New Terminal One at John F. Kennedy Airport boasts that it's the largest public-private partnership in the country.
That also means, according to NTO Chief Financial Officer Tobey Collins, it's inevitable the project will hit some roadblocks.
"This type of project, if it had been open on time, would have been shocking," Collins said.
When the project missed its June 1 scheduled opening, it may not have shocked investors in its bonds. But the delay, plus lagging airport traffic, is pressuring its finances, and rating agencies took notice and action.
As the project enters its final approach, it needs to stick the landing date.
NTO was a muni market darling when its $5.917 billion of bonds were priced. The first of its three deals was
The bonds were rated Baa3 by Moody's Ratings, BBB-minus by Fitch Ratings and AA by KBRA. NTO is a public-private partnership between the Port Authority of New York and New Jersey and a consortium including Ferrovial, JLC Infrastructure, Ullico and Carlyle.
Market participants when the bonds were priced said the fact that such a large project was on time and on budget was probably part of the deal's appeal. But even then, they were aware of the risks related to large infrastructure projects.
"There are a lot of occasions when market participants talk about P3s, but there's not a lot of high-profile financings where the P3s have really worked well," CreditSights senior municipal strategist Pat Luby said at the time.
The first signs of trouble for NTO came in April, Fitch analyst Seth Lehman said, when the team announced the opening for Phase A of the terminal could be delayed to October from June.
Currently, the project's target opening date is sometime between December and March, with construction 90% complete, according to Collins.
Moody's assigned a negative outlook to NTO's debt in May. Fitch put the credit on negative watch last week. If the project is delayed beyond March, Fitch analyst Tim Morilla said, his agency will likely downgrade it.
The construction problems resulted from "project resourcing constraints," Fitch said in its report, and coordination difficulties involving the terminal's mechanical, electrical and plumbing systems.
Collins didn't quite agree with Fitch's characterization of the issues.
"Project resourcing makes it sound like we don't have enough people. I don't think that's the case," she said. "Some of the delays were probably due to, I don't know if coordination is the right word, but sort of figuring out how to get everybody working together. It's not a question of not having enough people."
Collins said the team is confident going into the final 10% of construction.
The remaining work is "putting up walls and finalizing the electrical connections," she said, plus testing and inspections, which take time.
Collins stressed the NTO team had planned well in advance how it would navigate delays.
"Delays on a project of this magnitude are really par for the course. We never expected that this construction project would be easy," Collins said. "It also wasn't like people woke up on May 31 and said, 'it's not happening tomorrow,' [although] sometimes that's the way it seems from the outside."
Analysts agreed construction delays and overruns are common for projects of NTO's size and scope.
LaGuardia Airport's renovation suffered delays, Moody's analyst Ursula Cassinerio said. JFK's
"Several terminals are undergoing construction at the same time in a very constrained space that has a lot of traffic," Cassinerio said. "To accommodate the current traffic with these several construction projects at the same time is very complex, and we have seen delays of this kind in the past."
"I think large, multi-year construction projects with some complexity, regardless of the sector, may be exposed to execution risk," said Mohammed Murad, head of municipal credit research at PT Asset Management. "But that's what construction contingencies and protections are there for. It comes down to how well those risks are managed and the ability to re-sequence work to recover lost time and avoid delays in revenue generation."
Fitch's Lehman said there's reason to believe the NTO team's optimism. Its contractors are some of the top names in the industry who have executed projects for airports and with the PANYNJ before, he said.
Missing the June deadline means NTO has defaulted on its lease agreement with PANYNJ. It has submitted a completion remedial plan, as required in the contract. The Port Authority requested more information on the remedial plan, according to an EMMA filing.
The agreement between NTO and PANYNJ includes a dispute resolution process and the parties have utilized the process multiple times, Lehman said. But he noted, disputes are "not unusual" and the number of disputes arising from NTO makes sense given the size of the project.
"Both sides want the project completed," Lehman said.
NTO has "constant interaction" with the Port Authority, Collins said. She said she didn't want to speak for PANYNJ, but the NTO team feels "very good" about their collaboration.
"We have many important stakeholders, but they're our most important stakeholder." Collins said.
Financially, NTO was very prepared for these delays, Collins said.
The project has a $500 million ramp-up reserve and $250 million of available lines of credit, according to Moody's. It's also receiving liquidity damages from contractors.
NTO's lease with the Port Authority allows it to defer lease payments until 2031, Cassinerio said, with the interest cost on the deferred payments set at 7.5%.
In 2024, NTO's then-CFO Manoj Patel explained the team had tried to minimize construction cost risks, adding contract provisions like the liquidity damages and purchasing materials as early as possible to dodge inflation. So far, Collins said, "we haven't been impacted tremendously on the cost side."
Although the project can afford the delays, Lehman said, they are costly.
"This is a demand revenue risk project. I mean, the only way the project gets paid is when airlines actually start serving passengers," Lehman said. "Every day, it's a financial cost, because they don't have cash flow."
When an infrastructure project is delayed, "throughput would need to ramp up to increase utilization and generate the cash flow required to pay debt service," Murad said. "The timing and pace of that ramp-up are important because financing assumptions are generally based on projected utilization levels."
Utilization levels are NTO's other problem, according to Cassinerio.
International air travel is slumping because of conflicts in the Middle East and the resultant spike in the cost of jet fuel. Traffic from Asia, and specifically China, has also weakened, she said.
NTO will serve solely international flights, and its airline partners so far are concentrated in China, Cassinerio said. Projected enplanements through 2034 have declined every year since 2024, she said.
Ghim-Lay Yeo, senior director of communications at NTO, said the terminal has agreements with nearly 30 airlines and announced deals with 10 new airlines in the last year. The number of agreements, she said, is roughly on track with what NTO anticipated at the outset of construction.
NTO has to compete with other international terminals at JFK for airline agreements, Cassinerio said.
"There are several terminals in construction at this point. All of them offering new facilities, offering spaces for international airlines to operate. So there is competition there as well that affects this," Cassinerio said.
Fitch's analysts wrote the terminal's "continued ability to secure new airline agreements as it approaches completion shows its ability to compete with the other international terminals at JFK despite several changes in the international travel market over the last few years and recent months."
Collins acknowledged the difficulty — "obviously, there have been wars that were not anticipated" — but argued some variance in demand is inevitable.
"It's sort of part of the life cycle of an infrastructure project," Collins said. "There will be bumps along the way, and chances are this won't be the last one in an asset that will run through 2060."
New York is a resilient market for international tourism, Collins said, and JFK is an extremely congested airport that needs more gates even in times of low demand.
After the terminal's grand opening, it will still have battles left to fight. NTO will embark on Phase B-1 of construction. Although phase B-1 could start as early as 2027, much of the details are unknown.
NTO's lease may require it to begin phase B-1 even if it doesn't make financial sense to do so, Cassinerio said.
If the terminal finances the expansion with debt rather than equity, it would have very high leverage, Cassinerio said, which could trigger a rating downgrade.
There are many unknowns at this point, as NTO may secure an "anchor" airline to use the new terminal space, or several airlines, or not be able to find any airlines, Cassinerio said. Strong demand commitments would help with the leverage risk.
