RDU looks for ways to fund growth

 In June 2019

By Mike MacMillan

For Raleigh-Durham International Airport to achieve its goal of adding a direct flight to China, that $10 or $20 parking fee paid by many travelers just might be the ticket. About 36%, or $55 million, of the airport’s $151.6 million in 2018 revenue was generated by parking income, and the airport’s governing board is trying to expand that with new services such as “Trunk to Curb”— a kind of concierge service for luggage — and an online parking-reservations system. Carry-your-own parking rates increased by $1 to $4 a day on April 1.

A buck here and there matters because airports around the country are struggling with cutbacks in federal funding and scrambling for new ways to pay for needed infrastructure projects. By one estimate, commercial airports will need as much as $128 billion over the next five years. But the federal Airport Improvement Program now receives $3.35 billion a year from Uncle Sam, leaving a $100 billion-plus shortfall. That’s real money, to paraphrase the late U.S. Sen. Everett Dirksen.

“These huge capital projects were once supported by the federal government, but that’s no longer the case,” says Michael Landguth, RDU’s chief executive officer since 2011. “If you look at highways, bridges and airports, we are significantly underfunding infrastructure in this country.”

A classic example is RDU’s plan for an 11,500-foot runway, a centerpiece of the airline’s long-term plan called Vision 2040. The intent is to help attract more international nonstop flights to complement existing service to Paris and London. Service to Asia could be a big boost to the Triangle’s hot tech economy. The airport originally anticipated that federal funds would account for about half of the runway’s $350 million price tag. More recently, it was told by the Federal Aviation Administration to expect a 10% contribution. As a result, RDU has been forced to look elsewhere for funding.

Advocates of greater public investment in runways say it’s a short-sighted strategy. “Airports are one of the very best investments a state or community can make, but they’re typically overlooked in favor of other types of infrastructure like roads or ports,” says John Kasarda, an adjunct professor at UNC Chapel Hill’s Kenan-Flagler Business School. He coined the term “Aerotropolis” to describe metro areas that grow up around airports.

Airports serve as an economic engine, moving high-value products and people in and out of a region, Kasarda says. That’s why RDU deserves some credit for the historic success of the adjacent Research Triangle Park. “Connectivity is value,” he adds, noting that while just 1% of exported goods move by air, they represent 35% of total export values.

RDU is credited with generating $12.6 billion annually in economic output for the region and helping attract relocating companies, according to the N.C. Department of Transportation. Still, money for expansion is hard to come by. State lawmakers set aside $75 million in 2018 for roads, rails, ports, bridges and airports, up from $40 million the year before. The airport’s partners, the cities of Raleigh and Durham, and Wake and Durham counties contribute $12,500 each to the Raleigh-Durham Airport Authority annually. While fees from airlines, passengers, rental-car companies and others cover operating expenses, RDU receives none of the $450 million in annual estimated state and local tax revenue generated by companies benefiting from the facility.

Airport traffic and revenue are growing briskly amid the Triangle’s rapid population expansion. Enplanements have jumped 39% in the last five years and totaled a record 6.4 million in 2018. That number had been stuck in the 4 million to 5 million range since 1990. In the first quarter of this year, the number of enplaned passengers jumped another 9%. In January, Spirit Airlines became RDU’s 11th passenger carrier, with seven new flights starting in May. Frontier Airlines and Via Airlines also announced new flights. The airport now serves 64 destinations in the U.S. and abroad.

So business is good — but funding future growth remains a challenge. In 2017, the Federal Aviation Administration signed off on RDU’s long-term road map for supporting airport growth with milestones linked to enplanements. Hitting the targets triggers expansions, most recently the addition of four new gates by April 2020. Other plans include upgrading aging runways and other infrastructure, a new rental-car center, and a new ground transportation hub.

The original cost estimate of $2.7 billion was based on an assumed annual percentage of passenger growth, which has exceeded projections, prompting the airport to accelerate another $1 billion in deferred capital projects. The airport is “about eight years ahead of schedule” on Vision 2040, according to Landguth.

To pay for the improvements, airport officials have suggested boosting the $4.50 surcharge added to airline tickets to $8.50, generating an additional $24 million in annual revenue. But Congress sets the so-called Passenger Facilities Charge, and prospects for an increase are unclear. The authority board, led by Raleigh developer John Kane, also has promoted more unorthodox moves such as a proposal to lease land for a rock quarry, sparking litigation from conservationists. The real money will most likely come from issuing bonds on top of RDU’s existing debt of about $554 million. With additional bonding capacity of about $750 million, the airport has hired an adviser to explore funding options. It has an AA- credit score from Fitch Ratings.

It’s clear that RDU has big plans with its success linked to the region’s rapid growth. “Within the next five to six years, I hope to be standing on the pavement with our team cutting the ribbon [to open the new international runway],” Landguth says.

Valet parking anyone? ■

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