Update on ACRP 01-14: Considering and Evaluating Airport Privatization

Transcription

1 PRESENTATION Update on ACRP 01-14: Considering and Evaluating Airport Privatization Prepared for the Alternative Airport Business Models Working Group ACI-NA Annual Conference San Diego, California Sheri Ernico, LeighFisher Steve Van Beek, LeighFisher Dan Reimer, Kaplan Kirsch & Rockwell

2 Agenda Outline Research Panel and Team Why is Privatization Gaining Renewed Attention? Forms of Governance and What Makes the U.S. Model Different Airport Privatization U.S. Style LeighFisher has offices in Chicago, Cincinnati, Dallas, London, Ottawa, the San Francisco area, and the Washington, D.C. area. For over 60 years, we have assisted our clients in achieving their vision and goals. We have extensive practical experience in all disciplines necessary for the planning and management of airports, including airfield and airspace analyses, airport management and operation, commercial and concession planning, forecasting and economics, facilities planning and design, federal funding and policy development, financial analysis and planning, financial feasibility and reporting, ground transportation planning, air quality analysis, noise and other environmental analyses, privatization, parking planning and analysis, rental car facility development and business planning, security planning and implementation, and simulation and operational analyses. San Francisco Area Office: 555 Airport Boulevard, Suite 300 Burlingame, California Telephone: (650) Fax: (650) Washington D.C. Area Office: Plaza America Drive, Suite 310 Reston, Virginia Telephone: (703) Fax: (703) Update on ACRP 01-14: Considering and Evaluating Airport Privatization

3 ACRP Research Panel and Team 3 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

4 Why Airport Privatization is Attractive to Governments Each community has different reasons for considering some form of private sector involvement Raise money to offset the effects of General Fund deficits Leverage airports as catalysts for regional economic development Remove cumbersome public sector staffing and procurement rules Maximize revenue while controlling cost Transfer risk Improve performance Participate in the commercialization and globalization in airport markets Address growing need for airports to do more with less Provide private source of funding For escalating investment requirements, given gloomy outlook for federal/state grants, failures to raise the PFC ceiling, pressures on aeronautical rates, and potentially the loss of tax-exempt financing) 4 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

5 The Four Airport Pillars of Trust Fund and PFC Era These four have been critical enablers of airport and aviation growth 1. Airport and Airway Trust Fund provides multiyear capital for aviation system infrastructure such as F&E and AIP, as well as the residual going to FAA Operations. Helped fuel predictable growth in aviation infrastructure; with user money, kept reliance on taxpayers to a minimum. 2. AIP Together with F&E, AIP capital program has status of contract authority and prioritization of AATF revenues. Federal funding support and leadership critical for airport and ATC investments. 3. PFCs Source of local capital independent of use and lease agreements, key instrument to promote competition and capacity. Vital tool to build airport infrastructure and leverage capital. 4. Tax-Exempt Debt Instruments such as governmental bonds, private activity bonds and Build America Bonds promote capital investment by state and local governments. Provided cost of capital advantage to public airports. 5 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

6 AIP Funding Levels Are Likely to Decrease (If Not Today, Someday) Legislators are focused on decreasing discretionary spending Uncommitted Balance of AATF (in billions) Average CPE Impact of AIP Grants $8 $7 $6 $5 $6.00 $5.00 $4.00 $5.20 $4 $3.00 $3 $2 $1 $ $2.00 $1.00 $0.00 $1.10 $0.40 $0.20 Nonhub Small Medium Large Source: Airport and Airway Trust Fund: Declining Balance Raises Concerns over Ability to Meet Future Demands, Government Accountability Office, February 3, AATF=Airport and Airway Trust Fund. Source: LeighFisher estimates. Assumes FFY 2009 average AIP grants for each hub size would be bond financed using standard assumptions, with allocable debt service recovered in full from the airlines. CPE=Cost per enplaned passenger. Lower ticket prices and decreased passenger numbers have led to decreased ticket tax receipts, providing fewer revenues for the FAA s capital programs and operations account. A solution to this structural problem will likely involve revenue (i.e., new taxes and user fees) and cost (i.e., reduced AIP grants) components. 6 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

7 Decline in the Real Value of PFCs PFCs are locally generated revenue that have no impact on the federal budget PFC Values Adjusted for Inflation for 2000 and 2011 $9.00 $8.00 $3.00 $4.50 $8.29 $7.00 $6.00 $5.00 $5.33 $5.95 $4.00 $3.83 $3.00 $2.00 $1.00 $ Note: 2000 and 2011 estimates adjusted based Means Construction Cost Index. 7 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

8 Tax-Exempt Municipal Bond Status in Danger Coupled with volatility in the municipal bond industry and market acceptance 15,000 Municipal Bond Flows 10,000 5, ,000 10,000 15,000 Sources: Investment Company Institute, Long-term Mutual Fund Flows Historical Data, as compiled by Morgan Keegan. 8 Update on ACRP 01-14: Considering and Evaluating Airport Privatization Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 $ Millions Jul 11

9 Airport Governance Models Governance structure determines how an airport is managed, operated, and developed Level of Airport Privatization (from Least to Most) Ownership Public Public Public/ Private Private Investment Public Public/ Private Private Private Management Public Private Private Private Types of Private Sector Involvement Retail/service concessions Management contract Project Finance/ Build-Operate- Transfer (BOT) Airport-wide concession Airport-wide Build-Operate- Transfer (BOT) Trade sales Flotation/IPO 9 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

10 Overview of Governance at Airports Context is important Governance at U.S. airports typically occurs through city and county ownership/governance In Europe, governance typically occurs through corporatization, which is a 100% wholly owned public corporation Canada chose the independent not-for-profit corporation governance model over privatization (private, self-financing, nonshare-capital corporate entities that do not pay income tax) Privatization should be viewed as another form of governance that could be used to address challenges or other structural issues that are facing U.S. airports Sources: U.S. Governance: LeighFisher for top 100 U.S. airports based on enplaned passengers. E.U. Governance: ACI Europe, The Ownership of Europe s Airports, 2010, Update on ACRP 01-14: Considering and Evaluating Airport Privatization

11 Examples of Range of Airport Governance Airports in the U.S. are virtually all publicly owned Public Ownership/Operation Government Public Corporation Public Ownership/ Private Operation Public-Private Ownership/ Private Operation Private Ownership/ Operation Most US Airports AENA (Spain) ALB Athens Branson French Regional Airports Brazil BUR Brussels* Auckland Israel Canadian Airports JFK T-4 Budapest* Australia Czech Republic Athens Copenhagen* Cyprus Norway Istanbul Delhi S. Africa Croatia Bangalore Dusseldorf* Thailand Finland Cyprus Frankfurt UK Regional Airports Berlin Argentina Naples* German Regional Airports Bolivia Netherlands Ireland Columbia Mexico Milan Peru Paris (CDG, ORY) Poland Rome* Portugal Turkey* Russia Venice* Sweden Vienna* * Private sector holds 50% or more of the ownership. Note: U.S. airports are shown in bold (red) Sources: ACI Europe, The Ownership of Europe s Airports, 2010; and multiple other sources. 11 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

12 The Airport Governance Continuum Single-purpose airport authorities have became more common in the U.S. Federal and state law support broad range of governance models State and local law heavily influence airport management Procurement Staffing, compensation, training, HR Accounting/budgeting Debt issuance Politics typically viewed as negatively affecting airport management If change in governance structure, typically to an authority; less consideration of corporatization or privatization Political leverage High Low The Airport Governance Continuum Commission or Board Low Authority Corporatization Privatization Department Government operating cost High 12 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

13 24-Year History for International Airport Privatization What can we learn from these lessons? Dublin Pisa St. Petersburg ASUR (Mexico) Adelaide Argentina Düsseldorf Hamburg French Regionals BAA Athens Belfast Bournemouth Cardiff Liverpool Cochin Prestwick Copenhagen Southampton E. Midlands Vienna London City Birmingham Bolivia Brisbane Bristol Dusseldorf Istanbul Kent Melbourne Naples Perth Rome Sanford Auckland Australian Reg Canberra Costa Rica Eindhoven Hanover Hobart Luton Malaysia Skavska South Africa Wellington GAP (Mexico) Jakarta OMA Stewart Bangalore Hyderabad Narita Fraport Lima Malta Sydney Zurich Firenze Larnaca Copenhagen Brussels Bratislava Budapest Delhi Mumbai Athens Ecuador Chubu Hong Kong India Kolkata Chennai Navi Mumbai Prague Midway Schiphol AdP Brisbane Mackay London City Belfast City Blackpool Cairns London Gatwick Bristol London Gatwick Peel Airports Update on ACRP 01-14: Considering and Evaluating Airport Privatization

14 International Airport Privatization Research 21 landmark transactions Airport/Airport System Date Method of Sale Type of Privatization Argentina 1998 Trade sale Concession Athens 1995 Trade sale Concession Auckland 1998 IPO Freehold BAA 1987 IPO Freehold BAA (Ferrovial) 2006 Public tender offer Freehold Berlin 2003 Trade sale Concession Brussels 2004 Trade sale Freehold Budapest 2005 Trade sale Concession Copenhagen 2005 Public tender offer Freehold Costa Rica 2001 Trade sale Concession Delhi 2005 Trade sale Concession Japan Air Terminal 2007 On market purchase Freehold London Gatwick 2009 Trade sale Freehold Manilla 1999 Trade sale Concession Mexico Trade sale (subsequent IPO) Concession Naples 1997 Trade sale Concession Rome Trade sale (previous IPO) Concession St. Petersburg 2009 Trade sale Concession Sydney 2002 Trade sale Concession Toronto 1993 Trade sale Lease Vienna IPO Freehold 14 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

15 Non-Airport Privatization in U.S. Transport Sector Research 19 landmark U.S. transactions for different modes Mode Type of Deal Transaction Form of Privatization Highway Long term revenue securitization on mature toll roads Transfer of distressed start-up toll roads to the private sector New private sector toll roads and managed lanes Chicago Skyway Indiana Toll Road (I-90) Pennsylvania Turnpike Alligator Alley, Florida Pocahontas Parkway, Virginia Northwest Parkway, Denver South Bay Expressway (SBX), San Diego County Dulles Greenway, Virginia Managed lane and availability payment projects Texas IH-635 / LBJ Freeway Miami Port Tunnel Development agreements and TTC I-69 in Texas unsolicited proposals I75/I575 in Atlanta Parking Off-street parking Chicago garages Full On-street parking Chicago metered spaces Full Transit Greenfield transit project Las Vegas Monorail Full Ports Operating franchise for existing rail system Infrastructure and track maintenance (but not operations) Expansion and operation of marine terminal Upgrade and operation of container berths Boston Rail Operating Franchise Denver FasTracks Seagirt Terminal, Baltimore Port of Oakland Outer Harbor Partial Partial Partial Partial 15 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

16 U.S. Airport Privatization Can Take Many Forms Privatization is not an all-or-nothing solution Most U.S. airports have a high degree of private-sector involvement LEAST PRIVATIZATION Partial Privatization Contracting services Management contract Developer/project finance & operation Full Privatization Long-term lease or concession agreement (including Airport Privatization Pilot Program) Private airport development MOST PRIVATIZATION 16 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

17 U.S. Airport Privatization Continuum The U.S. airport industry has a rich and deep history of experience Contracting Services Project Financing Management Contract Long-Term Lease or Sale Manchester SFOTEC Pittsburgh JFK-IAT Terminal 4 BOSFuel Austin rental car Burbank Albany Atlantic City LA County airports Chicago Midway Stewart Morristown Cost Reduction Specialized Expertise Capital Investment Management Expertise Upfront Payment Exit Airport Business Cleaning and janitorial Conveyance systems Aircraft rescue and firefighting Police and/or security guards Common use equipment Parking operations Terminal development Fuel systems Cargo Rental car General aviation Terminal operation Airport-wide management Airport Privatization Pilot Program Long-term lease for full operation and development Terminal concessions Commercial land development Solar 17 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

18 Disincentives to Privatization in U.S. The U.S. airport model is unique CapEx Funding Access to low cost tax-exempt debt (changes on the horizon?) Robust federal AIP grant program (and sometimes state) Ability to impose and require airlines to collect PFCs Financial Selling at bottom of economic cycle High level of debt carried by many airports Potential need to repay prior grants upon the sale or lease of an airport Desire to retain control limited interest in partial ownership Federal and State Regulations Federal policy that limits airline charges Restrictions on revenue diversion (reduces attractiveness) Limited incentive for municipalities to sell unless gain can be realized Potential need to repay prior grants upon the sale or lease of an airport Exemption from property taxes for municipal owners Contractual Constraints Airline agreements that limit airline charges Airlines content with status quo, have strong lobby voice, and have influenced Pilot Program Collective bargaining agreements and public sector unions 18 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

19 The U.S. Experiment Airport Privatization Pilot Program Initial interest in the APPP was limited 1996 AIP legislation allows Lease of commercial service airports; lease or sale of GA airports 5 slots total At least one GA airport No more than one large hub Public airport sponsor can use proceeds for non-airport purposes IF receive approval from 65% of the airlines serving the airport accounting for at least 65% of the landed weight Limits increase in airline rates Airport can receive AIP grants and levy a PFC Proposed legislative reform: increase the slots from 5 to 10; remove 65% requirement (consult instead); expand the type of airport slots that are available 19 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

20 Status of the Airport Privatization Pilot Program One slot remaining more slots to come or two track U.S. model? Large-Hub: Active 1. Chicago Midway International Airport (final application submitted October 2008, pending) Medium/Small Hubs: 2. Luís Muñoz Marín International Airport (preliminary approval December 2009) GA Airports: 3. Gwinnett County Briscoe Field Airport, Georgia (preliminary approval May 2010) 4. Hendry County Airglades Airport, Florida (preliminary approval October 2010) Inactive Stewart International Airport, Newburgh, New York by National Express Group (approved , no longer in program - Port Authority of New York/New Jersey now operates) Brown Field/San Diego Commerce Center (application withdrawn 2001) Niagara Falls International Airport (application withdrawn 2001) Aguadilla Airport, Puerto Rico (application withdrawn 2001) New Orleans Lakefront Airport (application terminated 2008) Louis Armstrong New Orleans International Airport (application withdrawn October 2010) 20 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

21 Full Privatization Under APPP vs. Outside the APPP Since 1996, no public airport owner has sought to sell or lease an airport to a private operator outside the APPP Eligible Airports Use of Sale Proceeds Grant Repayment AIP Entitlement Rates and Charges Private Operator s Charges on Passengers Full Privatization Pursuant to Pilot Program (49 USC 47134) No more than five airports eligible to participate. Only one slot currently available for a nonlarge hub airport. Public airport sponsor can request FAA approval to use sale proceeds for non-airport purposes. For primary airports, requires consent of 65% of airlines. For nonprimary airports, requires consultation with based aircraft owners. FAA may excuse public airport sponsor from any repayment obligation that may exist. Private operator is eligible for grants from the Entitlement Fund. Rates on airlines may not exceed inflation rate without consent of 65% of airlines. Rates on aircraft owners may not exceed percentage rate increase on airlines. Private operator is authorized to impose, collect and use a Passenger Facility Charge. Full Privatization Outside Pilot Program (FAA Order B) No cap on number or type of airports. Sale proceeds must be used for airport purposes. FAA will excuse public airport sponsor from any repayment obligation that may exist. Private operator is not eligible for grants from the Entitlement Fund. Rates and charges must be reasonable and not unjustly discriminatory, pursuant to Grant Assurances. Private operator is authorized to impose charges on passengers, subject to reasonableness and non-discrimination requirements of the Grant Assurances. 21 Update on ACRP 01-14: Considering and Evaluating Airport Privatization

22 PRESENTATION Thank you for your attention