Session 1
Audience Choice/Hot Topics
Moderator
Henrietta Brown, Deputy Director and Chief Financial Officer, Louis Armstrong New Orleans International Airport
Overview
This session provided an opportunity for discussion and questions and answers on topics raised by participants during the breakout discussion groups. The moderator also prompted the audience to identify ideas for future research.
Detailed Summary of the Discussion
Henrietta Brown introduced the session, encouraging participants to raise issues of concern to them as well as developments at airports today.
Angela Shafer-Payne of San Diego International Airport (SAN) referenced the airport’s need to replace Terminal 1, which is an older facility built for a much smaller number of passengers. Because of the small footprint of the airport, the project requires quite a few changes to the airside, terminal, and landside infrastructure, including adding gates and replacing existing gates. The funding required is $3.5 billion, which includes $500 million for airside work and a new parking structure.
Chris Poinsatte from Dallas urged that airports look not just at new funding sources, but also at more cost-effective procurement of infrastructure. DFW, he noted has used modular infrastructure, which has allowed it to build four new gates at a cost of $40 million per gate. The new terminal is 15 gates for $1.5 billion. Modular construction resulted in costs that were 25 percent lower, and the overall project was delivered 25 percent faster.
Brown offered that airports should think creatively and innovatively, as was discussed on Day 1. There are additional areas where airport professionals can be creative. The panel discussed how to extend the life on bond repayments from 30 years to 40 years to better match the time frame to the life of the infrastructure. That does not mean an airport has to spend 40 years paying for infrastructure, but that there may be rough years, and a longer repayment schedule provides flexibility or the opportunity to pay off the debt sooner.
Candace McGraw from Cincinnati noted the challenge of Advanced Air Mobility (AAM). She brought up the questions of what the right business model is for airports so they can make money and what their investment should be. She stated that this would be a good topic for a future ACRP study and noted that this business is coming. She stated that she would like to offer a way to make money on this as opposed to having a
business come to the airport with a bad business model. An audience member contributed that United and Archer just announced a service that will ferry passengers from downtown Chicago to Chicago O’Hare International Airport.
Marci Greenberger reminded participants that the next Airport Insight Event would be July 10–11, 2023, and would include AAM, with a focus on on-demand aviation services.
Kevin Kone of San Francisco said he is focused on peer-to-peer carsharing services such as Turo at their facility. He asked how airports are charging for the use of facilities and asked whether 10 percent of revenues was enough. He said airports need to get their fair share of profitability from these services and that they need to work on this as an industry.
An audience member noted that AAM and electric vehicle charging require a tremendous amount of energy. Airports can put the infrastructure in place and charge for its use.
Mike Nakornkhet of Denver asked how airports can pay for electric infrastructure. He said this will be a big problem at some point. He continued that once Denver International Airport (DEN) opens its new gates, its electrical capacity would be completely depleted, and he asked how the airport would pay for it. He indicated that this can be a significant revenue source going forward. Poinsatte asked how FAA would treat these AAM vehicles and whether there would be landing fees. He said it is hard to build business models when they do not have more information.
Jim Bennett of Paslay Advisors added that he did not hear much about the need for airport financial deregulation on the first day of the Insight Event. He stated that the relationship between airports and airlines can only be cost recovery, and no other businesses operate on that basis. He noted that the industry has been talking about the PFC problem for 20 years and that it was time to stop celebrating the problem and move on to other solutions.
Steve Van Beek supplemented these remarks by noting that it is not just cost recovery, but recovery based on historic costs (i.e., what it cost to build something 50 years ago). He said if the value of the asset could be updated, that would allow for higher fees to reflect valuation.
Dave Edwards of GSP provided information on rental cars, for which transactions are now only 50 to 70 percent of what they were before the pandemic, while the revenues are actually greater than they were previously. He said that this means airports are getting a much lower share of the revenues that are used to back the airport facilities. Edwards then asked what new models are going forward that would allow airports to provide these facilities.
Eric Smith of Kaplan Kirsch & Rockwell LLP said that airports are not able to charge costs to airlines until facilities are opened and running. He said he is also working on a
project that is going to cost $300 million in capitalized interest because it is taking so long, making the project unsustainable.
An audience member noted that some airports are negotiating with airlines to no longer pay capitalized interest and suggested talking to the airlines about it.
Cindy Nichol stated she has heard that reductions in appropriations for the Transportation Security Administration are likely to cause it to shift costs to airports. She noted that these types of unfunded mandates are a problem.
Brown added that cybersecurity requirements and safety management systems are two other sets of regulations that are unfunded mandates.
Bennett suggested an ACRP project on how to finance projects that would address the reasoning for using 30-year fixed-rate bonds.
Laurie Cullen of the Build America Bureau informed the participants that through TIFIA, airports can now access capital easier than before. This includes benefits of lower interest rates but also other benefits, such as no prepayment penalty and the ability to delay payments for up to 5 years after certificate of occupancy. That is, airports can pay down other debt first, if necessary. Cullen said airports can borrow up to 49 percent of project costs, which is higher than some other programs.
Greenberger then gave a demonstration on how to find information about research and projects on the ACRP website, http://www.TRB.org/ACRP.
