached an agreement in a public-private partnership with Edgemoor Infrastructure & Real Estate LLC on a $1.5 billion terminal overhaul. Financing for the new terminal will be paid back from KCI revenues and the city will continue to own and operate the airport.

In 2018, St. Louis Mayor Lyda Krewson advocated for privatizing Lambert St. Louis International Airport. If privatized, the airport’s $600 million of debt would be retired.

A Federal Aviation Administration program launched in 1996, allows airports to enter into long-term operating leases or pursue the sale of a facility to a private firm. Under this "slot" program, the city can lease an airport and its operations, while retaining ownership rights.

St. Louis is the only U.S. hub seeking a slot program. The FAA approved the privatization of Puerto Rico’s Luís Muñoz Marín International in 2013 and it remains in the program. Two other airports, in Florida and New York, are seeking slots.

Airport officials are also turning to their respective states for funding.

Charlotte Douglas International Airport just received funding from a state initiative — the Commercial Service Airport Development Program — a $25 million one time grant for enhancement projects.

“The airport is trying to get creative, working not only with the FAA and the federal government, but also working with our state legislators and even our local government officials to help us sponsor new funding streams that recognize the importance of airports,” said Michael Hill, chief financial officer at the Charlotte airport.

Hill said their financial plan makes assumptions about the availability of federal funding but keeps in mind that it’s not always guaranteed.

“We do have to continue to be mindful and come up with different strategies to mitigate the uncertainty with future federal funding, so that’s why we do things like work with our city government to try to identify additional funding sources and we look at other opportunities like the private sector,” Hill said.

The Charlotte Airport has a significant reliance on federal funding and and passenger facility charges, Hill said.

Airports have long pushed for a rise in passenger facility charges — a revenue source for airport improvements to enhance passenger capacity, safety, security and increase competition among airlines. Currently, airports can collect fees up to $4.50 for every enplaned passenger.

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Infrastructure Public-private partnership Transportation industry Washington DC
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