Branson Airport LLC is in need of capital to meet its payment obligations through 2014, and officials are returning to the airport’s bondholders and investors for help.
The airport, known as BKG, is asking investors to provide up to $23 million by offering lenders priority over bondholders with regard to first right of foreclosure, and for bondholders to approve the deal. The move would effectively eliminate the limitations put in place by the bondholders through the funding and forbearance agreement struck with the airport last year after problems with debt service payments on bonds issued to fund construction of the airport surfaced.
According to documents filed with the Municipal Securities Rulemaking Board on Nov. 15, the move would give the airport much needed cash to meet its commitments. BKG’s quarterly financial report on file with the securities board shows the airport posted a $1.7 million third-quarter operating loss to bring its nine-month losses to $5.1 million. Since opening in 2009, the airport has posted $19 million in operational losses, not including depreciation and interests expenses, but officials are banking on its agreement with Southwest Airlines (NYSE: LUV) to pull it out of the red.
In its proposals to investors, airport officials project large increases in revenues and enplanements, or the number of boarding passengers, through 2022. In 10 years, those key statistics are expected to climb roughly eight-fold.
Industry analyst Michael Hynes of Branson-based Hynes Aviation Service Industries said the projections are overly optimistic, and comparisons in the investor proposal to other markets of similar size where Southwest has started service since 2010 are problematic.
“I think they’re going to need more money later,” Hynes said, downgrading his own estimate to $40 million during the next five years.
In May, Hynes projected BKG would need a capital infusion of at least $50 million during a seven-year period. Now, he thinks investors already are on board, and the airport simply needs bondholders to approve the deal. Hynes cited language in the proposal stating 100 percent of bondholders – some of whom are investors – would need to agree with the proposal to alter the funding and forbearance agreement. “I can’t envision them making that statement unless they already knew that 100 percent were going to agree because it would be very embarrassing if that didn’t happen,” Hynes said.
The airport already has amended its funding and forbearance agreement with bondholders twice – the latest in July – as it downgraded projections for revenue and enplanement growth in order to avoid a possible foreclosure. BKG officials have signed off on meeting performance gates as it has anticipated climbing out of financial difficulties.
Jeff Bourk, executive director of the Branson Airport, declined to be interviewed for this story, and representatives of airport trustee UMB Bank did not respond to requests for comment. Bourk has said the future of the airport hangs on the presence of Southwest, which plans to begin flying its planes out of Branson in 2013.
Hynes said the loan terms are attractive because they guarantee lenders 15 percent interest on the new loan and 15 percent of future profits. Hynes said the agreement, if approved, relieves the investors of four notable concerns. The deed to 500 acres owned by the airport would be cleared and made available as collateral for future loans; the existing funding and forbearance agreement requirement that the airport put up more money to support operations as needed would be eliminated; the bondholders would no longer have strict oversight of the airport’s day-to-day operations; and the 8 percent unsecured loans of the investors would be converted to secured loans with a 15 percent interest rate.
“What is the downside for bondholders? There really is none. The upside is somebody else is going to invest $23 million. While the pecking order of repayment may be changed a little bit, I don’t see that they’d be any more at risk than they already are,” Hynes said.
The land arrangement is a possible sticking point, Hynes said, because bondholders might not want to relinquish their lien on the valuable acreage, which is planned for an airport industrial park.
Still, Hynes doesn’t think the presence of Southwest Airlines in Branson is enough to grow activity by as much as BKG projects.
“There’s no doubt the name Southwest Airlines is good for the airport. The problem is turning that into money,” Hynes said.
As Southwest Airlines takes over AirTran flights next year, it has committed to one less regular flight. Since Southwest’s $1 billion acquisition of Orlando-based AirTran in May 2011, it has agreed to sell off AirTran’s DC-9 planes in favor of flying its larger 737s. With Southwest’s commitment to turning Houston’s William P. Hobby Airport into a South American hub, the airline won’t have a surplus of planes to help grow Branson even if its routes are filled with passengers, Hynes said.
In addition, while passenger volumes have taken off at airports in Panama City, Fla., Charleston, S.C., and Greenville/Spartanburg, S.C., since the addition of Southwest, Hynes said those situations don’t quite parallel Branson.
In Florida, the Panama City airport benefited from a decline in passengers traveling out of Tallahassee and Pensacola. Hynes said he doesn’t think the airports in Springfield or nearby Rogers, Ark., would decline as much. In South Carolina, Boeing’s $750 million investment in a manufacturing assembly line in North Charleston significantly contributed to increases in passenger volumes, he said.
According to BKG’s proposal, between 2010 and 2011, enplanements jumped 24.9 percent, 40.6 percent and 45.1 percent in Charleston, Greenville/Spartanburg and Panama City, respectively, since Southwest entered those markets. Hynes said BKG’s projections to more than triple both through 2015 are unrealistic given that most airlines would be happy to grow by 4 percent per year. “That’s just not going to happen,” Hynes said.[[In-content Ad]]
