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Massive Airline Slowdown Due To COVID-19 Does Not Imperil Kansas City's New Terminal, Analysts Say

Construction at Kansas City International Airport, as captured by OxBlue, a construction photography company, in April 2020.

The coronavirus pandemic is causing one of the worst aviation upheavals in history, and Kansas City International Airport has seen its flight and passenger numbers plummet. Airlines serving Kansas City have cut their flights by more than 35% and many planes have very few passengers.

So what does that mean for KCI’s financial health and the future of its $1.5 billion new terminal construction project?

Aviation officials and other observers say the airport is actually on a good financial footing and can likely weather this historic crisis, despite uncertainty about the industry’s future.

“Nobody likes what’s happening, but we have a pretty healthy reserve. We’ll be able to get through the immediate future,” KCI chief financial officer John Green told KCUR.

He said the aviation department has about $145 million in unrestricted cash, or about 580 days cash on hand. So it has good liquidity and a low operating debt load, and is doing everything it can to cut costs.

“What that means is we have the ability to continue to operate,” Green said.

Credit Dawn Schnake / KCUR 89.3
KCUR 89.3
One of the economy parking lots at Kansas City International Airport on April 10, 2020.

As for the airport’s new terminal construction project, the most expensive in city history, Green said the debt service will be repaid from capitalized interest funds on hand until 2023, when the new building and garage are scheduled to be complete and to begin generating revenues.

The airport has already issued close to $1 billion in bonds for the project at a favorable interest rate of about 3.9%. Green said they will wait to complete the last $500 million in financing until at least the summer of 2021. Analysts believe the airline industry should have rebounded by then.

Green said the department doesn’t anticipate any difficulty being able to complete that financing, “assuming we begin to see some form of recovery in the airline industry over the next year.”

Several industry watchers told KCUR that while this is the fastest aviation downturn in decades — worse even than Sept. 11, 2001 and the Great Recession of 2008 — they expect a recovery by early next year, before KCI would need to complete its financing.

“We’re projecting that by next February, we will be back to normalized,” said aviation consultant Michael Boyd of Colorado-based Boyd Group International. “Normalized,” he projects, “will probably be 15% below 2019, and 2019 was a stellar year.”

Airport ghost towns

Still, like all airports, KCI has suffered a huge shockwave because of the coronavirus pandemic.

On Tuesday, April 7, fewer than 100,000 people flew nationally, down from 2 million people a year earlier, according to TSA data. It was the most precipitous drop since the early 1960s, according to Bloomberg.

Airlines went from having 80% of their seats filled to 2% of seats filled in the space of a few weeks.

KCI officials say they don’t yet have March or April passenger numbers, but few people are flying.

“We are not immune to those low traffic numbers,” said Deputy Aviation Director Justin Meyer.

Southwest, Meyer said, usually has about 67 scheduled daily departures from KCI but is down to about 27 daily scheduled flights. Delta’s scheduled seat capacity has dropped by 68% and Air Canada and Spirit have temporarily suspended all flights from KCI, he said.

Credit Dawn Schnake / KCUR 89.3
KCUR 89.3
A line of Delta airplanes at Kansas City International Airport on April 10, 2020. Delta's seat capacity out of Kansas City International Airport is down 68% this year, according to Deputy Aviation Director Justin Meyer.

Green noted that March airport parking revenues, normally a hefty chunk of KCI’s revenues, came in at $2.5 million, down 50% from March a year ago.

KCI is coming off of its third best passenger year ever, with 11.8 million passengers in 2019. February and early March of this year were also good, but the numbers began tanking in the latter part of March.

“It was certainly not the typical March spring break hustle and bustle,” Meyer said.

Like everyone, he is not sure what the next few months will bring. But the recovery could be slow. Southwest is KCI’s biggest carrier, and nationally Southwest plans to cut half it flights in June, according to The Dallas Morning News.

Green said the airport has good cash flow but is conserving dollars as much as possible, foregoing equipment purchases and temporarily halting capital improvements such as repaving the economy parking lots.

It has not, however, furloughed any workers to date.

City councilwoman Katheryn Shields, chair of the council’s finance committee, said she has been worried about the rest of city government spending money too quickly during this crisis, but not aviation.

“I think we should be acting more like the airport, which is conserving its funds,” she said.

Construction continues

Construction activity on the new terminal is well underway, and the project is currently on time and on budget, Meyer said. It is scheduled to open in April 2023.

Ultimately the new terminal costs will be paid back by the airlines and aviation department dollars, not general tax dollars.

Kansas City aviation officials acknowledge significant uncertainty remains about when and how the airline industry will recover, but they said the money will be there to pay for the new terminal.

“I’m fully confident we’ll be able to move forward and service the debt,” Green said.

Meyer pointed out that KCI has survived numerous airline disruptions, including with TWA, Braniff, Vanguard and Midwest Express. “And our ability to pay for our facility has never been a problem,” he said.

A new, more modern and efficient terminal should actually position Kansas City better to deal with airline changes and economic fluctuations, he said.

“I would be willing to say it really reinforces what we have done. We are looking at common use gates where any airline can go in,” Green said. “It provides us a lot more flexibility.”

Boyd, the aviation consultant, agreed.

“The industry domestically is going to come back. It will be a smaller industry but still, you needed the terminal,” he said. A right-sized airport terminal with a flexible design could position Kansas City well as aviation rebounds, Boyd said.

“The new terminal is imperative. You pay for it over a period of time,” he said. “It will be a good investment.”

Lynn Horsley is a freelance journalist in Kansas City. Follow her on Twitter @LynnHorsley.