Terminal Financing – Part 3

In the Kansas City Star’s response to the Show-Me Institute’s latest post about the future of Kansas City International Airport (MCI), Dave Helling suggests that city officials indicate paying the bill for a new, $1.2 billion MCI terminal “would not be impossible.” Despite their confidence, Helling himself seems skeptical, and rightfully so. The details of how financing would work are highly contingent and require extensive costs for any prospective airport user. Far from saving costs, as officials with the Kansas City Aviation Department claim, the terminal plan endangers MCI’s financial sustainability and its competitiveness.

Helling outlined a number of ways that MCI could raise funds to repay $70 million in debt. These options include some out of the Aviation Department’s control, such as Congress raising the Passenger Facility Charge (PFC) from $4.50 to $7.50 or $8. Even then, the airport still needs to find an extra $40 million per year. As the Show-Me Institute stated, large increases in cost per passenger endanger bond ratings, and relying on airlines for the bulk of debt repayment exposes the airport to carrier bankruptcy. To make matters worse, MCI will need more capital improvement projects in the years after the airport is completed, which will add to the debt. In fact, the airport is still responsible for $274 million from its renovations in 2004. If the Aviation Department persists in consistently increasing its long-term debt, it will reduce its ability to borrow at lower interest rates and make MCI one of the most expensive airports in the country.

The terminal plan also will make MCI less competitive. Helling states that by increasing PFCs and raising parking fees, costs per passenger will only rise by an additional $8, not $14. This simply shifts part of the cost per passenger from the airlines to a government charge. No matter how the airport collects the fees, MCI will still go from one of the cheapest to one of the most expensive medium-sized airports in the country. This will increase costs for passengers, thereby reducing demand for MCI as people economize on tickets or choose other transportation options. As for parking fees, MCI’s current layout and rates facilitate parking. It would not be surprising if altering the configuration and increasing fees would force passengers to seek alternative transportation to and from the airport. This, in turn, would require much more than a 20 percent rate hike to generate 20 percent more revenue.

The Aviation Department’s plan decreases the sustainability of MCI, reduces its competitiveness, and raises prices for users. It does not save money or increase capacity. So why not consider a less ambitious plan, seek out private financing, or seriously consider a renovation of the current configuration? Indeed, it may be sensible simply to put the decision on the backburner. That would leave time for federal funding to become available, observe whether Congress raises the PFC, and give the Aviation Department time to reduce its current debt load. In any case, city government officials must explain how their plan would work and why any of this is a good idea in the first place.