The companies will invest the money over the next three years to prepare for the co-location in 2022.
The investment forms part of broader expansion efforts that include $12bn of private funding and $1bn of funding from Port Authority of New York and New Jersey (PANYNJ).
Two new terminal complexes will be added as part of the modernisation of the airport.
New York Governor Andrew Cuomo said: “Only four months ago, we announced plans to transform JFK Airport into a state-of-the-art global hub, with new and unified terminals adding four million square feet and increasing the airport’s capacity by at least 15 million passengers annually.
“This new investment is part and parcel with the state’s broader efforts to modernise airports all across New York.”
The investment by American Airlines and British Airways in Terminal 8 is expected to add a total of 70,400ft² of additional space, including 33,000ft² of public space.
Both partners will modernise an additional 57,500ft² of existing space and set up lounges for airlines, baggage systems, and check-in space along with upgraded concessions.
Five additional wide-body gates will be installed at Terminal 8 to serve more transatlantic flights while four nearby on-airfield plane parking / unloading areas will be developed to accommodate additional flights.
The existing Terminal 7 will be replaced as part of JetBlue Airways‘ plan to construct a $3bn, 1.2 million square foot terminal on the airport’s north side and will be connected to its existing facility at Terminal 5.
American Airlines President Robert Isom said: “Investing in our terminal and welcoming our partners is a win-win for both customers and team members at American and British Airways.
Co-locating with British Airways will allow our customers unprecedented convenience and flexibility between these two world-class cities.”
The expansion of Terminal 8 is likely to create 500 direct jobs and 750 total jobs during the life of the project.