Airports across US with $151 billion in needs set to storm bond market

US airports are set to storm the municipal-bond market in the weeks and months ahead to raise billions of dollars for upgrades and fixes they can no longer put off as travel surges to new highs.

At the urging of airlines, facilities across the US are increasing not only runway capacity but also amenities at new or renovated terminals, with plans for shopping areas and lounges as traffic reaches records. That’s on top of basic infrastructure maintenance.

Already this year, operators of airports in cities from San Francisco to St. Louis have come to market with $3.5 billion of debt, according to a June 3 report by Ramirez & Co. Heavy volume through September and another wave in December will push the total for the year to $21 billion, close to the pre-pandemic peak, the municipal underwriter forecast in a report released this week.

“Airports are experiencing in some ways a renaissance,” Peter Block, managing director for credit strategy at Ramirez, said in an interview. “Things are changing. A lot of the upgrades aren’t to expand the amount of gates. They are being done to diversify airports’ revenue.”

While the pandemic and higher interest rates have held back issuance, infrastructure priorities never went away. US airports need $151 billion in infrastructure upgrades through 2027, according to Airports Council International-North America. Those fixes and improvements may be even more necessary as traffic rebounds. The US Transportation Security Administration forecasts passenger volumes will rise as much as 10% this year above the record set last year.

“In a brutally competitive industry, airlines want nice terminals and good passenger experience,” said Pat Luby, municipal strategist at CreditSights Inc. “It was so dramatically oppressed by the pandemic. Airports and the airlines were mostly concerned about keeping the lights on and a lot of capital improvements were delayed.”

Issuers that haven’t come to market in a few years such as the Burbank-Glendale-Pasadena Airport Authority have returned. Among more regular borrowers, the New York Transportation Development Corp. said in a filing last month that special facilities revenue bonds are under consideration for the John F. Kennedy International Airport New Terminal One Project.

“Most airports have pent-up infrastructure needs,” said Andrew Rountree, vice president for finance and chief financial officer for the Metropolitan Washington Airports Authority, which oversees Washington Dulles International Airport and Ronald Reagan Washington National Airport. The authority plans to sell nearly $830 million for upgrades this week.

“For us, we continue to anticipate growth at Dulles International,” he said.

Federal pandemic relief funds were a vital resource for many US airports but represented less than half of the more than $40 billion lost by these facilities in the fallout from Covid-19, Vikram Rai, head of municipal markets strategy at Wells Fargo & Co., said in a report on Monday, citing Airports Council International data. While that is leading many airports to issue more debt, even if passenger traffic slows along with the economy, they have “enhanced their credit buffers over the past two years,” he said.

The sector collectively has seen no downgrades in the last year, and excluding the car-rental portion, 24% of airport ratings now above pre-pandemic levels, said Kurt Forsgren, a managing director for US public finance at S&P Global Ratings. Municipal issuers regularly sell bonds for large hubs but debt for smaller and medium-sized airports such as the roughly $723 million sale for Burbank-Glendale-Pasadena Airport Authority is notable this year, Forsgren said.

“Airports aren’t waiting for interest rates to come down. They see the need to go to market,” said Alice Cheng, a municipal credit analyst at Janney Montgomery Scott. Cheng said she’s noticed airports, especially smaller ones, with the strongest growth and those seeking to strengthen infrastructure to address climate change come to market. 

Last week, St. Louis, Missouri sold $286.6 million for its airport. 

Issuers of all stripes are flocking to the municipal market now to price deals ahead of the US presidential election in November, said Simone Santiago, a managing director at Morgan Stanley Investment Management. That may further lift supply that has already risen 38% to $195 billion in 2024, according to data compiled by Bloomberg.

“As an issuer it would be in my best interest to front run a lot of these deals prior to the last quarter of 2024 just because of the increase in volatility that we are expected to see during the fourth quarter of 2024 during the election,” she said.