This international airport is among the top 25 busiest airports in the United States and the busiest single-runway airport in the nation.
The cornerstone of the “New T1” project is the replacement of the airport’s Terminal 1. The total cost of the New T1 is about $3.5 billion.
Among other reasons, the airport has a strong service area, a diverse passenger carrier mix and is not dependent on connecting passenger traffic.
Case Study: Spotlight on a Municipal Credit
Issue: Regional Airport Authority Subordinate Airport Revenue Bonds
Project: Terminal Replacement Project
Moody’s/Standard & Poor’s/Fitch Ratings: A2/A/A+
These bonds are secured by the net revenues of a major regional airport authority. The revenues are generated primarily from an international airport in a large US city.
The airport is located three miles northwest of the downtown area on 661 acres of land with one 9,401-foot commercial runway, 51 gates in three passenger terminals, and over 585,000 square feet of rentable terminal space. The airport facilities are located on land leased from the city’s Unified Port District.
The airport is the primary air facility in the region, with 11 domestic and five foreign flag air carriers. Non-stop passenger service is provided to 67 domestic cities and 11 international cities. Five all-cargo carriers also serve the airport, which is the 23rd busiest airport in the United States and the busiest single-runway airport in the nation. Aviation activity peaked in FY 2019 with over 12.4 million passenger enplanements, with an initial impact from the onset of the pandemic being a 25.3% decrease in enplanements for FY 2020 and a further 47.4% decline in FY 2021 to 4.8 million. These enplanements rebounded in FY 2022, more than doubling to roughly 10 million passengers. The rebound is expected to continue in FY 2023, based on a 26% increase during the first three months of the fiscal year.
The cornerstone for the authority’s master plan for the airport, dubbed the “New T1,” is the replacement of the airport’s Terminal 1. The total cost of the New T1, including the replacement terminal, is approximately $3.5 billion. The authority issued over $1.9 billion of Subordinate Airport Revenue bonds in December 2021 to help finance the New T1 and expects to fund additional project costs from various sources, including the issuance of an additional $2 billion of airport revenue bonds in 2024 and 2025.
The rebound in airport enplanements has helped increase coverage levels and reduce airline cost per enplanement (CPE) following the pandemic-related financial impact in fiscal years 2020 and 2021. As with most US airports, the authority utilized federal COVID aid to maintain debt service coverage above 2.0x in both years. We estimate that debt service coverage would have declined to about 1.85x in FY 2020 and 1.2x in FY 2021, absent the federal assistance. CPE increased moderately to $13.73 in FY 2020 from $10.74 in FY 2019 and jumped to over $26 in FY 2021.
The dramatic increase in airport enplanements in FY 2022 led to a robust increase in operating revenues. We estimate that debt service coverage increased to 2.2x, excluding federal COVID assistance. CPE had been estimated to decrease to $21.51, but with the increase in pledged revenues and availability of remaining federal aid, we expect that FY 2022 CPE fell well below $20.
The airport has a strong service area driven by a stable local economy and tourism demand, as well as a diverse passenger carrier mix that is not dependent on connecting passenger traffic. The airport’s airline agreement provides for protection against increasing costs, including provisions that increase airline rates to maintain stable debt service coverage levels. The cost protections and the term of the agreement through 2029 support the airport’s strong market position.
Although the authority expects to issue more debt to fund its capital program, the debt structure and expectations for continued enplanement growth should mitigate impact on debt service coverage levels and CPE. The authority has maintained high levels of liquidity — over 1,000 days cash on hand — and is expected to maintain levels above its 600-day target.
Is now a good entry point for muni bond investors?
While the muni market hasn't performed as expected, the pullback may have created an interesting entry point for investors before the historically strong seasonal period.
US municipal bond quarterly market recap and outlook
Get an update from the Invesco Municipal Bond team on the muni bond market and their outlook on what may be ahead.
Thoughts from the Municipal Bond Desk
Get expert insight on what’s happening in the muni market and munis by the numbers, a quick look at key data points, in the latest edition.
Important information
NA2653293
Header image: TriggerPhoto/ Getty
This case study is presented for illustrative purposes only. There can be no assurance that any investment process or strategy will achieve its investment objectives. This material does not constitute a recommendation as to the suitability of any investment and a tax or financial professional should be consulted.
Past performance is not necessarily indicative, or a guarantee, of future results.
The opinions referenced above are those of Invesco Municipals investment team of Dec 19, 2022. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
Before investing, investors should carefully read the prospectus/summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the funds call 800-983-0903 or visit invesco.com/fundprospectus.
This link takes you to a site not affiliated with Invesco. The site is for informational purposes only. Invesco does not guarantee nor take any responsibility for any of the content.
