Financing Airports and Concessions – A Capital Market View

​Of course, the “topic du jour” is inflation. At the mid-point of the pandemic, 12 to 18 months ago, there were signs that inflation was permeating the economy. But other signals suggested the inflationary signs were just part of coming out of the pandemic, and the U.S. economy would be getting back to normal soon enough – hence the conclusion, inflation is “transitory.” We now know that inflation has been “sticky,” more broad-based, and, possibly, more permanent. Beating back inflation is now the Federal Reserve’s “Job #1,” but there could be widespread consequences – namely, recession.
 
Inflation, recession, and the outlook for the economy at-large, as well as the aviation ecosystem, were the topics of ARRA’s August Forum with Ajay Thomas, Senior Managing Director and National Head of Public Finance for FHN Financial. We talked with Ajay about the state of financial markets, the economy, Federal Reserve policies, and how public finance markets view airports and concessions.
 
Despite the various challenges of ongoing pandemic, supply chains, labor shortages, inflationary pressures, and a likely recession, Ajay observes the aviation ecosystem is resilient. The good news: although our industry is not yet recovered, he sees positive trends and a strong foundation to recover from.
 
Here are three Forum takeaways:

• To borrow a phrase from our July Forum, the “big elephant in the room” is … recession. Ajay notes the U.S. economy is already, by one technical measure, in recession – that is, our economy has experienced two consecutive quarters of declining GDP. Now, it’s a question of how long-lasting, how deep will the recession be. The picture isn’t clear. Some common features of a recession – falling production, falling real income, falling retail sales – are appearing in the data. But another – falling employment – is an anomaly. Job growth is strong. Indeed, the U.S. economy just posted its lowest unemployment rate in 53 years. However, the unemployment rate may be misleading: employer demand for workers combined with reduced employee participation, could be leading to an artificially low rate.

 

• The length and severity of a recession is a risk for the aviation ecosystem. The air travel recovery to date is driven by leisure travel. However, this type of travel is the most susceptible to economic pressures. As leisure traveler experience constraint on disposable income, air travel demand will peak and start to fall.

 

• Passenger traffic is recovering, and the airport sector enjoys a somewhat predictable consistency in revenue, “but for these shocks to the system.” The predictability appeals to investors and, consequently, overall airport credit ratings have remained resilient.

 
These are just three important takeaways. We encourage you to watch the replay below. And see Ajay’s full slide deck here – there is much informative and useful data.

About Our Guest

​Ajay Thomas
Senior Managing Director and National Head of Public Finance
FHN Financial
 
Ajay Thomas is Senior Managing Director of FHN Financial (the fixed income division of First Horizon Bank), serves as the firm’s National Head of Public Finance. Since joining FHN Financial in August 2017, Mr. Thomas has built a Public Finance Investment Banking team that is recognized for its rapid growth and success in the municipal securities industry. FHN Financial is now among the leaders in major growth markets across the United States in municipal securities financing. With the recent addition of a transportation sector team with specialists in airport sector financing, FHN Financial has recently been included in financings for JFK International Airport and new capital program financings for Phoenix Sky Harbor, Nashville, and Memphis International Airports.
 
Ajay has 21 years of experience in the municipal securities industry, executing bond-financing transactions across sector disciplines for a variety of municipal issuers, including many of the nation’s airports. He joined FHN Financial from William Blair, where he also served as Head of Public Finance Banking and later in his tenure as Head of the Municipal Securities Group that included management responsibility of Municipal Sales, Trading, and Underwriting. Prior to William Blair, Mr. Thomas worked at Morgan Stanley and Raymond James. In addition to his airport financing work at FHN Financial, Ajay has worked on large, complex financing for George Bush Intercontinental Airport, Austin-Bergstrom, and Dallas-Fort Worth International Airport, among others.
 
Mr. Thomas received his Bachelor of Arts in Economics from Southwestern University, where he was selected as a General Course Scholar to the London School of Economics. He later earned his Master of Public Policy degree from Harvard University and a J.D. from the University of Texas. Mr. Thomas currently serves on Southwestern University’s Board of Visitors and the Harvard Kennedy School’s Advisory Board for the Taubman Center for State & Local Government.