Airport Sector Development

With continued demand for air travel, what's transpiring with the nation's airports? Credit generally remains strong but pockets of challenges and risks lurk. 

Transcription: 

Nicole Riggs (00:08):
Thank you so much. Good afternoon. Before I pivoted into banking, I worked at the Port Authority of New York and New Jersey for seven years, mostly in airport financial roles. One of the things I learned is that everyone loves talking about air travel—good or bad, but never indifferent, with lots of opinions. As we were talking through this panel, it can go in many possible directions. I think we're going to start talking a little bit about passenger demand, some of the credit risks that we see in the sector, the financing tools available, and then close by looking into the future of technological innovation and what this panel sees going forward for airports. To cover such a broad set of topics, I'm pleased to introduce the panel. Next to me is Sewon Kim, a managing director at Siebert Williams Shank. Manoj Patel, the CFO of JFK New Terminal One.

(01:18):
And then next to him, Robert DeMichiel, a managing director at Bank of America Securities. Finally, on the end is Sam Nakhleh, a managing director at Assured Guaranty. Yesterday we heard that airport new money issuance was up 60% this year. I probably don't have to tell many of you in the audience who travel a lot: there is an explosion of mega-projects, particularly at our airports across the country. The 2021 Infrastructure Investment and Jobs Act made a new source of funding available for these airport projects—$25 billion in total, $5 billion of which were earmarked for terminal modernizations. This is in addition to the traditional funding sources, right? Your airport revenue bonds, federal or state grants, AIP, and PFCs. It came at a time when I think we can all agree there's a lot of pent-up infrastructure investment needs at our airports. This investment is not only due to airports having obsolete configurations and technology, but also not being the right size or able to accommodate the anticipated demand. Like the themes that have permeated many other topics, this sector is faced with planning for long-term growth amidst short-term uncertainty. I'm going to ask Sewon to start from a broader national perspective. With continued demand for air travel, how are airports adapting operationally or financially, and what are we seeing in their financial profiles?

Sewon Kim (03:15):
Thanks, Nicole, and thanks to the Bond Buyer for having me on the panel today. Operationally, there are a few trends that we're seeing with employment levels post-pandemic. One is that many airports have already recovered to pre-pandemic levels, with some actually exceeding the levels we saw in 2019. Obviously, depending on the region and type of airport, the recovery is different. We've seen airports with a slower recovery, but interestingly enough, those that have had a relatively slow recovery are actually seeing strong year-over-year growth in 2025, like San Francisco, Philadelphia, and Portland, Oregon. For those that had a relatively fast recovery, we're seeing some softening of demand. You could say maybe it's a "new normal" that these airports are entering into, especially in leisure markets like Orlando, Las Vegas, and Long Beach.

(04:19):
When you look at the revenues, most airports have been very strategic in growing revenues they can control, whether it's parking, concessions, etc. Revenues compared to pre-pandemic levels are generally 20% to 30% higher over that time period, whereas employment is 105% to 110% over the pre-pandemic level. So the revenues—which are the security for the GARB—are standing very strong. Another trend is that many airports are undergoing major capital programs. It's not just the major hubs like Atlanta, San Diego, or Chicago; we're seeing medium and small hub airports like Columbus, San Antonio, and Asheville, North Carolina. I was in San Diego a few weeks ago for their new Terminal One opening. It's beautiful and very airy. One thing I really liked is the outdoor patio area post-security.

(05:32):
You should all check it out if you haven't yet. You have a view of the San Diego Bay and downtown; it's part of a way to enhance the passenger experience. Airports have certainly proven financial resiliency. They've maintained stable debt service coverage during the pandemic and even while going through large capital programs. They've done a great job at managing airline costs competitively and preserving liquidity to serve as a buffer for downturns or market volatility. I think the rating agencies recognize this financial position because in 2025 year-to-date, we've seen more positive rating actions than negative ones. In fact, there have been seven rating upgrades and six outlook changes to positive versus two rating downgrades and four downward changes to outlooks. These negative actions were mostly for medium and small hub airports undergoing large capital plans.

(06:43):
I do know that DFW's outlook was changed from positive to stable by Moody's because they are bringing the full Terminal F program into their CIP, which is going to increase their debt by an additional $4 billion. Looking ahead, key challenges will be the cost of capital plans due to tariffs, inflation, and labor shortages, which results in increased leverage. As an example of cost increases, pre-pandemic, the New Orleans and Kansas City airports did their new terminals for about $1 billion. Columbus Airport sold the first tranche of their bonds earlier this year, and the total cost of their project is $2 billion. It has gotten much more expensive, but airports are being creative. To limit the impact of cost increases, they're entering into guaranteed maximum price contracts and other tools.

(07:57):
We'll talk more about that later. Finally, we have to see what the airlines are doing. They've adjusted their seat capacity guidance to better match shifting demand, and we have to see how that impacts the employment trajectory for some airports. Overall, as I mentioned, airports are in a solid spot financially. They've proven resiliency and have strong reserves and different tools in their toolbox to absorb potential declines in employment and market volatility.

Nicole Riggs (08:41):
Thank you. I think that's a very helpful foundation for the rest of our conversation. Now we're going to take advantage of having Manoj on our panel and drill down into New Terminal One (NTO) at JFK as a case study. Can you provide some insights into NTO operations and financial management in this challenging environment?

Manoj Patel (09:06):
Absolutely, and thank you for being on this panel as well. It's a privilege to be speaking. JFK NTO is essentially a P3 that is developing and renovating the southern quadrant of JFK. We had to look at it as a microcosm of the overall market. We're 100% dedicated to international carriers—catering to them and bringing that infrastructure at JFK to world-class standards. In doing so, the project embarked with delayed draw facilities and we were successful in refinancing those into about $6 billion in long-term debt issued up until this summer, with large help from Siebert, Bob, and AGM. We are very fortunate to have good partners. Looking towards our operations, we are getting ready for the delivery of assets.

(10:12):
We were very fortunate to get a GMP (Guaranteed Maximum Price) on the project, which helped mitigate a lot of cost and the inflationary period we saw during and after COVID. Along those lines, in our contracts with airlines, we've built in CPI indicators that help us recover costs as we see increases from service providers. We are actually very close to finalizing our last procurement, which sets the terminal up with a list of service providers to deliver the world-class product we envisioned. Regarding ORAT—which is operational readiness and transition—we will be beginning towards the end of this year or the beginning of next year, targeting the opening for operations. There is a lot of focus there, but we built into all our contracts financial levers we could pull to mitigate any changes in our schedule, whether accelerating or slowing something down based on delivery timing.

(11:32):
We've been very thoughtful in how we position ourselves in the market. To your point regarding cost, I think Bob could tell you that when we first envisioned this terminal development pre-COVID, the full build was right around $6 or $7 billion, and now we're close to $12 billion. That's the JFK market; costs are definitely increasing. As we've gone towards project delivery, we were aware of those and were able to put measures in place to ensure we had sufficient reserves to pay our bondholders while also delivering an IRR for our equity sponsors. We also built in operational resiliency, from the solar panel microgrid on the roof to mitigate power outages or other events.

(12:35):
We were very thoughtful from A to Z when putting the project together. The majority of that has worked, and we continue to refine our approach. The team is never satisfied; we always look at the next step. Later, we're going to talk about the next phase of the project, Phase B, which targets additional demand and growth in the international market. What we saw in 2019 was demand outstripping capacity so quickly that carriers would say, "I'll do a ground operation, just let me fly to JFK." That's the impetus for what we're building, as well as the Terminal Six expansion, to meet that demand when it returns in full force on the international side.

Nicole Riggs (13:41):
Thanks, Manoj. Based on your comments, I'm going to stick with you. Can you talk a little bit about how you're incorporating federal funding into your financial plan?

Manoj Patel (13:54):
In the first phase of this project, we didn't; everything was fully funded through loans or delayed draw facilities, which we've now fixed out with long-term debt. In the next phase, we're looking at the potential TIFIA for airports program. When that was first launched, Phase A had already started NTP (Notice to Proceed) and didn't meet all the federal guidelines required by the FAA. We've now pushed forward with an LOI for TIFIA and are pleased that it was accepted. TIFIA is a loan facility that is very favorable, especially in a P3 world, allowing us to get financing at very affordable rates. On the other side, we're looking at VALE funding—Voluntary Airport Low Emissions.

(14:50):
Regarding the solar farm on the roof, we're also 100% electric on the ground. All the equipment that drives around the aircraft will be 100% electric using the latest technologies. We're looking at how to leverage federal programs to help fund some of those aspects. In Phase B, we're working hand-in-hand with the Port Authority to put forward EGSE chargers and PC Air units—those are the hoses that hook up to the airplane for AC so they don't have to run engines—as well as GPUs (Ground Power Units) to keep avionics running while the airplane is waiting to be turned.

Nicole Riggs (15:46):
Thank you. We're going to come back to some of the other cool stuff that Manoj and his team are putting into NTO. Before we get ahead of ourselves—we're hearing great things about JFK, and Sewon mentioned the overall credit strength of the sector—I'm going to ask Sam to talk about some of the emerging risks, whether regulatory, environmental, or general economic.

Sam Nakhleh (16:22):
Thank you. I'm in the infrastructure group at Assured, and we focus on P3s. We do insure GARBs, but my group focuses on P3s. As Manoj said, we were happy to participate in NTO and insured a big chunk of each of the three issuances. From a credit perspective, a P3 is a little different than a GARB. You have a limited revenue stream and are really reliant on airline revenues—basically volume-based CPEs—as well as concession revenues. You don't have landing fees, PFCs, or parking revenues, and you have to remember it's a lease or concession with a finite term. A big theme was cost.

(17:21):
Costs are way up. Construction costs in New York for public sector infrastructure are probably the most expensive in the world. You have to fund that with more debt and equity; you have to pay back the debt, and equity investors want a return. You have to figure out a way to maximize revenue, which means CPEs are going to be up in the region. We're bullish; we think New York is a very important market and JFK is one of the most important airports in the world. We think the region can absorb higher CPEs between NTO and T6. From a credit perspective on the construction side, you have a finite pool of cash and must deliver on time and on budget. We look at the security package, the contractor, and liquidity. Luckily, the NTO GMP was executed before tariffs and other potential increased costs, but now you have to think about incremental contingency and how risk is allocated for potential tariff risk.

(18:48):
Once you deliver the project, you have to repay the debt. What we're seeing in terms of air traffic, as Sewon alluded to, is that air traffic is back above trend. Domestic travel is above pre-pandemic levels for both leisure and business. International travel is a little uneven between domestic and foreign flag carriers. While domestic carriers are above pre-pandemic levels at JFK, the foreign flag carriers that will be signing up for NTO and T6 are still about 10% to 15% below pre-pandemic levels. It varies by region; mainland China carriers are 70% below pre-pandemic levels, largely due to geopolitical restrictions on routes. We think that will eventually come back.

(19:54):
The U.S. and China are going to do business together, and we think that will return. There's just going to be more of a lag. Why is this happening? Partly, the domestic carriers were quicker to emerge from the pandemic and quicker to add routes and fill slots. It also seems like there is more international travel by U.S. citizens overseas than vice versa, partly due to geopolitics. We do think that will return to normal. Those are some of the things we are thinking about. We're very bullish on NTO; we think it's an essential, generational asset.

Nicole Riggs (20:56):
Thank you, Sam. We've touched on different funding and financing tools. I'll bring this back to Sewon. How are airports accessing capital today? Are there notable trends in how airports are structuring debt and managing financial flexibility?

Sewon Kim (21:21):
When we look at how airports are accessing capital, a few themes stand out. First, the municipal bond market continues to be the primary tool, particularly AMT bonds for modernization and expansion. 2024 was a record year for airport issuance, and as Nicole said, 2025 volume has increased even more. Airports generally rely on long-term fixed-rate debt. Some use commercial paper or bank credit facilities for interim financing, but those are often taken out by long-term debt. Terms typically go to 30 years, but we've seen several issuers tap into or go beyond 30 years.

(22:31):
NTO did 35-year debt; we've also seen it with JFK T6, Chicago, Pittsburgh, and Sacramento. They took advantage of the capacity and went beyond 30 years at relatively tight spreads—anywhere from five to 10 basis points difference for 35-year versus 30-year debt. In terms of call features, many use a traditional 10-year par call, but Atlanta utilized a nine-year par call earlier this year on a billion-dollar transaction. There was no yield penalty compared to a 10-year call, and it gave them additional flexibility. DFW also priced a transaction the same week as Atlanta.

(23:36):
In conjunction with their $2 billion issuance, DFW had two tranches of put bonds: $150 million with a mandatory tender in four years and another $150 million in seven years. That tracks a different set of investors and takes advantage of the shorter end where the curve is steep, reducing expected interest costs compared to fixed-rate bonds. I have to talk about tenders. We haven't seen a lot of tender activity in the airport sector, but Siebert was a senior manager for Houston's successful transaction. It was a tender of their taxable bonds with tax-exempt bonds, and the participation rate was 54%.

(24:43):
In 2025, several airports utilized tenders, including Sacramento, Cleveland, and Alaska. Others are analyzing their use. From an investor perspective, demand for airport credit remains very strong. Investors view airports as essential infrastructure with resilient revenue streams. Despite the increased volume, we're seeing strong demand across the yield curve, especially on the long end from bond funds and insurance companies. However, the most challenging part of the AMT bonds continues to be the five-to-10-year range because SMAs have very little interest in AMT bonds.

(25:56):
Regarding couponing, investors are looking for protection. On AMT bonds, they look for 5.25% to 5.50% coupons on long-term bonds. The final point I would make is that we recommend issuers stay nimble and flexible. Strategies like alternative coupons and different call features allow airports to appeal to a wider range of investors, especially when bringing a large transaction to market. Mixing these features makes the deal feel more manageable.

Nicole Riggs (27:01):
Thank you. Bob, I hear you've worked on a couple of airport deals over your career, so we'll bring you in. Earlier today, a panel talked about "bad words" we're not allowed to use, but can you talk about financing strategies around ESG bonds and P3s?

Robert DeMichiel (27:32):
Nicole, thanks for moderating. She reminded me I interviewed her for a job about 12 years ago and I didn't remember that. Thanks for having me. I've spent a lot of time recently on P3s. We were involved in LGP (the new Terminal B at LaGuardia) and the Delta transaction at LaGuardia. The end results are what you see at LaGuardia today, which is getting incredible reviews across the world.

(28:27):
We've transitioned to working on JFK. I know it's a hassle to go there these days with the construction, but as Manoj says, a lot of it will be done by the middle of next year. Broadly speaking, I wish there were more of these mega P3 projects, but as Sewon said, airports have strong investment-grade ratings, giving them access to very low-cost long-dated capital. This makes P3s difficult to justify unless there are specific requirements. In New York, these projects are incredibly expensive. The Port Authority is a multi-asset agency that has to make investments in bus stations and the PATH train, so they are forced to look at using private capital.

(29:31):
The Port Authority has used P3s to great success. NTO was seven years in the making before financial closing in 2022. It had several "near-death experiences," but the sponsors stuck with it. When it closed, the market wasn't great and we had to raise a tremendous amount of capital. If you look at NTO and T6, when those projects closed in 2022, there was not a single bond sold; they were all done with very large bank construction loans. To get the rating agencies comfortable, we used a hedging strategy, and those have been rolled into the muni market over time.

(31:27):
On NTO, we've issued about $6 billion of muni bonds. We were also able to get Kestrel involved to look at the project from an ESG perspective and got a green bond designation. Manoj has the largest solar array at an airport in the country, done with Alpha Structure. Between that and the Port's sustainability requirements, we got that green designation. I can't say it saved 15 basis points, but it broadened the investor base. We wish there were more of these—the Port Authority is talking about a redevelopment at Newark that might be a P3, but you probably won't see a ton of them because of the depth of the municipal market.

Nicole Riggs (32:23):
Thank you. Bob might not have remembered me, but I will never forget him because after our meeting, there was a giant rainstorm. I didn't have an umbrella, and he had a gigantic golf umbrella and kindly walked me to where I was going.

Robert DeMichiel (32:38):
Always a gentleman.

Nicole Riggs (32:45):
We've talked about the current state of airports, demand, risks, and tools. For the remainder of our time, let's look forward. Manoj, what should folks expect regarding innovation in passenger terminals? How are airports leveraging biometrics, automation, and AI?

Manoj Patel (33:28):
We surveyed top airports around the world to see which features to employ. One notable feature is "one-stop," where you check in at the beginning of your journey and no longer need your documents. You can process through TSA and all the way through the gate using facial recognition. That will depend on whether agencies turn the feature on, but it will be available. We will have self-bag drop for those who want to move quickly.

(34:16):
There are also amenities. We have a $55 million art program, and the team is looking at guided tours via phone apps to see the thought process behind the art. It gives passengers things to do. As I said, it's 100% international, so very few people are running to the gate because check-in is usually three to four hours prior—if you talk to my dad, it was five hours. You have a captive audience and want to make sure they're comfortable and not anxious.

(35:06):
We have parks within the terminal on both the secure and unsecured sides. On the arrivals level, we'll have "Central Park" with a lot of horticulture. A relaxed passenger who didn't have a challenge at security will be happier in their shopping experience. We see a higher uplift in sales from that. We are also employing LIDAR to monitor queues at security and check-in so our team can step in to help process people faster. We'll have multi-language capabilities, and our operations VP aligned with TSA and CBP to have them go through our customer service training program.

(37:10):
That will really help the journey. On arrivals, we're going to have biometrics so U.S. passport holders can walk straight through without needing a kiosk. Hopefully, that speeds up processing and frees up officers for the visitor side, where queues can reach three hours at JFK during peaks. We want to minimize that. We're putting in AI to inform us of what's going on in the terminal so we can address service aspects.

(39:07):
On the ramp, the electric equipment uses the latest software and AI to help the team understand if a flight is ready to be received and if equipment is charged. It will be a much smoother operation. On the ESG side, we have rainwater collection for irrigation and flushing, a solar farm, and glycol recollection so hazardous material doesn't reach the sewer. We are also targeting a zero-waste facility. It's difficult and requires composting, but the goal is to be as net-zero and environmentally friendly as possible.

Nicole Riggs (40:06):
Thank you, Manoj. To close this out, let's zoom out. Bob, is there any particular project or trend you find noteworthy?

Robert DeMichiel (40:26):
The only one in the P3 sector I'm tracking carefully is Newark. But as Sewon said, airport credit has been very resilient. Traffic is mostly back above 2019 levels. Even with something like Spirit going through bankruptcy, airports are fundamentally rated on the local economy. If a carrier pulls out, that capacity is quickly refilled. Airlines come and go, but the network carriers have challenged the low-cost model effectively. The sector proved resilient during something as unprecedented as 2020, and because of that, airports can access capital at very attractive costs.

Nicole Riggs (42:05):
Finally, for Sam: is there a topic adjacent to aviation that you think has an outsized influence on the future of the sector?

Sam Nakhleh (42:26):
Regarding resiliency, environmental and cyber resiliency are added costs that will increase development costs. But one other topic: JFK is going to be a great place to fly in and out of once these terminals are finished. The biggest problem with JFK is getting there. If someone can figure out how to get us to JFK efficiently, that would be a great project to work on.

Manoj Patel (43:06):
I think that was part of the governor's initial pitch—the "one-stop ride" from the city—but I don't think that made it all the way through.

Nicole Riggs (43:18):
When I worked for the Port Authority, I did the reverse commute from Manhattan on the E train to the AirTrain every day. It wasn't that bad without a suitcase.

Robert DeMichiel (43:29):
Have Manoj tell you about his commute. He's a trooper.

Manoj Patel (43:33):
I come in from Jersey. Honestly, I use the Long Island Railroad to Jamaica and then take the AirTrain. It's probably the fastest way to get to JFK compared to trying to drive there.

Nicole Riggs (43:53):
I joke about how when I lived in Greenwich Village, I was agnostic about JFK or Newark. Then I moved one mile west closer to the Holland Tunnel, and now I'm a Newark person. Thank you to our panelists. Do we have any questions from the audience?

(44:13):
Seeing none. Thank you again.