Not All Airport Bonds Fly
The Branson Airport, derided by Kansas City’s City Council Transportation Committee Chairman Russ Johnson as a stealer of market share from Kansas City’s own airport, is struggling to make some bond payments.
According to The Bond Buyer newspaper:
Branson Airport LLC previously defaulted on terms of a forbearance agreement and faced possible bondholder enforcement action absent a new agreement. The trustee recently posted an amended and restated forbearance agreement dated April 22. It extends a June 30 expiration this year to June 30, 2014.
There is a huge difference between the Branson and Kansas City airports, though. Branson is America’s only private commercial airport, so there is no way taxpayers will be on the hook there. (As an aside, with Southwest Airlines recently entering the Branson market, we are optimistic that this important experiment will succeed. We are certainly rooting for it. If it does not, well, risk is a part of free-market capitalism.)
What would happen if the Kansas City airport similarly failed to meet its bond obligations? In a story about the airport for The Pitch, Steve Vockrodt wrote:
The city would not be on the hook to make up the difference if the airport didn’t produce enough revenue to cover bond payments. Bondholders would be screwed on their investments, but so would the airport’s reputation when it wanted to issue bonds in the future.
Vockrodt is correct, but it is unlikely that Kansas City’s leadership championing this project would sit by and let the airport default. For example, Kansas City recently refinanced debt incurred by the Citadel development scheme, which was never actually built. (Talk about a bridge to nowhere!) We’ve already written about how the city is on the hook for the Power & Light District. Like the airport, the city is not legally required to make the Power & Light’s Tax Increment Financing (TIF) payments. However, it has chosen to. It is therefore reasonable to expect that if a new MCI terminal fails to generate enough cash to repay its debts, Kansas City would reach into its general funds to make up the difference. In other words, the city will take money currently spent on essential city services and divert it to pay for the new airport.
Other airports have failed to live up to the fantastic expectations of development boosters. Cincinnati’s traffic dropped as ticket prices rose. Kansas City has enough financial drains, our airport need not be one of them.