August 7, 2014

Project costs at D/FW Airport are up $650 million

Terminals A and C are both being renovated as part of the massive reconstruction project.

A longer construction schedule, more asbestos abatement and a new plan to restore more gates in Terminal C has boosted the budget for Dallas/Fort Worth Airport’s terminal renovation by $650 million to $2.7 billion.

“Since we did the original [terminal renovation] budget in 2010, there has been over 30 scope changes to the entire project,” CEO Sean Donohue told the airport board Thursday.

The airport added a new parking garage to Terminal A and American has requested renovation of gates in Terminal C that were originally planned for demolition. Asbestos abatement in the terminals is also adding $98 million to the existing budget.

“Back in 2010, when we planned the construction, we planned it under a no-growth scenario, and that told us we could shut down eight to 10 gates at a time,” Donohue said. “We’ve been only able to shut down four to six gates at a time.”

The construction on Terminal C cannot begin until all of Terminal A is completed because American Airlines, the airport’s largest tenant, is at full capacity in those terminals. Extending the construction schedule by two years, with completion now expected in 2020, is adding $192 million to the budget.

As a result of the increase, the airport will issue an additional $450 million in bonds. It has about $6 billion in debt from the construction of Terminal D, its Skylink train and the renovation of Terminals A, B and E. The airport said it does not expect the new bonds to affect the airport’s bond ratings or have a financial impact on the airport’s passengers, owner cities or the public.

“It’s always concerning whenever anybody has big debt but this was soundly done,” Fort Worth Mayor Betsy Price said. “They are all very much justifiable changes.”

The bonds will be paid for by increasing fees and terminal rents for airlines. American’s board of directors has approved the new $2.7 billion budget.

“We believe the improvements will provide our customers a great travel experience and ensure DFW remains a premier hub for our operations,” American spokesman Matt Miller said.

In a report issued Thursday, Fitch Ratings said that DFW’s debt is expected to peak at $7 billion by 2016 and that its cost per enplanement is expected to reach the $12-$14 range, up from $7.20 in fiscal 2013.

The credit rating agency said that “revenue growth in terminal concessions and commercial development activities will be instrumental to preserving the airport's financial profile.”

When the multiyear $1.8 billion terminal renovation project was started, the airport expected it to take eight years and estimated no growth from its airline tenants, which were struggling with high fuel prices and a soft economy.

Instead, the regional economy rebounded faster than expected, causing construction and material costs to increase significantly. The airport has also added several new international carriers to Terminal D and American has emerged from bankruptcy with a stronger network and financial position.

“We all know that [the terminal renovation] is necessary,” Donohue told the board Thursday. “We have a 40-year old facility here and we had to renew it.”

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