2018 City of Houston Investor Conference - Kenneth Gregg, Interim Deputy Director of Finance - Houston Airport System
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2018 City of Houston Investor Conference
Kenneth Gregg, Interim Deputy Director of Finance
April 24, 2018
1
Disclaimer
This Investor Presentation is provided for your general information and convenience only, is current only as of its date and does not constitute an
offer to sell or a solicitation of an offer to buy securities. The information contained herein does not constitute a sufficient basis for making a decision
with respect to the purchase or sale of any security. All information regarding or relating to bonds issued or to be issued by the City of Houston (the
“City”), either as general obligation debt or through its enterprise funds, the Combined Utility System, the Houston Airport System or the Convention
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Investors should review the relevant Official Statement and any related supplements and continuing disclosure before making a decision with respect
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This Investor Presentation includes forward-looking statements based on current beliefs and expectations about future events. Forward-looking
statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations
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uncertain; their outcome may differ from current expectations which may in turn significantly affect expected results. Actual results may differ
materially from those projected or implied in these forward-looking statements. Any forward-looking statement contained in this Investor Presentation
speaks as of the date of this Investor Presentation.
2
Recent accolades
Bush Airport joins Hobby Airport with a 4-star rating, a notable achievement
Source: Skytrax 2018.
3
The airports rebounded quickly after Hurricane Harvey
Houston’s airports were closed for 2-3 days while it took airlines several more for
operations to return to normal
4
Recent transactions
HAS recently closed on two transactions in the first quarter of CY 2018
✓ Special Facility Revenue Bonds – February 2018
United Airlines, Inc. Series 2018 & 2018C (AMT) ($130M)
- United Technical Operations Center Project (UTOC) ($91M)
- 270K sq. ft. hangar for widebody aircraft, administrative offices and
support shops
- United Airport Improvement Projects ($46M)
- Improvement, renovation, expansion and repair of special facilities
that support United’s operations at IAH
✓ GARB Bonds – March 2018
City of Houston Airport System Subordinate Lien Revenue and Refunding, Series
2018 A (AMT) & B Non-AMT) ($416M)
- Refinancing project costs for new international terminal facilities at HOU
($116M)
- CP takeout for: Satellite Utility Plant ($21M), West Parking Garage ($51M),
and Roadway Relocations ($12M)
- Refunding of prior bond series 2007B ($265M)
- Cash funded debt service reserve fund ($13.5M)
5
Houston Airport System
Three-airport system managed and operated by the City’s Department of Aviation (HAS)
serving the nation’s fifth-largest metropolitan area
▪ Bush IAH – international IAH HOU TOTAL
gateway hub
▪ United’s 2nd largest hub
Enplaned
20.4 6.7 27.1
passengers (M)
▪ Hobby – international Share domestic 75% 93% 79%
low- cost service Originating
▪ Southwest’s 7th busiest percentage
55% 71% 59%
airport
Average daily
588 167 755
▪ Ellington – NASA, general departures
aviation, military and Number of gates 131 30 161
spaceport
Source: Houston Airports Statistics CY 2017.
6
IAH is still United’s 2nd largest hub
IAH maintained position as United’s second largest hub with just under 19 million scheduled
seats during calendar year 2017
Source: Innovata database, accessed April 2018.
7
Investing in George Bush Intercontinental (IAH)
HAS is designing a new international terminal for IAH
C19
C17
D11
• Text
C20 HS1 HS2
C16
D10
C21 Available w/
Wide-Body
Sterile on D9
Pier Corrid or Pier
D- D-
C22 West C24
D3 D4 D6 D8 D9 East
D5 D7
D1
C23
D2
Concourse
Old -C
X
D2
North
C-D Connector
Terminal D
New New
Arrivals and Single Level
Departure FIS Modifications
Ticketing
Curb Hall
D Garage
International Terminal Phase I Conceptual Design
✓ International Terminal Phase I
- Re-life what will be known as the D-West Pier and construct new D-East Pier
- Yielding 11 wide-body gates
- Renovate existing Terminal D
- Associated enabling projects (roadways, utilities, etc.)
- Budget >$500M
8
Investing in George Bush Intercontinental (IAH)
New international facilities will also include a new centralized international check-in hall
• Text
International Processor Conceptual Design
✓ New centralized International Processor Hall where all Foreign Flag airlines and
United’s international passengers will check-in
- Expand and improve efficiency of existing FIS by consolidating two checkpoints
into one and adding three additional claim devices
- Adding a new domestic baggage claim area
- Associated enabling projects (utilities, etc.)
- Budget - $370M
9
Investing in George Bush Intercontinental (IAH)
United has broken ground on a new Technical Operations Center
• Text
United Airlines Technical Operations Center (UTOC)
✓ New United Airlines Technical Operations Center (UTOC) on approximately 40 acres
- Approximately 270K sq. ft. building for up to two-wide body aircraft with engine
build-up space, as well as administrative and engineering support space
- Associated enabling projects (roadway realignment, storm water
drainage/retention, relocation of existing facilities, etc.)
- Expansion and substantial improvements to existing maintenance facilities
- Budget >$160M - United - $137M and City - $22.5M
- Timeline – estimated completion summer 2019
10HOU is Southwest’s 7th busiest airport
Southwest continues to grow at HOU surpassing 8 million scheduled seats in 2017
Source: Innovata database, accessed April 2018.
11Investing in William P. Hobby (HOU)
Southwest is currently erecting a new hangar complex at Hobby
• Text
Southwest Airlines New Hangar Rendering
✓ New Southwest Airlines maintenance facility on nearly 45 acres
- Nearly 245K sq. ft. of hangars, shops, administrative, and support space
- More than 460K sq. ft. of apron space to park up to eight B737 aircraft
- Associated enabling projects (storm water retention pond, relocation of existing
facilities, etc.)
- Budget >$74M
- Southwest - $60M and City - $14M
- Timeline – estimated opening late 2019
12Originating traffic remains strong
HAS Originating traffic has surpassed 15 million since fiscal year 2016
Source: HAS records.
13International traffic has remained positive in recent years
In each fiscal year since 2015 HAS has recorded over 5 million international enplaned
passengers
Source: HAS records.
14IAH has nonstop service to 5 continents
More than 38% of IAH’s international enplaned passengers are bound for destinations
other than Latin America.
Asia Canada Europe
4 destinations 5 destinations 7 destinations
Middle East
U.S. 2 destinations
115 destinations
Caribbean
Mexico 9 destinations
25 destinations
Central America
10 destinations
South Pacific South America
1 destination 8 destinations
15IAH and HOU have competitive airline costs
Houston remains an attractive hub for major carriers that desire to add or expand service
IAH HOU
Source: HAS records. Amounts are payments to HAS only (excludes special facility bond debt service payments and building maintenance
expenses paid directly by United).
16Debt service coverage remains strong
HAS has managed to its DSCR targets consistently over the past several years
1 CAGR,
2
2014 2015 2016 2017 2018F
2014-18
Revenues
Airline $248.7 $263.9 $274.9 $280.9 $278.8 2.9%
Nonairline and all other 212.1 225.9 220.9 229.6 229.9 2.0%
Total $460.8 $489.8 $495.8 $510.5 $508.7 2.5%
O&M expenses $268.7 $283.6 $314.7 $314.5 $318.6 4.3%
Net revenues $192.0 $206.3 $181.1 $196.1 $190.1 -0.3%
Debt service $156.4 $163.3 $163.9 $175.0 $176.3 3.0%
Less: PFCs (35.6) (38.1) (42.3) (54.7) (51.7) 9.8%
Less: Grant revenues (22.9) (16.4) (13.9) - - -
Net debt service $97.9 $108.9 $107.7 $120.4 $124.6 6.2%
Debt service coverage 1.96 1.89 1.68 1.63 1.53
Note: Amounts in millions except percentages and coverage ratio. Numbers may not total exactly due to rounding.
1 Estimated DSCR net of effects following pension reform changes in 2017. 2 Unofficial FY 2018 forecast as of 2/28/2018 MFOR.
17HAS Senior & Subordinate Lien Debt Overview
HAS has approximately $2.1 billion in outstanding bonds or about $77 per enplaned
passenger1
Series Tax status Coupon type Outstanding par
Senior Lien
Series 2009A Non-AMT Fixed $420,420,000
420,420,000
Subordinate Lien
Series 2000B Non-AMT Fixed $44,515,000
Series 2000P-1 AMT Auction rate 34,100,000
Series 2000P-2 AMT Auction rate 33,875,000
Series 2002A AMT Fixed 20,005,000
Series 2002B Non-AMT Fixed 27,450,000
Series 2002C AMT Auction rate 76,875,000
Series 2002D-1 AMT Auction rate 55,800,000
Series 2002D-2 AMT Auction rate 53,825,000
Series 2007B Non-AMT Fixed 8,715,000
Series 2010 Non-AMT Variable rate 92,505,000
Series 2011A AMT Fixed 245,200,000
Series 2011B Non-AMT Fixed 72,650,000
Series 2012A AMT Fixed 280,355,000
Series 2012B Non-AMT Fixed 217,135,000
Series 2018A AMT Fixed 130,550,000
Series 2018B Non-AMT Fixed 285,220,000
$1,678,775,000
Total $2,099,195,000
1 Outstanding debt as of 4/1/2018 and last twelve months enplanements ended 2/28/2018
18HAS Senior & Subordinate Lien Debt Service
Conservative strategies have allowed HAS to effectively manage debt at all lien levels
Note: Debt Service for the Variable Rate Series has been computed at the certified rate of 5.85% for Series 2000P-1 and 2000P-2, the certified rate of 5.30% for
Series 2002C, 2002D-1, 2002D-2, and the certified rate of 5.34% for Series 2010. Does not include planned debt issuances.
19HAS Senior & Subordinate Lien Debt Service Profile
HAS maintains a conservative approach managing the various modes of its debt portfolio
20HAS ratings and credit strengths
Credit ratings remain strong and stable
• Monopoly position in a strong, diversified region with above
average population growth
• Key hubs for United and Southwest with significant airline
commitments
• Management track record of well-managed financial operations,
planning and executing large-scale capital projects
Moody’s S&P Fitch
Senior Lien Aa3 Stable AA- Stable NR --
Subordinate Lien A1 Stable A+ Stable A Stable
21Conservative approach towards debt management
HAS expects to be back in the market at least one more time in 2018
Management debt objectives for 2018
- Monitor opportunities to capitalize on savings during lower interest rate
environments
- Preserve capacity on the senior lien
- Manage our variable rate exposure
- Fund required levels of debt service reserves through cash and existing surety
policies
22Questions?
April 24, 2018
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