Plan for a single terminal at KCI faces sticker stock

07/06/2013 7:01 PM

07/06/2013 7:01 PM

As Kansas City tries to get liftoff for its new single-terminal airport plan, everyone agrees that the potential $1.2 billion price is a lot of money.

The question is whether it’s too much.

Yes, critics say, it is too high at a time when people like Kansas City International Airport just the way it is. Besides, the city has so many other priorities.

“I haven’t seen anything yet why we need to spend all this money,” said Dan Coffey, one of the opponents petitioning to put the plan to a public vote. “I’m not saying we don’t need to do something up there. I’m not sure we need to do that.”

But aviation officials say that something has to be done with the 40-year-old airport and that it comes down to a question of whether to bite the bullet or do something half-baked now and still spend a lot more later.

“We can renovate again,” said Mark VanLoh, citing KCI’s $258 million renovation completed in 2004, about the time he took the job of aviation director. “And in another 10 years, we’re saying we need a new terminal.”

He also said the public shouldn’t overreact to a planning consultant’s preliminary cost estimate.

“We think we’re going to build it for less, and in talking with the airlines, they think so, too,” VanLoh said.

The latest plan calls for building a new single terminal where Terminal A is now. But the $1.2 billion preliminary cost includes more than a new terminal, which is estimated at $680 million.

It includes $20 million to demolish Terminals A and B (Terminal C would remain, possibly for private offices). Other costs: $230 million for a 7,500-space parking garage and commercial vehicle plaza, $110 million for new utilities and roadways, and $160 million for improvements to the airfield and de-icer systems.

But if the airport doesn’t rebuild, VanLoh said, it still needs an estimated $600 million in upgrades and renovations in the next few years.

The $160 million in airfield and de-icer improvements have to be done, regardless of whether a new terminal is built.

The 40-year-old concrete terminal foundation walls are bowing and leaking, requiring a costly waterproofing that involves tearing out some roads and utilities to get to the foundations. Plus, the existing parking garages need to be replaced or expanded and the baggage and security systems need to be updated.

Northland councilman Ed Ford, who supports a new terminal but acknowledges strong public opposition, said Kansas City faced a similar decision years ago with its arena.

“Do you keep throwing more money into Kemper? Or build a new arena?” he said, adding that he thinks the city made the right decision to build new.

But Herb Johnson, who retired after a long career as a labor leader for TWA and the Missouri AFL-CIO, said a better analogy is how Jackson County handled the Truman Sports Complex.

“You made it better than it was. Keeping the attributes of the stadiums and building upon that,” he said. “That’s what I wonder couldn’t be done to KCI.”

Finding the money

Much of the discussion and confusion so far regards where the money would come from.

A new terminal would not require a general tax increase –– the airport is not funded by general tax dollars such as property, sales and earnings taxes.

Instead, it is funded solely by the airlines, passengers, parking revenues, concessions, other airport tenants and federal funds.

Here’s how that might play out:

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Ticket prices:

While the costs and financial modeling are preliminary, the project wouldn’t have to translate into giant increases in ticket prices, said John Green, chief financial officer for the Kansas City Aviation Department.

Typically, an airport’s costs are 3 to 7 percent of a ticket price, aviation officials said.

Right now, KCI’s overall cost per departing passenger is about $5, which is low compared with other airports, where costs per passenger can range from $18 to more than $35, Green said.

Mark Perryman, president of Landrum Brown, the aviation consulting firm working on the new terminal plan, suggested that Kansas City’s new terminal shouldn’t result in more than a $10 increase in ticket prices, possibly not even that much. Even that increase, spread over KCI’s 5 million annual departing passengers, would provide $50 million annually for the airport.

“I don’t see that your ticket price structure will go up a lot,” Perryman said.

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Parking fees:

As with many airports, parking is currently KCI’s single biggest annual money source, generating $46 million in 2012, or 43 percent of operating revenues. But parking fees, which currently range from $7 per day in the economy lots to $22 daily for the terminal garages, are not expected to rise by more than a few dollars.

Fees need to remain reasonable or people won’t park there, VanLoh said.

Indianapolis, which completed a $1 billion new terminal project in 2008, has actually seen a drop in its garage parking prices from $22 to $18, although economy lot parking fees have gone up slightly to $9 per day, said airport spokesman Carlo Bertolini.

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Airline costs:

If the new terminal gains traction, the biggest cost will be to the airlines.

“The airlines would see the most significant increase in both terminal rents and landing fees,” Green said.

Right now, KCI remains one of the lowest-cost airports in the country for airlines, and the carriers would like to keep it that way, said Steve Sisneros, director of airport affairs for Southwest, KCI’s biggest carrier. Sisneros said Southwest realizes the existing terminals have security and gate flexibility problems that need to be addressed.

But Southwest also has reservations about the potential cost of a new terminal and how it could be financed.

“We’re neutral on this right now,” Sisneros said. “The size and cost is a concern.”

Aviation officials said they are working with the airlines to keep those costs as low as possible.

“They’re hiring an outside firm to come to the table with them … that works with us on design,” VanLoh said.

Sisneros said the airlines will have a representative later this summer to work closely with the city on its plans.

“We’re not opposed to making improvements to aging infrastructure,” he said, adding that the airlines would oppose anything of a “grandiose scale.”

KCI also receives about $3 million a year from concessions –– among the lowest revenues per passenger of any airport in the country –– but aviation officials expect that would go up significantly with a new terminal.

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Federal funding:

Many new airport projects have received tens of millions of dollars in federal funds. Indianapolis got $120 million and Sacramento got $59 million for its $1 billion terminal. New Orleans is anticipating $97 million for its planned $650 million new terminal project.

Green said his preliminary financial models for a new terminal are conservative and assume only about $30 million in federal grants. He said the department has had a good track record of getting federal dollars, including nearly $27 million in 2010 and nearly $41 million in 2006.

But given the current climate in Washington, even those modest hopes may be excessive.

U.S. Rep. Emanuel Cleaver, a Missouri Democrat who supports a new airport terminal as an economic engine for Kansas City, acknowledges that “the federal government is broke.”

And more than that, Cleaver said the support of U.S. Rep. Sam Graves is crucial because the airport is in Graves’ district.

“The only way this is going to have a chance, and it’s still not guaranteed, is if Congressman Graves is supporting it,” Cleaver said.

And Graves, a Missouri Republican from Tarkio, remains adamantly opposed.

“The fact of the matter is, KCI is very unlikely to get any federal money to redesign the airport,” spokesman Chris Averill said.

“It seems logical that improvements can be made to the existing facility … without constructing an entirely new terminal. There are many pressing problems in Kansas City, but building a new airport is not one of them.”

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Bonds:

To finance renovations or a new terminal, the Aviation Department probably would sell revenue bonds.

But that’s where Kansas City residents would have a vote, as is required by Missouri law.

City taxpayers would not be on the hook if the airport couldn’t pay the debt for the project.

Unlike with the downtown Power Light District, whose debt is costing Kansas City taxpayers $14 million annually, the bond investors in a new terminal project would be at risk if the Aviation Department defaulted.

Of course, aviation officials would never be able to borrow money again. That’s why they’re determined not to let that happen.

They say they will work with airlines and bond companies to structure something that the market will support and that Kansas City can afford or they won’t do the project.

“No airport has defaulted,” VanLoh said. “It doesn’t happen.”

Any decision on a new terminal is months away, after a citizens advisory task force finishes its analysis late this year, and any election probably would not come until late 2014 or even later.

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