Public airport revenue bonds are viewed as the traditional and cheapest way to finance airports, but Burns & McDonnell says in its KCI proposal that its private financing and fast-track construction approach can save hundreds of millions more than using airport bonds.
At the same time, Burns & McDonnell says it can reduce existing walking distances from curbside to security, process more passengers through security per hour, offer more restrooms and add both mother’s rooms and passenger clubs, neither of which exist at KCI today. The proposal would also more than triple the square footage of concession space available to passengers beyond security checkpoints.
The Kansas City engineering and construction firm revealed its technical and financial proposal for the $1 billion KCI terminal project on Monday following its presentation to a selection committee. The committee is evaluating pitches from four different teams vying for the contract to carry out one of the city’s largest public projects.
Burns & McDonnell’s proposal forecasts that, while private financing carries marginally higher interest rates than airport revenue bonds, the firm can realize savings in the long run due to a shorter construction time line and lower funding requirements for debt service reserve and capitalized interest.
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Burns & McDonnell is betting on starting construction quickly thanks to a $50 million equity contribution from the firm and its finance partner, Kansas City-based Americo Life Co. The plan would also enter into short-term construction financing, which would later be converted into long-term debt.
The bottom line: Burns & McDonnell says it can work faster and cut overall costs associated with public financing options.
“This bridge financing will allow certain aspects of construction to commence well before a time that would be feasible under a publicly financed project model,” Burns & McDonnell’s proposal says. “This approach will allow the project to be completed on a more timely basis, which will result in lower overall financing costs, because of the enhanced overall construction time line.”
Burns & McDonnell’s team has support from two powerhouse financial firms. J.P. Morgan & Co., the international banking giant, and BlackRock, the world’s largest asset manager, both wrote funding support letters for the KCI project.
The finance proposal doesn’t commit to a precise terminal dollar figure; the Burns & McDonnell team doesn’t believe that an overall figure is reliable until it can reach an agreement on the full scope of the project with Kansas City and the airlines that use KCI.
The Burns & McDonnell plan gives a range of project costs, ranging from $750 million to $1.05 billion. That translates into annual commitment from the airlines ranging from $58.6 million to $72.7 million, based on current market conditions.
The airlines that use KCI had previously committed to a maximum of $85.2 million in annual payments to an airport funding plan.
Under the Burns & McDonnell plan, those annual payments from the airlines, along with a portion of passenger facility charges, would go directly to pay for debt service and return on equity. Meanwhile, other airport revenues — parking fees, concessions, fuel charges and the rest of the passenger facility charges — would pay for operations and maintenance of the terminal.
Burns & McDonnell believes its financing model is unique and insulates the airport from risk. The financing proposal would lead to a 7 percent to 10 percent return on equity for the Burns & McDonnell team and its investors.