San Diego Airport Is Latest Snazzy Makeover Financed by Bonds

San Diego International is joining the parade of airports getting an upgrade, bringing a little life to a once-busy sector of the slowing municipal-bond market.

(Bloomberg) — San Diego International is joining the parade of airports getting an upgrade, bringing a little life to a once-busy sector of the slowing municipal-bond market.  

An offering of $1.13 billion by the San Diego County Regional Airport Authority, its first in almost two years, will finance an overhaul that will add 11 gates to a new Terminal 1, bringing its total to 30. That’s almost half of the 62 gates that will be available at the airport when the new terminal’s makeover is completed. 

The revamp will include new amenities that are becoming de rigueur as airports nationwide compete for customers in a post-pandemic travel boom. Over the next five years, the airport will add an outdoor patio where waiting passengers can gaze out on San Diego Bay, up to two airline or common-use lounges, plus a new 5,200-space parking plaza and a second taxiway for jets. 

“We are constrained by our one runway, but we are expecting growth,” the Authority’s Chief Financial Officer Scott Brickner said in an interview. “So in order to create that exceptional airport experience for our community and around the world, we’re looking at doing an expansion.” 

The Terminal 1 project is expected to cost about $3.5 billion, according to roadshow documents posted on MuniOs, with 19 gates scheduled to open in the summer of 2025 and the rest by the end of 2028. 

The bond sale joins a growing list of borrowings by airports, and the debt load is expected to get bigger. US airports need $151 billion over the next five years to meet infrastructure needs, according to the Airports Council International-North America. 

Already this year, airports in Portland, Oregon, Washington DC  and Los Angeles have visited the municipal market, with more such deals in Charlotte, North Carolina that priced Thursday, and Minneapolis-St. Paul in Minnesota that will price next week.

Some of the urgency comes from the increased traffic at airports as pandemic restrictions fade. In San Diego, for example, enplanements for fiscal year 2023 were back to about 96% of fiscal year 2019, according to roadshow documents. 

Market Slowdown

The demand for improvements has run headlong into the rising cost of borrowing after the Federal Reserve began increasing interest rates 18 months ago to arrest inflation.

Sales of US airport debt are down about 64% so far this year when compared to the same period of 2022. Offerings in the broader municipal-bond market are down about 10% year to date, data compiled by Bloomberg showed.

Read more: Summer Travel Boom Reignites Airport-Bond Sales After Drought

“Airport issuance usually starts the year slowly but it has picked up through the summer,” said Stephanie Tomblin, head of municipal transportation at Jefferies, who is managing the deal.  “That’s a function of when people have their financial statements, year-end data, those types of things.”

The airport authority expects good demand for the bonds when they price, currently scheduled for Oct. 3.

“We are not in the market that frequently,” Brickner said. “It’s a sizable deal for us. It’s just a very exciting time here in San Diego and a great reason for issuing debt.”

–With assistance from Rheaa Rao.

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