Airport Industry Update (CPE)

Transcription:

Caitlin Devitt (00:09):

Good morning. We are here for the airport panel. I'm Caitlin Devitt, infrastructure reporter at the Bond Buyer, and I'm happy to be here with three great guests, panelists, who I'm going to let introduce themselves. Somebody during a panel yesterday said about the airport sector that, did you guys hear that? That reference, somebody said that it's a little, maybe possibly underrated. It was sort of an interesting comment. But today we're going to talk about all things the airports. We're going to focus on the southeast. We're going to talk about capital needs and post pandemic trends, and we're going to dig into ratings, talk about whether private money has a place anywhere in the space. So let's get to it. I'll let you guys introduce yourself, Kathleen. Sure.



Kathleen Sharman (00:54):

Good morning everybody. Super happy to be here In beautiful sunny Florida where I live, I am the Chief Financial Officer for and Executive Vice President for the Greater Orlando Aviation Authority, Orlando International Airport. I usually introduce myself as a serial CFO. The last panel, we talked a little bit about the why and being in transportation infrastructure and helping finance that. I just think it's like I have that public servant heart. So I've been a CFO for various transportation organizations for the last 30 years.



Joseph Pezzimenti (01:32):

Good morning everyone. I'm Joe Pezzimenti. I'm a Director and a member of S&P Global Ratings states and transportation team, which is part of the America's Public Finance Ratings Practice. I'm based near our New York headquarters. For the past 23 years, I've predominantly followed the US non-for-profit transportation infrastructure sector, which consists of airports, ports, parking systems, mass transit and parking systems. Thank you for your time today.



Harvey Zachem (01:59):

Good morning. I'm Harvey Zachem. I'm a Managing Director at Kroll Bond Ratings. I'm the Author of the General Airport Rating Methodology and besides airports, I am a Generalist. I work on general obligation appropriation, tax backed higher education issues. Thank you.



Caitlin Devitt (02:25):

Okay, thank you. So let's get to the questions. We'll start with Kathleen. Talk a little bit about what your biggest challenge has been in recent years and how you've handled it.



Kathleen Sharman (02:34):

Okay. Well certainly probably no secret, the COVID pandemic and then the after effects of that. But in 2019, Orlando International, one of the busiest airports in the country and certainly the busiest in Florida. In 2019, we had just under 50 million passengers go through our airport annually. The last 12 months we've had slightly over 58 million, so that's huge, huge growth. We've also opened to keep up with that growth, we've opened a new terminal, terminal sea, 20 narrow body gates, which was great. It was a $2.8 billion projects. It began in 2015 in earnest, and really for the last several years, our agency was singularly focused on getting that terminal built to serve the capacity for the central Florida region.



(03:42):

So we opened the terminal in 2022 and in some ways we were like the dog that caught the car. It's like now what? Right, because we've been driving, driving, driving to get that terminal open. So the challenge is we have capacity needs to serve, but we also have to, as in many airports, the infrastructure, all the airports kind of got built at the same time, right? 40 years ago. So we have this aging infrastructure and we have customers who are demanding an exceptional experience. So kind of trying to go through the balance of building new capacity, improving the existing infrastructure. So those are some of the big challenges. Of course, rising capital costs after the pandemic inflation has certainly been a challenge. And then in terms of how do we deal with that, implementing a CIP, that's modular and demand driven, not really getting too over our skis and using technology to sweat our assets, if you will, to really get the most throughput out of our assets.



(04:55):

And also including another tool in our toolbox is strategically thinking about our debt, restructuring our debt and some strategic debt defe. So some of those are the challenges.



Caitlin Devitt (05:07):

So did you start building that terminal before Covid?



Kathleen Sharman (05:10):

Yes. Yes ma'am. And it's funny story, that terminal was started three different times. It was started in before nine 11, and then of course stopped and then the traffic went back down again and it took a few years to recover. Then just about when they were getting ready to start it again, it was 2008 financial crisis then went down again. That one took both those times, took a lot more time, took like seven years for the airport to recover. And then so in 2015, the leadership at the time was like, okay, we know there's going to be something we don't know what we better hurry up and get going.



(05:59):

So we actually did a CM at risk construction management at risk project delivery method, which is becoming more and more common, but I don't know how common it was back then. So it was a way to speed it up and a seven year sounds like a long time, but it's a huge facility, 2 million square feet. So we got busy and we got going and sure enough covid happened. So we did have to downsize the terminal a little bit. Some of you have heard me speak before that terminal was financed about 40 of almost 50% with passenger facility charges, passenger facility PFC, and if there's no ps, there was no fcs. So we kind of had to right-size it a little bit, which is what we did. And again, capital program being modular and demand driven, less demand, although we didn't know how quickly we didn't have a crystal ball, we didn't know how quickly the demand was going to come back, but we right sized it and then when it came back, we're dealing with that. I know we'll talk about it later. The Bipartisans infrastructure law did help a little bit, but we had some other strategies as well. But yeah, three different times and we just knew it would be, we didn't know what, and again, there's going to be something else. We don't know what, but we've got to have to be agile. The last panel was talking about being agile, and that's one of our biggest assets. I think we're agile.



Caitlin Devitt (07:26):

Yeah, that's interesting. Okay. Joe, talk a little bit about the ratings trends in the region in the southeast with airport credits and talk about balance sheets.



Joseph Pezzimenti (07:40):

Yeah, sure. I mean, generally speaking, airport ratings for the southeast region, it performed relatively well and that's really due to the strong recoveries in air travel demand to near or even above pre pandemic levels. And that really has allowed a return to business as usual rate setting flexibly good revenue generation ability. And that in a way has also fortified their unrestricted liquidity positions, which obviously was bolstered with the federal relief aid it received during the pandemic. And when you look across the southeast airports, all of them are at least above, at least more than a year's worth of day's, cash on hand, some well above that a thousand days cash on hand. And then in addition to that, even during the pandemic, there were some airports like Kathleen's that were in the middle of a capital improvement program and that proceeded with that. And so as a result of that too, over the pandemic years to now, there has been increase on the debt side of things for some airports like Greater Orlando Aviation Authority, Tampa, Southwest Florida and Fort Myers, Fort Lauderdale and Nashville, others had seen a modest decline in their debt load like Mobile airport authority, Palm Beach International, Augusta Regional in Georgia and Charleston.



(09:12):

Others had experienced a relatively minor change in their debt load in terms of Atlanta and Memphis in terms of how Southeast Airport credits fared, at least in terms of the ratings, when you look at Fort Lauderdale, Orlando, Southwest Florida, Tampa, Atlanta, Memphis and Charleston, they've all had the same ring. They did pre pandemic while Miami, Nashville and Mobil Airport are rated one notch higher than their pre pandemic ratings with Miami being the most recent upgrade. And that was really driven by really just a very long history of resilient demand characteristics through different economic shocks. It's interesting when you look at the employment trends for that airport in particular, when you look back all the way to 2000 to now, as everyone knows, there were some pretty significant shocks that happened over that timeframe. You had the events of nine 11, you had the great recession, and then obviously the most recent one, which was the pandemic throughout all that Miami exhibited unbelievable resiliency in terms of really continuing to have pretty decent air travel demand in a relatively quick recovery.



(10:33):

Their employment levels now are well above where they were pre pandemic. And I think part of that too is really a combination of things is adding new destinations. You also have an influx of people that relocated migrated from up north. Then you have the multiplier effect of just family members visiting family that's relocated, and then obviously you have the geographic orientation being an international gateway to Latin America, all of those things. And the fact too, it's located in the city of Miami metro area, very favorable economic indicators in the form of favorable GDP per capita, which also is pretty closely correlated with air trial demand. So a lot of that really kind of contributed to the upgrade as well as being able to demonstrate relatively steady financial performance given the fully residual rate making methodology that the airport employees. The other cases where we had one case where we had an airport that's ratings actually two notches higher than pre pandemic, and that was Augusta Regional Airport, and that was really a function really more of financial metrics being maturely higher and consistent with the higher rating, and that's what kind of led to the upgrade for that one.



Caitlin Devitt (12:00):

Okay, cool. Just one follow up, if you can you give context for how that compares to the rest of the country?



Joseph Pezzimenti (12:07):

Yeah, yeah, sure. I mean, generally speaking, when you look at the southeastern airports, most of them really have fared relatively well because of the pandemic. As all of us know during the pandemic, Florida was a popular destination just because of the social distancing aspects that we had to deal with. Florida was natural in terms of going somewhere to play golf or go to the beach. The other thing is too, a lot of people found issues with cost of living issues and that also resulted in people moving to the state of Florida. And so as a result of that, there was that, and then in addition to that, in terms of just the international travel, the international travel was much more resilient. And on top of that too was mentioned yesterday in the panel was just even how the leadership in this part of the country was less strict with the social distancing mandates and in terms of the timing of which, how long it took to really reopen the economy and then all those kind of things also contributed to better air travel demand or quicker rebounds in other parts of the country, such as like when you look to the west coast airports, in that case you had a governor that was much more strict with the mandates.



(13:27):

And on top of that, you had other airports that were closer to the Pacific Rim, which also further dampen international travel. And so in that case, those were some examples of airports that had a slower recovery and some that are still not really back to where they were pre pandemic. But nevertheless, when you look at across our airport ratings, not one is on negative outlook anymore. And like I mentioned, all of them have either returned to where they were preed or higher than they are before. We only have one airport right now that's on positive outlook, that's DFW. Okay. And that's been experiencing some very robust demand characteristics as well as your airport. I don't want to leave you out. You're right next to me. Okay. I was like, yeah, I was just trying to keep you, I wonder.



Caitlin Devitt (14:16):

He thought I was paying attention. My Buddy from New Years.



Joseph Pezzimenti (14:20):

But in Kathleen's case, the thing that's interesting too, even with Greater Orlando Aviation Authority, when you even look back from 2000 to 22 counter year basis, your in employs are like, I think 40% higher or 60% higher than they were in 2000. And then you're back and you're exceeding where you were pre pandemic. And I think a combination of that too is just people's attraction to the greater Orlando MSA, it seems like the never ending reinvention of the very unique tourist destinations and theme parks. And then also you're also diversifying your economy with a medical campus. And so I think that's really contributed to the success of your recovery future growth.



Kathleen Sharman (15:08):

I'm hearing that's credit positive.



Joseph Pezzimenti (15:10):

That'll be up to a committee decision to determine whether or not that warrants a consideration at a higher rate level. But clearly, I mean, when you look at your airport, when you look at Miami, those are some of the airports that really have experienced some very strong resilient recovery over a long period of time. Because the thing that's interesting too is when you do a similar comparison, look at LAX for example, they're still not back to where they were pre pandemic. They're basically back to where they were in 2000. But it's such a big market and it's a big O and D market. It's one of the biggest O and D markets like yours, and that also contributed to that rating.



Caitlin Devitt (15:56):

Alright, cool. Harvey, let's bring you in. So can you talk a little bit about an overview of the region's challenges and some of the opportunities? And we've talked about post pandemic trends, but I don't know if there's anything you want to add to that.



Harvey Zachem (16:09):

Okay. Well, I'd begin with sort of the opportunities look at the region itself in terms of recovery from the pandemic and all the metrics and looking at passenger recovery in 2019 and the first two months of 2020 are up probably more than anywhere else in the United States. Looking at it. There's always been a large leisure component to travel to here, which gave some kind of a buffer against business travel, which kind of curtailed totally during the pandemic and it's taking a longer time to recover, although there is recovery, strong signs of it. I think that's a positive. There was also in terms of migration into the region during Covid with ability to work hybrid work from home, work from anywhere, there's an migration of population during that period as well as the population growth continues here. Also, if you look at internationally recovery to central and South America was stronger here than recovery to Europe and to a much lesser degree recovery in Asia.



(17:32):

And I think just the kind of funds that were available during the pandemic, including the Federal Recovery Funds, bridged the gap between the reduction in employments for that period. Also very robust balance sheets that really tied the time there. Airlines received a lot of funding during the pandemic and concessions received money. So you really just don't hear the word fiscal cliff associated with the airport sector and challenges faced by some other public finance sectors in the coming years. So those are really the positives as far as any kind of challenges, if you look at, I guess location as always is a challenge given the storm activity, particularly proximity to the coast, rising water levels, windstorms, that really calls upon a need to harden assets, which many airports are doing now and in general affecting this region, but also affecting the US is there is sort of a change in passenger expectations and demands looking for more comfortable accessible locations really at airports itself, which feature more concessions and amenities, which is a challenge to meet in going forward.



(19:09):

As far as if this region in particular, because of the growth, there's always the challenge of more facilities of building more terminal space and in general for airports, there's the challenge of just a lot of the airports were built 30 plus years ago. A lot of the terminals and evolving needs at the terminals itself, wider hold rooms, gates to accommodate up gauged aircraft. More people in the terminal itself. The crowding from that TSA entry points really haven't been upgraded in many cases since post nine 11. And there's a need for better accessibility. Also as you grow, there's a need to be able to move people more efficiently. That's resulted in people mover type systems and stuff. I know Fort Lauderdale, Hollywood's considering people mover system. Those have very high costs associated with them.



Caitlin Devitt (20:17):

Yeah, I don't know if you guys listened to the port one yesterday, but that was interesting about the AI and the technology they're using to get everybody off the cruise ships, like 7,000 people coming off and using.



Harvey Zachem (20:28):

Right. More so yeah, tech facial recognition.



Caitlin Devitt (20:31):

We need some of that at the airports.



Kathleen Sharman (20:32):

Yeah, many airports are in Orlando. We have that at CVP, both or Customs and Border, both facial recognition, biometric exit and biometric entry. And there are many airports. I know we're starting to work with the TSA as well on trying to, I know Atlanta has that opt-in.



Harvey Zachem (20:54):

I think DFW also has a test program also for biometrics.



Kathleen Sharman (20:59):

Yeah, it's easier for the TSA domestic if you're an airport that has one airline that you can both. So we're trying to be that first one that has multiple airlines of trying to get that throughput worked out with the TSA and it's going to happen.



Caitlin Devitt (21:14):

It's just a matter of time. So I'm going to be moderating the panel on highs Speeded rail later, but meanwhile you have the Bright Line Station, Kathleen, and I was wondering if you could talk a little bit about that and what it means, if anything, for the airport and for your workers. And also they have this proposal on the table to go to Tampa. I don't know if you guys are involved in that, but if you could talk a little bit about your Bright Line Station.



Kathleen Sharman (21:42):

Sure. Happy to do so. Yes, the Intermodal Terminal facility, we actually opened it in 2017 waiting for Bright Line to come, and they did come indeed last year. They've been open about six months. They have 16 daily departures, 16 daily arrivals. It's been a very, I think certainly anecdotally successful addition to the airport. They about, I think over 330,000 passengers in the first six months. I don't want to talk too much about their offering document. I didn't speak for them and I know they're out there raising money for that. Tampa. We have a terrific partnership with them. Every train that comes from South Florida and wherever it goes, whether it goes to Tampa, is going to be, Orlando is sort of the pivotal central piece. They have a vehicle maintenance facility on our property, so they maintain a lot of the trains there.



(22:52):

We charge them a fee for a per passenger fee for the outbound passengers. So that kind of, as you all know, airports, we have to be per FA rules. We have to be self-sustaining. So we can't really, we need to try and stay revenue neutral with some of our other ground transportation. So as they go to Tampa and as that gets worked out, we will be looking at the fee in accordance with the contract. But they're a great partner. We are looking forward to them expanding. I mean, part of our mission at Greater Orlando Aviation authorities is to be more intermodal, and that's been really a vision in central Florida. I think that rail line had been on the books for many, many, many years. So it's really neat to see the actual vision of so many years ago actually becoming a reality. I actually rode the train down from Orlando to here last night.



(23:50):

It was awesome. Very good experience with respect to the effect on workers. I think that will be more of a sun rail. There's also commuter rail. The intermodal terminal facility basically has four rail lines that can come into it. We have our people mover between the two terminals, our gate link, we have the bright line train, we have a rail bed that could, light rail could happen at some future development. And then we also have a potential rail bed for Sun SunRail. There's been a, it's called the Sunshine Corridor Commission being formed right now. It's the mayors of City of Orlando, orange County, Florida Department of Transportation, the theme parks and key I drive coalition. So they're all sort of working through what the alignment should be that has not really been finalized. We're invited to those conversations as well. And certainly the funding is always a challenge in public transportation, but that's all being worked out and I think that the community is really committed to getting SunRail to the airport. I think it's going to be a great experience as the airport keeps growing, we're going to have to keep more and more workers there. Central Florida, I think Orlando is definitely one of the fastest growing cities and certainly the most visited city in the United States. So all that infrastructure that we're investing in collectively is creating jobs and creating a better place for people to work. So I think ultimately it will have a tremendously positive effect, but we're still in the building stages.



Caitlin Devitt (25:32):

So I want to talk a little bit about private money and whether it has any place in the sector. We've seen with the Port Authority of New York and New Jersey, some terminal, a lot of privatization there or P threes with the terminals, and otherwise we haven't really seen that much. I know that there's some private investors who really like the idea, these air, these kind of chunky airport assets. So I don't know if anyone would like to start or weigh in about obstacles and impossibilities for P threes in the airport space. Harvey, did you want to?



Harvey Zachem (26:11):

Yeah, I would say, I think to begin, I think you make a distinction between airport privatization and a P three airport privatization initiated by the FAA in 1996 as a pilot privatization program, which was amended in 2018 as they took out the word pilot to give more of the fact that it's a permanent program. And that allowed for, initially, I think it was 10 airports, limited by size, one large hub and some smaller airports. And from the history of it, it really hasn't taken hold. There were several airports that tried to participate. Chicago Midway Steward Airport, the San Juan and Puerto Rico airport in St. Louis more recently, and for various reasons it didn't occur. It really lends more to a monetization of the asset itself. In the case of San Juan, there was a lot of debt out against the airport and there was a lot of capital needs.



(27:24):

So it kind of worked out. In that case, Chicago midway, the investors couldn't come up with sufficient funds at the end. So there was a breakage fee paid to the city of Chicago. Stewart was privatized, but the vendor had decided about eight years into it that it really wasn't what it wanted to work in. So the asset was sold to the Port Authority of New York, New Jersey itself. It's really a more, as I said, a monetization. I think that's distinguished from a P three with privatization, which you see in New York, LaGuardia Airport and Kennedy Airport. And I think those are options. They help to leverage the public money itself. They're really, for the most part, complex transactions were innovative ideas and options have been considered. And that's why inviting the private sector into this to provide bids and information really is very helpful. In the case of LaGuardia, you were dealing with a very small footprint airport that you really wanted to fit in a terminal and you wanted increased efficiency of movement on the airfield.



(28:42):

So you came up with the novel approaches of bridges from the terminal to the concourses itself that allowed airplanes to taxi underneath so that at worked, you generally don't see it for your sort of plain vanilla type of transactions themselves that really have that delivery system works. The complex kind of investment really needs that scope in order for a return to be made for the private investor in that type of transaction. I think going forward, you may continue to see them, but you really won't see them to a great degree there. But there are situations where it does fit and it is additive.



Caitlin Devitt (29:30):

Kathleen, have you ever considered it either in your current post or in previous issuer physicians?



Kathleen Sharman (29:40):

Yeah, it's funny. My career, I love that sea turtle reference that was last panel. I think I've participated in two successfully and killed three P threes over my years. They definitely have their place, like Harvey was saying, private money when the public agency can't do it. But I mean, I'm definitely an CFO public servant at heart. And truly our cost of funds here in the United States is lower because of the way our tax structure works. So it's kind of hard if you're a well run agency to fathom that that would be better. But there can be cases where it would be here, why it's not so right. Maybe for our airport versus the Port Authority of New York, New Jersey, they have multiple terminals and they lease their terminals to different airlines or airline consortium. So it's kind of a separate thing and they can outsource it and it's more manageable. But in Orlando, we have over 50 airlines that fly there where rates by ordinance, it would be hard to pick a piece of that off and not kind of compete with yourself, especially as I talked about earlier, how do we manage the capital program and build all this infrastructure to manage the demand that we have?



(31:05):

Well, we have to be nimble. We have to squeeze airlines in. We don't have preferential gates. I think we might be the only airport, US airport in the country that doesn't, we lease gate access, we don't lease our gate. So we can really efficiently put gate aircraft where they need to be in order to get the most throughput out of our assets. So for us, I think that's a challenge for the P three environment. I will say this though, when we were building Terminal Sea and we were looking for all kinds of different ways to finance it, as I said earlier, and one of the things that we did do, and where it did work is we actually call it a public public partnership that we entered into with our local utility company. And we wanted to make sure that we could leverage the best of both agencies and the kind of mayors serve on both boards.



(31:59):

So there's some relation there. So we entered into this partnership where the authority built certain complex utility infrastructure assets, our chiller plant, our emergency power distribution system. We built that and then the utility company paid us paid off that loan, we financed it with interim financing and we sold them for upfront payment. They got the right to use and the obligation to maintain those assets over a 20 year period. We pay them a capital charge, we pay them a variable maintenance fee linked to a percentage of CPI and direct pass through. So it was kind of a win-win. Now, did it cost us more? It kind of did, but for a reasonable risk premium, which when you PV it all back, it was like $2.2 million, which over 20 years, that doesn't seem that much to have the insurance, that the reliable utility company was going to maintain those assets and we didn't have to worry about that. We could spend our time worrying about operating the airport. So there's a case where I do think it wasn't exactly public private, but it was public, public and I think it worked.



Caitlin Devitt (33:19):

Interesting. Okay. Well, we've heard a couple of times from you guys about the average age of airports being 40 years, 30 years. I read recently that there's, I think the airport association said there's 151 billion of capital needs mostly terminals in the next five years. So maybe Joe start with you about is there a funding gap and what our capital needs? I don't know if you want to focus on this region or talk nationally and do authorities have what they need? Do they have the revenue to finance that?



Joseph Pezzimenti (33:52):

Yeah, now that activity is really back to where it was. I mean, really the capacity to basically continue to fund their capital needs is more manageable. And I think the expectation is garbs are going to continue to be the primary way they're going to fund the CIP. There is the AIP monies, there is the IJA monies as well, but those are just a little something to add as a supplement. But really we're really thinking that it's going to be primarily general report revenue bonds in terms of the types of projects. There is a lot of facilities out there that are relatively old. So there's a big effort to modernize those facilities as well as also trying to accommodate anticipated future growth. And then there's also some renewal and replacement as well that's going on. But I think the expectation is now that really demand is really kind of back to where it was. You have a lot of airports that really kind of delayed things and now pretty much just restarted what they had to stop because of the uncertainty related to the pandemic.



Harvey Zachem (35:14):

I tend to agree, I think you're going to see a lot of capital of issuance with general airport revenue bonds. The AIP program has been there for a while, but it really doesn't have an inflation adjustment with it. So basically the funds are eroding and that's the case of the PFC. Also, it is been $4 and 50 cents since 2000. The AIP provides about 3.375 billion a year. Some of that is competitive and some is discretionary. So there's kind of a non certainty as far as whether your project will be funded itself. Caitlin, you alluded to the A-I-C-N-A estimate of 151 billion in needs over the next five years, mainly the terminal itself. And that's up from, I think their report from two years earlier was about 116 billion.



(36:14):

Also, the issue with the AIP is that most of the money is dedicated to the airfield and the terminals where the major needs going forward are. So there is the funding gap and debt issuance introduces some issues also of depending upon the relationship with the airlines. If you have a need for a majority and interest approval, that may be a negotiation itself to get approval for certain projects. And also just capacity of the airport to fund that. You really are going to put on your balance sheet a fixed cost of debt service annually. And there's a question of whether certain airports, if that becomes too high of a burden or an ability to meet that burden.



Caitlin Devitt (37:03):

I think that, I haven't checked this, but I think the FA bill increases the AIP significantly or a little bit at least that it's an increase, the one that's on the table, and I haven't checked what it's doing in DC. Kathleen, is that something that you want?



Kathleen Sharman (37:19):

It does. And then it also adjust the PFC TURNBACK rules. It's going to be a little bit better. I mean, it's surprising.



Caitlin Devitt (37:25):

It's going to be a little bit more.



(37:27):

Is it going to lift the PFC cap or just in general?



Kathleen Sharman (37:30):

No, no. Yeah, that just seems, I don't get it. Well, actually I do get it. I think that airlines, they always say, oh, we just can't take another dollar increase or whatever. But I don't think that's really it. I think it has to do with control. You can use PFCs for certain things and as long as you use 'em for those things, you do have to consult with airlines. But ultimately you can kind of get your project done. But with garb financing, as Harvey kind of indicated, depending on your agreement with the airports agreement with the airlines, whether it's an agreement or race by ordinance. But certainly if it's an agreement, the airlines have control over that. So I think the airlines, and they have great lobbyists and all, I think they really want to see the PFC not go anywhere. I mean the buying power, I had a consultant do this for me. The four 50 buys a dollar 68 now. So I mean it's nothing, and it's not going to help in a lot of airports. I can speak for my own airport. We have pretty much leveraged our PFCs. We had to open that new terminal, we had to get some breathing room, and so we used a lot of our PFCs. They're out there till the commitment is out there till 2046. And we have bonds outstanding pledged against it till 2052. So I mean that's done.



Caitlin Devitt (38:49):

That's from the terminal.



Kathleen Sharman (38:51):

Yeah, that's done. Yes.



Caitlin Devitt (38:54):

So let's talk a little bit about climate. It was mentioned before about the need to harden infrastructure, but Joe, do you want to talk a little bit about what role is that something you consider as you think about airport credits, the vulnerability of infrastructure climate?



Joseph Pezzimenti (39:13):

We do. We do. And when we're looking at that, it really kind of falls under when we're assessed in the governance and management of an airport because really we kind of view that as falling under risk mitigation and financial management of an enterprise. And so when we're looking at airports such as Kathleen's and Miami's and others where they definitely, they are susceptible to severe weather events, we do kind of evaluate how they're making investments to make these assets hard. And then even just their ways that they can quickly resume operations after an event. These guys have it down like a science because, so they have so much experience with several severe weather events in any given year that they've really kind of perfected really how to protect the aircraft and relocate them and then put them back into resume operations as soon as possible. So yeah, I mean that's definitely something that we consider and look at.



Caitlin Devitt (40:31):

Kathleen, has your thinking changed at all in recent years when it comes to extreme weather or?



Kathleen Sharman (40:37):

No. I mean, as Joe alluded, yeah, we have a great emergency management. We have a whole office and we constantly drill for this and prepare for when we may have to cease commercial operations. We never close. We cease commercial operations. But interestingly, terminal Sea was built to withstand over 150 mile an hour hurricane force when it's also sustainable lead version four, I think. And interestingly enough, we opened in September of 2022, and I don't know if you guys remember our little friend Ian, who also visited us a week after we opened.



Caitlin Devitt (41:24):

It's like the curse terminal, all these shit.



Kathleen Sharman (41:26):

It's all good. No, it's really doing well. It's beautiful people, we get tons of compliments on it, but it was a little scary to see, okay, is this really going to hold up? But it surely did. We have lots of ways that we involve our insurance carriers. We have kind of advice from lots of different third party organizations on how to make sure we build the most hardened assets we can. It's obviously very, very important to us to make sure that we can.



Harvey Zachem (41:59):

Yeah, I was just going to add that it does have operating implications and also capital needs to replacement, just changing temperatures or higher average temperature and lower temperatures really ages facilities faster. So there may be more of a replacement need for certain facilities. One example is with colder temperatures, there's more of a need for deicing and use of glycol, and that has environmental issues associated with the disposal of glycol, Memphis, Tennessee, which we wouldn't consider a cold weather location. Really just recently spent a lot of money just building a glycol retention facility itself. And you really wouldn't have expected that in a place like Memphis. So there are certain costs associated with it.



Caitlin Devitt (42:58):

So not to keep referencing the port panel yesterday, but it was really interesting, and one of the things they talked about was cybersecurity and how many attacks. One of the guys was like, they get thousands of potential attacks a day. So let's just talk a little bit about cybersecurity, Kathleen, how you think about it and Joe, Harvey, how you guys think about it in terms of how you take it into.



Kathleen Sharman (43:19):

Sure. We have a dedicated staff that's in charge of nothing but protecting our IT infrastructure. They are constantly finding, trying to figure out ways to break it and defend it. And we are pretty successful. I think we've been able to get pretty good cyber insurance because we've been able to demonstrate how good this little team is. We have a robust education program. Really the weakest link isn't really all the technology. It's the human who can accidentally click on the, or double click on the wrong thing. So we do all kinds of training, every required monthly training. And it's kind of entertaining too. And it's fun. The IT team also sends fake phishing emails and if people click on it, they're retrained and they're a little bit shamed. Not really, but we have all the standard two factor authentication and all that stuff. I will say we did have a situation, lessons learned, and it seems so obvious, right? But the cloud just protecting your data multiple places to make sure you have it. Because even if your third, we didn't get ransomware, but a third party provider did. And we did fortunately have all the backups in place to recover from that. But those are important steps you have to take when you're dealing with cybersecurity.



Joseph Pezzimenti (44:52):

I think the other thing that's good about airports is that they're regulated and because of that, there's additional oversight and expectations. The FAA and the TSA also require a certain level of procedures and practices that are followed to basically guard against cyber attacks. The other thing is too, at least as it relates to just attacks that have happened in the industry, there was a denial of service cyber attack that happened a while ago in 2022. It just prevented people from accessing the websites, public websites, but it didn't really result in any material disruption in air service or anything like that. And to date, there's been no negative rating actions related to a cyber attack in the airport sector.



Caitlin Devitt (45:35):

But that's something you ask about when you're talking to authorities.



Joseph Pezzimenti (45:38):

Yes. I mean, we do have some questions that we ask about just what things they're doing with steps they're taking to guard against cyber attacks. And we understand too, this is a very evolving industry, especially when you interject ai, the sophistication of AI with tricking people. And so we ask about what practice do you do to make sure that your workforce is educated, that they are careful when they're getting an email to make sure it doesn't include a Trojan horse or some nefarious malware or something like that. And then we're just always asking periodically throughout our routine surveillance of credit, what if anything has changed in terms of MIT against that they're putting in place to guard against cyber attacks.



Caitlin Devitt (46:23):

Harvey, did you want to add anything?



Harvey Zachem (46:24):

Yeah, I was going to the attacks that Joe alluded to back in October, 2022, of course those are just affected websites and services return pretty quickly. But it raises the question, can an air traffic control system be affected also if you can get into a website? So there's a lot of concerns and we take it very seriously and we look at it as a management priority, how you address cybersecurity. And again, we ask certain questions also that relate to is there a dedicated staff that manages it? Have you experienced a cyber attack? Do you follow an internationally accepted protocol? Again, security awareness training that should be ongoing incident response plan. Also business continuity and disaster recovery plans. And our systems backed up to the point that they can be restored pretty quickly in the event there is some sort of attack or bringing down of the system.



Caitlin Devitt (47:32):

Yeah, that air traffic control thing is a nightmare scenario. We have a couple minutes. Does anybody have any questions? Okay, well thank you very much. Thanks for your time and thank you.