DFW Airport Update J.P. Morgan Public Finance Transportation and Utility Investor Forum

Transcription

1 DFW Airport Update J.P. Morgan Public Finance Transportation and Utility Investor Forum April17, 2018 Michael Phemister Vice President Treasury Management DFW International Airport

2 Legal Disclosure This presentation contains assumptions and forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such assumptions and statements may involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance and achievements to be different from future results, performance and achievements expressed or implied by such assumptions or forward-looking statements. Investors are cautioned that such assumptions and forward-looking statements could differ materially from those set forth in the assumptions and forward-looking statements included in this presentation. 1

3 Despite Hurricanes and Legislators the Texas Economy Continues to Grow Gross Domestic Product - $1.7T Texas ranks #1 in Economic Climate (Forbes) Texas ranks #2 in Best State to do business (Forbes) $11B rainy day fund State unemployment 3.9% No bathroom bill Oil $65/barrel The Texas economy is firing on all cylinders going into Federal Reserve Bank of Dallas 2

4 With apologies to our neighbor Texas is not Louisiana Houston is not New Orleans 3

5 Strength of the State If Texas was a sovereign nation, it would rank 10th among the world s largest economies. Brazil $1.80 Trillion Texas $1.70Trillion Canada $1.53 Trillion 4 Source: World Bank, 2016

6 DFW Metroplex 4 th Largest U.S. Metro Population 7.4 million 146,000 new residents in new residents per day Median Household Income $61,644 GDP $.51 trillion Finalist for Amazon HQ2 5

7 DFW Metroplex If a sovereign nation, the DFW Metroplex would rank 22nd. Rank Country GDP 2016 GDP 2016 Rank Country ($ trillions) ($ trillions) 1 United States $ Indonesia $ China $ Turkey $ Japan $ Netherlands $ Germany $ Switzerland $ United Kingdom $ Saudi Arabia $ France $ Argentina $ India $ Sweden $ Italy $1.86 DFW Metroplex $ Brazil $ Poland $0.47 Texas $ Belgium $ Canada $ Iran, Islamic Rep. $ Korea, Rep. $ Thailand $ Russian Federation $ Nigeria $ Spain $ Austria $ Australia $ Norway $ Mexico $ United Arab Emirates $0.35 Sweden $.51 Trillion Poland $.47 Trillion DFW Metroplex $0.51 Trillion 6

8 Strength of DFW Region Employment May 2018 Employment Report Nonfarm employment reached 3.7 million 3.6% unemployment rate Added 100,400 jobs for 2017, a 2.8% increase #1 metropolitan area in terms of job growth #1 metropolitan area in terms of number of jobs created 7

9 Public Administration 3% Information 2% Wholesale Trade 3% Strength of DFW Region Employment Economic Diversification Despite prevalent misconceptions, the DFW regional economy is diverse with no single industry employing more than 12% of workers. Healthcare and Social Assistance 12% Finance Insurance and Real Estate 9% Manufacturing 9% Retail Trade 11% Agriculture Oil, Gas 1% Food Service, Entertainment, Recreation 9% Educational Services 8% Transportation, Warehousing, Utilities 6% Professional, Scientific, Technical 8% Construction 8% Business Management & Administration 5% Other Services 5% 8 Source: US Census Bureau American Community Survey, may not add up to 100% due to rounding

10 Strength of DFW Region Business The Metroplex is home to 42 Fortune 1000 companies 22 Fortune 500 Companies 3 rd behind NYC Metro and Chicago Metro Texas is home to 50 Fortune 500 companies just behind: NY State 54 California 53 9 Source: Graphic from Dallas Economic Development Guide, 2017, Data from Forbes

11 Corporate Relocations/Expansions to DFW Sample of Major HQ Moves and Expansions to the DFW Region

12 DFW Airport Update Business and Strategy Update

13 Along with the Metroplex DFW has Grown into a Global Super-Hub 24-hour operations; no slot constraints or curfews 7 runways; 5 terminals; 165 gates Capable of landing four aircraft at one time 3 rd busiest in world based on operations measured by daily departures 12 th busiest in world based on passengers 12

14 Economic Engine DFW Airport is the economic engine of North Texas $37 Billion in Total Annual Economic Impact $12.5 Billion in Payroll Annually 228,000 Full Time Jobs 13

15 14 DFW Strategic Plan

16 DFW has 27 passenger airlines and 22 cargo airlines Passenger Airlines Cargo Airlines * 15 Source: DFW Monthly Flight Activity Reports, *Note: Amazon Prime Air flown by ATI/ABX

17 DFW serves 229 destinations, 173 domestic and 56 international Domestic 19 Mexico 7 Central America 7 Europe 7 South America 5 Asia 5 Caribbean 4 Canada 2 Middle East 1 Australia 16 Source: Diio Mi Schedules YE2017

18 Top Markets DFW offers numerous daily flights to/from top nationwide markets within a four-hour flight, providing excellent connecting opportunities. Seattle - 11 Minneapolis - 13 Detroit - 11 NYC - 29 S.F. Bay Area - 19 Denver - 19 Chicago - 21 Boston - 9 Philadelphia - 10 Las Vegas - 12 D.C. Area - 19 L.A. Basin - 31 Phoenix - 12 Atlanta - 18 Houston - 24 Orlando - 11 South Fla Source: Diio Mi Schedules YE2017

19 Passenger Trending DFW continues to grow total and international passengers at a steady rate DFW Airport Total Passengers (Millions) DFW Airport Int l Passengers (Millions) FY12 FY13 FY14 FY15 FY16 FY17 FY18B 0 FY12 FY13 FY14 FY15 FY16 FY17 FY18B 18 Source: DFW Monthly Flight Activity Reports, DFW FY18 O&M Budget

20 FYTD 2018 International Passengers International Passenger traffic is up across most regions 9.5% Canada 10.8% 15.0% Europe 2.0% Mexico (2.0)% 34.3% 6.5% 17.9% Middle East 10.3% Asia/Pacific 0.9 % Central & South America 3.7% 15.1% 19 Source: DFW Monthly Flight Activity Reports Note: Percentages within text boxes denote FY YOY change; Color circles with percentages represents relative passenger market share Note: Caribbean 1.6%, not included in picture

21 (Thousands) (Thousands) Cargo Trending DFW continues to grow total and international cargo at a steady rate Total Tonnage (in thousands) International Cargo Tonnage (in thousands) FY12 FY13 FY14 FY15 FY16 FY17 OL18 0 FY12 FY13 FY14 FY15 FY16 FY17 OL18 20 Source: DFW Monthly Flight Activity Reports, internal forecasts

22 DFW Airport s International cargo network consists of 15 international carriers 21 Source: DFW Monthly Flight Activity Reports

23 Strength of American Airlines Largest airline in the world based on fleet, capacity, and number of passengers Operates approximately 6,700 flights per day to 350 destinations in more than 50 countries Pre-tax earnings excluding special charges: Year Ended 2016: $5.1 billion 22 Year Ended 2017: $3.8 billion

24 DFW s Relationship with American Airlines DFW/AA relationship is very strong DFW is AA s largest hub AA is constructing new 300 acre headquarters campus on DFW Airport property AA completed its new Integrated Operations Center at DFW in 2015, closing Pittsburgh operations DFW/AA actively negotiating terminal expansion options In last two years AA has approved $640+ million in projects for airfield and landside improvements 23

25 Current Use Agreement Model Expires 9/30/20 DFW uses a hybrid model. It retains profits from non-airline revenues that exceed an agreed upon Upper Threshold. The remainder is shared with the airlines to reduce landing fees. Profits from the PFIC (not shown) are not shared. Operating Revenue and Expense Fund (the "102 Fund") Airline Cost Centers DFW Cost Centers Airfield Terminal DFW Net Cost = Landing Fees Net Cost = Terminal Rentals Non- Airline Revenues KPIs - Airline Cost & Airline Cost per Enplanement Net Revs from DFW CC Joint Capital Account Coverage Account DFW Capital Account + Natural Gas Royalties + Sale of Land Proceeds - Annual Capital Transfer Terminal Cost Center Capital Accounts ("Capital Improvement Fund") Funded from cost center that drives new debt service Funded annually from DFW CC. Contributions currently equal upper threshold plus 25%. 24

26 New Use Agreement Negotiations DFW s Primary Business Goals 1. Obtain pre-approval of new terminal and significant portion of the capital program 2. Maximize DFW cash generation to be used for pay-go capital, pay down debt, and maintain strong financial credit ratings 3. Keep airline rates and charges affordable with focus on long-term rate stability 25

27 DFW Airport Update Financial Update

28 Net Revenues, in millions DFW Cost Center Net Revenues Trending Net revenues fell in FY 2017 and projected to fall in FY 2018 due to flat revenues and increased debt service related to the 2016A bond issuance. $150 $125 $100 $75 $50 $25 $ (B) Fiscal Year Revenues to DFW Capital Acct Reduction in Landing Fees 27

29 Airline Costs, in millions Airline Costs Trending Forecasted FY18 CPE and Airline Costs, while substantially higher than DFW historically, are very close to the original projections from 2011 when Use Agreement was signed. $600 $500 $400 $300 $200 CPE $7.20 $228.7 CPE $7.74 $247.4 CPE $8.75 $286.0 CPE $9.50 $319.6 CPE $11.28 $383.2 CPE $13.77 $479.3 $100 $ (B) Fiscal Year 28 Airline Costs and CPE are shown net of ASIP payments

30 29 Fully Loaded CPE Comparison

31 Key Performance Indicator Scorecard For the Five Months Ended February 28, 2018 Unaudited ($ in millions) Year-To-Date FY 2018 Key Performance Indicator FY 2017 Actuals FY 2018 Actuals FY 2018 Budget Actuals vs. Budget Increase/(Decrease) Annual Budget DFW CC Net Revenues $51.3 $48.1 $40.5 $ % $105.1 Airline Costs $155.9 $183.3 $194.7 ($11.4) (5.9%) $482.8 Total Expenditure Budget $347.3 $375.7 $384.3 ($8.6) (2.2%) $954.2 Total Passengers (Ms) % 67.3 Total Landed Weights (Bs) % 43.4 Results Status Bar Improved/Constant Worse 30 Airline Cost Budget does not include ASIP reductions

32 Pension and Retirement System As of January 1, 2017 Assets Membership 2018 Contribution Actuarial Assumed Return Market Value: $600.6M Accumulated Liability: $776.7M Funded Level: 77.3% Active: 1,143 Retirees: 1,359 Inactive Vested: 510 $29.9M 7.25% - Earned 12.6% in 2017 Fixed amortization period, now 18 years remaining DFW Airport has two pension plans: Employee & Dept. Public Safety (DPS) Employee Plan is closed to new participants DPS Plan remains open Board employees hired since 2010 participate in a Defined Contribution plan Assets: $98.1 million Participants: 1,382 DFW Airport s pension plans are separate and distinct from the cities of Dallas and Fort Worth. 31

33 Public Facilities Improvement Corp. (PFIC) Grand Hyatt Hyatt Place - Gallery The PFIC currently operates two hotels, the Grand Hyatt and the Hyatt Place. Construction of a third hotel, a Hyatt House will begin this summer. The PFIC also collects Rental Car Customer Facility Charges and Customer Transportation Charges Hyatt House - Concept RAC - Interior 32

34 DFW Airport Update Capital Plan for Existing Facilities

35 34 DFW Capital Program DFW has a significant amount of 50-year old infrastructure to maintain, restore and enhance

36 35 DFW Capital Program Summary of Proposed Major Project Initiatives by Category Major Airfield Projects Major Existing Terminal Projects Runway 17C Reconstruction & Related Taxiways Terminal Roof Replacements Runway 18R Reconstruction & Related Taxiways Terminal Restroom Enhancement/Expansion NE End-Around Taxiway Total: ~ $700M SW End-Around Taxiway Total: ~ $1.1B Major Roads/Bridges, Rail, & Skylink Projects Major Utility Projects Landside Roads/Bridges Replace High Pole Lighting System TexRail (Fort Worth "T") Station Construction Major Rehab of Water and Sewer Systems Total: ~ $350M Rehab and upgrade of the Central Utility Plant Total: ~ $200M Major Parking Projects Employee Garages Replacement of Various Rolling Stock (Buses/Vans) New Commercial Development Parking Garage Lighting Enhancements Total: ~ $300M Total: ~ $300M Major ITS Projects Major Safety & Security Projects Various IT Terminal System Replacements DPS Station #1 Reconstruction/Expansion Various IT Security System Initiatives Integrated AOC/EOC Facility Various IT Network Replacements Replace Automated Access Control System Total: ~ $200M Total: ~ $250M Estimated Total Program $3.4B

37 DFW Capital Program Airfield Project Map Runway 18R/36L Rehabilitation NE End Around Taxiway Runway 17C/35C Rehabilitation Runway 17C/35C Taxiways L/M High Speed Exits SW End Around Taxiway 36

38 DFW Capital Program Funding Sources Projected Funding Sources* DFW plans to issue approximately $2B in new money bonds to fund these initiatives. Airport management expects that the remainder of the initiatives will be funded with cash and FAA grants. Cash / Grant Financed $1.4B Bond Financed $2.0B 37 * Plan is still under development and will be negotiated with airlines as part of new Use Agreement.

39 DFW Airport Update Preliminary Plans for Terminal Facilities

40 DFW Capital Program Terminal Expansion Update DFW is evaluating, in consultation with the airlines, long-term gate capacity needs. DFW is considering constructing a Terminal F To meet immediate gate needs, DFW plans to do the following: Minimal C Re-Life ~$150M E-Satellite Renovation - $20M (6 new gates) D-South Stinger - $225M (4 new gates) Potential Sterile B/D connector - $40M (3-4 int l swing gates) Feasibility Study Underway Long-Term: Potential F Terminal Negotiating with Airlines F TBA B D A C E 39

41 DFW Airport Update Financing Program

42 DFW Financing Program Debt Amortization Total debt outstanding of $6.4B at 11/1/2017 Final Maturity of 2050 Principal Amortization through Maturity (In Billions) $6.0B Principal Paid by the PFIC $5.0B $4.0B $3.0B $2.0B $1.0B - *Assumes no additional debt issuance other than forthcoming Series 2017 Bonds 41

43 DFW Financing Program Debt Service With the current debt profile, DFW has the ability to structure in new debt and keep overall debt service level. $600M $500M $400M Debt Service Paid by PFIC Annual Debt Service $300M $200M $100M Debt Service Paid by RFC Debt Service Paid by PFCs - *Assumes no additional debt issuance other than forthcoming series 2017A Bonds 42

44 Amount of callable debt, in millions DFW Financing Program Redemption Schedule Through 2023, DFW has the flexibility to call approximately $5.2B of debt to either achieve savings through refunding or restructure as desired. $2,500 $2,000 2,084 $1, ,311 $1,000 $500 $ , /1/ /1/ /1/ /1/ /1/ /1/2023 Call Dates Non-AMT AMT/Taxable 43

45 DFW Financing Program Financing Plan Near Future: Establish a taxable subordinate-lien interim financing program Either one or a combination of: Commercial Paper Revolving Credit Facility Short-Term Variable Rate Bonds : Refinance all outstanding taxexempt AMT bonds with taxable bonds as they become callable $1.1B Callable in 2020 Refinance tax-exempt issues with tax-exempt refunding bonds as they become callable if savings can be achieved Issue new tax-exempt bonds for non-terminal projects Issue a combination of taxable muni and taxable corporate debt for terminal projects Why Taxable Bonds for Terminals? IRS regulations and uses of terminals. Terminals are becoming malls with ineligible uses. New, currently disallowed, concessions concepts could help continue to diversify nonairline revenues AMT Market Limitations DFW has experienced difficulty with investors being maxed out on DFW Bonds Other large hub airports have announced large capital programs signaling an increase of AMT bonds in the marketplace, ultimately increasing the cost of AMT bonds Spreads between AMT and Taxable debt are marginal Other governmental organizations have taken this approach (Hospitals, Universities) 44

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