Salt Lake airport expansion on time; bond sales face coronavirus delay
Salt Lake City International Airport’s $4.3 billion redevelopment remains on schedule for a mid-September opening of the first phase, but final bond issuance for the project will come later than expected, officials said.
“The airport plans to issue an additional $1.15 billion worth of debt to complete Phase II of the redevelopment project over the next five years,” airport spokeswoman Nancy Volmer told The Bond Buyer.
“We had anticipated going to the bond market late this summer after the awards for construction were completed for Phase II, but have decided to wait to go to the market once we know more about COVID-19 and the passenger forecast becomes more clear," she said. "We are able to delay going to the market based on our healthy liquidity we currently enjoy.”
Like several other major hub airports, Salt Lake City International was in the midst of a major expansion when the coronavirus pandemic brought a virtual shutdown in air traffic in mid-March. Enplanements are down more than 90% in April and flights have fallen by half, according to recent reports from major hubs.
"With the reduction in traffic, we are currently looking at the second phase of the construction project to look at how to best move forward," Volmer said.
For calendar year 2020 Fitch Ratings assumes an overall enplanement decline of about 50% nationwide compared to 2019. For 2021 and 2022, Fitch expects traffic to register 15% and 5% declines, respectively, compared to 2019. Analysts expect traffic to recover to 2019 levels by 2022, with annual growth of 2% thereafter.
“Airlines ranging from global network carriers to those concentrated on domestic-focused routes have taken most flights out of service,” Fitch senior director Seth Lehman wrote. “Even with early discussions underway to have limited reopenings of the national or local-level economies, return of a more normalized air travel environment remains unclear.”
On March 18, as the pandemic was spreading, SLC International was closed for a day when an earthquake hit the region.
Then, the airport’s hub carrier Delta Air Lines told employees via memo of plans to idle much of its fleet and reduce flights.
Delta and its contracting regional airlines are responsible for more than 70% of traffic at the Salt Lake City airport.
The airline reported a GAAP pre-tax loss of $607 million for the first quarter; the travel impacts of the coronavirus only began to be felt in March, the final month of that quarter.
Going forward, the airline told investors said it will take its total system capacity down by 85% in for the quarter ending in June, and take other actions to borrow and preserve cash, including "extended payment terms with airports, vendors and lessors."
The goal, airline officials said, is to bring the airline's daily cash burn down to $50 million a day by the end of June from $100 million daily at the end of March.
The airport is keeping Delta’s needs in mind as it proceeds with the expansion, Volmer said.
“Delta has been a great partner to work with and continues to be very supportive of not only sticking to our original opening date, but also looking for strategies to capitalize on the reduced traffic and trying to complete Phase II of the project quicker and cheaper than was originally anticipated,” she said.
So far, SLCI has received $82.5 million in emergency federal funding that includes some minor grants for two reliever airports.
“We are very appreciative and grateful for this support, but anticipate needing additional funding to support the infrastructure project we are in the middle of,” Volmer said.
Todd Hauptli, president of the American Association of Airport Executives, told Congress on May 6 that airports will need $10 billion in addition to the $10 billion already received.
“We’re going to have to get past the sticker shock and get to yes,” Hauptli said.
Hauptli was one of four witnesses who testified before the Senate Committee on Commerce, Science and Transportation during a lengthy hearing on how the COVID-19 pandemic is impacting the aviation system.
Airlines for America President and Chief Executive Nick Calio told the panel that passenger levels are down 95% and that the airlines are losing $350 million to $400 million a day. Calio said that it took the airline industry three years to recover from 9/11 and seven years to recover from the Great Recession. He also warned lawmakers that it is going to be a "long and difficult road" for the airlines in the aftermath of the COVID-19 pandemic.
Hauptli told lawmakers that airports along with concessionaires and business aviation are struggling financially because of reduced aviation activity.
"Congress must also provide billions of dollars in financial support for other parts of the aviation ecosystem — general aviation airports, business aviation, concessionaires, and other airport partners that have been significantly impacted by the crisis," Hauptli said.
Designed to serve 10 million passengers per year, the Salt Lake City airport traffic had grown to 26 million a year when the expansion was announced.
The first $1 billion revenue bond issue for the project priced in February 2017. That deal represented the end of Salt Lake City International’s debt-free status and was the first issue on behalf of the airport since 2004.
On March 27, S&P placed a negative outlook on the entire transportation sector. The outlook on the Salt Lake City airport's $1.85 billion of A-plus rated debt was also shifted to negative from stable.
"The revision of credit rating outlooks to negative provides clarity to market participants that issuers face at least a one-in-three likelihood of a negative rating action over the intermediate term for investment-grade credits (generally up to two years) and over the short term for speculative-grade credits (generally up to one year)," said analyst Kurt Forsgren. “All ratings will be individually reviewed with respect to an issuer's specific exposure to, and ability to mitigate against, the financial and operational challenges in the near-to-intermediate term and our views of longer term risks. Negative outlooks on specific ratings may be returned to stable on a case-by-case basis in the near-to-medium term.”
S&P affirmed SLCI on Dec. 20, before the coronavirus upended everything.
Moody's Investors Service revised the airport's outlook to stable from positive in March, and affirmed its A2 rating.
The revision "reflects Moody's expectation that operational disruptions caused by the coronavirus outbreak will persist throughout 2020, causing a high level of uncertainty and making an upgrade unlikely," the rating agency wrote.
Kroll Bond Rating Agency placed the airport's AA-minus rating on watch developing March 26, when it took watch actions on all its rated airports.