Just when the nation’s airports thought their post-9/11 recovery challenges were behind them, upheaval in the nation’s airline industry has clouded the future of many facility and airside construction programs. Months of surging oil prices, volatile credit markets, and sagging U.S. economic fortunes culminated in a summertime string of drastic service cutbacks, steep fare hikes, and other measures aimed at staunching the flow of red ink from the airlines’ balance sheets.

Clark County, Nev., Department of Aviation
Scheduled for completion in 2012, the 1.87-million-sq-ft Terminal 3 will enable McCarran International Airport in Las Vegas to handle an additional five million passengers each year. Still, $350 million of other projects have been postponed at the request of hard-pressed airlines
Part of Dulles’ $3-billion capital-improvements program, the underground dual-track AeroTrain will replace most of the Mobile Lounges that have transported passengers.

Although crude-oil prices had fallen below $60/barrel by November, the International Air Transport Association predicted the global airline industry’s 2008 losses would total $5.2 billion, a 180-degree reversal of last December’s forecasted industry-wide profit of $5 billion. “Carriers that had been trying to operate more efficiently are now scrambling to save a nickel,” observes Richard Marchi, senior advisor for policy and regulatory affairs for the Airports Council International-North America (ACI-NA) “They're putting pressure on airports to defer projects that don’t have to be done.”

“Uncertainty in the financial markets may make it a challenge to find airline partners and other tenants to lease space or make a commitment to new projects,” adds James Bennett, president and chief executive officer of the Metropolitan Washington Airports Authority (MWAA), whose 8-year-old, $3-billion upgrade program at Washington Dulles International Airport includes a new 3.78-mile underground transport system scheduled for operation in late 2009, and a 206,000-sq ft. international arrivals building due to open in 2011.

Among the airports already feeling the pinch is McCarran International Airport in Las Vegas, which recently postponed $350 million of projects from its five-year, $3.7-billion capital improvement plan. Jim Ryan, assistant director for construction engineering for the Clark County, Nev., Dept. of Aviation, explains that while McCarran’s overall status is healthy, “the airlines requested that we reevaluate the priorities of our construction program.” Ryan adds that there is no schedule for restoring the projects, which include a $215-million reconstruction of runway 25R and a new $9.3-million baggage-handling system. “It depends on the state of the economy,” he says.

Ryan is quick to add that the airlines’ tailspin did not prevent McCarran from letting $1.5 billion worth of new construction projects this summer, including the $1.2-billion, 1.87-million-sq ft Terminal 3; a $141-million, 2.2-million-sq-ft parking garage; and the $11-million rehabilitation of runway 7R/25L. He notes that while Las Vegas’ casino business has slumped, the city still expects to add 45,000 new hotel rooms in the next three years. “Having always been behind the curve of casino construction, we hope our projects will allow us be ready for the influx of new rooms,” Ryan says. Not all airports are affected equally by the airlines' economic issues. Miami International Airport’s position as the primary U.S. gateway to Latin America is helping keep a $6.2-billion capital improvements program on schedule to wrap up in 2011 with the completion of the $2.8-billion, 48-gate North Terminal. “We are one of the few airports in the country where air traffic is increasing,” says Juan Carlos Arteaga, the airport’s North Terminal program director. “The airlines want these improvements to go forward to provide capacity and enhance customer service.” Arteaga adds that some planned improvements have been put on hold, “because they don't make sense at this time, not because of fuel prices.”

Climbing Costs

Even before the airlines industry’s latest tailspin, airport owners were struggling to balance the scope and schedule of their construction programs with costs for materials and utilities. Because airports tend to take the same conservative approach to contracting as their municipal owners, design-build and other project delivery options have only recently made inroads on the aviation side.

“We are one of the few airports in the country where air traffic is increasing.”
— Juan Carlos Arteaga, Miami International Airport

Programs such as the $1.8-billion modernization of Mineta San Jose International Airport (SJC) could make design-build more attractive. Begun in mid-2007, the design-build program is on track to expand an existing terminal to 338,000 sq ft and deliver a new 503,000-sq ft terminal and concourse, a new 3,350-space consolidated rental-car and public parking garage, and an improved roadway network by the end of 2010; a far cry from the 10-year, $4.2-billion design-bid-build price tag.

Dave Maas, SJC’s planning and development director, explains that escalating construction costs were the original motivation for using design-build project delivery. While the airport’s tenant airlines approved the modernization plan before the fuel price spikes, Maas says that the program’s rapid progress has kept any second-guessing to a minimum.

“They recognize, along with our having the financial commitment in place, that the modernization will help them operate more effectively and improve customer service,” he says.

High Performance

The emphasis on efficiency also is spurring airports to maximize their facilities’ operational performance. A recent survey of ACI-NA members found that dozens of airports were upgrading HVAC and lighting systems, incorporating preconditioned air in loading bridges and vehicles and making greater use of 400-Hz power. Municipal owners are also encouraging design and construction teams to help them meet LEED certification requirements. Frank Grimaldi, acting deputy commissioner of design and construction for the Chicago Dept. of Aviation, says that sustainable design requirements in his authority’s design standards “help us cut costs and address important energy issues.”

The Top Airport Construction Programs
Rank Airport
1 McCarran International, Las Vegas, Nev..
2 Chicago O’Hare International, Chicago, Ill.
3 Washington Dulles International, Dulles, Va.
4 Miami International, Miami, Fla.
5 Hartsfield-Jackson Atlanta International, Atlanta, Ga.
6 Indianapolis International, Indianapolis, Ind.
7 John F. Kennedy International, New York 
8 Los Angeles International, Los Angeles, Calif.
9 Seattle-Tacoma International, Seattle, Wash.
10 Phoenix Sky Harbor International, Phoenix, Ariz.
11 Detroit Metropolitan Wayne County, Detroit, Mich.
12 Boston Logan International, Boston, Mass.
13 Newark Liberty International, Newark, N.J.
14 Minneapolis/St. Paul International, Minneapolis, Minn.
15 Orlando International, Orlando, Fla.
16 San Hose International, San Jose, Calif.
17 Raleigh/Durham International, Raleigh, N.C.
18 Denver International, Denver, Colo.
19 Bethel, Bethel, Alaska
20 Oakland International, Oakland, Calif.
21 Dallas/Fort Worth International, DFW, Texas
22 San Francisco International, San Francisco, Calif.
23 Laguardia, New York, N.Y.
24 Theodore Francis Green, Warwick, R.I.
25 Palm Beach International, Palm Beach, Fla.
* Based on FY2007 spending reported to the Federal Aviation Administration

New options for sourcing energy may also help airports meet their energy-efficiency and sustainability goals. “In today’s environment, alternative energy, cogeneration and other opportunities that did not make sense before may be worth looking at again,” says Bennett, adding that any energy or sustainability option must still pass the investment litmus test. “Airports are stand-alone business enterprises and have to weigh costs against a viable return,” he says.

Airports may also be looking at new ways to tap their extensive landholdings to generate revenue. In September, Miami International Airport solicited invited developers/investors to evaluate the development of four investment real-estate sites adjacent to the main entrance of the airport for commercial and industrial uses under a public-private partnership. “Instead of waiting for capital-improvement funds, we can take advantage of available premium real estate on our property,” Arteaga says.

Similarly, the Chicago Dept. of Aviation is exploring working with development teams to create a new 54-acre cargo facility at O’Hare International Airport. “Given the financial times, we have to look at other ways to do things,” Grimaldi says.

How airport construction unfolds in the coming years will depends primarily on the fortunes of the airline industry. Marchi sees a slowdown lasting several years, with only projects that have minimal cost or safety and other critical issues moving forward “Long-term projects will be rephased or deferred,” he says, adding that the cost of architecture-engineering services may lead airports to continue their planning efforts, “but hold off on moving into the design phase.”

MWAA’s Bennett agrees that there likely will be a pause in construction and then a rescheduling of future Dulles projects while the new air-traffic demand profiles sort themselves out. Even with fewer flights however, increased airport capacity will remain an issue in many parts of the country. Citing Dulles’ newly opened 9,400-ft long fourth runway as an example, Bennett says, “Having another runway in a congested region such as ours benefits us and the entire air-traffic system.”

Other airports are sticking with their expansion ambitions. McCarran’s Ryan says that pending completion of an environmental impact study, construction of a new relief airport 30 miles south of Las Vegas could begin soon after the completion of the Terminal 3 project in 2012. McCarran may also begin work as early as next year on a $115-million, 120-pad heliport that may provide the opportunity to take advantage of the Nevada state legislature’s recent authorization for localities to use construction manager at-risk project delivery. “We’ve heard a lot of good feedback about this methodology, and are excited about its possibilities,” he says.

Maas says other projects in SJC’s modernization will be implemented as demand dictates. “We have triggers that define what we do and when they are needed, such as expanding the new Terminal B now under construction,” he says. “When the airlines need them, the facilities will be ready to go.”

Even a smaller, leaner airline industry is not necessarily a bad thing according to John Kish, executive director of the Indianapolis Aviation Authority, which recently opened a new 1.2- million-sq-ft terminal building. “As the industry tries to rationalize capacity and the number of carriers, it may be easier for airport owners to predict loads and plan new projects,” he says. “That will make it easier to right-size new facilities, predict costs, and manage the entire system.”