By TED CARTER
Jackson Medgar Wiley Evers International Airport has shelved indefinitely a nearly $40 million renovation of its terminal and security check-in stations.
Behind the project’s axing is management’s conclusion that the airport’s best fiscal strategy for the moment is to make money rather than spend it now and hope for a future payoff. Upgrades of the terminal’s food concessions and retail shops top the capital plans that Carl Newman, the airport’s new CEO, will be guiding in the months to come.
“We have what I would consider an under-performing food and beverage and retail” operation, said Newman, who took over as Jackson Municipal Airport Authority chief in early January after heading airport operations at Houston’s George Bush International and Phoenix Sky Harbor International airports.
Newman said the Airport Authority has placed a new priority on getting 700 adjacent acres owned by the airport ready for industrial development. “The focus is on getting new businesses situated here on airport property,” he said.
Hawkins Field, the Airport Authority’s general aviation facility three miles southwest of Jackson, will also get upgrades as part of the Authority’s money-making strategy. “They are clamoring for more services,” Newman said of users of the air field as well as the fixed-based operator.
Increased services and improved hangar and storage areas offer the strongest chances for growing the tenant base, according to Newman.
A final report accompanying a 2012 master plan for Hawkins cited such deficiencies as poor drainage, insufficient hangar space, and insufficient ramp space for helicopter parking. “Many stakeholders mentioned the original terminal’s state of disrepair as a weakness,” said the report from Barge Waggoner Sumner and Cannon Inc., a Nashville architectural and engineering firm.
The moving of plans for the terminal upgrade from temporarily delayed to long-term delayed can be blamed on Fitch Rating Service’s spring 2014 downgrade of $39.8 million in bonds the Airport Authority planned to sell to cover the improvements.
The downgrade, in turn, can be blamed on Southwest Airlines’ departure last June and an anticipated $800,000 loss in revenues the carrier’s loss entailed. Citing a passenger fall off of 8 percent last year, Fitch issued notice April 10 that it would maintain the downgrade to BBB+ it put on the terminal bonds the previous April. The 2014 downgrade maintained the bonds’ stability rating but dropped it from an A- rating.
“I think the rating we have is going to be the rating we’ll have in the future,” Newman said.
Dirk Vanderleest, Newman’s predecessor, had voiced hope after the ratings drop that belt tightening in the budget adopted last September would be sufficient to get the A- rating returned. Budget curbs didn’t do the trick, however.
“Staff has done a good job of belt tightening,” Newman said. “We currently are sitting about 4 percent below budget,” he added, and noted revenues are also running about 4 percent ahead of projections.
Fiscal 2014 revenue and costs show the size of the challenge ahead, the Fitch report said. Operating revenue increased by 0.7 percent over fiscal 2013, rising to $17.8 million with the help of increased landing and parking fees.
However, operating expenses jumped 6.9 percent, after shrinking by 0.8 percent in fiscal 2013. Some relief from rising costs is expected in fiscal 2015 once the airport puts a nearly $500,000 building maintenance project behind it.
Fitch analyst Casey Cathcart said in the April 10 report that the rating reflects a small enplanement base and “operational performance carrier decisions.”
Fee increases – including a 15 percent hike in landing fees last year as well higher parking and rental car fees – have so far kept airport finances stable, Cathcart wrote. “The Authority maintains a conservative capital program and debt profile coupled with adequate liquidity and reserves,” he noted.
On the risk side, the 8 percent passenger loss attributed to the departure of Southwest is expected to carry into the new fiscal year that begins Oct. 1, Cathcart said.
Fiscal year enplanements from Oct. 1 through February are down an additional 12 percent compared with the same period the previous year, he reported. Fitch forecasts continued enplanement losses of 5 percent annually to a level just above 510,000.
Fitch put fiscal 2014 enplanements at 555,000 and per-passenger enplanement costs at $10.58. The rating service expects per-passenger costs to stabilize at around the $12- to-$13 range. These lower passenger counts and higher passenger costs “on a prolonged basis” would ultimately lead to negative rating action, Cathcart said.
Cathcart noted Fitch expects some traffic rebound “given the airport’s limited competition” and the willingness of other carriers to increase services to backfill some of the vacancies created by Southwest. Remaining carriers have increased service flight frequency by 15 percent for fiscal 2015, the rating report said.
Meanwhile, the BBB+ stable rating is subject to “sensitivities” that include renewed pressure on the airport’s financial metrics caused by more enplanement losses or lack of a traffic rebound, Cathcart noted.
Other sensitivities include the potential dilution of debt service caused by revenue declines forcing the Airport Authority to devote more of its revenue to paying off debt. Further pressure could come, Cathcart said, from rising costs which diminish the ability of airlines to maintain existing service levels.
“Given the airport’s present enplanement size and service characteristics, positive rating action is unlikely” over the next five years, Cathcart said in addressing any “positive rating sensitivities.”