Lufthansa. Private Airport Financing - the Munich exam ple. Dr. Christoph Klingenberg Deutsche Lufthansa AG

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1 Private Airport Financing - the Munich exam ple Deutsche AG Recent Advances in Applied Infrastructure Research TU Berlin Copyright Berlin, October 12 th 2002

2 Content Generalthoughts about airportinfrastructure projects Exam ple A:Munich Terminal2 Basic concept: Separation between Ownership and Operation Key factors for success Synergies Lessons learnt Exam ple B:Terminal 1 in JFK Slide 2

3 Since most airports are stillstate owned,the project should be financed through the airport owners STATE Regional economic interests AIRPORT AUTHORITY Increase attractiveness for airlines As long as the state is owning part of the airport, the airports achieve the best ratings through their owners Infrastructure project Project has a higher risk than the whole airport Sometimes a project cannot be separated from the rest of the airport (e.g. runway) AIRLINE (as an exemption) Strategic basis for future growth Usually only feasible if airport is strategically interesting for the airline (e.g. hub airport) Slide 3

4 In order to run the facility,separate operating com panies are being founded Capital Market Refinancing of the infrastructure through the capital market AIRPORT AUTHORITY Increase attractiveness for airlines AIRLINE (as an exemption) Strategic basis for future growth Foreign Capital Equity Operating comp. for infrastructure Slide 4

5 There are several possibilities to ease access to foreign capitalforinfrastructure projects Special credit facilities Long term (ca. 30 years) Supportive Intention (e.g. through subsidized low interest credits) KfW - Kreditanstalt für Wiederaufbau Asia Investment Bank Weltbank Europ. Investment Bank Europ. Bank for Recovery and Development etc. Banks Classical long term financing (ca. 30 years) Landesbanken WestLB BayLaBa etc. IKB Industrie Kredit Bank etc. Special Instruments Tax Exempt Special Facility Revenue Bonds Similar Instruments Qualified Technological Equipment Lease (Flight Simulators etc.) Japanese Operating Lease (Aircraft etc.) If airlines are involved in the project, airports significantly lower their risk Slide 5

6 Content Generalthoughts about airportinfrastructure projects Exam ple A:Munich Terminal2 Basic concept: Separation between Ownership and Operation Key factors for success Synergies Lessons learnt Exam ple B:Terminal 1 in JFK Slide 6

7 Facts (I) Investors Joint Venture FM G / DLH Investment 1,2 bn Startof constr. Apron/Tunnel:October 1999 Terminal: March 2000 Opening 29. June 2003 Capacity 25 Mio. Passengers p.a. Slide 7

8 Facts (II) MoU between DLH and FMG (15. July 1998) Goal Joint Planning,Operating and Financing of the new terminal Shares FMG 60% ; DLH 40% Invest Terminal ca. 950 mill (DLH-share ca. 380 mill ) Apron /Parking Roads ca. 250 mill (100 % FMG) Slide 8

9 JointPlanning, Financing and Operation cl 40% MoU 07/98 FMG 60% (Profit) Ownership Handling Airside MUC T 2 Immobilien und Mobilien (Leasing) MUC T 2 Operating Comp Ownership Handling Apron (Profit) Slide 9

10 The cooperation started already inthe planning phase... Architects Planner Builder Deutsche AG (DLH) Control/ Order Immobilien- Objekt GmbH FMG 60% / LCH 40% MoU User requirements Project team T2 FMBau (Bauherrenvertretung / Controlling) State of Bavaria Fed Government City of Munich Flughafen München GmbH (FMG) Control Mobilien- Objekt GmbH FMG 60% / LCH 40% Advisory Council 2 FS Bavaria 1 Fed Gov 1 City of Munich 2 DLH 2 FMG Grundstücksnutzungsvertrag Grunddienstbarkeit und Grundstücksnutzungsvertrag Slide 10

11 ...and willbe continued in the operating phase Profit transfer ( EAV) GbR Immobilien- Objekt GmbH FMG 60% / LCH 40% Rent contract Mobilien- Objekt GmbH FMG 60% / LCH 40% Rent contract EAV GbR GbR Commercial Holding GmbH Flughafen München GmbH (FMG) Sale of Ground Handling Airside etc. Betriebsgesellschaft Terminal 2 mbh FMG 60% / LCH 40% EAV Let concessions Retail u. Restaurants MoU Deutsche AG Sale Ground Handling Apron Sale of Handling Airside and Apron Group (LH, City Line, Cargo, Condor) Star Alliance LH Cooperation Partners Slide 11

12 The operating company buys mostly fro m DL H and FMG Airport Munich (FMG) Deutsche AG Ground handling Airside Ground Handling Apron Operating Comp Terminal 2 mbh FMG 60% / LCH 40% Sale of ground handling and terminal services Group Star Alliance LH Coop. Partners Managing Directors delegated from DLH and FMG Purchasing on market based conditions Services are being offered to all airlines operating from T 2 Slide 12

13 This concept has a couple ofadvantages Financing and Tax advantages Leasing saves Taxes (Gewerbesteuer) Fast depreciation possible Public partners are involved in the construction company State can assume the task of infrastructure provision Securing political support Fast start of construction The detailed concept for the operating company was hammered out after starting the construction Joint planning team ensures that user requirements are being met Slide 13

14 M unich Ter minal 2 Slide 14

15 Key factors for success Optimal Layout saves 20% of operating costs: Single Control Center Single Customer Information Single Array of back offices, canteens etc. Optimal operating processes (e.g. bridges operated by gate staff) Advantages for the customer: Central Check-in, Security, Immigration Central and easy accessible Lounge Lean Boarding Gates Transfer center Short distances through linear 3 Level concept Slide 15

16 Lessons learnt Possible conflict between private engagement and public interests Possible conflict between efficiency and regional aims for representative buildings Airports are still a local monopoly - innovative fee models to be developed Lessons to be carried over to possible partnerships with Air Traffic Services Providers Slide 16

17 Content Generalthoughts about airportinfrastructure projects Exam ple A:Munich Terminal2 Basic concept: Separation between Ownership and Operation Key factors for success Synergies Lessons learnt Exam ple B:Terminal 1 in JFK Slide 17

18 The Tax Exem pt Special Facility Revenue Bond is the preferred way to finance infrastructure in the US The US Tax Law makes zero interest credits for infrastructure financing possible Terminals Cargo Facilities Catering Facilities MRO Facilities Training Center Fuelling Facilities So Airlines can get the lowest capital cost in the US industry Long Term ca. 80% to 90% of the corresponding Treasury Bond Short Term ca. 65% to 85% of 30 days LIBOR Slide 18

Structure of a Special Facility Revenue Bond The zero interest bonds are issued by a government agency on behalf of the airline Repayment of the bond is done entirely through the airline with no

19 Structure of a Special Facility Revenue Bond The zero interest bonds are issued by a government agency on behalf of the airline Repayment of the bond is done entirely through the airline with no government obligation The bond is secured through lease arrangements of the airline Revenues from the bond Escrow Bond owners Repayment and interest Trustee Issuer of the bond Lease contract Lease payments Airline Slide 19

Case Study: Terminal One in Ne w York Beginning of the 90ies, Air France, Korean Air and Japan Airlines agreed to build Terminal One in New York So the four Airlines founded the

20 Case Study: Terminal One in Ne w York Beginning of the 90ies, Air France, Korean Air and Japan Airlines agreed to build Terminal One in New York So the four Airlines founded the Terminal One Group Authority, L.P. Project where each Airline holds 25% The financing of the mill $450 was achieved through the issue of a mill. $ 434 Special Facility Revenue Bond. Slide 20

21 Case Study: Terminal One in Ne w York Equity Foreign Capital New York City Industrial Development Agency 25% TOGA 25% 25% Repayment and interest payment 25% Secured through lease and licence agreements Secured through lease and licence agreements with fallback clauses* *Should one carrier quit, the other would have to step in Slide 21

SHAKING UP THE BUSINESS MODEL

New Strategies for Airport Capital Financing & Development SHAKING UP THE BUSINESS MODEL Susan Warner Dooley, Nat l Dir, Aviation Strategic, Business & Financial Planning Airlines Don t Have Our Backs