Airlines and mayor present unified front as city prepares to go to market to sell bonds
By Maria Saporta
What a difference 20 months can make.
Back in the fall of 2008, Delta Air Lines was writing letters to bond underwriters questioning Hartsfield-Jackson International Airport’s construction plans and the related costs.
It was pretty clear that at the time, Delta would not support the city’s plans to issue bonds to build the new international terminal at the airport and that the airline was questioning the projected costs of the project.
Now consider today’s news conference.
Atlanta Mayor Kasim Reed stood next to Delta Air Lines CEO Richard Anderson and AirTran CEO Bob Fornaro to announce that the airlines would be full partners in the financing to complete the $1.3 billion Maynard H. Jackson Jr. International Terminal.
The airlines had agreed to contribute another $30 million in rent over the next four years to help shore up the financial outlook for Hartsfield-Jackson International Airport. The rent will be divided proportionally among the carriers, with Delta contributing about 60 percent of the supplemental rent, AirTran about 18 percent and the other airlines contributing the balance.
The additional rent will improve the airport’s debt coverage ratio, which will in turn secure the airport’s current credit rating. The diminishing financial prospects of the airport had led to speculation that the credit rating would be lowered, which would increase the interest costs of the pending bond issue.
Mayor Reed said the city received “a clear signal” from bond rating agencies that it needed to improve its debt coverage ratio to 1.5 or its credit rating would be downgraded.
Anderson said Delta agreed with the city’s desire to keep its credit rating intact.
“Under the mayor’s leadership, it was made very clear that the city would maintain the 1.5 ratio.,” Anderson said. “We believe this is exactly the right approach. It makes certain that the interest rates that we will pay on a large bond (issue) will be competitive.”
When the mayor was asked whether the international terminal was ever in jeopardy, Reed said: “The new terminal was never going to be dead, but we would have had to take a pay as you go approach. Not maintaining the credit rating of Hartsfield-Jackson and maintaining the debt coverage ratio (was essential). I was not going to be the mayor that placed Hartsfield-Jackson at risk.”
The mayor went on to say that if they had not reached an agreement on how to proceed, the construction would have had to slow down.
“We think we will be able to go to market in 2010,” Reed said. “We have got to make our case. We have hundreds of millions of dollars to sell.”
AirTran CEO Fornaro pledged to do what he could to help the city in that effort. Anderson then echoed those sentiments.
The city and airport officials will be going on a road show this fall to sell the bonds.
Unlike the situation less than two years ago, Delta will be fully supportive.
“We were always supportive of expanding the international capacity of the airport,” Anderson explained at the news conference. “The matter that we needed to work through was making certain we could get the costs down. At the time, fuel was $150 a barrel. The airport did a very good job in cutting down the costs.”
Anderson went on to praise the leadership of Mayor Reed and former Atlanta Mayor Shirley Franklin.
“We have never missed a beat on construction,” Anderson said. “We should be opening on time for the peak 2012 travel season.”
And it appears fortuitous that the city waited until now to go to the bond market.
“We are going into a perfect market in terms of interest rates,” Anderson said, adding that Delta would help the mayor in any way it could to get the bonds sold. “We will be side by side with the mayor.”
Atlanta Councilman C.T. Martin, who chairs the transportation committee, summed it up this way.
“It’s been remarkable considering the amount of time to get this agreement passed,” Martin said of the negotiations that only took a few months. “This mayor has been able to build a trust both of these CEOs… It’s very clear that these three gentlemen are working as a team.”