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

Transcription

1 Update on ACRP 01-14: Considering and Evaluating Airport Privatization Prepared for the Legal Affairs Pre-Conference Seminar ACI-NA Annual Conference San Diego, California Dan Reimer, Kaplan Kirsch & Rockwell October 16, 2011

2 Agenda Outline Research Panel and Team Proposed Guidebook Outline/Content Why is Privatization Gaining Renewed Attention? Forms of Governance and What Makes the U.S. Model Different Airport Privatization U.S. Style 2

3 ACRP Research Panel and Team 3

4 Proposed Guidebook Outline (p. 1 of 2) Executive Summary Overview What Makes the U.S. Airport Model Different? U.S. Regulatory and Policy Framework (including FAQs) Range of Privatization Strategies (and examples) Stakeholder Perspectives Decision Tree Matrix, Evaluation Checklist, Process Summary of Case Studies 4

5 Proposed Guidebook Outline (p. 2 of 2) Appendices Abbreviations and Acronyms Glossary International Airport Privatization, Lessons Learned, and Transaction Summaries Non-Airport Privatization in the U.S. Transport Sector Emerging Domestic Issues Influencing U.S. Airport Privatization U.S. Regulatory and Policy Framework Key Stakeholder Interests and Concerns Detailed Case Studies 5

6 Detailed Case Studies First-hand experiences and lessons learned; rebut mythology Management Contract Indianapolis Airport Authority Developer Financing/ Operation John F. Kennedy International, Terminal 4 (JFK-IAT) Boston Logan International Airport Terminal A APPP Applicants Chicago Midway International Airport Stewart International Airport Full Privatization Outside Morristown Municipal Airport the APPP International Airports Sydney Airport or Kingsford Smith Airport London Gatwick Airport International Airport 6

7 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) 7

8 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. 8

9 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-forprofit corporation governance model over privatization (private, self-financing, non-share-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,

10 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. 10

11 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 The Airport Governance Continuum 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 Commission or Board Low Authority Corporatization Privatization Department High Government operating cost 11

12 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 Partial Privatization LEAST PRIVATIZATION Contract services Management contract Developer/project finance & operation Full Privatization Long-term lease or concession agreement (including Privatization Pilot Program) Private airport development MOST PRIVATIZATION 12

13 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 13

14 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 14

15 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 15

16 Status of the Airport Privatization Pilot Program One slot remaining more slots to come or two track U.S. model? Large-Hub: 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: Active 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) 16

17 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. 17

18 Daniel S. Reimer KAPLAN KIRSCH & ROCKWELL LLP (303)