The Pittsburgh International Airport, home to 57 gates, 15 airlines and one T. Rex skeleton, will open a new terminal later this year and plans a $421.9 million negotiated bond deal pricing on Tuesday to finance the last of the construction.
The airport was originally constructed as a connecting hub but has long since served mostly Pittsburgh-bound passengers. Airport officials hope a new terminal will better meet the origin-and-destination function of the airport and promote the city's identity.
The airport's team wanted the terminal to be "a new front door for Pittsburgh," said CFO Eric Sprys. "The airport's the first thing people see when they get off the plane, it's the last thing they see before they leave. We want to leave a good impression, something we can be proud of to represent this region."
The bonds consist of two series. The first, $376.6 million of tax-exempts, is comprised of serials from 2028 through 2045, plus term bonds due in 2050 and 2055. The second series, $45.3 million of federally taxable bonds, features maturities from 2028 through 2040 and term bonds in 2045 and 2050.
The call provisions will be determined at pricing, according to the investor presentation for the deal. The bonds are rated A2 by Moody's Ratings, A by Fitch Ratings and A-plus by KBRA.
J.P. Morgan and PNC Capital Markets are co-lead managers for the deal, with BofA Securities, Piper Sandler and Siebert Williams Shank as co-managers. PFM is the municipal advisor and Squire Patton Boggs is counsel.
The terminal modernization project, which will be funded by the deal, will cost $1.7 billion.
This is the third issuance supporting the terminal modernization project, with around $800 million issued in 2021 just over $400 million in 2023.
When Pittsburgh International Airport opened in its current form in 1992, it was intended to be a connecting hub for USAirways, said Sprys. Only
August of 2001 was PIT's busiest month on record, but the following month,
USAirways went bankrupt and
The airport is still shaped to match the needs of a connecting hub, Sprys said. It has four runways, a number he said is unnecessary; its security area is narrow and choked, and passengers have to travel from the land-side terminal to the air-side terminal using an underground train.
The new terminal will reflect PIT's function as an origin-and-destination airport, rather than a connecting hub.
Construction workers
The project is 85% complete and no longer carries the risk of an ordinary construction project. "The costs are more or less finalized, so they don't really have cost risks," Fitch analyst Seth Lehman said.
In addition to the practical benefits of the project — a larger space for security, more parking space and easier access to the gates — the new terminal will have aesthetics inspired by Pittsburgh, Sprys said.
It will feature a bridge reminiscent of the city's many bridges, and an outdoor seating area so people can enjoy the area's nature. The roof of the terminal mimics "the rolling hills of southwestern Pennsylvania," Sprys said.
"Sometimes people think of Pittsburgh as an old, dirty steel town, and that's not us anymore," Sprys said. "We're a vibrant community with high-tech and robotics and education and the best hospitals in the world. We want people to know that. We want our airport to reflect that."
Until the terminal modernization project, PIT had not issued bonds since its construction in 1992. It defeased the last of that debt in 2019, Sprys said.
Paying off its debt allowed the airport to rewrite its indenture agreements with terms that appeal to rating agencies and investors, Sprys said. The team updated its covenants and agreements with airlines ahead of its 2021 issuance, pledging additional revenue sources to debt service.
The airport's history and location add unique twists to its finances.
PIT sits on natural gas deposits and the airport has a contract with drilling companies to extract the gas. Gas revenue accounts for around 4% of the airport's revenue, Moody's analyst Bridgett Stone said.
After the departure of USAirways, Pennsylvania devoted casino revenue to PIT to keep it afloat, Fitch analyst Seth Lehman said. Although the airport has long since recovered, it still receives $12.4 million annually, according to the investor presentation.
There are plus sides to not being a connecting hub dominated by a single carrier.
"An absence of airline concentration, the availability of unique non-aviation revenue sources which can be applied on a discretionary basis, and the origin and destination nature of airport activity enhance operating and revenue stability," KBRA said in its rating report.
The $1.4 billion of borrowing for the terminal modernization project will drive Pittsburgh International Airport's cost per enplanement above what is standard for an A-rated airport, Lehman said. However, PIT has no plans to issue additional bonds, so the cost per enplanement should decrease toward the end of the decade as it pays its debt service.
"The Cincinnati airport had to go through a comparable process over the past decade. Memphis Airport is doing something similar as well," Lehman said. "Some airports that used to be hubs for a specific carrier and then transitioned onto that kind of profile have been doing work on their terminals to reposition their facilities,"
"This terminal will be open in the fourth quarter, so a lot of the risk that projects typically face with schedule and budget and even now tariffs, we are well past that," Sprys said.
Once the new terminal opens, the original terminal will be defunct. Sprys said PIT is searching for another use for the terminal, and if they can't find a deal, the airport will demolish the terminal and prepare it for new development. The dinosaur, of course, will remain.
