Even as the prices of some construction materials begin to fall back down following record highs, elevated price estimates are leading to mounting costs around the country for major airport construction projects.
Industries which have been heavily affected by the pandemic may face significant hurdles in getting big projects back off the ground, as evidenced by the difficulties faced around the country by those involved in new airport construction and expansion.
A number of airport construction projects have recently been postponed due to pandemic-related economic difficulties.
A development plan to build 34 new hangars at the Punta Gorda Airport in Punta Gorda, Florida, was recently put on hold as construction costs became too extreme for developers to handle, with airport commissioners voting unanimously to negotiate a 90-day delay for the project.
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According to the airport’s Chief Executive Officer, James Parish, the airport and contractor Stellar Development, Inc. have entered a preliminary agreement for a 90-day delay on the $6.4 million hangar construction project in hopes that costs will continue to fall to more reasonable levels.
Parish noted that Stellar Development “can’t get steel. They can’t get motors to run the doors.”
“There is just a significant supply chain disruption right now. I think it would be prudent to pause and let the supply chain catch up, and not put us in a position where we’re going to pay for these disruptions,” Parish continued.
In order to make up some of the funding, the airport commission is planning to also require interested renters to pre-pay for the newly constructed hangars.
As airport attorney Darol Carr told Punta Gorda Airport commissioners, materials price increases have made construction work difficult in all areas of the airport.
“We’re dealing with a number of issues related to contracts that are in process or been awarded, and people are seeking an escalation of that number,” Carr noted. “None of those contractors have indicated they are going to refuse to perform, but given escalating prices, a lot of them are looking for relief.”
“If they were able to litigate and get [the price increases] approved, the project would be financially not feasible for both us and the end user,” Parish added.
A similar issue recently arose with a Missoula International Airports terminal expansion project in Missoula, Montana, which comes with a Phase 1 cost of around $69 million. Design of the project’s $30 million second phase is currently underway, and interim airport director Brian Ellestad recently noted that “We’re hoping to open the first phase in less than a year.”
However, the project had to be postponed, as Missoula County can’t handle the project’s budget increases stemming from high materials prices.
“Right now we have around $19.3 million to build infrastructure out there,” said Shane Stack, Missoula County’s director of public works. “With the latest numbers in 100% design, it’s around $22.8 million. Those numbers are significantly higher than we can afford.”
“At this point, we’re going to delay construction until 2022, but I think we can build all of it in 2022,” Stack continued.
Both projects are looking into using funding obtained from the American Rescue Plan to fund any new construction.
Punta Gorda Airport was already planning to fund construction with pandemic aid funds. Stack noted that Missoula County will receive $23 million in funding from the economic relief initiative that could go to the Missoula terminal project, and could receive a grant for transportation spending that would similarly aid construction.
Some materials prices are falling after all-time highs — but stabilization is still a ways away
Parish noted that the Punta Gorda Airport Commission decided on a 90 day delay due to news reports on falling materials prices, saying that wood futures had fallen to $967 per 1,000 feet in mid-June 2021, down from a peak of $1,700 in May 2021, as per Business Insider — a peak which had set an all-time record.
Indeed, a CNBC report from June 30, 2021, noted that lumber prices are on track for their sixth consecutive week-to-week loss, perhaps bringing a reprieve for builders after over a year of inflated prices.
“This drop suggests that the cause of that inflation—the mismatch of supply and demand—will not last forever,” said Brad McMillan, CIO at Commonwealth Financial Network. “As suppliers across industries get their acts together, those shortages will fade, along with the inflation. That looks to be happening for lumber now and will happen for other inputs later.”
“I would not be surprised at all if we see the price continue to trail lower than $600 or below toward the year-end,” added Mace McCain, president and managing director at Frost Investment Advisors. “We will continue to see supply come on board but we will not see demand continue to grow.”
Of course, the fall in some prices doesn’t show that the market is quite yet stabilized. “It was a bubble but it is still double where it was [before the COVID-19 pandemic],” said Peter Boockvar, CIO at Bleakley Advisory Group.
Others warned of other issues in the supply chain that could cause materials prices to rise back up.
Noting that British Columbia — a major source of US lumber — is facing wildfires, while Texas and Virginia face potential hurricane threats, Director of Trading and Growth for Mickey Group Chip Setzer said “I have strong concerns that we will have interruptions, which will have adverse effects on supply.”
“If the forest is on fire we can’t get logs…That will change the tables,” Setzer added.
Additionally, a June 28, 2021, report from Business Insider also noted that hot-rolled coil — a product used in much manufacturing — rose to a record-high value.
Downturn in air travel may affect construction differently from region to region — even as materials shortages are alleviated
With air traffic numbers significantly down since 2019 as a result of the pandemic, some airport operators worldwide are hesitant to return to construction without more stable profits.
Besides the delay of projects in smaller areas, a $15 billion overhaul of New York City’s John F. Kennedy International Airport may be delayed by a number of years due to falling passenger demand.
According to the Wall Street Journal, passenger numbers at the major airport are at 15% of their usual level — a major fall considering airport officials expected the number of yearly passengers at the airport to rise from 62 million to 75 million between 2019 and 2030.
Even during this, others in the air travel industry remain more optimistic.
“We are convinced that we will again see long-term growth in air traffic,” said Stefan Schulte, executive board chairman of Frankfurt Airport operator Fraport AG in Frankfurt, Germany. “A new terminal is not built on an outlook of just two or three years, but rather for the decades to come.”
Denver International Airport CEO Kim Day recently asked members of the Denver City Council Local Disaster Response Committee to consider contract amendments that would increase the facility’s new construction budget by up to $560 million, as well as allow work to be done at an accelerated pace while air traffic remains down.
Individual gains in the Denver Airport increases would be significant — a $700 million contract issued to the joint venture of Turner Construction and Flatiron Construction would be increased up to $940 million, with the Holder Construction and FCI Constructors joint venture contract of $655 million rising to a level of up to $920 million.
At the same time, Delta Airlines has taken the pandemic as an opportunity to actually speed up work on the $3.5 billion redevelopment of its terminal in New York City’s LaGuardia Airport — with company CFO Paul Jacobson adding that the airline would consider accelerating construction at terminals it holds in Los Angeles and Salt Lake City.
“With the drop in demand, we actually see an opportunity to accelerate some of the construction,” said Jacobson, adding that doing so would “lower the overall project cost but also deliver it much, much sooner.”
“We’ve got to bring in equipment to tear down, we’ve got to bring in foundation equipment, take that out, bring in structure equipment, etc.” Jacobson added. “If we have an opportunity to bring down multiple concourses at the same time, we can actually save on that iterative construction process.”