The media show yesterday at Kansas City International Airport was impressive. Especially for how they were able to get that many people in suits and dresses for a “hastily-called” press conference. The main topic of course, was the proposal from Burns & McDonell to privately finance a new single terminal at KCI.
The mayor’s sales pitch can be summarized by saying that since the city is now guaranteed no financial risk, the project can finally move forward. I must respectfully disagree that “financing” was a major issue to begin with. Opponents of a new single-terminal have been more concerned about convenience issues, loss of security advantages per TSA by going to a single checkpoint, rising costs to airlines and passengers, etc..
The push-back on financing was in response to the claim that the “airlines are paying for it.” This mantra has been repeated over and over as if the airlines are getting together and writing a check each year to pay off our bond debt. In reality, they agreed to pay increased rent that would cover most of the anticipated debt load during the term of their lease. However, the lease term is not as long as the bond term and is subject to renegotiation. Thus, while there is a clause that if an airline pulled out of KCI, the remaining airlines will make up the difference, there is nothing to prevent others from pulling out under the burden of increased costs and/or renegotiating the lease to keep them here while the airport covers the debt.
I find it interesting that for over a year we heard that there was no risk to airport bondholders and taxpayers with the “airlines paying for it” but then yesterday, the Star quoted the mayor and Burns & McDonnell as saying:
The advantage of this plan, according to company representatives and Mayor Sly James, is that Kansas City would issue no bonds and bear no taxpayer risk if the airport failed to generate the revenues needed to pay off the construction and other costs, including overruns.
So are we finally admitting that there IS some risk under the airline lease agreement? Just curious.
Other questions that come to mind are these:
- Why is there no collaboration with the incredible design resources of our architectural community? Apart from Populous, HNTB, and a host of other globally recognized firms, the exclusion of BNIM and it’s founder Bob Berkebile is a particular slight. Besides being on the original KCI design team, he invested a couple of years of his life co-leading the mayor’s airport task force.
- It’s said that the annual debt load will be capped at the originally planned $85.2 million, but that this plan will carry a higher interest rate due to the difference between public and private financing. That means the project itself must cost less. The construction term for this is “value engineering.” This means cheaper materials, removal of features or the contractor eats it. Which of these options is chosen depends on who has the final word on these matters. Who gets to decide?
- There was talk yesterday of 35 gates. When a single terminal was originally proposed in 2013, it was 37 gates. KCI as it currently exists has a capacity for nearly double that amount. A high-ranking airline official told me in 2013, we’ve never seen a city spend a billion dollars to downsize. Based on current growth projections, the desire to expand international traffic, and the “build it and they will come” promise of several new flights from Southwest who cannot use flexible gates, how many gates will we need before a new terminal will be paid off? Since we’ll be maxing out our debt capacity, we likely won’t be able to borrow more for an “expansion project” for years.
- There is still talk that part of the debt will be paid by increased parking fees and concessions. (aka paid by taxpayers but why digress into semantics?) What is NOT being discussed is how big that piece needs to be and how we get there. In 2014 I wrote a post about KCI retail and unrealistic expectations. For some reason, the concession operators were dropped from the mayor’s task force agenda. To this day, I have yet to read of anyone asking the current concession operator for projections. Or have they and whoever asked did did not like the answer. The only way to boost retail revenue at KCI is to increase the amount of time people are forced to hang-out there. What are the projected parking increases and can we see the projections from our concession operator and what those are based on?
- The idea of a public/private collaboration is a good one that has been suggested before. The REAL success of the Dallas Love Field project was the fact that Southwest managed it instead of the city of Dallas, saving hundreds of millions of dollars. Now that we have finally crossed this line, can we explore other partnerships based in part on open competition between engineering and design firms as well as others including airlines who might want to invest in the future of this asset? Perhaps there is a way to dramatically reduce the costs and risks while improving the product that would make going to a public financing model and a lower interest rate the better option.
How long has this proposal been in the works? There seem to be a lot of pieces in place for only a couple of weeks. If it’s a fresh idea, then I can understand why a larger, more collaborative team has not been put together. It appears though that such was never the intention.
- In all the articles I’ve read about this, I have not seen a single quote from Southwest or any other airline. In 2013, one of the huge blunders the city made was not including the airlines in the process. When were they looped in to this and why are they not at the podium?
- Speaking of quotes, one last question with tongue planted firmly in cheek: The Kansas City Star reported that
With Friday’s announcement, James said, Burns & McDonnell and the city have come forward with “a Kansas City solution for a Kansas City problem.”
However, a press release from Burns & McDonnell said that:
Burns & McDonnell is committed to investing in the city we all love and provide a creative Kansas City solution to a Kansas City challenge,” says Ray Kowalik, Chairman and CEO, Burns & McDonnell.
I’m just curious who said it first.
(Photo at top courtesy: The Kansas City Star)