January/February 2024 - 12

INFRASTRUCTURE FUNDING
AUTHOR Joe Petrie
Lower Interest Rates
and Their Impact on Airport
Improvement Projects in 2024
Airports are balancing a mix of factors when
considering debt issuance with the potential
of lower rates in 2024.
IN AN era where airport infrastructure demands innovative
funding solutions, Des Moines International Airport (DSM)
is at the forefront.
With their ambitious $445 million
terminal project, DSM is a prime
example of how airports are tackling
the complex interplay of interest rates
and large-scale financing.
" A 1% shift in interest rates translates
to an approximate $75 million difference
in total debt service, " says Brian
Mulcahy, Assistant Airport Director for
the Des Moines Airport Authority. " It's
a significant financial impact. "
Financing Airport
Improvements in an
Era of High Rates
Seth Lehman, Senior Director of North
American Global Infrastructure Rating
for the Fitch Group said the last 18-24
months have seen elevated rates stalling
some market activities. However, an
anticipated dip in long-term treasury
rates could open doors to a blend of
new investments and refinancing options.
This shift is pivotal for airports positioning
them to leverage market conditions
for both ongoing and future projects.
The financing of airport infrastructure
is seeing a transformative shift.
Lehman notes the cost benefits of public
municipal bonds, due to tax benefits,
often present the most cost-effective
capital source.
million in bonds in December to
fund improvements at Indianapolis
International Airport (IND).
Robert Thomson, Senior Finance
However, he observes a growing reliance
on private financing, especially for
large-scale projects like terminal redevelopments.
This trend signifies a move
towards more integrated public-private
partnerships, blending the financial
strengths of both sectors.
The Bipartisan Infrastructure Law
has also provided some relief for airports
undertaking major investments.
" While federal grants offer some
relief, they're often counterbalanced
by escalating project costs, " Lehman
said. " Thus, bond borrowing becomes
a necessity. "
This dynamic affects various airport
sizes, with both large hub and mid-sized
airports finding unique benefits and
challenges in this financial ecosystem.
There has been a trend of larger airports
keeping more cash on hand in the past
decade, which provides them additional
financing opportunities.
" Most are advancing their projects,
aiming to be shovel-ready for Bipartisan
Infrastructure Law grants, " said Earl
Heffintrayer, Vice President of Credit
for Moody's. " This readiness for federal
funding is a critical strategic move in
today's financial climate. "
The Indianapolis Local Public
Improvement Bond Bank sold $205
12 \ AIRPORT BUSINESS / JANUARY/FEBRUARY 2024
Brian Mulcahy,
Assistant Airport
Director for the
Des Moines Airport
Authority
DES MOINES AIRPORT
AUTHORITY
Director/Treasurer of the Indianapolis
Airport Authority, said the authority
focuses on a holistic and long-term
approach, rather than short-term market
reactions when issuing debt. Their bond
transactions are planned and executed
with an eye toward long-term sustainability
and alignment with strategic goals.
While lower interest rates are possible,
they are not the main factor when
issuing debt.
" It's not going to drive the timing
of when we would do this, " he said.
" The importance of the project is what's
going to drive its timing. "
January/February 2024

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