Airport’s credit outlook could complicate plans
$1.1 billion addition may have hit a snag
Plans for a $1.1 billion modernization of Pittsburgh International Airport may have hit more COVID19-related turbulence.
Even as the pandemic has indefinitely delayed the start of the massive project, a change in the airport’s credit outlook could further complicate efforts to get construction rolling any time soon.
The Standard & Poor’s rating agency recently downgraded the Pittsburgh International credit outlook from stable to negative, meaning the airport could be facing higher borrowing costs in trying to finance the overhaul.
Pittsburgh International was not the only one to take such a hit. Airports across the country saw similar changes in their credit outlooks as traffic plummeted and flights were slashed as a result of the crisis.
With the change in outlook, some aviation experts cautioned the airport against moving ahead at this time with the modernization, which includes a new terminal for ticketing, baggage claim and security.
“I don’t think you say no. I think it’s really more a wait and go,” said William Swelbar, chief industry strategist for Richmond, Va.-based Delta Airport Consultants.
Blair Pomeroy, a longtime aviation consultant who has been skeptical of the need for the modernization, said the airport is going to face higher costs if it tries to go ahead with a negative credit outlook.
He urged the Allegheny County Airport Authority, which operates the airport, to either delay the project for at least a couple of years or to abandon it altogether.
“You can do vanity projects when the unemployment rate is 3%. You can’t do them when the unemployment rate is 15% or 20%,” said Mr. Pomeroy, a professor of business strategy and international business at the University of Pittsburgh.
The authority took the downgrade in the outlook in stride, saying it really changed nothing at this point. The airport’s credit rating, at A-minus, was not affected.
“We have flexibility to go to the bond market when it’s most advantageous. At that time, we would seek a new rating from agencies before going to the market. Currently, the authority is carrying no bond debt that would be affected by any rating outlook change now,” spokesman Bob Kerlik said.
He added that the goals of the modernization remain the same: to right size and upgrade facilities while stabilizing costs for the airlines.
“Construction is on hold for now due to the pandemic until the time is right to build and go to the bond market,” he said.
“With our design at 60% completion, we are looking at the newest health standards and emerging trends to determine how we can be a leader in the post-pandemic world, including building a facility with public health at top of mind. As part of that, we have convened a best practice working group on public health as part of the project.”
The authority still could face a precarious road ahead as it weighs the timetable for the project.
At the height of the pandemic, the number of travelers at the Findlay airport didn’t make it past the low hundreds on any given day, down sharply from about 13,000 daily.
And in April, passenger traffic plunged 96% compared to the same month last year.
While airlines have been seeing a slow rebound in passengers in recent days, Standard & Poor’s, in a report issued last week, estimated global air traffic still will be down anywhere from 50% to 55% this year.
It predicted the recovery will be more protracted than those associated with the Sept. 11, 2001, terrorist attacks, the 2003 SARS pandemic and the 2008-2009 recession.
And that could be bad news for airports, which count on revenues from the airlines and concessions to make ends meet. Airports also could face continued demands from carriers and retailers and restaurants for fee or rental reductions or deferrals.
Combined, the various issues could force airports to push back major capital spending or expansion plans.
“Given the weak state of the airline industry, any [capital expenditure] that is dependent on higher charges may not eventuate until there is confidence in economic returns through appropriate charges,” the S&P report stated.
That could apply to Pittsburgh International, which plans to finance the $1.1 billion modernization through the fees paid by the airlines.
But to get that funding, the carriers still must agree to new longterm leases. Authority officials were moving to finalize those negotiations when the pandemic hit. Those talks are still ongoing, Mr. Kerlik said.
There has been some good news as of late. American Airlines, for example, announced Thursday it is planning to fly 55% of its July domestic schedule and nearly 20% of its July international schedule compared to the same month last year in response to improving demand.
By the last week of May, American was hauling an average of 110,000 travelers a day, a big jump over the average of about 32,000 a day it carried in April.
However, Mr. Swelbar said most of the gains involve leisure travel, not business, the bread and butter for legacy carriers like American.
“The network guys really need business to come back. That’s the wait and see for me,” he said.
At the same time, the rebound does bring more traffic through airports, “so that’s a good thing,” he said.
Pittsburgh International shouldn’t worry too much about the downgrade in the credit outlook, he added.
“There’s no easier time than now to be negative, and [rating agencies] tend to be negative anyway. They don’t need a lot of help,” Mr. Swelbar said, noting it’s best to take a wait-and-see approach to the modernization.
As currently envisioned, the proposed overhaul includes the new landside terminal, to be tucked between the C and D arms of the airside building, where travelers get on and off planes, as well as a 3,000-space parking garage and new roads.
The authority originally had hoped to start construction this summer.