Many view securitization as the culprit behind our subprime woes. However, the basic tenet of securitization remains a valuable financing tool whose benefits have yet to be fully realized. Though commonplace in the private sector, securitization is largely foreign to public finance, particularly in the troubled transportation sector. This article addresses the compelling case for applying securitization techniques to reduce airport financing costs for beleaguered airlines and helping address capacity constraints at high "origin and destination" airports such as JFK, LaGuardia, Newark and LAX.
Historically, airports have allocated valuable terminal space by entering into leases with select airline carriers. These leases confer rights to use the slots and gates and permit the airline to sublease unused gates to other carriers. This has resulted in giving a preference to those airlines able to enter into long-term leases to finance the construction of new terminals through the issuance of tax exempt special facility revenue bonds ("SFRBs"). The resulting hoarding of gates has led to inefficiencies in the scheduling of flights and pricing of tickets. Most importantly, such SFRBs have been structured, and thus priced, by airline financial advisors and municipal bond underwriters based upon the volatile credit of the airlines, making these bonds the darlings of high-yield investors, by delivering compelling revenues year after year.