Port Authority of NY&NJ has billions on tap as passenger rates rise

As the U.S. airline industry appears to shake off the lingering effects of the pandemic, experts expect a rapid return to profitability and previously predicted growth.

After a staggering 96% drop in the volume of domestic air travel shortly after the adoption of travel restrictions in March of 2020, passenger flight rates have rebounded to within 10% of 2019’s average throughout 2022, according to data from the Transportation Security Administration.

And as passenger flight rates and revenues for the airline industry climb toward pre-pandemic norms, some of the largest projects are being led by the Port Authority of New York and New Jersey with billions of capital construction on tap at the region’s largest airports.

“We expect the 2022 baseline to be at the same level of 2019,” said Seth Lehman, lead Port Authority analyst for Fitch Ratings, who added that investor interest in major capital improvement at airports across the country is returning with as their revenue streams do.

According to the Federal Aviation Authority, 22 airports underwent major renovations during the first quarter of 2022, with three of the most significant projects being undertaken by the Port Authority of New York and New Jersey at John F. Kennedy International Airport, LaGuardia International Airport, and Newark Liberty International Airport.

The Port Authority of New York and New Jersey was established in 1921 as a joint venture between the Empire State and the Garden State. It runs LaGuardia, JFK and Newark airports as well as Teterboro Airport and Stewart International Airport.

The Port Authority also operates the Port Newark-Elizabeth Marine Terminal, the bridges and tunnels connecting New Jersey to Manhattan and Staten Island. It also runs the NJ PATH system and the Port Authority Bus Terminal in Manhattan.

Following a capital improvement plan inked in 2017, the authority has continued to raise funds to finance $37 billion in upgrades across its portfolio of airports, bridges and other commuter transportation infrastructure.

Since 2011, the Port Authority has sold over $25 billion of debt, with the most issuance occurring in 2012 when it came to the market with $3.7 billion of bonds. Prior to this year, it sold the least amount in 2016 when it issued $1.1 billion.

The Port Authority’s 2016-2027 Capital Plan is funded by a mix of debt, pay-go capital and other revenue sources, including the expected sale $13.4 billion mix of long and short-term consolidated bonds.

In May, three tranches of the variable interest notes brought in $900 million of new credit used by the Port Authority to service debt on previous bonds as well as fund new and continued construction projects, including terminal upgrades at all three area airports.

That deal received an A-plus rating from Fitch as the Port Authority has been operating on a “sturdy capital budget” despite “cutting back because of the environment,” according to Lehman. “Eventually those costs will come back.”

The Port Authority’s wide and traditionally profitable portfolio of holdings helped shield its airports from the worst of pandemic flight industry revenue losses by providing strong cash flow from other sources of revenue.

“Whether there are a million more or million less passengers coming through at any time, they have some downside protection,” Lehman said.

That portfolio is also helping to ensure investor confidence in future funding drives. Given the expected return of passengers and revenue over the next year, another round of bond issuances scheduled for August might just be “a catalyst for the Port Authority to see an improving credit rating from us,” Lehman said.

“Their cash flows are very strong, they can use a lot of their surplus cash flow to pay for capital, not so many airports can do that.”

Prior to the pandemic, the Port Authority and other airport operators were preparing for a growth in commercial travel that would require larger terminals and tarmacs to accommodate the increase.

Those new projects have changed little despite the seismic shifts of the last two years and already the Port Authority is plowing ahead with new construction according to its originally laid plans.

That meant bigger but more cost-effective terminal construction all allowed for via the integration of green technologies, according to a report released by the Port Authority.

The 2017-2026 Capital Plan report details upgrades to the organization’s airport holdings, including an $8 billion terminal construction project at LaGuardia that added more gates at the airport while cutting emissions and pollution with technology like climate-control systems, heat-reducing tiling and upgraded baggage belts.

A new $3 billion terminal at Newark airport is slated to open later this year and will institute some of the very same technologies, according to the report.

Kathleen Bangs, former airline pilot and spokesperson for flight data tracking firm FlightAware, formerly the commissioner for Minneapolis International Airport, said airport owners are now “really concerned with trying to be as green as they can” be to minimize their carbon footprint while maximizing their profits.

That penchant for climate-consciousness changes extends beyond airport facilities to airline operators as well, who are eyeing a future less reliant on fossil fuels.

“We’re seeing airplanes that are electric, airplanes that are pilotless,” Bangs said. “The future is going to be probably non-fossil fuel powered airplanes.”

Public-private partnerships are also part of the plans. The muni market will see more deals coming as the team developing John F. Kennedy International Airport’s flagship new terminal will tap the market for more than $6 billion through 2026, with more debt on the horizon for future phases of the high-profile project.  

The development is one of four P3s that the Port Authority of New York and New Jersey has launched as part of an $18 billion redevelopment of JFK, one of the nation’s busiest airports and a top international gateway to the U.S. NTO’s design-build-finance-operate-maintain project is the largest P3 in the U.S., with market participants watching it as a model for other U.S. airports.