Four proposals presented for single-terminal KCI
Kansas City officials now have four different glimpses of what a new KCI terminal might look like and how it might be financed.
A usually sleepy office building near the KCI terminals was flooded on Monday with flat screen televisions, poster board illustrations of airports and scores of people from four companies all trying to impress a selection committee about their ideas for a $1 billion single terminal contract.
There was AECOM, a Los Angeles-based engineering firm that leads the KCI Partnership consortium, which told the committee it could offer a new terminal for a competitive price.
There was Burns & McDonnell, which emphasized both its Kansas City credentials and a unique private financing structure that it believes can get a new terminal opened quickly and for less cost than through issuing airport revenue bonds.
There was Jones Lang LaSalle, which put a premium on convenience with a linear terminal design north of the current Terminal A building that would put parking garages a short walk away and link via a walkway to the nearby Marriott Hotel.
Then there was Edgemoor Infrastructure & Real Estate, which said it could build an economical and convenient airport but was the only proposer that did not offer a view of its plans.
The selection committee now begins weighty deliberations on the proposals, which despite their slick and colorful designs contain dense technical and financial information about the different ideas for a new KCI terminal.
“I believe we got world-class proposals from all four proposers,” said Jermaine Reed, a Kansas City councilman who was on the selection committee.
Reed declined to rank any of the proposals or provide an assessment.
Reed and Jolie Justus, a Kansas City councilwoman who chairs the city’s Airport Committee, said the committee had a goal of providing a recommendation or at least the next steps for their council colleagues to take in a closed meeting on Tuesday.
The selection committee’s work and eventual recommendation is the culmination of a renewed discussion about a November election to see if Kansas Citians want to reshape KCI’s three terminal design into a new single building that City Hall and the civic community has long coveted.
Burns & McDonnell brought KCI back into the limelight — Kansas City Mayor Sly James the year before chose to stop talking about the idea when polling showed the public was not keen on the project — with its offer to design, build and privately finance the project.
What started as a sole source deal for Burns & McDonnell eventually became an open competition. The Kansas City Council will pass along a recommendation to voters, who will likely have the final say on KCI’s future in November.
The KCI Partnership, led by AECOM and also includes Turner Construction, focused its aim on building a new terminal for less than what it said Burns & McDonnell and its team could have made before the project went out to competitive bids.
Its proposal said it could build a terminal that meets City Hall’s specifications and save the city nearly half a billion dollars over 30 years.
“Not more than 6 or 7 weeks ago, this was going to be handed over to another firm without any competition or without much transparency,” Karl Reichelt, senior managing director of AECOM Capital, said after KCI Partnership met with the selection committee. “In our case, what we were super pleased about is we got a chance to bid.”
KCI Partnership hinges its savings projection on an $85.2 million figure contained in Burns & McDonnell’s memorandum of understanding with Kansas City before the competitive bid process.
The $85.2 million represented the maximum annual payment to KCI each year under the first Burns & McDonnell arrangement. That figure would have been part of a complex financing system to pay for a new airport terminal.
KCI Partnership said it could build a $1 billion, 35-gate terminal building with annual payments of $69.8 million. Spread over 30 years, KCI Partnership concluded it would save $462 million.
By midday, Burns & McDonnell sought to douse KCI Partnership’s claim. Burns & McDonnell suggested that the $85.2 million was the upper limit on the annual financing payment and wouldn’t necessarily have reached that ceiling.
It added that its proposal to the selection committee contemplated annual payment for far less than the $85.2 million.
“Our proposal is based on an annual financial commitment from the airlines which could be as low as $58 million; down significantly from the airlines’ maximum annual debt payment commitment of $85.2 million,” Burns & McDonnell said in a statement. “As this is a qualifications based selection, we’ll continue to work with the stakeholders — the airlines, the city and the community — and look forward to developing the right project at the right price for Kansas City.”
Beyond pricing, KCI Partnership said made several specific commitments in its proposal and in its interview, including opening the new terminal in 2021, locking in on a 3.99 percent interest rate and attracting between 30 percent and 35 percent minority- and women-owned business participation in the design and construction of the project.
Reichelt acknowledged that some of those promises, such as the interest rate, could change over the next year if the city negotiates with the partnership as the winning proposal.
“We’re very skilled at building in buffer-like interest rate hikes or hits on the financial model,” Reichelt said.
The KCI Partnership proposal also gives three other options for terminal designs. One is a $1.3 billion plan that, according to the proposal summary, adds an elevated walkway between the terminal and the airline gates that allow planes to taxi underneath. This feature, similar to the walkway from the main terminal to concourse A at Denver International Airport, is thought to improve efficiency.
The two other options are lower-cost alternatives that start with 25 gates and can be expanded later. The KCI Partnership’s analysis of KCI’s air traffic indicated that 21 gates were in use at peak-hour demand, meaning KCI could conceivably operate initially with fewer gates and incur fewer operational costs. KCI Partnership’s projected lowest cost option is $872 million.
“These funds are for business loans, lines of credit, capital leases and other types of business financial transactions that are some of the largest challenges to minority- and women-owned businesses growing their businesses in the community,” said Andrew Vasey, chief development officer for KCI Partnership.
Burns & McDonnell
Three broad themes emerged from Burns & McDonnell’s proposal:
▪ The Kansas City firm, along with its long list of local partners, would stake its hometown credentials on building a well-received terminal,
▪ By crafting a complicated financing arrangement, Burns & McDonnell and its partners could realize substantial cost savings — up to several hundred millions of dollars — by building a terminal faster and with fewer funding requirements compared to using general airport revenue bonds.
▪ That same financing structure protects both the airport and the city from financial risk by maintaining an existing and dedicated stream of revenue to pay for operations and maintenance of the facilities.
The design concept for Burns & McDonnell is meant to address longstanding complaints about the current KCI. The Burns & McDonnell proposal says it can actually reduce existing walking distances from curbside to security.
It goes on to say that a new security system can process more passengers per hour than KCI now allows. For those passengers getting through security, there are more restrooms and concessions. And it adds mother’s rooms and passenger club facilities, neither of which a passenger can find at KCI today.
While Burns & McDonnell is pledging to save money with a faster construction time line, chief executive Ray Kowalik said it would not be a terminal done on the cheap.
“This will be a spectacular airport,” Kowalik said.
To pay for the terminal, Burns & McDonnell’s proposal includes a total $50 million equity contribution from the firm and its financing partner, Americo Life Inc.of Kansas City.
That initial financing, along with a short-term bridge loan during the early stages of construction, would let the Burns & McDonnell begin pre-construction and construction work quickly. That, Burns & McDonnell believes, lets the firm start work on KCI sooner than it would if it had to wait for the issuance of public bonds.
That short-term debt would later be converted into long-term debt at a lower interest rate.
“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 financing proposal acknowledges that private financing interest rates are slightly higher than general airport revenue bonds, but forecasts that it can realize savings through less capitalized interest and lower debt service reserve requirements compared to airport revenue bonds.
The Burns & McDonnell proposal also keeps the airport’s debt service financing and operations and maintenance expenses separate.
Under their proposal, the amount that airlines agree to pay to the airport each year, along with a portion of passenger facility charges, would go toward the new terminal’s debt payments.
All the other ways airports make money — parking fees and concession revenue, for example — would continue to pay for operations and maintenance.
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.
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.
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.
Burns & McDonnell has also pledged to establish what it’s calling a “enhanced construction technology program” with Kansas City Public Schools. The program would offer a commercial construction training program at Manual Career and Technical Center. Burns & McDonnell would hire the first 10 graduates of the program on the KCI project and offer them scholarships at Metropolitan Community College.
Jones Lang LaSalle
Jones Lang LaSalle officials say they have kept their proposal close to the vest until it met with the selection committee because they think their proposal is unique.
In many ways it is. It contemplates building a linear, rectangle-shaped terminal north of Terminal A. That’s a departure from other proposals that look to replace the decommissioned Terminal A.
The JLL-led team includes Gensler Architects, BlueScope Construction, TranSystems and Hensel Phelps.
“We have some very innovative ideas that are a little bit different than what is on the table currently,” said Jim Heeter, former chief executive of the Greater Kansas City Chamber of Commerce who is now a senior adviser with JLL.
By building a new terminal building farther north, it expects to connect to the Marriott Hotel at 775 Brasilia Avenue with a pedestrian walkway.
“We plan a walkway bridge with moving walkways between one end of the terminal to the Marriott,” said Peter Lowes, a member of JLL’s KCI team. “The Marriott effectively becomes an airport hotel, which makes it incredibly marketable.”
JLL also says the linear structure of its terminal building allows for the construction of parking garages just across the street from the terminal buildings.
“The garage locations will be closer to the terminals,” said Tim Hudson, aviation practice leader with Gensler. “You will have shorter distances to get into that facility.”
The proximity of the garages plays into the JLL team’s emphasis on convenience.
The proposal also allows for KCI to expand or contract easily, JLL officials said.
JLL’s proposal didn’t get into specifics when it comes to financing. The team said it would consider a range of different options.
“If someone tells you they are going to charge you ‘this’ for something, I guarantee you that you are overpaying,” said David Matthews, managing director of JLL’s Chicago office. “Our process allows for a full disclosure, open-book process that starts with a budget and includes financing.”
Edgemoor Infrastructure & Real Estate, along with Clark Construction Group, Clarkson Construction and The Weitz Company, submitted a proposal but declined to release depictions and details of their plan like the other three proposers did.
Geoffrey Stricker, managing director of Maryland-based Edgemoor, said he was talking with city officials about what parts of his team’s plan could later be released publicly.
Stricker said his proposal was an “extremely compelling” idea that would seek to maintain convenience for passengers. He said the proposal would include private financing, but declined to offer details.
Councilman Reed, chair of the council’s Transportation and Infrastructure Committee, said he was confident a good selection would be made.
“A world-class city deserves a world class airport,” Reed said.
The council later this week will also try to come up with a ballot measure to meet the Aug. 24 ballot language deadline for a November election on the airport’s future.
That ballot would seek voter approval to move forward with demolition as needed and constructing a new terminal at the airport, either using public airport revenue bonds or some other type of financing, with the money for the project coming strictly from aviation and airline revenues, not general taxpayer dollars.
Some people have said there’s too much public confusion and dissension about what improvements are really needed at the airport, and November may be too soon to try to get voter approval.
Reed said he still thinks November is the best time for voters to make that decision, but the council will get closer to answering that timing question later this week.