In approving a revised plan for a $9.5 billion international terminal at John F. Kennedy International Airport, New York Gov. Kathy Hochul and the Port Authority of New York and New Jersey sent a clear message.
Pandemic or not, major projects must continue.
The board of commissioners of the Port Authority, which owns and operates the airport in New York City’s southern Queens, approved a public-private partnership lease agreement at its monthly meeting on Thursday.
Roughly $7.2 billion of the price tag will go toward design and construction costs, said the Port Authority, which owns and operates the airport. The remaining $2.3 billion through private investment will mostly cover financing costs.
The Port Authority approved an additional $1.66 billion on Thursday, raising its own capital funding allocation to $2.9 billion. Port Authority expenses will cover enabling infrastructure including roads, parking structure, utilities and airfield work.
The New Terminal One consortium will cover the full cost of the terminal work. The group includes financial partners Carlyle Group, JLC Infrastructure and Ullico. A joint venture of Munich Airport International and CAG Holdings is the operating and technical services partner to the consortium.
Loop Capital Markets and Magic Johnson Enterprises formed minority-owned enterprise JLC Infrastructure in 2015.
“Most of the terminal projects are being done through P3s,” said Howard Cure, director of municipal bond research for Evercore Wealth Management.
“The Port Authority has really gotten away from the direct financing of terminals. That takes a lot of risk off as far as bondholders are concerned and private consortiums can perhaps do it more effectively,” Cure said. “I’ve seen it in a lot of big projects so that’s nothing new.”
The 2.4 million square foot terminal will anchor the south side of JFK. When completed, the new Terminal One will be the largest international terminal at the airport.
Terminal One will be built on the sites of the current undersized and outdated Terminal 1, the aging and obsolete 59-year-old Terminal 2, and the site of the former Terminal 3, demolished in 2013.
Other work is going on at JFK as well. On Wednesday, two days after Hochul’s Terminal One project announcement, Port Authority and Delta Airlines officials broke ground on a $1.5 billion expansion and modernization of Terminal 4.
“The time to get large infrastructure projects done is now,” Hochul said.
Construction of the new terminal is scheduled to begin in mid-2022 and the first phase, including the new arrivals and departures hall and first set of new gates, is expected to open in 2026.
The project was initially scheduled to break ground in 2020. Due to the severe impact of the COVID-19 on air travel, the deal needed restructuring.
Financial terms include fixed rents to the Port Authority plus 50% of concession revenue, subject to minimum annual guarantees per passenger.
Roughly one-third of fixed rents and the concession share may be deferred, but not abated, during the ramp-up period from 2026 to 2033, with 7.5% interest accrued and full repayment of any deferrals by 2038.
No dividends would be paid to equity investors while any deferrals were outstanding, according to Port Authority chief development officer Derek Utter.
“The flexibility of rents is a key component in the deal,” he told the board.
Utter said the deal financing could close in the first or second quarter of 2022.
“There is one more major contingency outside of our control and that is how the financial markets are responsive to this transaction,” board vice chairman J.H. Lynford told Utter. “Because between Omicron and the Federal Reserve [and] I don’t know what exogenous factors, I just want to be understood that it’s not your fault if for some reason the bonds are not sold.”
Full completion is expected around 2030.
The airport opened in 1948 as New York International Airport, more commonly called Idlewild, as it was built on the grounds of the former Idlewild Beach Golf Course. The airport took on JFK’s name in December 1963, one month after the president’s assassination.
While COVID-19’s Omicron variant poses an obstacle to global airport recovery, it is too early to say if it will be a significant disruptor to international air traffic, Fitch Ratings said.
“Testing requirements have become more stringent, which could dampen the recovery prospects of airports that rely on international travel,” Fitch said. “A material slowdown in air travel would maintain pressure on global airport revenues and credit quality.”
Passengers at JFK plummeted to 16 million in 2020 compared with more than 60 million in 2019.
Mitchell Moss, director of New York University’s Rudin Center for Transportation, said the timing is ideal for this project.
“Rick Cotton is doing the right thing at the right time,” he said of the Port Authority’s executive director. “He is one of the boldest people ever to run the Port Authority. He knows that you have to build in tough times to prepare for the bad times.
“This is what the Port Authority should be doing.”
Moss cited the essence of the airport to the region.
“Kennedy Airport is much more important than the Moynihan terminal,” Moss said, referencing the new train hall at Penn Station. “The airport is the gateway to the region.”
The announcement also enables Hochul, New York’s governor since late August, to put more of her stamp on major infrastructure projects.
“She’s smart enough to understand that she’s governing like it’s the Empire State,” Moss said. “She’s shown that she’s transitioning past her Buffalo roots.”
Fitch expects U.S airports to stay resilient due to the strong domestic travel market. The U.S. market is largely based on domestic travel, and air traffic continues to improve, reaching 84% of 2019 levels in November 2021.
Many airports reached 90% or more of 2019 levels in recent months. “Border closures with certain countries would only affect certain U.S. international gateways and only to a limited extent,” Fitch said. “Most of the largest international gateways have only 30% international travel and are diversified in markets served.”
While officials often cite shiny new terminals in pitching these projects, the roadway improvements are vital, according to Moss.
Signage in the feeder Van Wyck Expressway, which carries Interstate 67, is “50 years out of date,” Moss said. “If you miss an exit, you’d better have a good phone.”
“Robert Moses never built a very good road into it,” Moss said of the city’s controversial uber-commissioner of yesteryear.
Speaking to reporters after Thursday’s board meeting, Cotton said the authority is working with New York State’s Department of Transportation, which is undertaking a major rebuilding of the Van Wyck.
That includes adding a lane in each direction and rebuilding and expanding approaches, with better signage.
“We’re really improving all aspects of the frontages,” he said. “Arriving passengers can access taxi, ride-share or private care
Plans also call for increased capacity on the JFK AirTrain and expanded parking garages.
The AirTrain connects the airport to the New York City subway in Howard Beach, Queens, and with the subway and Long Island Rail Road in Jamaica, Queens.
“That is a very important contribution to getting to the airport,” Cotton said.
Also on Thursday, the Port Authority board approved a $7.9 billion operating budget for 2022, which Chief Financial Officer Libby McCarthy said reflects “ongoing recovery and ongoing challenges” from COVID-19.