Airlines clear the way for $1.4 billion Pittsburgh International Airport modernization

Pittsburgh International Airport’s $1.4 billion modernization has received its final clearance.

Airlines operating at Pittsburgh International have agreed to pay for the improvements by signing off on a new seven-year lease agreement, according to the Allegheny County Airport Authority.

So far, five of the carriers — American, Southwest, Delta, Spirit and Alaska — have signed the agreement, authority CEO Christina Cassotis said Thursday. To get a deal, at least three airlines that combined carry more than 50% of the airport’s traffic had to endorse it.

That was the case with the new lease, Cassotis said, adding that she is expects all other major airlines to sign it as well. Nine airlines signed the current two-year lease.

“We arrived at this agreement with all of the airlines. All of the airlines participated in the negotiations,” she explained.

In an interview, she described the deal as a “big day for the region.”

“This is a huge, positive milestone, considering the impact of the pandemic and the uncertainty the industry has faced,” Cassotis said on the airport’s Blue Sky website.

The authorization, she continued, “is further proof of the airlines’ belief in the need for modernization, the strength of this market and their commitment to Pittsburgh.”

Not everyone was as thrilled.

Tasso Katselas, the architect who designed the 29-year-old midfield terminal, part of which will be replaced in the modernization, decried the spending as unnecessary.

“To take the best airport in the world and make it mediocre ... it hurts,” he said.

The new agreement will allow the authority, which oversees the Findlay airport, to float the revenue bonds needed to pay for the project, which includes the construction of a new landside building for ticketing, security and baggage claim.

Airlines will pay for the work through higher landing fees and other charges. The airport will chip in revenue generated by concessions, parking and rental cars.

The longer-term lease agreement with the airlines was the final step needed before the modernization could take flight.

In anticipation of the deal, airport authority board members approved $130.7 million in spending for the project last week, including a $124.4 million contract for steel structure and concrete decks related to the terminal.

Authority officials are hoping to start construction on the modernization, which also would include a 3,300-space parking garage and new roads, in the fall. Completion is scheduled by the end of 2024, with the opening slated for early 2025.

The new terminal would replace the existing landside building, which is now used for ticketing, security and baggage claim. It would be tucked between the C and D concourses of the airside building, where passengers get on and off planes. As part of the budget, $90 million has been set aside for improvements to airside.

Once the new terminal is operating, the authority plans to demolish or repurpose the existing landside building. It also will discontinue the tram that now whisks travelers between landside and airside.

Restarting work

Work on the modernization had been suspended for about a year because of the COVID-19 pandemic, which pushed airport traffic to unprecedented lows.

Nonetheless, airlines in March authorized $182 million in funding for site preparation, a signal that they were still interested in pursuing the project despite the losses suffered because of the pandemic.

In statements Thursday, the airport’s two largest airlines in terms of traffic — Southwest and American — backed the proposed modernization.

“The new seven-year agreement, which fully approves the modernization program, marks a major milestone in a collaborative effort to develop and construct a world-class airport facility that will benefit Pittsburgh-area customers for years to come,” American stated.

Southwest “appreciates the continued partnership with the Allegheny County Airport Authority. We’ve had a home at Pittsburgh International Airport since 2005, and we look forward to the enhancements and added conveniences which the terminal modernization plan will provide for Southwest’s employees and customers in the years ahead,” said Mike Gillock, the airline’s airport affairs regional leader.

Delta also released a statement in support, saying, “We look forward to our continued partnership and collaboration with the Allegheny County Airport Authority as they embark on the modernization plan.”

Cassotis said the authority hopes to float the bonds, likely 30 years in length, needed to fund the project by the end of the summer.

Despite the $1.4 billion price tag, she insisted that the cost per passenger, an industry benchmark, will be in the $8.90 to $11 range for the airlines based on 2018 dollars. The cost per passenger this year is $12.61.

In 2020, before the pandemic hit, it was set at $9.29 after the midfield terminal debt, an albatross for the airport for years, was paid off.

Although the news bonds will outlast the seven-year agreement with the airlines, Cassotis did not see that as an issue. The new agreement can be extended another three years with the consent of the carriers. Negotiating others shouldn’t be a problem, she said.

“If an airline is going to serve your market, it’s going to serve your market,” she insisted.

Eric Sprys, authority chief financial officer and executive vice president, said investors want to see a deal that goes three years beyond the opening of the terminal, which the new one does. It expires Dec. 31, 2028.

The agreement, he said, “strikes a balance between flexibility and commitment.”

Authority officials maintained that the cost of bringing the existing landside building up to state-of-the-art industry standards could be almost as much as constructing the new one. It also has argued that the modernization will cut operating and maintenance costs by $20 million a year.

“It stabilizes (airline) costs,” Cassotis said. “It gives them a facility that runs much more efficiently and is much better for the passenger experience for less money than it would have taken to fix what we have today.”

But Katselas has been skeptical of such statements. He has suggested that the new terminal is unnecessary and that the new road system needed to accommodate it could result in complications that could send the cost of the project skyrocketing.

“There’s no way anyone can justify it that has any sense,” he said Thursday. “There’s nothing that’s going to stop it now. The airlines are going to do what they’re going to do, and we’re going to have to live with it.”

The authority already has started site prep work related to the construction. That includes installing fencing, breaking up concrete on the west ramp where the new landside building will go, and building a temporary road to give construction vehicles access to the new terminal site.