Missouri airport first to use new AAAE financing

 - May 21, 2008, 11:09 AM

The Springfield-Branson Regional Airport (SGF) in Missouri has become the first borrower under a new $300 million airport projects pooled loan financing program created by the American Association of Airport Executives (AAAE).

Not only will the approximately $34.5 million loan pay for runway and taxiway improvements, a second ILS and a new airfield electrical vault at SGF, but $1.2 million of it will be used to pay off a note for the purchase of the Air Park South Airport (2K2) in nearby Ozark, Mo., which will be rehabilitated and used as a general aviation facility.

AAAE has sold $300 million in nonalternative minimum tax (AMT) bonds to finance its new capital-projects loan program, whereby airports may take out loans to finance airport improvement projects to benefit the public.

The loan pool was created with financing team partners George K. Baum & Co. and Public Finance Associates (PFA) to provide individual air carrier and general aviation airports with low-cost and efficient financing for qualifying projects to be financed over the next three years. Eligible projects are those that are not considered private activities, such as a terminal or maintenance facility for a specific airline.  

Under the program, sponsored by AAAE and administered by PFA, individual airports are eligible to borrow a minimum of $1 million for projects that qualify for tax-exempt financing. Interested airports may complete a demand survey at no cost or obligation until the pool funds are drawn down in the form of a loan.

However, even if an airport is approved for the program, there is no obligation to take out the loan. Borrowers may reserve pooled funds in anticipation of future needs for up to three years.

“This AAAE program offered another financing vehicle with several advantages for us to use,” said Rob Hancik, director of aviation for SGF. “We didn’t have to go to the local voters as we would with a traditional general obligation bond and it saved us $350,000 in issuance costs that we would have paid under a standalone bond sale.”

Springfield will repay the loan over a 19-year term, using both general airport revenues and a $30.1 million, five-year letter-of-intent (LOI) from the FAA. “This is a great financing tool for an airport our size and for airports with smaller projects that might cost less than $35 million,” Hancik said. “The financing requirements with this loan are not as limiting as the requirements with many other sources of funds; the loan provides us more flexibility.”

Spencer Dickerson, AAAE’s executive vice president, said a substantial number of airport executives had voiced a strong desire to borrow through the program. A demand survey of AAAE members received approximately 80 responses, the majority of which demonstrated interest in borrowing from the pool. Another 15 to 20 airport executives informally said they would consider applying for a loan.

Dickerson said the “survey responses allowed us to move forward” with the bond issue. He pointed out that airports nationwide experience a total capital funding shortfall of $2- to $4 billion a year. The bond pool funds could help address that shortfall, he said.

But the bonds were sold without a single airport agency having signed up for a loan or even having begun discussions on acquiring one. In fact, Philip Bennett, president of PFA, said marketing of the funds would probably not begin until next year.

“We think there will be significant economies of scale for this innovative program,” said AAAE president Charles Barclay. “With [a recent report] indicating that airports nationwide plan to issue $29 billion in new debt over the next five years to bolster airport capacity, we believe this unique program will benefit airports seeking additional capital financing.”

The program also offers airports an alternative to financing from internal cash flow, lease-company financing and bank debt, as well as other forms of tax-exempt debt. For airports that traditionally finance expenditures from internal cash flow, this program offers an opportunity to invest the cash that otherwise would have been used, at a yield in excess of the loan rate.