July 23, 2013

MCI’s New Terminal Won’t Be A Money Maker (Terminal Financing – Part 1)

An optimistic projection of future income still shows that Kansas City International Airport (MCI) will lose tens of millions of dollars a year trying to pay down the debt for a proposed new $1.2 billion terminal. The Kansas City Aviation Department may believe that a billion dollar project will satisfy the pride of the city government, but it cannot expect that any potential increased income will match the investment costs.
The yearly debt service required to pay off the $1.5 billion in bonds requested for the new terminal is more than twice MCI’s current net income, which was $30 million from operations in 2012. In order to pay off $1.5 billion in new bonds, MCI would have to pay an additional $68 million per year in interest and amortization. To support their plan, officials with the Aviation Department claim that the project will increase concession revenue and decrease security and maintenance costs.
According to the Aviation Department’s plan, the new terminal will increase revenue with more space for restaurants and services. However, in 2012, MCI only made $14 million from rentals and concessions. Comparing MCI with peer airports (pages 73-75) it could, at best, double concessions and rental fees. That would generate an additional $14 million in revenue.
The current cost of law enforcement and terminal maintenance is about $14.5 million. Reducing security lines and using a new, centralized facility is projected to decrease costs, but there is a limit to efficiency savings. In addition, MCI receives sizable federal grants for security and maintenance, so the federal government will share any savings. So, as a best-case-scenario, let’s be generous and assume that the annual cost savings is $7 million.
The figures suggest that Kansas City will not recoup its new investment costs even in the best conditions. Even if MCI doubled its concession/rental income and slashed its security and maintenance by 50 percent, the airport could cover less than a third ($21 million) of the project’s $68 million yearly financing costs.
Ultimately, the airport will have to bridge that $47 million gap with higher landing fees, federal grants, Kansas City taxes, or an unappealing combination of the three.

An optimistic projection of future income still shows that Kansas City International Airport (MCI) will lose tens of millions of dollars a year trying to pay down the debt for a proposed new $1.2 billion terminal. The Kansas City Aviation Department may believe that a billion dollar project will satisfy the pride of the city government, but it cannot expect that any potential increased income will match the investment costs.

The yearly debt service required to pay off the $1.5 billion in bonds requested for the new terminal is more than twice MCI’s current net income, which was $30 million from operations in 2012. In order to pay off $1.5 billion in new bonds, MCI would have to pay an additional $68 million per year in interest and amortization. To support their plan, officials with the Aviation Department claim that the project will increase concession revenue and decrease security and maintenance costs.

According to the Aviation Department’s plan, the new terminal will increase revenue with more space for restaurants and services. However, in 2012, MCI only made $14 million from rentals and concessions. Comparing MCI with peer airports (pages 73-75) it could, at best, double concessions and rental fees. That would generate an additional $14 million in revenue.

The current cost of law enforcement and terminal maintenance is about $14.5 million. Reducing security lines and using a new, centralized facility is projected to decrease costs, but there is a limit to efficiency savings. In addition, MCI receives sizable federal grants for security and maintenance, so the federal government will share any savings. So, as a best-case-scenario, let’s be generous and assume that the annual cost savings is $7 million.

The figures suggest that Kansas City will not recoup its new investment costs even in the best conditions. Even if MCI doubled its concession/rental income and slashed its security and maintenance by 50 percent, the airport could cover less than a third ($21 million) of the project’s $68 million yearly financing costs.

Ultimately, the airport will have to bridge that $47 million gap with higher landing fees, federal grants, Kansas City taxes, or an unappealing combination of the three.

A project of the


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