HomeMy WebLinkAbout023426 RES - 08/25/1998RESOLUTION
APPROVING THE FINANCIAL FEASIBILITY PLAN TO FUND THE FIVE-
YEAR CAPITAL IMPROVEMENT PROGRAM FOR CORPUS CHRISTI
INTERNATIONAL AIRPORT, INCLUDING THE TERMINAL
RECONSTRUCTION PROGRAM.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF CORPUS CHRISTI, TEXAS, THAT:
SECTION 1. The Financial Feasibility Plan by J. F. Brown & Company, Incorporated to
fund the five-year Capital Improvement Program at Corpus Christi International Airport, including
the terminal reconstruction program, is approved.
ATTEST:
Armando Chapa, City Se Mary
THE CITY OF CORPUS CHRISTI
amuel L. Neal,r., Mayor
City of Corpus Christi
Legal form approved , 1998; James R. Bray, Jr., City Attorney
By:
Alison Gallaway, Assistant Citttorney
AG\98\5000.533
(323426
Corpus Christi, Texas
a� n Day of a,(,(Gy{,(.014
The above resolution was passed by the following vote:
Samuel L. Neal, Jr.
Javier D. Colmenero
Melody Cooper
Alex L. Garcia, Jr.
Dr. Arnold Gonzales
Betty Jean Longoria
John Longoria
Edward A. Martin
Dr. David McNichols
AG\98\5000.533
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023426
2
AIRPORT MANAGEMENT CONSULTANTS
FINANCIAL FEASIBILITY
CAPITAL IMPROVEMENT PROGRAM
August 12, 1998
Prepared for:
DEPARTMENT OF AVIATION
CORPUS CHRISTI INTERNATIONAL AIRPORT
Prepared by:
JOHN F. BROWN COMPANY, INC.
Cincinnati, Ohio
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01 -IN F BROWN COMPANY
AIRPORT MANAGEMENT CONS U LTA NTS
August 12, 1998
Ms. Bonnie A. Allin
Director of Aviation
Department of Aviation
Corpus Christi International Airport
1000 International Drive
Corpus Christi, TX 78406
Dear Ms. Allin:
RE: Financial Feasibility—Capital Improvement Program
The proposed 5 -year capital improvement program (CIP) for Corpus Christi International Airport
(CRP or the Airport) is estimated to cost approximately $36.6 million (in escalated dollars), which
includes $22.2 million for the proposed rebuild of the terminal building. At your request, we have
undertaken a preliminary assessment of the ability of the Department of Aviation to finance the Airport
CIP solely in reliance on its own capital resources. Based on the assumptions contained herein, we
conclude that the Department is capable of financing the CIP solely in reliance on its own capital
resources. Accordingly, we recommend that the City proceed with detailed programming studies of the
terminal building and with negotiations to amend and extend the Airport Use and Lease Agreements.
These efforts will reduce the uncertainties associated with this undertaking and will increase its chances
of success.
APPROACH
• We reviewed the projects comprising the CIP, with particular emphasis on the project to rebuild
the passenger terminal building. We understand that scope, cost, schedule, occupancy, and
vacancy data are preliminary and subject to change based upon future programming and design
efforts.
• We prepared preliminary projections of the sources and uses of Airport capital resources,
including federal grants, passenger facility charges, internally generated funds, and proceeds
from an expected issue of general airport revenue bonds. As part of this effort, we also projected
financing costs (e.g., capitalized interest, bond reserve requirements, and issuance costs) and
annual debt service expense of such a bond issue.
• We prepared preliminary projections of enplaned passengers and aircraft landed weight.
• We prepared preliminary projections of operating expenses, non -airline operating revenue, and
non-operating revenue in Aviation Fund (117).
823 DELTA AVENUE' CINCINNATI OHIO 45226
513.321-6080 FAX: 513.321-6125
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Ms. Bonnie A. Allin -2- August 12, 1998
Corpus Christi International Airport
•
We prepared preliminary projections of revenue from airline rents, fees, and charges based upon
the Department's assumption that the City and the airlines signatory to the existing Airport Use
and Lease Agreement, which expires December 31, 2001, would amend the contracts to:
Reflect mutual agreement on the Airport CIP and the plan of finance;
Modify the methodology for calculating terminal rents and fees, but otherwise reaffirm
the methodology for calculating landing and apron fees;
Incorporate an assurance that the signatory airlines are obligated to pay rents, fees, and
charges so that revenues therefrom together with revenues from all other Aviation Fund
sources would be sufficient to meet bond covenants; and
Extend the agreement several years beyond the date of beneficial occupancy for the
terminal building improvements, which date is currently scheduled for January 1, 2002.
CONCLUSIONS
To finance the costs of the Airport CIP, the Department must issue additional debt, which would
consist of bonds payable solely from general airport revenues with no recourse to the general taxing
authority of the City. To service this debt, the Department must commit future Airport resources over an
extended period, thereby reducing its financial flexibility and increasing its vulnerability to risks. We see
no other option by which to finance the CIP, which is regarded as necessary and essential for the future
operation of the Airport. If, however, the City is able to amend and extend the existing Airport Use and
Lease Agreements along the lines discussed herein, then the overall financial feasibility of the CIP is
enhanced. Discussions to amend and extend these agreements will depend in part upon the information
produced in the detailed programming studies for the terminal building. We believe that the chances of a
successful negotiation are reasonably good.
Accordingly, we recommend that the City proceed with detailed programming studies of the
terminal building and with negotiations to amend and extend the Airport Use and Lease Agreements.
These efforts will reduce the uncertainties associated with this undertaking and will increase its chances
of success.
BACKGROUND
The Airport's CIP includes improvements to the main terminal building, airfield, and landside
areas of the Airport. The current estimate of project costs included in the Airport's CIP is approximately
$36.6 million (in escalated dollars).
The largest component of the Airport's CIP is the improvement and modification of the main
terminal building. The Airport had been planning to rehabilitate the main terminal building to modernize
facilities and improve, safety, customer service, and efficiency of airline operations. During this planning
the Airport discovered severe structural cracks throughout the older portion of the terminal building. It
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Ms. Bonnie A. Allin -3- August 12, 1998
Corpus Christi International Airport
was estimated that the cost to repair the structural problems and modernize the terminal building would
be approximately $14.8 million.
The cost required to repair the existing terminal building prompted the Airport to conduct a study
to determine the cost to rebuild the older portion of the terminal building. The rebuild of the terminal
building would include leaving the 1985 rehabilitation of the terminal building intact, while demolishing
and then rebuilding the older portion (with structural problems). The current cost estimate to rebuild the
razed portion and to modernize the remaining portion of the terminal building is $22.2 million.
The Airport staff has developed a rebuild concept and is prepared, pending authorization from
City Council, to proceed with a detailed programming study that will refine the proposed layout, scope,
schedule, and costs for the terminal building project. As part of this process, John F. Brown Company
has been asked to undertake an analysis of the financial feasibility of the Airport's CIP based on the
preliminary estimates and concepts presently available. (This analysis will need to be updated using
improved data as part of the on-going activities.) Listed below are our preliminary findings and
conclusions, which are explained in greater detail in the body of this report.
PRELIMINARY FINDINGS AND ASSUMPTIONS
1. Airport Debt. Federal grants, passengers facility charges (PFCs), and internal funds taken
together are not sufficient to finance the costs of the Airport CIP. Accordingly, the Department
would have to issue $17.5 million of airport revenue bonds, given projected levels of grants,
PFCs, and intemal funds. A portion of the debt service associated with the airport revenue bonds
would be paid with PFCs.
2. Debt Service Requirements. To service this level of debt, the Airport's principal and interest
payments are projected, given various assumptions about debt structure and interest rates, to
increase from current levels of $760,000 per year to $2.1 million per year by FY2005. PFCs will
service nearly $1.1 million of annual debt service over the life of the bonds, effectively insuring
little or no increase in debt service expense in the airline rate base, other things remaining equal.
3. Operating Requirements. For purposes of this analysis, it is projected that operating requirements
for the Airport would increase approximately 5 percent per year driven in part by inflation and in
part by other -factors. Overall, our preliminary projections reflect increases from $4.3 million in
FY1998 to $6.4 million in FY2006.
4. Aviation Fund (Fund 117) Requirements. Combined annual debt service, operating requirements,
and capital outlays are projected to increase from $5.3 million in FY1998 to $8.3 million in
FY2006. Because PFCs will satisfy a significant portion of annual debt service expense, the
Airport's Fund 117 requirements are projected to increase from approximately $5.3 million per
year in FY1998 to approximately $7.2 million per year by FY2006, an increase of lust 3.9
percent per year on average.
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Ms. Bonnie A. Allin -4- August 12, 1998
Corpus Christi International Airport
5. Basis for Airline Rates and Charges. The Airline Agreements establish procedures for the annual
review and calculation of airline rentals, fees, and charges for the use and lease of the Airport.
The rates are based upon annual costs and upon the use and occupancy made of Airport facilities.
We assume that the Department, in anticipation of the expiration of the current Airline
Agreements on December 31, 2001, will negotiate a rate -setting methodology that is no less
favorable than the current methodology. Accordingly, we projected airline charges after the
expiration of the current agreement based upon the current rate -setting methodology, with certain
modifications pertaining to Airport common use charges.
6. Landing Fees and Apron Fees. We project that, as a result of the cost of airfield and other
improvements in the Airport's CIP, landing fee rates, estimated to be $1.05 in FY1998 after
adjustment per the airline agreement (FY1998 landing fee rate of $1.02 was set based on
budgeted figures), would increase to approximately $1.43 in FY2006, and apron fees, estimated
to be $295,000 in FY1998, would increase to approximately $433,000 in FY2006.
7. Terminal Rents and Common Use Charges. We project that terminal requirements would
increase to $3.5 million in FY2006 from $2.5 million in FY1998. Terminal rental rates,
estimated to be approximately $37 per square foot in FYI998 (FY1998 terminal rental rate of
$37 was set based on budgeted figures), would decrease to approximately $35 in FY2006. The
decreased rental rate is largely attributable to a change from the amount of revenue producing
space used for actual rate calculations to the amount forecast at this preliminary stage of concept
development.
8. Total Airline Rates and Charges. We project that in FY2006 airline payments per enplaned
passenger, $4.16 in FY1997, would increase to $7.49. Charges per enplaned passenger for
individual airlines may be higher or lower than the average, depending upon operating
efficiencies such as passenger throughput per available seat, per square foot of exclusive space,
and per unit of aircraft landed weight.
9. Airline Approval of CIP and Plan of Finance. As discussed above, it was assumed that the City
and the airlines signatory to the existing Airport Use and Lease Agreement would amend the
contracts to reflect mutual agreement on the Airport CIP and the plan of finance.
POTENTIAL RISKS
As with any capital program, the Department would face a number of risks if it were to move
forward with plans to finance the CIP. During the programming phase, steps should be taken to assess
and, to the extent possible, mitigate the risks associated with such an undertaking.
1. Traffic Risks. The risk of losing traffic (and traffic -related revenue) is related to various factors
such as economic downturn, work stoppage, and reductions in service by air carriers.
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Ms. Bonnie A. Allin -5- August 12, 1998
Corpus Christi International Airport
2. Planning Risks. As of June 1998, many projects in the Airport's CIP are still in the conceptual
stage. The projects that comprise the Airport's CIP and their scope, cost, and completion
schedules will likely change as a result of factors such as inflation, regulation, tenant requests,
legal challenge, or realization of contingent liabilities.
3. Design and Construction Risks. Design and construction activities introduce additional sources
of risk that can cause delays and added costs, thereby adversely affecting financial results. These
risks involve, for example, issues of constructability, technical feasibility, design and
engineering integrity, contractor reliability, compliance with environmental requirements, and
timely receipt of development approvals.
4. Funding Risks. Borrowing requirements may increase to compensate for reductions in grants,
PFCs, or internally generated funds or to finance longer periods of capitalized interest.
Borrowing costs may increase if interest rates rise. Our projections were developed based on the
assumption that the Airport would receive approximately $12.6 million of federal grants and
approximately $18.0 million of PFC revenues that would be used to finance the cost of the
Airport's CIP.
5. Operating Risks. Operating risks arise from limitations on the ability to raise revenue, to reduce
costs, or to operate cost-effectively.
6. Credit Risks. The Airport's CIP is a large construction program for the Airport and will impose
an increase in Aviation Fund requirements that makes the ongoing financial viability of the
Airport more vulnerable to the risks discussed above. Rating analysts will evaluate the likely
effect of the foregoing risks in the context of mitigating factors and of the Airport's ability to
manage these risks.
Accompanying this letter is a report that further addresses some of these principal findings and
conclusions. The report is organized into three sections: Background, Market and Traffic Analysis, and
Financial Analysis.
We are pleased to have had this opportunity to be of service to the Airport in this matter,
Sincerely,
JO; F. BROWN COMPANY, INC.
Enclosure
John F. Brown
Chairman
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BACKGROUND
Ownership And Operation
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The Corpus Christi International Airport (CRP or the Airport) is owned and operated by
the City of Corpus Christi (the City). The City is governed by a City Manager form of
government. The Airport Advisory Board (the Board) is appointed by City Council and consists
of 10 members. All leases, major purchases, and policy decisions must be reviewed by the Board
before being taken to City Council for approval. Day to day operating decisions for the Airport
are made by the Director of Aviation under the authority delegated by the City Manager.
The Airport
The Airport is located approximately nine miles northwest of the City in Nueces County
and ten miles from the Port of Corpus Christi. The total area of the Airport comprises
approximately 2,300 acres.
Primary access to the Airport is via State Highway 44 from the City or from the
surrounding areas. International Drive connects Highway 44 with the Airport complex. In front
of the terminal building, the drive widens from two lanes to include an additional lane for
curbside loading and unloading.
Airfield Facilities
The existing airfield is comprised of two active runways that are intended for use by air
carrier, general aviation, and military aircraft. Runway 13/31, the primary runway, is 7,508 feet
long by 150 feet wide. Runway 17/35, the crosswind runway, is 6,081 feet long by 150 feet wide.
Both runways are equipped with a Category I instrument landing system (ILS).
Terminal and Parking Facilities
The Hayden W. Head Terminal consists of ticketing areas, airline holdrooms, gift shops,
car rental counters, baggage claims areas, and a restaurant. The main terminal structure is a
single -story design, with a two-story addition in the west area of the terminal.
There are 235 short-term automobile parking spaces and 660 long-term spaces, with an
additional 78 spaces located west of the terminal building for overflow as needed. These lots are
equipped with automatic ticket dispensing machines and pay stations with awnings.
Aircraft Parking Aprons
There are four aircraft parking aprons: (1) the commercial apron, which provides parking
for the airlines operating at the Airport and consists of 45,000 square yards of concrete and
44,000 square yards of asphaltic concrete extension; (2) the east general aviation apron for fixed-
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base operators, which consists of 37,700 square yards of asphaltic concrete; (3) the west general
aviation apron, which consists of 50,100 square yards of asphaltic concrete; and (4) the specialty
hangar apron, which consists of 10,000 square yards of asphaltic concrete and is used for smaller
aircraft and helicopters.
Air Cargo and General Aviation Facilities
There are no separate air cargo facilities at the Airport at this time. The U.S. mail is
carried by commercial aircraft and handled through the baggage makeup service court area.
Two fixed base operators—Signature Flight Support and Mercury Air Center—provide
general aviation services including minor aircraft maintenance and repair, equipment repair,
aircraft fueling, flight training, and charter and taxi service.
Other Facilities
In addition to the facilities described above, the Airport includes other areas with distinct
functions, as follows:
Airline and Airport support facilities include the control tower, which houses the Airport
administration and FAA offices, the aircraft rescue and firefighting (ARFF) facility, maintenance
buildings, and fuel farms, which are operated by the two fixed based operators.
The Airport is used for training purposes by the Navy and Coast Guard. There is also a
free standing National Weather Service (NWS) building, which is equipped with a Doppler radar
and serves as ajoint facility of FAA, NWS, and the Department of Defense.
There are several flight training schools, an aerial photography company, and a 30,000 -
square -foot land lease to Semtech, a non -aeronautical manufacturing company.
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MARKET AND TRAFFIC ANALYSIS
Economic Base
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Corpus Christi is located on the Gulf Coast of south Texas, roughly midway between
Houston/Galveston and the Mexican border. The city is linked to San Antonio, situated 144
miles to the northwest, by Interstate 37 which connects there with Interstate 10 (east -west) and
Interstate 35 (north -south). The port of Corpus Christi is the sixth largest in the United States
based on tonnage and one of the deepest inshore ports on the Gulf Coast.
The Corpus Christi metropolitan area ranks as the seventh most populous in the state,
after Dallas/Fort Worth, Houston, San Antonio, Austin, El Paso, and the McAllen -Edinburg -
Mission area. The 1996 population of the Corpus Christi Metropolitan Statistical Area (MSA),
comprised of Nueces County and San Patricio County, was approximately 384,000 of which the
City itself accounted for about 280,000. Compared to a 12.2 percent increase in population
statewide between 1990 and 1996, the MSA population increased 10.4 percent over the same
period.
The level of personal income in the Corpus Christi area is somewhat lower than for both
the state and the nation. According to the 1997 Survey of Buying Power published by Sales and
Marketing Management magazine, the 1996 median household Effective Buying Income (EBI)
in the Corpus Christi MSA ($30,000) represented about 93 percent of the median household EBI
in Texas ($31,900) and 89 percent of the national median figure ($33,500).1
The major generators of economic activity in Corpus Christi are the oil, gas, and
petrochemical industries, agribusiness, tourism, and the U.S. military:
• The oil, gas, and petrochemical industries employ an estimated 10,000 people in the area.
Koch Refining Company operates the largest refinery, while Hoechst Celanese and Reynolds
Metals operate the largest chemical plants.
• Cotton and grain sorghum lead the list of agricultural commodities produced and shipped
from the Corpus Christi area, which also serves as the regional agricultural service center for
the part of Texas known as the Coastal Bend.
• About 10,000 military and civilian employees worked in 1996 at three major area military
installations: Naval Station Ingleside, Naval Air Station Corpus Christi, and Corpus Christi
Army Depot.
• According to the Texas Comptroller of Public Accounts, Corpus Christi is second only to
San Antonio as the most frequented vacation destination in Texas, with an estimated 5
million visitors annually. Attractions include the area's natural features such as a near -
tropical climate and miles of sandy beaches.
Other area industries include metal fabrication, farm and ranch equipment, oil field
equipment, cement, electronics, fishing, and food processing. In recent years, a number of
financial back-office, data processing, and tele -service operations located in Corpus Christi.
'Sales and Marketing Management magazine defines EBI as money income less personal tax and non -tax payments—
a number often referred to as "disposable" or "after-tax" income.
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Although non-agricultural employment in the Corpus Christi MSA increased by 14.4
percent (from 134,800 to 154,200) over the seven years between 1990 and 1997, it was outpaced
by a 21 percent increase statewide. The unemployment rate in the Corpus Christi MSA was 8.5
percent in February 1997.
Two local institutions of higher education, Texas A&M University Corpus Christi and
Del Mar Community College, both have enrollments of over 15,000 students.
Passenger Profile
This brief profile of area air passengers was drawn from the findings of surveys
conducted in May 1996 as part of the Master Plan Update at the Airport.2
Roughly half of all passengers using the Airport were area residents, while the other half
were visitors to the area. Of area residents using the facility, about 75 percent originated in the
two -county MSA. Of the visiting air passengers, approximately half (51 percent) originated in
Texas and its four contiguous states, while the remainder (49 percent) came from elsewhere in
the U.S. and other countries.
Business travel (including those passengers traveling for both business and personal
reasons, attendees at conventions and conferences, and government and military travelers)
accounted for 44 percent of all passengers using the Airport. The remaining 56 percent were
traveling for personal reasons, including about 26 percent who were visiting friends and relatives
and 25 percent who were vacationing.
Some travelers used airports other than CRP for their air journeys to and from Corpus
Christi. Almost 8 percent of the passengers surveyed at CRP, and 12 percent of area residents
surveyed by telephone, indicated that they used San Antonio Airport (SAT) at least once over the
previous year. In both cases, respondents stated that the availability of lower air fares at SAT
was the primary reason, followed by a greater choice of flights and more direct flights. About 5
percent of each surveyed group attested to using one or both of the Houston airports
(Intercontinental and Hobby) to make trips to or from Corpus Christi; use of a Houston airport
appears to have been prompted about equally by lower fares and the greater availability of flights
than at CRP.
Respondents to the telephone survey were asked what factor would most influence their
use of CRP for their future air trips. The three factors cited most frequently were lower fares,
more jet flights, and more nonstop service to their destinations.
Service and Traffic Trends
A significant decline in the number of jet flights and seats at CRP began in FY 1993. The
effect of that service decline on passenger enplanements and air fares paid at the Airport,
however, was not apparent until FY 1996.
2A three-day survey of departing passengers (835 responses) and a four-day random telephone survey of area residents
(528 completed interviews) were conducted.
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Service Changes
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CRP has traditionally been linked by nonstop passenger air service to Houston, Austin,
and the Dallas/Fort Worth area. In May 1998, 37 daily flights departed from the Airport to those
three cities, up from 31 daily flights in May 1993. However, the type of flights operated and the
number of seats available changed significantly over the five-year period. (See Table 1)
Overall, the Airport gained 6 additional daily flights over the five-year period.
Continental, its Continental Express subsidiary, and feeder carriers affiliated with American
(American Eagle) and Delta (ASA) accounted for an increase in frequency of 8 flights per day.
Termination of service to Harlingen resulted in the loss of 2 daily flights. Southwest Airlines
held its weekday flight frequency constant at 8 flights. At the same time, the Airport lost 367
daily departing seats (a decline from 2,917 to 2,550), largely due to the replacement of jet
operations by flights operated using turboprop aircraft.
Over the 1993-98 period, the number of turboprop flights more than doubled, from 10 to
22 departures per day. Moreover, the number of seats available at CRP on turboprop flights
increased 250 percent (from 286 to 1,002). By May 1998, all scheduled air service between CRP
and Dallas/Fort Worth was operated using turboprop flights.
On the other hand, the number of jet flights at CRP dropped from 21 to 15 departures per
day, and the number of seats available on jet flights declined by more than 40 percent (from
2,631 to 1,548 per day). Due to the introduction by Continental Express of flights operated using
smaller regional jet aircraft, the average seating capacity of passenger jet flights at CRP dropped
as well, from 125 in 1993 to 103 in 1998. Because both American and Delta terminated jet
service between CRP and Dallas/Fort Worth during the five-year period, nonstop jet service at
CRP in May 1998 was provided by only Southwest and Continental and only to the two Houston
airports.
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Table 1
FIVE-YEAR COMPARISON OF SCHEDULED PASSENGER SERVICE
CORPUS CHRISTI INTERNATIONAL AIRPORT
(Monday through Friday during month of May)
Aircraft Type
Nonstop Market Carrier
Daily Flight Departures Daily Departing Seats
1993 1998
1993 1998
TOTAL—ALL MARKETS
BY AIRCRAFT TYPE, MARKET AND CARRIER
Jet Flights:
Houston (Hobby) Southwest
Houston (Intercont.) Continental Express
Houston (Intercont.) Continental
Dallas/Ft. Worth American
Dallas/Ft. Worth Delta
Turboprop Flights:
Dallas/Ft. Worth
Houston (Intercont.)
Dallas/Ft. Worth
Austin
Austin
Harlingen
BY CARRIER GROUP
Total—All Carriers
31 37
21
81
5
5
3
10
American Eagle 1
Continental Express 3
Delta Connection --
Aspen Mountain Air2
Conquest 4
Conquest 2
Southwest
Continental
American
Delta
Other
31
8
8
6
3
6
2,917 2,550
15 2,631
1,120
515
675
321
81
6
22
9
5
4
4
37
8
12
9
4
4
286
34
138
76
38
2,917
1,120
653
709
321
114
1,548
1,120
300
128
1,002
576
230
120
76
2,550
1,120
658
576
120
76
SOURCE:
NOTE:
Oficial Airline Guide, May 1993 and 1998.
]After stopping at Houston, all Southwest flights continued onward to Dallas -Love Field.
2Aspen Mountain Air discontinued service on June 27, 1998; Austin Express will be taking over this
service, pending City Council approval, beginning on July 27, 1998.
The pattern of declining jet service at CRP in the 1990s is laid out in Table 2.
(Reductions of flight frequency on weekends result in averages that slightly understate the
weekday level of flights.) Over the ten-year period, Southwest achieved no growth in the number
of passengers on its flights, and the average enplaned load on Continental jet flights at the
Airport declined from 74 to 52 passengers per flight.
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Table 2
AVERAGE DAILY SCHEDULED JET FLIGHT DEPARTURES AND
PASSENGERS ENPLANED
BY SOUTHWEST, CONTINENTAL, AMERICAN, AND DELTA AIRLINES[
CORPUS CHRISTI INTERNATIONAL AIRPORT
(for the 12 months ended December 31)
Southwest Continental2— Americana— Delta4
Year Flights Passengers Flights Passengers Flights Passengers Flights Passengers
1987 7 527 4 296 4 343 0 0
1988 7 487 4 261 4 332 0 0
1989 7 481 5 251 6 385 0 0
1990 7 467 5 276 5 368 2 84
1991 7 441 5 225 5 344 3 122
1992 7 499 5 239 6 427 3 134
1993 7 538 5 253 5 308 3 118
1994 8 571 4 226 3 197 0 0
1995 7 580 2 144 2 155 0 0
1996 7 557 3 163 0 0 0 0
1997 7 531 4 179 0 0 0 0
SOURCE: DOT, ScheduleT-100.
NOTES: 'Excludes passengers enplaned on code -sharing affiliated carriers.
2lncludes regional jet service by Continental Express beginning in October 1997.
;American suspended jet service in September 1995.
4Delta launched jet service in July 1990 and suspended service in May 1993.
Traffic Trends
Virtually all of the passengers enplaned at CRP were origin -and -destination (O&D) in
nature, that is, they either originated or terminated their air trips at the Airport. Connecting
passengers were negligible at CRP.
Passenger enplanements at CRP showed a modest increase from FY1987 to FY1997.
(See Table 33) Over the 10 -year period, the number of passengers enplaned at CRP increased at
an average of 1.0 percent per year. After increasing to a peak in FY 1995, however, enplanements
declined slightly in each of the subsequent two years and showed a similar trend in FY1998.
Airline market shares at CRP changed little over the past 10 years. By grouping the
carriers by major airline affiliations, we see that the top three major airlines (Southwest,
Continental, and American) and their codesharing carriers accounted for 92.6 percent of total
enplanements at CRP in FY1997, down only slightly from 95.4 percent 10 years earlier.
The proportion of passengers traveling on jet flights from CRP dropped significantly
over the FY1987-97 period. Virtually all enplanements at CRP in FY1987 were on jet flights. In
FY1997, by comparison, only about 55 percent of passengers at CRP (264,256 out of 477,084)
boarded jet aircraft.
3Because airlines report enplanement data to the Department of Transportation (DOT) by calendar quarter, the
passenger figures shown in Table 3 are for 12 -month periods ended June 30. As such, they approximate the number of
passengers enplaned at the Airport during fiscal years ended July 31.
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Air Fare Trends
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The average air fare paid by passengers at CRP increased over the most recent five fiscal
years. Whereas each passenger paid an average of about $103.00 in FY1992, the average fare
paid in FY1997 was (about $118.00) 15 percent higher. Two-thirds of that 15 percent increase
occurred between FY1995 and FY1996, which coincided with the end of jet service on the CRP -
Dallas/Fort Worth route.
The survey results cited earlier indicated that 17 percent of air travelers who lived in the
Corpus Christi area used SAT and the Houston airports for at least some of their air trips in
FY1996, partly due to the availability of lower fares at those other airports. The upward shift in
average fare paid by passengers at CRP in FY1996 could account for diversion of a portion of
the lower -fare discretionary traffic from CRP to SAT.
Comparison to Other Airports
Among the ten Texas airports with passenger jet service during the fiscal year ended
June 30, 1997, CRP ranked ninth in terms of passenger enplanements. (See Table 4.) Compared
to the other Texas airports, CRP experienced a decline of 4 percent vs. an increase of 19 percent
at the 10 airports overall. CRP also experienced the largest increase in average fare yield (up
more than 12 percent compared to a 5 percent increase at the 10 airports overall).
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Table 4
FIVE-YEAR CHANGES IN DOMESTIC O&D PASSENGERS AND
AVERAGE FARES PAID
AT CORPUS CHRISTI AND OTHER MAJOR TEXAS CITIES
(for the 12 months ended June 30; listed by 1997 passengers)
City
Airport
Code(s)
Average Fare Yield2
Fared Outbound O&D Passengers' (cents per mile)
Percent Percent
1992 1997 Change 1992 1997 Change
TOTAL
Dallas
Houston
San Antonio
Austin
El Paso
Lubbock
Midland/Odessa
Harlingen
Corpus Christi
Amarillo
SOURCE:
NOTES:
DFW/DAL
IAH/HOU
SAT
AUS
ELP
LBB
MAF
HRL
CRP
AMA
23,775,930 28,315,960 19.1% 16.5 17.3 4.9%
9,325,220 11,133,220 19.4% 18.8 20.5 9.2%
6,446,250 7,609,770 18.0 16.6 17.0 2.2
2,299,570 2,995,150 30.2 13.0 12.8 -1.2
1,895,070 2,623,180 38.4 14.7 14.7 0.1
1,405,060 1,515,040 7.8 13.1 13.9 6.1
546,150 579,270 6.1 13.9 14.6 4.8
509,240 511,480 0.4 14.5 15.3 5.2
464,440 453,680 -2.3 13.4 14.5 7.8
471,260 452,430 -4.0 14.1 15.8 12.3
413,670 442,740 7.0 14.4 15.7 8.6
DOT, Air Passenger Origin -Destination Survey, reconciled to Schedules T-100 and 298C T-1.
'Passengers who initiated trips, or began the return portion of round -trips, to U.S. destinations.
Excludes passengers who used frequent flyer program reward tickets and passengers bound for
international destinations who used domestic flights to reach other U.S. airport gateways.
2Average fares paid by fared outbound O&D passengers divided by the average number of air miles
traveled.
The 1996 survey results indicated that the majority (60 to 70 percent) of the traffic
`leakage' at Corpus Christi was to SAT. Compared to a 4 percent decline in passengers enplaned
at CRP in the FY1992-97 period, enplanements at SAT increased 30 percent. The explanation for
this difference likely lies with the levels of service and fares at the two airports. In May 1998,
SAT offered three times as many daily scheduled flight departures as CRP (111 vs. 37). The
difference in the number of jet departures at the two airports was even more significant: 105
daily jet flights at SAT compared to 15 at CRP. Moreover, the figures in Table 4 show that there
was a significant 3 -cent -per -mile difference between the average fare yields at CRP and SAT in
FY 1997, and that the gap had tripled in size from five years before.
Traffic Forecast
The forecast of enplaned passengers and aircraft landed weight presented in Table 5 is
for the purpose of this Report only. The forecast represents our estimate of the general direction
and magnitude of changes at CRP through FY2006.
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Table 5
FORECAST OF ENPLANED PASSENGERS AND AIRCRAFT LANDED WEIGHT
CORPUS CHRISTI INTERNATIONAL AIRPORT
(average annual compound growth rates, for the 12 months ended June 30)
Fiscal Average Annual Rate of Growth
Year Enplaned Passengers Aircraft Landed Weight'
1998-2002 0.8% 0.4%
2003-2006 1.0 0.7
1998-2006 0.9 0.6
NOTE: 'Landed weight for passenger flights only. Excludes flights by all -cargo carriers.
Enplaned Passengers
We forecast that the total number of passengers enplaned at the Airport will increase at
the rate of 0.8 percent per year in the years FY1999 through FY2002 and at 1.0 percent per year
in the years FY2003 through FY2006. Actual passenger levels realized in individual years may
be above or below the expected trend represented by the forecast. The forecast incorporates our
assumptions that the current levels of' scheduled passenger service at CRP will not change
materially throughout the forecast period, and that changes in air fares will be generally
consistent with changes in air fares at other airports in the state.
Our forecast of enplaned passengers at CRP is lower than forecasts developed
independently in the 1996 Master Plan Update and by the FAA.
• The Master Plan Update presents forecasts of scheduled domestic airline enplaned
passengers under two growth scenarios, as follows:
i) Under Growth Scenario 1, passenger traffic is forecast to grow at 3.3 percent per year in
the years 1996 through 2000, 2.3 percent per year in the years 2001 through 2005, and
0.9 percent per year thereafter through 2015.
ii) Under Growth Scenario 2, passenger traffic is forecast to grow at 4.5 percent per year in
the years 1996 through 2000, 3.2 percent per year in the years 2001 through 2005, and
1.3 percent per year thereafter through 2015.
• In the latest Terminal Area Forecasts issued by FAA, scheduled enplanements at CRP are
forecast to grow at a gradually declining rate, ranging from 3.7 percent in 1999 down to 2.9
percent in 2006.
Aircraft Landed Weight
We forecast that aircraft landed weight at the Airport will increase at the rate of 0.4
percent per year in the years FY1999 through FY2002 and at 0.7 percent per year in the years
FY2003 through FY2006. The Master Plan Update does not include a forecast of aircraft landed
weight.
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FINANCIAL ANALYSIS
Airline Agreements
e
The City has entered into substantially similar Use and Lease Agreements (the Airline
Agreements) with certain of the airlines (the Signatory Airlines) operating at the Airport.
Signatory Airlines include American Eagle, ASA, Austin Express, Continental, and Southwest.
The Airline Agreements provide for the use of the Airport, its facilities, improvements,
equipment, and services and for the lease of space in the terminal building and of adjoining
apron areas. The Airline Agreements will expire by their terms on December 31, 2001.
Under the Airline Agreements, the airlines have agreed to pay rentals, fees, and charges
that together with all other revenue of the Aviation Fund will be sufficient to pay operating and
debt service expenses of the fund during each fiscal year. In the event of a year-end surplus in
the Aviation Fund, the Airline Agreements provide that 60 percent of the surplus will be
apportioned to the Aviation Capital Reserve Fund and that 40 percent will be credited to the
airlines in the form of reduced landing fees and apron fees. In the event of a deficit, the Airline
Agreements provide that the airline rates will be increased to allow the Aviation Fund to break
even during any given fiscal year.
The Airline Agreements provide that in general the City may not develop and finance a
Capital Improvement whose cost to design, construct, and equip exceeds $100,000 without the
consent of a majority -in -interest of Signatory Airlines, unless such Capital Improvement "would
not cause an increase of more than 10% in the annual rentals, fees, and charges paid by airlines
collectively in any Fiscal Year" Signatory Airlines representing at least 51 percent of the
number of airlines at the Airport constitute a majority -in -interest for the purpose of approving
such a Capital Improvement.
Rate -Setting Procedures
The Airline Agreements establish procedures for the annual review and calculation of
airline rentals, fees, and charges for the use and lease of the Airport. The Airline Agreements
require that after completion of the annual audit the City will submit a copy of the annual capital
and operating budget for the Aviation Fund and the calculation of airline rentals, fees, and
charges to be effective January 1. On or before January 1 of each year, the City will adopt the
annual calculation of airline charges giving due consideration to any written comments from the
Signatory Airlines that are received before December 1. On 30 days notice, the City may adopt
mid -year rate adjustments to insure break-even financial results in the Aviation Fund.
Rate -setting procedures under the Airline Agreements are based on the recovery of Net
Allowable Costs allocable to the Terminal and Airfield cost centers. Net Allowable Costs include
the direct and allocated indirect operating and debt service expense, estimated to actual
reconciliation amounts from the prior year calculation, credits for certain revenues, and, in the
case of the Airfield, 40 percent of any surplus from the prior year or 100 percent of any deficit
from the current year.
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The City divides 70 percent of the airline share of Net Allowable Airfield Costs, which
share is approximately 75 percent of total, by projected total landed weight to calculate landing
fees payable by Signatory Airlines. The landing fee rate payable by non -Signatory Airlines is 25
percent higher. The City apportions the remaining 30 percent of the airline share of Net
Allowable Airfield Costs between preferential -use apron positions (67 percent) and joint -use
apron positions (33 percent). The former is recovered based upon the number of preferential -use
apron positions (4) that are under lease, and the latter is recovered based upon the number seats
operated by users thereof.
The City divides the Net Allowable Terminal Costs by rentable square footage to
compute the average rental rate per square foot. This average rate applies to all exclusive- and
common -use space leased to airlines in the Terminal. Rentals for common -use baggage claim
and security areas and related security costs are prorated among the Signatory Airlines and other
air carriers providing scheduled service based upon enplaned passengers.
The Airline Agreements provide for the payment of additional rentals, fees, and charges,
including, among others, an apron parking fee, utility charges not otherwise recovered through
rents, fees, and charges, employee parking charges, and various other miscellaneous charges.
Description Of The Capital Improvement Program
The Airport's Capital Improvement Program (CIP) includes all projects identified by the
Airport through July 31, 2003. The CIP includes projects entering into the design phase within
the five-year period and projects for which substantial completion is pending as of July 31, 1998.
Future projects are also listed for planning purposes, but are excluded from CIP summaries and
financial analysis. The CIP includes projects to address safety issues, aviation industry needs,
capacity constraints, consumer convenience and operating efficiency.
The CIP contains 14 projects with an estimated project cost of $36.6 million. Estimated
costs include amounts for planning, design, construction, project management and other related
expenses. Brief descriptions of the projects comprising the CIP are presented below.
Terminal Building
The main terminal building will be substantially changed as over three-fourths of the
existing terminal building is demolished, a new 121,000 square foot building is, constructed on
the footprint of the central area of the existing building, and the remaining 27,000 square feet of
the existing terminal is refurbished. The refurbishment will provide systems and fixtures
compatible with the new structure. When completed, the new terminal will feature baggage
claim and concession spaces, in addition to overall improvements in the user friendliness and
efficiency of the building.
A detailed programming exercise will occur, if approved by City Council, during the
second half of 1998, and will provide a refined scope, schedule, and budget for this project. The
preliminary cost estimate is $22.2 million and construction is tentatively planned to begin
January 2000 and end December 2001.
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Landside Improvements
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The landside roadway system project provides for reconstruction of International Drive,
straightening of the sharp corners in the loop road, and addition of loading, unloading, and
through lanes on the canopy road. Also, street lighting will be completely replaced, including
new poles, fixtures, and concrete encased conduits. Reconstruction will also include drainage,
curbs, gutters, landscaping, and signage. The estimated cost is $6.5 million. Certain elements of
this project are desirable, but not essential, and consideration will be given to deferring these
elements if necessary to meet the financial requirements of higher priority projects in the CIP.
Construction is scheduled for completion by October 2001.
Parking lot and revenue control system improvements include constructing 300
additional parking spaces, replacing ticket booths, upgrading electrical systems, and replacing
lighting in the parking lots. The aging revenue control system will be completely replaced with a
new state-of-the-art automated system. The estimated cost is $1.9 million and construction is
expected to occur concurrently with the landside roadway project.
Airfield Improvements
Rehabilitation of approximately 3,000 square yards of the commercial apron is needed.
Construction is scheduled to be completed October 1998. Estimated costs are $316,000.
The West general aviation apron will be milled and overlayed and an area between the
apron and taxiway B3 will be paved. The drainage system for taxiways A2 and 133 will also be
improved to address water accumulation that results in the closing of these taxiways five to
seven times a year. The estimate project cost is $889,000 and construction is scheduled for
completion in April 1999.
Installation of 3,000 linear feet of 8 -inch water pipe is included to provide a second mid-
field source of water for refilling Aircraft Rescue Firefighting (ARFF) vehicles and the
replacement of 900 linear feet of 6 -inch water pipe between the commercial apron and the
passenger terminal building. The existing lines are subject to periodic breakage. Costs are
estimated at $350,000 and completion of construction is planned for summer 2000.
The West commercial apron will be expanded to accommodate aircraft parking near the
western -most end of the terminal holdrooms. Completion, scheduled for September 2000, should
precede completion of the terminal building and relieve construction related congestion.
Estimated cost of this project is $2.0 million.
A midfield drainage project is contemplated to relieve periodic flooding during heavy
rains. The project is estimated to cost $486,000 and, as scheduled, would be completed by
summer 2001.
Paving 2,000 square yards between the commercial apron and the terminal building will
expand the commercial apron and enhance aircraft parking. This project would only occur after
the terminal building project is completed and will cost an estimated $168,000.
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A computerized airfield lighting monitor and control system will be installed if the
Federal Aviation Administration proceeds with its plans to build a new control tower. The
project would provide better operational control and ease in providing scheduled maintenance.
The estimated cost is $458,000. Construction is scheduled to be completed by June 2002, but the
schedule is linked to the FAA's schedule.
An airfield equipment storage facility, including a bay dedicated to ARFF equipment, is
contemplated to be constructed in a modular fashion as funds are available. The ultimate
buildout cost is estimated at $808,000, and the first phase, which cost is estimated at $83,000, is
targeted for completion in 2003.
Access Control System Replacement
This project provides for the modernization and replacement of the airport's security
access control system. An automated access control system capable of immediately preventing
and detecting the unauthorized entry of persons into sterile areas is a requirement of Federal
regulations (FAR 107.14). This project as designed, is estimated to cost $893,000, and is
scheduled for completion in September 1999.
Runway 13/31 Extension
Extension of runway 13/31 is a future project estimated to cost $5.7 million. An
environmental assessment will be scheduled to begin approximately two years prior to initiating
construction of the extension. Placement of the runway into the CIP will occur as part of the
programming exercise during the second half of 1998 when capital requirements for other
projects are more accurately defined.
Airport Planning Studies
Various planning studies estimated to cost $223,000 will support implementation of the
CIP.
Projected Plan Of Finance For The CIP
Table 6 presents the Airport's plan of finance for the CIP in a sources and uses format,
with the sources primarily consisting of airport revenue bonds, PFC revenues, federal grants, and
internally generated funds. The use of bonds as a financing mechanism creates additional costs in
the form of issuance costs, capitalized interest, and debt service reserve funding.
As shown on Table 6, the Airport expects to receive $12.6 million of federal entitlement
and discretionary grants and $18.0 million of PFC revenues to fund CIP related costs during the
analysis period. AIP grants are projected through FY2006 based on the entitlement formula.
PFCs are assumed to be used on a pay-as-you-go basis, with a portion of annual PFCs being
escrowed to pay debt service on the bonds. It is also assumed that $867,000 of internally
generated funds would be used to fund a portion of the CIP project costs. After using these other
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Table 6
SOURCES AND USES OF FUNDS FOR
THE AIRPORT'S CIP
CORPUS CHRISTI INTERNATIONAL AIRPORT
Amount
SOURCES OF FUNDS:
AIP Federal Grants $12,580,000
Bond Proceeds 17,516,000
Pay -As -You -Go PFC Revenue 6,478,000
Internally Generated Funds 867,000
Other 2,594,000
Interest Income 716,000
Total Sources of Funds $40,751 000
USES OF FUNDS:
Construction Fund $36,570,000
Capitalized Interest 2,277,000
Bond Reserve Account 1,341,000
Issuance Costs 563,000
Total Uses of Funds $40,751,000
sources of financing, the proceeds from issues of revenue bonds would be the principal source of
funds to pay the project costs of the Airport's CIP.
The following was assumed for purposes of the airport revenue bonds:
1. The airport revenue bonds would carry a 6.5 percent interest rate and would be
amortized over 30 years;
2. In general, interest would be capitalized over a two-year period for a total of $2.3
million in capitalized interest; and
3. The deposits to a debt service reserve fund and costs of issuance would be gross
funded from bond proceeds and interest thereon would flow to the construction fund
while construction is in process;
Under this financing plan, the Airport would issue bonds in the principal amount of
$17.5 million to fund the Airport's CIP. A portion of the debt service associated with these bonds
would be paid with PFCs.
Projected Debt Service Requirements
Debt service on the revenue bonds was structured using level annual debt service, which
was added to the current structure of the outstanding bonds. Capitalized interest for the first two
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years of debt service was used in developing the debt structure for the Airport's debt service
schedule. Debt service is projected to increase from current levels of $760,000 to $2.1 million
per year by FY2005 and then decrease to $1.9 million per year in FY2006. In FY2006,
approximately $1.1 million of annual debt service would be paid from PFCs, $541,000 is on
existing debt, and $244,000 is the portion of new debt to be paid from sources other than PFCs.
Projected Expenses
Operating expenses, which include the costs of maintenance, repair, operation, and
administration of the Airport, together with payments for capital outlays paid from the Aviation
Fund constitute expenses of the Airport. Expenses do not include depreciation or reserves for
extraordinary maintenance or repair.
The projection of operating expenses reflects the completion of components of the
Airport's CIP as well as an underlying rate of inflation (5 percent). Operating expenses are
projected to increase from $4.3 million in FY1998 to $6.4 million in FY2006, representing an
average annual growth rate of 5.1 percent.
Expenses in the amount of $4.5 million for FY1998 include $4.3 million of operating
expenses and $183,000 of capital outlays; the FY2006 amount of $6.5 million includes $6.4
million of operating expenses and $115,000 of capital outlays.
Projected Deposits To Reserve Accounts
It was assumed that an operating and maintenance (O&M) reserve account equal to two
months of annual operating expenses would be maintained, with initial funding beginning in
FY 1999. It was assumed that a debt service reserve fund would be funded out of bond proceeds.
It was also assumed that the Airport's share of annual net revenues would be transferred
to the capital fund and used to fund a portion of the project costs associated with the CIP. Project
costs funded with these net revenues would be included in Aviation Fund requirements in the
year the project costs are incurred and included in the calculation of airline rents and charges.
Projected Revenues
Airport revenues are derived principally from rents, fees, and charges assessed airlines
and from various concession operations. Airport revenues are projected to increase from an
estimated amount of $5.6 million in FY1998 to $7.8 million in FY2006.
The analysis employs the procedures for calculating payments due from airlines for use
of the airfield, apron, and terminal building that are contained in the airline agreement, with
certain modifications. These modifications include a common use charge for the use of the
commuter holdroom and the inclusion of an allocated portion of sterile circulation space in the
common use charge that includes bag claim and security space.
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It was assumed in the analysis that (1) beginning in CY2000 the amount of revenue
producing square footage in the terminal building would be revised to reflect actual square
footage in the existing terminal building, which would include an allocated portion of sterile
circulation space; and (2) 100 percent of the airline exclusive space would be leased in the new
terminal building.
Airline revenues consist of landing fees, apron fees, terminal building rents, and
common use charges. Airline revenues are projected to increase during the analysis period as a
result of increases in expenses and the allocation of costs associated with projects in the
Airport's CIP. Airline revenues are projected to increase from an estimated amount of $2.2
million in FY1998 to $4.1 million in FY2006.
Nonairline revenues consist principally of revenue from automobile parking, rental car,
merchandise, and food and beverage concessions. The Airport also receives building rents,
ground rents, and fuel flowage fees. Nonairline revenues are projected to increase from an
estimated amount of $3.1 million in FY1998 to $3.5 in FY2006.
The Airport collects other miscellaneous revenues and earns interest on investment of
available balances. Other revenues are projected to be $148,000 in FY2006.
Rate Covenant
A projected rate covenant and coverage calculation was completed for FY1998 through
FY2006. It demonstrates that, given the assumed rate covenant calculation, the Airport will,
based upon our projections presented herein, produce net revenues sufficient to pay debt service
on the outstanding general obligation bonds and proposed airport revenue bonds and to make
required deposits to the O&M reserve account.
_18_
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EXHIBITS
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