Navigating the Skies: Credit Risks and Opportunities in US Airport Debt Amid Pandemic Strains

The pandemic's devastation to global travel has left US airports grappling with a $40 billion revenue shortfall since 2020, a 73% collapse in passenger traffic, and a $107 billion debt mountain. Yet even as airports issued $10 billion in new bonds to navigate this crisis, investors face a paradox: short-term risks loom large, but long-term resilience is baked into the infrastructure's necessity.

The Financial Abyss: Revenue Losses and Rising Debt

The numbers are stark. Between March 2020 and March 2022, US airports lost $23 billion in the first year and $17 billion in the second, with passenger traffic plummeting to 65% below 2019 forecasts in 2020 and 40% below in 2021. Non-aeronautical revenue—retail, parking, and concessions—collapsed first, but even essential aeronautical fees (landing fees, gate rentals) eroded as flights dwindled. Meanwhile, operational costs spiked, with airports spending $3.5 billion on health measures like air filtration systems, plexiglass barriers, and sanitation protocols.

Adding to the strain, airports faced $16 billion in debt service obligations for 2020–2021 alone. The $10 billion in new bond issuance—likely a mix of revenue-backed municipal bonds and private placements—was a lifeline to avoid defaults, but it piled onto existing debt.

Federal Aid: A Cushion, Not a Cure

The CARES Act provided $10 billion in grants, boosting federal Airport Improvement Program (AIP) grants to 100% funding for critical projects. The Federal Reserve's Municipal Liquidity Facility (MLF), which lent up to $500 billion to states and cities, indirectly helped airports by stabilizing local governments' finances. Yet these measures only partially offset losses.

A visual showing a steep decline in 2020, partial recovery in 2021–2022, and projected growth post-2023.

Credit Risk: Short-Term Storms vs. Long-Term Calm

Short-Term Risks:
- Liquidity Crises: Airports reliant on passenger spending (e.g., small regional hubs) face cash crunches.
- Concession Payment Defaults: Retailers and food vendors in terminals may delay rent payments, reducing airports' non-aeronautical revenue.
- Debt Service Pressures: With $107 billion in existing debt, even a delayed recovery could trigger downgrades.

Long-Term Resilience:
- Infrastructure Necessity: Airports are critical nodes for global trade and travel. Post-pandemic demand for air travel is likely to rebound.
- Revenue Diversification: Airports with geographically diverse traffic (e.g., hubs serving multiple regions) and non-traffic revenue streams (e.g., land leases, renewable energy projects) are less vulnerable.
- Government Backstops: Federal and state aid may continue to support essential infrastructure.

Investment Strategy: Play the Odds, Not the Panic

Where to Invest:
- Senior Bonds of Well-Diversified Airports: Focus on major hubs like JFK, ORD, or LAX, which serve multiple regions and have strong aeronautical revenue. These bonds, secured by landing fees and fuel taxes, are safer bets.
- Monitor Yield Spreads: Seek airports where senior bond yields are 200–300 basis points above Treasuries—a premium reflecting risk but offering compensation.

A chart showing subordinate debt yields widening during the pandemic, while seniors remained relatively stable.

Where to Avoid:
- Subordinate Debt: These bonds rank below senior lenders in a default. Airports like SFO or ATL, despite their scale, may issue subordinate debt to finance risky projects.
- Single-Airline Reliant Hubs: Smaller airports serving one dominant carrier (e.g., DEN for Frontier) face higher risk if that carrier stumbles.

Conclusion: A Calculated Gamble

US airport debt offers a compelling trade-off: high short-term volatility vs. structural long-term demand. Investors should prioritize senior bonds of diversified, high-traffic airports while avoiding subordinate debt. Monitor TSA passenger data and revenue recovery closely—the skies may be stormy now, but they'll eventually clear.

A graph showing a V-shaped rebound in late 2023–2024, aligning with post-pandemic travel trends.

Stay disciplined, and let the airports' essential role in global connectivity guide your bets.