LR airport board approves early payoff of 1999 bonds

— The Little Rock Municipal Airport Commission added more than $2 million to next year’s budget Thursday by moving to pay off early a 1999 bond issue.

The governing body of the state’s largest airport made the decision during a day-long retreat and workshop.

The move is expected to make Bill and Hillary Clinton National Airport/Adams Field debt-free by 2016 and save more than $8 million in interest as officials position the airport to pursue the second phase of a terminal makeover amid continued uncertainty in the commercial aviation industry.

The meeting in a conference room at the Capital Hotel featured overviews of the industry and Clinton National’s place in it from aviation consultants, who said the airport appears well positioned to weather the tumult, though as a small-hub airport, it faces challenges.

The airport is likely to have difficulty retaining service to far-flung cities such as Phoenix and Las Vegas. Yet it should still be able to grow its passenger service, even though the number of available airline seats has fallen 20 percent from its peak, the consultants said.

Unlike some other airports that have seen steeper drops in available airline seats, “you haven’t overbuilt,” said Joseph Pickering, manager of air-service consulting for Mead & Hunt Inc. “You may still have some opportunity. Some under served hubs are probably your best opportunity.”

He also wasn’t surprised that Southwest Airlines will drop its service to St. Louis in May and doesn’t think Clinton National will be hurt significantly if Memphis International Airport is successful in recruiting Southwest.

“Memphis is far enough away to be a stand-alone market” for Southwest, Pickering said.

Stephen Van Beek of Leigh Fisher Management Consultants also provided a dour outlook for the industry, noting that airline consolidation will continue, regional jets will continue to be cut back, passenger traffic will remain flat - except at major airports - and federal sources of money will continue to shrink.

But the airport’s healthy balance sheets, good mix of airlines and location should serve it well, he said.

“You’re in good shape because you are not in the shadow of a major hub,” he said.

The commission also authorized airport Executive Director Ron Mathieu to amend its lease with Hawker Beechcraft after the company emerges from bankruptcy next month.

The airport stands to lose nearly $600,000 in income when Hawker Beechcraft emerges from bankruptcy without its Hawker jet division, which leased five hangars and 45.7 acres at the airport.

But now the company wants to retain the property for three or four months while searching for a buyer, Mathieu said.

Under the tentative arrangement, the airport will reap some income and won’t have to pay utilities, he said.

The retreat and workshop came two days after the commission approved a 2013 budget that includes a $2 million increase in the terminal rental fees that airlines pay.

Beginning Jan. 1, the six airlines operating at Clinton National will pay $30.34 per square foot annually to lease space in the passenger terminal. They pay $24.74 now.

The airport’s other major source of revenue from the airlines, landing fees, will remain the same at $3.39 per 1,000 pounds of aircraft weight.

Airport officials say the new rate, the first increase in four years, will help cover the higher costs they will incur in operating the newly renovated and expanded terminal.

The $67 million project wraps up early next year. It includes an automated baggage handling system, which requires a $618,000 annual maintenance contract. All but one carrier, Delta Air Lines, is now on the new baggage system. Delta is scheduled to go onto the new system next month.

While the airport expects to finish 2012 with a record$11.2 million in net operating revenue, the 2013 budget, even with the boost in terminal rental fees, markedly scaled back the airport’s net income.

While the budget projects a 7 percent increase in revenue, to $31.8 million, it projects a 26 percent increase in expenses, to $23.2 million, leaving the facility with a projected net operating revenue of $8.6 million, a nearly 24 percent drop from what the airport projects this year.

Airport officials say the decrease stems from factors beyond their control. Besides the loss of Hawker, the airport also had to boost the pay of the Little Rock firefighters and police assigned to the airport. The city gave them raises, which will cost the airport close to another $600,000.

Energy rates rose 9 percent while premiums for the airport’s health-insurance plan, which is under the city, rose 18 percent. The U.S.

Postal Service also vacated some cargo hangar space, costing the airport additional income.

Thursday’s commission decision to pay off the 1999 bond issue early boosts next year’s projected net revenue to $10.7 million, a move recommended by Bobbie Nichols, a senior vice president at Stephens Inc.

A total of $24.7 million in bonds were issued in 1999 to build the airport parking deck and related improvements. A principal of $9.7 million remains with a 5.24 percent interest rate.

With a debt service reserve fund totaling $2.4 million on hand, Nichols said, the airport could use that and about $6.8 million in cash to call the outstanding bonds on Feb. 1.

Nichols recommended calling two more bond issues in 2016, which, when combined with the early payoff of the 1999 bonds, would save $8.6 million in interest.

By 2016, the airport could begin construction on the second phase of its terminal renovation project.

The first phase included remodeling the ticket lobby and passenger security checkpoint and improvements to the terminal mechanical systems, as well as the new baggage system.

The second phase will include remaking the terminal common area, the baggage area and the concourse, which will expand the number of gates to 16 from 12.

In 2010, the price tag for the second phase was estimated to be $175 million. Like the first phase, the second will be built in stages. But first, the commission needs to figure out how to pay for it.

Arkansas, Pages 11 on 12/21/2012

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