Decision to Add More Gates to New Terminal Is Causing Delay, But Debt-Only Financing in Public-Private Partnership is Expected to Yield $90 Million in Savings.
KCI Project Details
Kansas City International Airport is being redeveloped into a single-terminal facility. Here are the details:
- Purpose: To enable KCI to efficiently meet modern-day security needs and accommodate more flights and higher concession revenue
- Scope of Project: Demolition of three existing terminal buildings and construction of a new 39-gate terminal
- Project Cost: Original estimate $1 billion; cost is being revised due to recent decision to add 4 gates
- Project Timeline: Originally scheduled to open November 2021; timeline for opening is being revised due to recent decision to add 4 gates
Main Players Include:
- Edgemoor Infrastructure & Real Estate
- Clark Construction
- Clarkson Construction
- Skidmore, Owings & Merrill
- Weitz Company
After years of debate, Kansas City, Mo. is on its way to building a brand new terminal at Kansas City International Airport that will meet needs for modern-day security and boost the potential for more flights and higher concession revenue.
Voters in November overwhelmingly approved a plan to demolish KCI’s three outdated terminals and replace them with a single terminal, which previously was estimated to cost $1 billion.
The vote overcame resistance from those who said they liked the fact that the existing airport, which opened in 1972, offered a short walk to departure gates. But the current setup, which is down to two terminals after one was mothballed, does not accommodate efficient security clearance, convenient access to concessions and room for airlines to expand.
“This is an airport that was built before there was a need for any security,” said Brett Snyder, writer of the Cranky Flier airline industry blog. “Even if you wanted to keep the facility that you have in place, you would still need to put a ton of money into rehabbing the existing terminals.”
Snyder also noted that the new single terminal configuration won the support of Southwest Airlines and other carriers that serve KCI. “If you’re an airline at Kansas City and you want to add service, you can’t really add it today,” he said.
Southwest Airlines spokesman Dan Landson said Southwest “ultimately determined that it would be cheaper to build a new facility with modern enhancements such as more restrooms, larger hold rooms, more concessions, and infrastructure that would be able to handle projected growth. We are happy that the Kansas City voters approved the project and we know they’ll be proud of the new facility once it opens in the early 2020s.”
Kansas City Director of Aviation Pat Klein said one of the things that helped win voter approval is the fact that the new terminal it will be built through a public-private partnership. Klein said the P-3 arrangement made it easier for voters to understand that the project would bear no risk to taxpayer dollars.
“Explaining to the citizens what the project was and what it wasn’t was really important,” Klein said.
The city is working with a team assembled by Edgemoor Infrastructure & Real Estate, based in Bethesda, Md.
Founded in 2001, Edgemoor is a private developer of public infrastructure. “Our role is to provide turnkey development services for clients,” said Geoffrey Stricker, Edgemoor’s managing director. “This is our first airport project, but we’ve done a lot of other complicated infrastructure delivery projects. We typically will rely on the expertise of our design-build team to bring a lot of the sector specific experience.”
Edgemoor is a wholly owned subsidiary of Clark Construction, which also is based in Bethesda, Md. The team assembled by Edgemoor includes Clark Construction, Kansas City-based Clarkson Construction and the Weitz Company, which is based in Des Moines, Iowa.
Weitz has worked on many P-3 development projects around the country, said Executive Vice President Jim Wells. “They’ve worked very well. Not every project is appropriate for P-3, but where the demarcation is very clean and clear it makes a lot of sense. In the case of the airport, it’s going to be very clear that everything affiliated with this new terminal was done by the Edgemoor team.”
Clarkson Construction Chief Engineer Stephen Kellerman said the P-3 model is “the way the market is going. Funding continues to get tight from the public standpoint, so I think finding people who are willing to invest in infrastructure is the way things are going to continue to trend. The P-3 mechanism obviously brings the financing in.”
Landson said Southwest also has worked on a variety of P-3 projects. “We find that working with P-3s often can speed up delivery time and offer a smoother work flow from initial conception to the ribbon cutting,” he said.
On April 12, officials with Kansas City and airlines that serve KCI announced that the new terminal will open with 39 gates instead of the 35 originally planned, due to growth in passenger traffic exceeding earlier forecasts. While the expansion is seen as good news for Kansas City air travel, it pushes the opening of the new terminal beyond the previously scheduled date of November 2021.
Edgemoor says it must go back to the drawing board before a new opening date can be determined.
“We’re working through that now,” Stricker said. “Our plan is to be able to report back to the stakeholder groups in about 45 to 60 days on when we think the new targeted delivery date is. Obviously there are a lot of factors involved in how we sequence work and what gets done when, and whether we choose to ask the construction company to perhaps work double shifts or work on weekends to make up some time.”
Stricker said Edgemoor will present an updated cost estimate for the new terminal, to reflect the additional gates, around the same time.
Financing the new KCI
Edgemoor has committed to debt-only financing that is projected to yield $90 million in project savings.
“When you look at the pricing that was put forward in the original RFQ based on 2015 dollars, the difference between the annual payment of a debt-only solution vs. a debt-plus equity solution was about $3 million a year over 30 years,” Stricker said. “All of that savings accrues to the aviation department and the airlines.”
Edgemoor is expected to use conduit financing, which enables a private company to sell bonds through a public agency. In this case, the bonds will be issued by Kansas City’s Industrial Development Authority.
The debt will be backed by airport revenues, Klein said. “This is all airport dollars. It’s not general tax dollars.”
But could the delay send a negative signal to the investment market? Stricker thinks not. “There is tremendous demand out there from an investor perspective for infrastructure capital,” he said. “Therefore we are very bullish on the receptivity of the marketplace and how they’re going to react to the deal when it comes to market.”
Klein does not expect the delay to crimp financing for the new terminal, but he said the cost of the project could go up a bit if interest rates rise before financing is closed.
Stricker agreed that interest rates are likely to trend upward in coming months, but he doesn’t think that will dampen investor demand for the deal. “Even if rates rise 10, 15, 25 basis points in the next six months, we’re still at a point where rates are far lower than they’ve been in decades,” he said.
In addition, Stricker said, the United States is facing huge demand for infrastructure improvements and “the appetite for investors to invest in infrastructure is at an all-time high. So we expect to get very favorable pricing and demand when we come to market with this transaction later this year.”
Clarkson Construction’s Kellerman said “if you look around the country, there’s significant investment in airports, in new terminals or upgrades to existing terminals. I don’t see anything tailing off.”
Snyder, the Cranky Flier blogger, said another incentive to invest in the project is the prospect of higher concession revenues in a terminal that offers travelers more opportunities to spend money. “Anything that increases revenue is good news,” he said. “You should see an immediate jump just by having an adequate level of concessions. That’s undoubtedly one of the things that they’re looking for.”
The risks involved in the project will fall to Edgemoor and its team members, but they said that’s a normal part of doing business in the infrastructure world.
“The risk Edgemoor takes as the developer is, we’re going to guarantee up front when we sign the final development agreement a price and a schedule,” Stricker said. “If there are any cost overruns, that risk is borne by us. If we deliver it late we pay penalties to the client.”
Wells said “the key, and that’s being followed at KCI, is to allocate the risk to the right places. On most of these, we take on the design and construction risk. That is what we’re experts at so we manage that.”
And in a P-3, Wells said, “we take that risk for the client off the table way earlier.”
Klein praised Edgemoor for its collaborative approach toward the project. “They didn’t come in and tell us exactly what they were going to do. They wanted to hear from us. That’s why they had nine meetings with the community. They want to make sure it’s a local project, so local companies will get work and local workers will get work. They’ve been good partners so far.