Airports Slow To Advance Projects Despite a Thaw in the Economy
While the overall economy shows signs of slowly coming back to life, the airline industry continues to struggle. Over the past year, the combination of substantially lower passenger traffic, still-wobbly financial markets and nervous carriers has curtailed the revenue streams airports typically count on for major capital projects.
The International Air Transport Association predicts airlines’ worldwide losses in 2009 will total $11 billion, while the Airport Transportation Association of America forecasts a nearly 7% capacity cut by the six largest U.S. carriers, the deepest such reduction in more than 60 years.
“The current economic situation has ramped up the volatility and uncertainty of an industry that already experiences a high rate of flux,” says Dave Rhodes, deputy manager of aviation and head of planning and development for Denver International Airport (DIA).
As a result, “airports are more circumspect about what they can do,” says Christopher Oswald, vice president of safety and technical operations for the Airports Council International-North America. But although the general outlook remains cautious, the fate of capital programs varies from city to city. “Some airports are deferring projects, while the gradual thawing of credit markets is allowing others to move forward,” Oswald says, citing as an example the $300-million renovation and expansion of Terminal 2/Boarding Area D at San Francisco International Airport.
While the protracted slump in Las Vegas’ casino-driven economy has forced McCarran International Airport to shelve a $30-million maintenance facility, a heliport and several small projects, work on the centerpiece $2.4-billion, 1.9 million-sq-ft Terminal 3 project remains on track for its mid-2012 opening.
Jim Ryan, assistant director for construction engineering for the Clark County, Nev., Dept. of Aviation, says the near-term challenges have not dimmed the airport’s long-term vision. “We still know what we want to accomplish,” he says.
San Diego International Airport has begun a four-year, $1-billion program that includes a three-story, 10-gate expansion of Terminal 2 and approximately 1.5 million square feet of new taxiway and jet parking areas. Funding will come from passenger facility charges (PFCs), airport revenue bonds, cash on hand and FAA grants. “Every downturn is followed by an upturn,” says Steven Shultz, the airport’s deputy director of public and community relations. “If an airport is not prepared, it can find itself in a bad situation.”
Other large airports have adopted a similar approach. DIA has begun mapping a strategy for its South Terminal Project that will coincide with an extension of Denver’s commuter rail line from downtown. The project includes a new rail station, a Westin Hotel and an expansion to the Jeppesen Terminal.
More projects may follow as DIA completes a reevaluation of its master plan. “With more than 51 million passengers last year, our capacity has more than tripled [the scope of ] the original build-out plan,” Rhodes says.
A master-plan update also has led Dallas Fort Worth (DFW) International Airport to approve an eight-year Terminal Development Program (TDP) that will renovate its four original terminals, slated to begin in early 2011.
Perfecto Solis, DFW’s vice president of airport development and engineering, says TDP has the support of air...
...carriers, which were an integral part of the master-plan process. “They see the value of investing in programs that will improve efficiency and help the airport remain competitive for the next 30 to 35 years,” Solis says. Currently in the programming and schematic design phase, TDP is expected to cost as much as $2 billion, with funding to come from bond sales, available capital and other sources. One-third of each terminal will be closed at a time, facilitating 24/7 construction zones.
Solis expects TDP will likely follow the trend toward construction manager-at-risk (CMR) project delivery, an approach used for the airport’s most recent capital program, which included the International Terminal D. “Along with the complexities of dealing with hundreds of contracts, design-bid-build would also require renegotiation of our professional services contracts, which currently cover only A-E services,” Solis explains. “CMR is also a better way to minimize our risk and achieve our goals for participation by minority- and woman-owned businesses.”
Many of the nation’s smaller airports also are readying major construction programs to capitalize on their unique circumstances. Dallas’ Love Field Airport and its main tenant, Southwest Airlines, are partnering on a $574-million program that will replace the existing concourse with a new facility containing up to 20 gates, refurbish the main terminal lobby and improve airfield surfaces, fueling facilities and roads. The airport also plans to apply PFCs and FAA grants toward a $150-million airfield improvement package. A proposed $250-million people- mover system also is under consideration by the city council.
More than half the funding for the concourse and terminal work will come from bonds sold through Southwest. But due to lingering financial market uncertainties, the bond sale has been pushed back to spring 2010. “We don’t want to start construction until we are sure the financing is set,” says Diego Rincon, assistant director for the Dallas Dept. of Aviation.
Having outgrown its almost 20-year-old passenger facilities, Orange County, Calif.’s John Wayne Airport has launched a $543-million program that includes a new six-gate terminal, upgrades to two existing terminals, a 2,000-space parking structure, a cogeneration plant and improvements to taxiways and overnight aircraft-parking facilities.
Airport Director Alan Murphy explains that officials had no qualms about launching such an effort despite the...
...recession. “We felt this would be a good opportunity to move forward,” he says. Along with having saved money from several years of strong revenue, the airport only recently began implementing PFCs. “That gives us a strong source of future revenues that we can apply to bonding,” Murphy says.
Another incentive for launching projects has been the continued drop in construction costs. The price tag for John Wayne’s program has dropped by as much as $100 million over the past year. Similarly, bids for maintenance projects at McCarran International are about 25% below the engineer’s estimate from 2008.
“Our most recent contract, the rehabilitation of Taxiway G, was $12 million, 45% less than had been estimated,” Murphy explains. “The favorable market also enabled us to have the structural steel in place for Terminal 3 four months ahead of schedule.”
Not all projects are profiting from lower prices, however. “We bid everything in 2006, so we were unable to take advantage of the current market,” says Juan Carlos Arteaga, program director for Miami International Airport’s $2.8-billion, 48-gate North Terminal project. Still, he says, the current climate benefits the airport in other ways. “For six recent small projects, we had seven or eight bidders where once there might have been only a couple,” he says. “The bids came in $13 million under budget, which we applied to our contingency fund.”
Jump Start
Also coming to the airports’ aid in recent months has been a $1.1-billion injection of stimulus funding under the American Recovery and Reinvestment Act (ARRA). The dollars have been applied largely to “shovel-ready” projects, such as the Port Authority of New York and New Jersey’s $376.3-million rehabilitation and widening of Runway 13R-31L at John F. Kennedy International Airport, which received a $15-million stimulus grant. DIA is using its $12-million stimulus grant to replace concrete panels on Runway 17L/35R, repair pavement joints between concrete panels and install new drains on the airfield ramp. Meanwhile, in Pennsylvania, repairs to Runway 14-12 at Pittsburgh International Airport are being funded with $10 million in stimulus money.
ARRA’s airport assistance was particularly welcome, given that Congress has yet to act on reauthorizing the FAA’s Airport Improvement Program (AIP), which expired in September 2008. In May, the House approved a measure calling for $12.3 billion in grants over three years. Airports also would be allowed to increase PFCs from the current limit of $4.50 per flight segment to $7.00. The Senate has yet to vote on its version, but Oswald says reluctance to boost PFCs could keep reauthorization in a holding pattern for some time. “Airports cannot plan ahead because they do not know what their PFC revenue will be, exacerbating an already uncertain economic climate,” he says.
For now, airports with construction agendas will have to stay focused on a host of macro- and micro-level economic and industry trends while still keeping their projects and operations on track. “Even though things may slow, the industry we work in is very dynamic,” says Arteaga. “There is always something new with aircraft, security procedures, operations technology, passenger movement and so on.”
Clark County’s Ryan agrees, saying, “We’ll have to watch carefully what the entire airline industry is doing and stay nimble to respond to changing market conditions.”
