I am worried about and, at the same time, fascinated by what might happen in regard to Kansas City International Airport.
Last week, when The Star broke the story about Burns & McDonnell’s stunning proposal to build a new single terminal at a guaranteed maximum price (to be determined) and to take on all the financial risk, I said the tectonic shift threatened to “hopelessly muddle the airport situation.”
That remains the case, but there is another, more optimistic, way this could unfold.
I didn’t come up with this myself; a wise friend, with whom I serve on our neighborhood association board, gets the credit.
When I was bemoaning the unexpected development, saying it very well could confuse Kansas City voters, he countered that the new proposal, while unconventional, might serve to snap the KCI debate out of its slumber. My friend said the new twist might flip people’s thinking from whether a single terminal should be built to how that will happen.
Under this theory, the new plan will wrench people away from the old argument — whether to abandon the 45-year-old horseshoe terminals — and rivet their attention on the new and provocative question: Should a new single terminal be built privately, with Burns and Mac taking the reins, or should the city do it the conventional way, taking and awarding bids and financing construction by issuing revenue bonds?
My friend’s theory is valid, I think. As time has passed and KCI has continued to deteriorate, “the leave-my-KCI-alone” argument — officially led by head-in-the-sand Councilwoman Teresa Loar — has steadily lost credibility. If you go up to KCI and pass the shelved-and-closed Terminal A and then plant yourself in one of those claustrophobic, boring bullpens waiting to board your plane, you have to be thinking, “There must be a better way.”
It is becoming increasingly apparent the better way is a single terminal, with a single security checkpoint that opens up into a pleasant and airy main concourse, which, in turn, offers a variety of food and shopping options. Just like every other modern U.S. airport.
This rendering, provided by the Kansas City Aviation Department, shows what the interior of a new single terminal might look like, just past the central security checkpoint.
…You know, sometimes it’s OK to do what other cities are doing. Just because we did it differently with our airport in 1972 and because that novel approach worked for many years doesn’t mean it’s wise to stick with what was good way back when. No, it’s time to get with the times.
If it was up to me, I’d probably prefer to see the city go the conventional route, with the Aviation Department being in charge of construction, and city-issued revenue bonds being retired with airport revenue. That way, any and all firms — including contractor JE Dunn and the architectural and design firm BNIM — would have a shot at participating.
But I could also support Burns and Mac’s proposal, depending on the final terms of a deal…I just want to see this project get off first base, where it’s been for way too long, and start chugging toward home plate.
**
So far, in-depth reporting has been in short supply about the deal between Burns and Mac and the city, particularly regarding how Burns and Mac stands to make its money on this deal.
One reason for the haziness is many details have yet to be worked out. Another, however, is that The Star — the go-to source for authoritative and thorough reporting on major local developments of all kinds — has simply not gone deep enough.
The Star has had two or three decent straight-reporting stories, and there was a good editorial last Friday, expressing concern about the secret way in which the deal was arrived at and demanding openness from this point forward. What has been lacking is a close look at the basic terms of the deal, as set forth in a 12-page memorandum of understanding that has been out for several days.
The memorandum doesn’t spell this out, but it appears that where Burns and Mac stands to make its profit is in the difference between whatever revenue is generated by airport operations and the yearly amount Burns and Mac will need to build the terminal and pay off loans it takes out.
This is a possible single-terminal design — in the shape of an “H” on its side. This rendering, provided by the Aviation Department, shows 35 gates, but the number could go up to 42, under the Burns and Mac proposal.
The memorandum is a preliminary document, not legally binding. Should the City Council approve it, a more comprehensive and legally binding set of “definitive agreements” would likely follow. But the terms of the memorandum help bring into clearer focus the elements of the “spread” between revenue and debt payments.
Here are some of the memorandum’s basic provisions:
:: Burns and Mac would create a development entity — a company — that would enter into a 30 to 35-year agreement with the city.
:: During that period the city would lease to the development company that part of the airport that Burns and Mac was working on. The city would continue to own the airport, and it would sub-lease and operate the new terminal.
:: Burns and Mac would invest some of its own money in the project and would borrow the rest. It would then proceed to build, over four years, a 750,000-square-foot the terminal at the site of the existing Terminal A for a guaranteed maximum price. An earlier memorandum between the city and the airlines placed the price tag at $964 million, and Burns and Mac is evaluating that. Conceivably, it could set the price higher, lower or on that mark.
:: The city Aviation Department, which now receives all revenue from airport operations, would redirect that revenue to the developer for the duration of the contract. That is an important point: The development firm apparently would get all airport revenue for 30 to 35 years. Those revenue sources would include federal and state (if any) grants, airplane refueling fees and revenue from parking, concessions and car rentals.
:: For the airlines’ part, they would be required to pay an amount of money, which, when combined with all other airport revenue, would be about $85.2 million a year. That amount would be used to repay the project financing. The amount could be adjusted up or down — up if airport operational costs rose and down if any federal or state grants were awarded.
:: The airlines, not the city, would be required to make up any shortfall between revenue and the amount Burns and Mac needed to pay off its investment. The airlines, of course, will raise ticket prices to offset their increased costs.
:: Burns and Mac would keep the difference between revenue (approximately $85.2 million) and whatever amount it needed to retire the debt.
…A lot of elements still need to be worked out, and there are many questions. The debate could be noisy. Let’s just hope it concludes with Teresa Loar’s position — retaining the three-terminal set-up — getting dumped once and for all.
JimmyCsays: At the juncture of journalism and daily life in KC 
Readers:
Minutes before I published this post, frequent commenter Bill Hirt posted the following comment on my previous post about the Burns & McDonnell proposal.
His comment is even more relevant to this post than to the previous one. Here it is…
After reading Dave Helling’s commentary in the Sunday paper about the issue, people need to realize that the amount paid now to operate/retire bonds at KCI is $57.5 million a year. The amount that Burns and Mac and city have tossed around is $82.5 million a year. This is a 30% increase in the yearly operating and bond costs.
I am sure that the airlines have agreed to some slight landing fee and facility increase. The real money will come from two sources: a Passenger Facility Fee (PFC) and Parking Fees. That means the traveler. Don’t think that the person buying a sandwich and drink is going to make up that difference. That will be the real target of where the extra $25 million a year will come from. You also need to figure a cushion to that amount to account for economic factors, such as a slowing business cycle translating to less parking and PFC income).
It also interesting that former airport director Mark Van Loh argued that additional airlines could not come to KCI due to lack of gate space (which has turned out not to be true in the short term). We have already reduced from 90 to 60 gates. This Burns and Mac plan reduces that to 35 gates. Just that alone would suggest there’s some thinking in the planning process that the current number of flights at KCI may be reduced due to increased airport costs and other factors.
I also have seen in articles so far about this the inevitable comparison between Kansas City and St. Louis. One article stated that Southwest has 30 more flights a day at Lambert than at KCI. Just because we build a new terminal does not mean these flights would magically move to KCI. In St. Louis:
– Southwest has its own terminal (something that could already be done here if the city and airport leaders wanted it to be so).
– St. Louis needs to pay for a $1 billion runway project planned and built as the TWA hub days ended. So they were and continue to be anxious to cut deals on landing fees.
– The St. Louis metro area has a larger population and larger customer base than Kansas City.
And I wish that in these articles, business people would stop saying if we build a new terminal all of their problems will be solved. If we do build a new terminal, the same leaders will then say afterwards how expensive it is to use the new airport and that all of the flights they dreamed about had not materialized.
I think asking potential bidders to look at a $65 million to $70 million operating/bond repayment yearly amount would have have a better chance of moving forward. It would not require significant cost increases over the current amount and, if by some chance, the airport became extremely successful, it would be easier to sell an addition to the terminal concept later, much like what’s being contemplated with the streetcar system.
Bill Hirt
An hour or so after publication, Kansas City Deputy Aviation Director Justin Meyer sent me this response to Bill’s comment:
1. The three terminals do not have 90 gates and they never have had 90 gates. They have about 15 jet-bridges/gates each for a total of about 45 gates today across all three terminals. When the three terminal design opened in 1972 the gates were numbered 1-30, 31-60, and 61-90 to help people identify between Terminals A, B and C. Currently 31 jetbridges are leased.
2. Regarding airlines not coming to KC, we’ve been successful in bringing three new airlines to market. They are Alaska (2012), Spirit (2014) and Allegiant (2015). We do still have some gates unleased and available so there is some opportunity for airlines to continue to grow in Terminals B & C.
3. There is not a plan for less flights at a new terminal. The airlines and the airport agreed in 2013 on 1.9% annual passenger growth through 2030 that drove the forcast for gate counts, checkpoint size, and overall sqft need. Since we agreed on that 1.9% forecast we’ve seen 36 consecutive months of year over year growth at a 4.3% average growth rate.
4. The “inevitable comparison” between MCI and STL was actually made by Southwest when they presented to KCMO Council on April 26, 2016. Southwest is the largest airline at both STL and MCI, and it was Southwest who said with a new terminal that was conducive to layovers they would have the opportunity to connect more passengers through Kansas City which would allow for new routes and more flights, as they have done in St. Louis. The video of that statement by Southwest is at the following link. Start at 0:37:00. http://kansascity.granicus.com/MediaPlayer.php?view_id=57&clip_id=9571
5. St. Louis may have a larger MSA but Kansas City has a higher propensity to travel.
It is good to see Mr. Meyer pipe in about this. Since he has started a dialog, a few additional questions:
1. After checking FAA regulations and documentation again today, KCI already levees the maximum $4.50 Passenger Facility Fee. Congress in the past has proposed allowing a higher fee, but no action has been forthcoming on this.Does this plan incorporate an additional increase in this fee?
2. In the Memorandum of Understanding posted on the city’s web site, it states that it is possible (which I read will happen) about the city creating a Community Development District at the airport which would allow an additional 1 per cent sales tax to levied on all airport purchases. Is this amount already baked into covering the annual $30 million servicing costs?
3. Dave Helling (again) wrote an article a few years ago stating that the airport revenue structure is essentially a parking concession with an airport attached. Of the parking revenues, how much each year currently pays for airport operations/bond servicing (amount and percentage)?
4. I think the KC vs. St Louis comparison is a little dismissive. Here are some statistics:
Passenger counts
2012 KCI 9,749,507 STL 12,688, 726 KCI 77% of STL count
2013 KCI 9,644,264 STL 12,570,128 KCI 77% of STL count
2014 KCI 10,166,879 STL 12,384,015 KCI 82% of STL count
2015 KCI 10,472,461 STL 12,752,331 KCI 82% of STL count
2016 KCI 11,041,750 STL 13,959,126 KCI 79% of STL count
Metropolitan Statistical Area
2015 KC 2,411,635 STL 2,910,738 KC 83% of STL
Based on these statistics, I am not sure where the idea/statement comes that KC area folks have a more propensity to travel than STL area folks. The statistics would suggest that it is about as one would expect based on the relative sizes of the areas.
5. How much of the additional $30 million of annual cost will be born directly by the airlines by annual increased rent and landing fees?
6. What is the projected annual total increase in parking fees to pay for the additional bonds and parking facilities?
7. Has the projection of essentially another $1 per each passenger for concession revenue still hold? The city would only receive a small portion of that increase correct?
@Bill – regarding the propensity to travel MCI vs STL. A larger share of passengers are connecting in STL vs. MCI. I believe what he is stating is that proportionally speaking, MCI as more O/D passengers vs. STL.
Just one more fiasco and endless tax boondoggles (we are daily bombarded with initiatives like the light rail extension, city improvements, sales tax hikes, etc,) So, considering who it will really profit, the bankers, developers, engineers and other friends of our mayor, I propose we name it, “Fly with Sly International Airport.”
I like the name, Richard, and I’ll take it a step farther and say let’s change the airport code from MCI to SLY.
Jim:
I would like to be in full support of the Burns & Mac plan but I am having a hard time getting there. To wit: Last week, in a mayor’s office meeting with Burns & Mac execs, a very direct and simple question was asked by the city finance guys: “What is the projected IRR (internal rate of return) on this plan?” The answer, after a little bit of fumbling from the B&M numbers guy was, “We haven’t gotten that far…We don’t know yet” — or something to that effect.
Sorry? I can’t accept that one. Having been in lots of discussions with public officials over the years on major development plans, I find it really hard to believe that a whole hard drive full of spreadsheets didn’t exist with pro formas of various IRR benchmarks before this plan ever saw the light of day.
Even more incredulous was the city’s response: “OK,” with absolutely no pushback.
Remember when Archie Bell used to do “the tighten-up”? There’s a lot of tightenin’-up necessary “down there to the city hall” before this airport flies.
That’s interesting information, Rick. I’m sure that what you recounted could have happened but I would like to know if that’s firsthand information, from someone at the meeting, or second or thirdhand. Also, I think it’s conceivable B&M doesn’t have a firm idea of its return, but I would suspect that having $85.2 million a year to work with would afford them a nice spread between revenue and expenses.
(The Archie Bell and the Drells allusion is priceless.)
So that’s what doin’ the tighten up means.
Rick – would you be asking the same IRR questions if the city issued GARBs? At the end of the day, whether it is the city issuing bonds or it being privately financed – people will make money off of the deal.
Privatizing the construction of a new KCI single terminal sounds very fishy.
Think of what happened in Chicago when the previous mayor privatized the parking meters. I used to drive up there, park on the street a little north of the Loop, and put quarters into a traditional parking meter.
The private owners have installed machines that accept only credit cards, and the rates are nearly 20 times higher! Private parking lots followed suit.
I can’t imagine how much patrons of a new privatized KCI would be gouged by what is supposed to be an engineering firm.
What happened in Chicago is, indeed, a crime, Don. I, too, remember putting quarters in those machines — more quarters than in downtown KC but nothing exorbitant like it is now.
I think a lot of people are going to share your skepticism about the B&M plan. That’s why, as I said in my post the other day, I think it was a mistake by Sly James to plop this down and turn the KCI debate upside down. I think time and deterioration would have done in the “keep the horseshoe configuration” argument. But Sly, itching to get a deal before he leaves office, just couldn’t resist playing the wild card.
Hmm, privatizing financing and construction sounds different than owning the rights to the parking meters. Perhaps this would be the case if the airport is privately owned but my understanding is the city will still own and operate the airport like they do today even if they move forward with the private financing plan.
After deplaning and walking as far as I have ever had to walk at O’Hare to collect my baggage last night from my American flight, I can only think that they are making the old design as miserable an experience as possible! I am ready for a new terminal design. But KC area passengers shouldn’t be held hostage.
On the matter of the airlines raising their ticket fees to offset increased costs on their part, Deputy Aviation Director Justin Meyer sent this clarification:
“It’s important to remember that airlines have the ability to use their entire systemwide network to generate revenue to offset costs. For example, if Delta purchased a brand new Boeing 777 aircraft, they would use revenues generated from ALL of their passengers to pay for it, not solely passengers who fly on that specific aircraft. Or, if Southwest had two flights from KC to Chicago and the first flight was flown by a very senior crew (expensive) and a second flight was flown by a reserve crew (less expensive) they wouldn’t set ticket prices on the first flight higher than the second for that reason alone.
“It’s the same way with airports. The airlines will use network revenues, regardless of if they were generated at MCI or not, to pay airport costs. How else can you explain the lack of a fare spike at Indianapolis (IND) in 2008 after they opened a $1B terminal? Or the fact that fares in Wichita have actually decreased since they’ve opened a new terminal there?”
On Twitter, Lynn Horsley provided a link to an article on “Unsolicited Proposals (USPs) – An Exception to Public Initiation of Infrastructure PPPs: An Analysis of Global Trends and Lessons Learned.” The mayor and city council (as well as the rest of us) really should read this 8-page article as they consider the Burns and McDonnell proposal.
Click to access unsolicited-proposals-infrastructure-procurement-discussion-paper.pdf
If the city entertains the AECOM proposal I guess then we would have the competition that everyone wants.
Sly James never says no to any developer unless it was the recently passed East Side Development plan. He didnt like that one, because the East Side community doesnt have lobbyist with deep pockets. Sly is a very loyal ribbon cutter.
I disagree. That plan doesn’t have any bones to it at all, it was merely thrown on the ballot by way of the min. signature threshold. It will be interesting to see how that money is spent but it will take much more than this tax to help the east side.