The Bond Buyer by Richard Williamson - 07/06/07
DALLAS — Things are looking up at Dallas-Fort Worth International Airport, both in the air and underground. While traffic posted modest improvements in the past year, the best news comes from a business not usually associated with major airports — natural gas production.
Revenues from gas wells on the 18,076-acre site are so promising that Moody’s Investors Service late last month raised the outlook on DFW’s $3.7 billion of debt to positive from stable. The debt carries an A1 rating from Moody’s, and A-plus from Fitch Ratings and Standard & Poor’s.
“The outlook has been changed to positive based on the expectation of substantial annual revenues from natural gas drilling on the airport’s property, which would help to mitigate concern with the airport’s narrow debt service coverage and concentration in American Airlines,” Moody’s analysts Thomas Paolicelli and Maria Matesanz wrote in a report on a recent bond deal.
The gas field at the airport is part of a formation known as the Barnett Shale. Last summer, Chesapeake Energy Co. paid DFW Airport $186 million in an initial bonus and will continue to pay a 25% revenue-sharing royalty on all natural gas produced from the airport’s leasehold.
With 300 wells planned for the DFW site, the airport could see its first royalty payments beginning this year.
“We’re not sure when the royalties will begin or how much they will be yet,” a DFW spokesman said. While the DFW gas deal is unusual, it is not unique. Denver International Airport, which supplanted DFW as the nation’s largest in area, has 53 operational oil and gas wells on its 34,000 acres, with more expected.
“This is part of our continuing effort to increase non-airline revenue,” said Stan Koniz, DIA chief financial officer and deputy manager for business and technologies. “The more revenue we can bring in through concessions, rents, and activities, such as oil and gas development, the more economical it is for airlines to operate at DIA.”
DFW has set aside $40 million of its initial bonus to begin renovations of the airport’s original four terminals that opened in 1974. The improvements will include new amenities, improved customer service, and an environment similar to the $1.2 billion International Terminal D that opened in 2005.
For ongoing operations, the gas production offers a buffer against the often turbulent airline business, particularly that of dominant carrier American Airlines, Moody’s reported.
“While it is uncertain at this time the amount of royalty payments the airport will receive, which will depend on natural gas prices and actual deposits that can be extracted, the additional revenue, Moody’s believes, could help to mitigate some of our long-standing concerns with the airport’s concentration in American Airlines and its connecting hub traffic, which makes up 61% of enplanements.”
The airport has completed a $2.6 billion capital improvement plan with the opening of Terminal D and the 4.8-mile Skylink rail system to connect terminals in 2005, DFW has not issued any new-money bonds since 2004. That deal of $271 million followed a $1.6 billion issue that was pushed forward in March 2003 to get ahead of the U.S. invasion of Iraq.
Passenger traffic at DFW grew a modest 2.1% last year, despite reductions in former hub carrier Delta Airlines. This year, boardings are expected to drop by 1.6%, while cargo traffic remains strong. In terms of aircraft operations, DFW is the world’s third busiest airport.
DFW is also bracing for more competition from Southwest Airlines, which flies out of Dallas Love Field Airport. Under federal legislation passed last year, Southwest can offer connecting flights beyond surrounding states. Under the Wright Amendment passed in the early 1970s to protect the new DFW Airport, carriers could fly only to contiguous states from Love Field, with no further connections under a single ticket.
Despite the growing competition, analysts note that DFW is seeing steady growth in origin and destination travel from DFW, easing pressure on its revenue as American’s largest connecting hub.
|
