Long Beach Airport is one of the few city departments that is, for the most part, self-sustaining, financing projects and staffing primarily through passenger fees as well as state and federal grants.
On rare occasions, however, bonds have been sold to expedite high-ticket items. And tonight, the Long Beach City Council will consider issuing another $130 million in bonds to pay off existing debt and finance the remaining work in the Phase II Terminal Area Improvements project.
“The pandemic resulted in a decline in passengers and revenue,” said Claudia Lewis, the airport’s finance and administration bureau manager. “And then you combine that with skyrocketing construction costs and the airport was forced to take a hard look at what our options were.”
In 2009 and 2010, the city sold a combined $135 million through two bond series. Those bonds financed a new parking structure and projects such as the first phase of the terminal area improvements, including updating the twin concourses and outdoor area between them. Since then, the airport has used passenger fees collected through ticket sales to pay the principal and interest on those bonds.
While the older bonds were issued with a 30-year maturity, airport spokeswoman Marlene Arrona said two of the three new bond series would mature in 18 years (2039 and 2040). This will save the airport about $6.6 million, according to city staff.
The third series of bonds would mature in 2047.
The total debt service of the bonds would be $194.5 million over the life of the bonds, assuming the interest rate remains stable at 4.37%, according to a staff report. Combined, the bonds would have an average annual debt service payment of $8.9 million through 2039 before falling to $5.4 million through final maturity.
Airport debt service is typically paid for through passenger fees but throughout the pandemic, airport revenue plummeted. Most flights were grounded and passenger volumes fell upward of 90%, slashing revenues to practically nothing. The airport was able to continue paying its debt service in large part thanks to the 2020 CARES Act and 2021 American Rescue Plan Act.
If approved, the new bonds would pay off the remaining debt service for the 2009 and 2010 bonds as well as provide $30.1 million in funding toward the airport’s second phase of improvements.
“Originally, Phase II was to be paid for with airport cash alone,” Lewis said, adding that the struggles throughout the pandemic made that impossible.
The first two projects from the second phase—a new ticketing lobby and checked baggage screening facility—opened to the public earlier this month. Construction on a new baggage claim area is underway and expected to be completed by the end of the year.
The remaining projects, including improvements to the historic terminal building and a meet-and-greet plaza, have been delayed due to reduced revenue over the past two years. The new bond funding is crucial to completing the already-delayed projects in a timely manner, Lewis said.
When first approved by the City Council in 2018, staff estimated full project completion by the end of 2022. With the additional funding through the bonds, the full project could be completed by the end of next year, Lewis said.
While it is not uncommon for public development projects to fall behind schedule, skyrocketing construction costs amid the pandemic mean the delays will cost the city. When initially approved, the budget for the second phase was $65 million, according to airport spokeswoman Kate Kuykendall. A city document now shows that construction costs have ballooned to $120 million.
Despite the challenges of the past two years, the airport recently received an A- credit rating from Fitch Ratings, one of the largest American credit rating agencies. According to the agency, the rating is based on the relatively small traffic base of the airport and its single-carrier concentration that sees Southwest flying most of its limited daily flights.
“The [outlook] reflects steady passenger recovery trends as well as prudent financial and debt management through the pandemic,” according to Fitch. “While exposures remain with regard to traffic and revenue improvement, the progress in activity volumes led by Southwest Airlines service support suggests lessened fiscal strains, with the airport better positioned to restore metrics to levels consistent with current rating levels.”
Editor’s note: This story has been updated to correct the maturity time of the bonds.