DENVER -- The Salt Lake City Airport Authority is expected to sell today a bond offering backed by a passenger facilities tax, the first use by the airport of this revenue source.
With a $45.2 million negotiated variable-rate deal set to be priced today, Salt Lake City will add a $3 passenger facility charge to the price of each ticket on flights taking off from Salt Lake City. The state is growing fast, and to build and maintain facilities that growth demands, the city must begin charging such a tax, authority officials said.
Almost all major U.S. airports have a passenger facilities charge, a ticket tax administered by the Federal Aviation Administration. Federal rules stipulate that the money must be used strictly for airport facilities.
"We're obviously growing at a higher rate economically. In Salt Lake, we've seen a tremendous growth in travel, mostly based on low-cost operations," said John Wheat, deputy executive director for the authority.
Traffic at Salt Lake City International Airport jumped 40% from 5.9 million passenger enplanements in 1989 to 7.9 million in 1993. Traffic in 1994 is up 14% over last year. Discount carriers such as Morris Air and Mark Air have increased travel through the city to supplement the dominant carrier, Delta Airlines, which uses the airport as its western hub.
Jerry Caden, an analyst with Moody's Investors Service, said increased high technology and mining employment are driving Utah's economic growth. Additionally, small employers have started locating there.
"The region has pulled out of its economic trough of the late 1980s," Caden said. "They've got WordPerfect and Novell in the Provo area. Hill Air Force base [which is north of Salt Lake City] has not been significantly hurt by defense cutbacks. Geneva Steel in Utah County [near Provo] is going strong.
"Utah has a lot of things going for it," Caden said. "A lot of smaller industries like to locate there. The feelings remain positive about the airport. They've got growth, but it's manageable growth."
The bonds are subordinated airport revenue bonds and will be issued in one series. They are rated V-Mig-1 by Moody's and A1-plus by Standard & Poor's Corp., with letter of credit backing by Credit Suisse of New York.
The bonds will pay market interest rates rolled over weekly. Dain Bosworth Inc., the authority's financial adviser, estimated today's interest rate at 2.5%.
Kidder, Peabody & Co. is the bookrunning senior manager. The offering's co-managers are: A.G. Edwards & Sons Inc.; Goldman, Sachs & Co.; and Smith Barney Inc.
Ellisa Fitzig, investment banker with Kidder, was unavailable for comment yesterday.
Cheryl Cook, the authority's financial adviser at Dain Bosworth, said the passenger facility charge will start being collected Jan. 1, 1995. The tax is projected to bring in $63.5 million over the life of the bonds, which mature in 1998.
Wheat, of the airport authority, said the authority's overall debt ratio coverage, including today's deal, will be from 2.75 to 3 for every dollar of debt.
The bonds are supported by the general revenue of the airport, yet are subordinate to the other $142.5 million of senior debt. While the passenger facility charge will not officially be dedicated to paying off today's issue, that is how it in fact will work, Cook said.
Cook estimated that given projected revenues, the bonds will be repaid about a year to 18 months early.
"This was the cheapest way to get the lowest interest rates for a short amount of time," she said. The passenger charge will be lifted if the airport does not grow, she said.
Salt Lake City International has three runways, two of which can be used for large commercial jets.
The airport started building a third runway in 1991 for a total cost of $120 million. The runway is scheduled to open in December 1995. Part of the money used for that runway was from a $40 million bond issue. The rest of the funds come from federal grants and the $18 million to $20 million profit the airport brings in yearly.
Today's issue will help fund shortfalls from federal grants the authority expected to receive for the fourth runway. Other projects for the money include buying property, additional facilities for Skywest Airlines, a new Federal Inspection Services building, a warm-up apron, other runway and taxi way improvements, bird hazard remediation, a regional aircraft rescue and firefighting burn pit simulator, and a de-icing facility.
