The Enormous Redevelopment of JFK Airport Follows a Circuitous Path Through Loan Markets

Issuing $2 billion in bonds for the new Terminal One at New York's John F. Kennedy International Airport was unusual because of the measures that were taken to reach this point, although it is not uncommon to use municipal bond financing for U.S. airport construction. The previous year, a group called New Terminal One obtained $9 billion in financing in a unique public-private transaction that was part of a broader $15 billion overhaul of the airport. 


The agreement included a $6.5 billion bank loan, the largest ever granted for an airport terminal. However, it took several years and two restructurings to secure the financing due to volatility and illiquidity in the municipal bond market. JFK, once regarded as one of the most impressive airports, had become a symbol of chaotic and neglected U.S. airport infrastructure. Some people believe that the unique financing package can create momentum for public-private partnerships for U.S. airport terminal projects. JFK's position is unique because it is the largest airport in the United States' most populous city, making such a deal appealing to private investors. "We haven't seen many more requests come in for these types of airport-related financings. Most of them that are done within the U.S. are done as municipal financing," said Andrew Giudici, head of project finance and infrastructure at rating agency KBRA. New Terminal One, or NTO, a consortium of labor, operating, and financial partners at JFK, was able to secure $6.5 billion in bank loans, but the terminal's construction costs were meant to be divided between bank loans and municipal bonds. 


The deal had to be restructured two separate times due to volatility and illiquidity in 2021 during the pandemic period and again after Russia invaded Ukraine in February 2022. Richard Hoskins, managing director of investment firm Carlyle’s Infrastructure team, stated, "If we'd been reliant purely on a muni bond issue we wouldn't have been able to get to close, then the project gets delayed, the costs go up and the traveling public suffers." JFK's passenger terminals served more than 62 million passengers in 2019, generating $51 billion in sales. The route between JFK and Heathrow, London's largest airport, is considered the most lucrative airline route globally. While most airports experience a decline in traffic during economic crises, JFK is less affected, and then it bounces back more quickly, according to Carlyle. "There's really not another market that exists in the United States that is ripe for private investment like New York," said Annie Russo, chief political and congressional strategy officer at the Airports Council International–North America, an airports authority organization. Over 40 institutions led by financial sponsors Carlyle, Ferrovial SA, JLC Infrastructure, and Ullico financed the $6.5 billion loan. The bond sale was oversubscribed by 7.7 times even after the group increased the size of the transaction by $500 million to $2 billion due to demand. 


The consortium expects to continue refinancing through the municipal bond market. The risk for JFK with private investment is that the additional cost of repaying investors could raise expenses for air carriers, said Russo. Airports aim to keep the "cost per enplaned passenger" or CPE low to make it more attractive for airlines to want to fly there. In 2022, JFK's CPE was $32.67, the highest among the largest 30 U.S. airports, with nearby Newark Liberty and LaGuardia airports ranking second and fourth, respectively, according to Federal Aviation Administration data. By contrast, Dallas Fort Worth International Airport, also one of the busiest American airports, is financing a $5 billion expansion, with 80% coming from traditional municipal bond debt, according to CEO Sean Donohue. "Even with this $5 billion program, we are going be one of the most cost-efficient airports in the U.S. in terms of big major hubs," he said. Dallas's CPE was $12.19 in 2022. JFK's NTO bank financing gave sponsors time to sell bonds later, said Nanda Kamat, head of infrastructure at Mitsubishi UFJ Financial Group (MUFG), one of the financial advisers on the bank deal. The posters plastered amid construction give passengers some idea of the goal, reading: "JFK can take you places. The 1990s will no longer be one of them." However, passengers hustling through JFK's cramped terminals are unlikely to know much about the complicated financing efforts.

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