DALLAS - Imagine a major hub airport with no outstanding debt.
Actually, you don't have to. Salt Lake City International Airport already fits the description.
"Salt Lake City (airport) is debt free," said Maureen Riley, the airport's executive director. "We have been in that position since 2008."
Riley expects that status to change in 2016 or 2017 when the Salt Lake City Airport Authority issues the first of an anticipated $916 million of bonds for a $1.8 billion redevelopment.
The 10-year project will transform the nation's 21st busiest airport and Delta Airlines' fourth-largest hub into one of the most efficient in the nation, officials said.
"Not only will we be creating vast improvements in efficiency and convenience for all airport users," Salt Lake City Mayor Ralph Becker said at the July 18 groundbreaking, "but also doing so in a way that seeks unprecedented environmental goals for a facility of this kind."
Eight airlines and their affiliates currently operate out of three terminals at SLCI. The three terminals will be replaced with a combined terminal to be completed in phases through 2022, Riley said. The new gate layout will also give aircraft more room to maneuver.
"The new design will accommodate hub activity," Riley said. "An airport built for 10 million passengers is now serving more than 20 million."
To get the project off the ground, the airport is tapping $400 million in cash reserves, Riley said.
"At this point, it doesn't look like we have to issue any debt until 2016 or 2017," she said. "We haven't visited the ratings agencies in so long, we probably need to have a meeting to reintroduce ourselves."
The last time a rating agency issued a report on the airport, Delta Airlines was reorganizing in bankruptcy court. That was in 2007, when the airport still had about $47 million of auction-rate securities outstanding.
Moody's Investors Service, which rated the airport A1 when it still carried debt, withdrew its rating in 2009, spokesman David Jacobson said. The lack of outstanding debt, he said, is "quite rare and unusual."
Standard & Poor's has no record of an underlying rating on the airport, according to transportation analyst Todd Spence.
"We'd love to have a conversation with them," he said.
As other airports tried to refinance their auction-rate debt after a series of failed auctions in 2008, Salt Lake City simply paid its off.
Liying Gu, managing director for finance and research at Airports Council International, said she doesn't know of another major hub that is debt-free.
"The airport has been enjoying a very strong financial position," she said. "They don't have any debt. That's very unique."
To be ranked as a large hub, an airport must handle at least 1% of the nation's enplanements, according to the Federal Aviation Administration.
The chief source of funding for Salt Lake's project will be passenger facilities charges, which have been squeezed by Congressional austerity measures. The rush of bond issuance that came during the so-called "ATM holiday" has also ebbed, Gu said.
Other sources of funding will be rental-car fees and federal grants, Riley said.
San Francisco-based HOK Architecture is designing the airport with Holder Construction of Atlanta and Big-D Construction of Salt Lake City managing myriad contractors.
The firm GSBS Richman Consulting said the project will add $3.3 billion to the state's economy. The current airport contributes a $1.1 billion economic impact, the report noted.
To guide the project toward the first issuance of debt, the airport is seeking applicants for the job of finance director, a vacancy created by the death of Janine Christiansen last March.
Christiansen was only 50 years old when she was diagnosed with a brain tumor, Riley said.
"It's still a tender subject," Riley said of the sudden loss of Christiansen and the need to fill her position. "We wanted to wait an appropriate amount of time until we considered filling the job."
In the meantime, Riley, a certified public accountant and graduate of the Wharton School of Finance, expects to shoulder much of the financial operations herself.
"As airport organizations go, we've stayed pretty lean," she said.
The airport has not issued any debt since Riley became executive director in 2007. Before that, she worked 13 years at Orlando, Fla., International Airport, as deputy executive director of finance and administration.
As the airport redevelopment progresses, Delta plans to expand operations and services at Salt Lake City, adding 8% to its capacity over five years, according to airline officials.
At the groundbreaking, Holden Shannon, Delta's senior vice president for corporate real estate, announced that the airline had agreed to a new, 10-year lease with the airport.
"We fully support the terminal redevelopment program that will modernize the facility and vastly improve the customer experience," Shannon said.
Delta's expansion will include the use of larger aircraft, more flights and service to new destinations, Shannon said. To reduce emissions, the airline also plans to use only electrically powered vehicles to service its aircraft, he said. With more than 3,500 employees in the Salt Lake area, Delta is one of Utah's largest employers.
Located just four miles west of downtown Salt Lake City, the airport is connected to the Utah Transit Authority's Trax light rail system. As part of the redevelopment, the Trax station will have to be relocated, Riley said.
Ahead of that is a new car-rental facility, expected to be completed in 2015.
While light rail is considered a valuable amenity for cities and transit-oriented developers, it threatens an airport's major source of revenue in the form of parking, rental car revenue and airport entrance fees.
Rental car fees made up 22% of U.S. airport revenues in 2012 and 2013, according to the Federal Aviation Administration, making them the second-largest source of income.
"Only parking and ground transportation were bigger," said Seth Lehman, senior director for the Global Infrastructure and Project Finance Group at Fitch Ratings.
"If there's very good mass transit access to an airport, it can compete with rental cars," Lehman said in a phone interview. "For residents who go to the airport, they may choose that system instead of parking the car. For others who don't need to go anywhere other than the central business district, it may not make sense to rent a car."
Airports Council International lists Salt Lake City's redevelopment as the 10th largest airport project underway in 2013. Leading the list is Dallas-Fort Worth's $2 billion remodeling of its four original terminals, addition of parking garages and connection to Dallas Area Rapid Transit's light rail.
Nationally, airport bond issuance peaked in 2010 during the so-called "AMT Holiday" at $18.9 billion, according to data from Thomson Reuters, with new money and refunding more than doubling from the previous year. In 2011, volume fell 53% to $8.7 billion. Issuance in 2013 of $8.4 billion was the lowest in four years and 18% below the average of $10.3 billion from 1998 to 2013.
The AMT Holiday that suspended alternative minimum tax provisions for private activity bonds was part of the American Recovery and Reinvestment Act for the years 2009 and 2010. Along with the availability of Build America Bonds, the AMT Holiday produced a surge of debt from airports.
Private activity bonds for airports typically carry interest rates 1.5% higher than tax-exempt bonds, costing a $250 million project about $20 million in increased financing costs, according to airport executives. About 60% of airport bonds are private activity bonds, according to Gu.
Airports are also constrained by Congressional cuts to the Airport Improvement Program and the cap on passenger facilities charges that airports are seeking to lift against airline resistance.
Airport development projects through 2017 are expected to cost about $13.1 billion, according to Gerald Dillingham, director of physical infrastructure issues at the Government Accountability Office. However, only $6 billion a year can be provided through FAA grants and PFC revenues, he said.
"The remaining $7 billion in annual planned development will need to be funded by locally generated revenues or deferred," Dillingham told a congressional committee.
As other airports launched massive expansions, the Salt Lake redevelopment has been under discussion for more than a decade, with a series of changes in the start dates. Even the current plan emphasizes flexibility, Riley said.
"The logistics of operating an airport while building a new one around it is very challenging," Riley said. "It's an extremely sophisticated operation."
