privatization -reimer
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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
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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
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ACRP 01-14 Research Panel and Team
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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
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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
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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 the APPP
Morristown Municipal Airport
International Airports Sydney Airport or Kingsford Smith Airport London Gatwick Airport International Airport
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Why Airport Privatization is Attractive to Governments
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)
Each community has different reasons for considering some form of private sector involvement
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The Four Airport Pillars of Trust Fund and PFC Era
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.
These four have been critical enablers of airport and aviation growth
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Overview of Governance at Airports
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, 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
Context is important
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, 2010.
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Public Ownership/ Private Operation
Public Ownership/Operation Public-Private Ownership/ Private Operation
Private Ownership/ Operation Government Public
Corporation
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*
Examples of Range of Airport Governance Airports in the U.S. are virtually all publicly owned
* 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.
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The Airport Governance Continuum
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
Single-purpose airport authorities have became more common in the U.S.
High Low
Government operating cost
Low
High
Polit
ical
leve
rage
Corporatization
Privatization
Authority
Department
Commission or Board
The Airport Governance Continuum
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U.S. Airport Privatization Can Take Many Forms Privatization is not an all-or-nothing solution
Partial Privatization
Full Privatization
LEAST PRIVATIZATION
Contract services
Developer/project finance & operation
Long-term lease or concession agreement (including Privatization Pilot Program)
Private airport development
MOST PRIVATIZATION
Management contract
Most U.S. airports have a high degree of private-sector involvement
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• Airport Privatization Pilot Program
• Long-term lease for full operation and development
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 concessions
• Commercial land development
Cost Reduction
Specialized Expertise
• Terminal operation
• Airport-wide management
Management Expertise
• Terminal development
• Fuel systems
• Cargo
• Rental car
• General aviation
• Solar
Capital Investment
Contracting Services
Management Contract
Project Financing
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
U.S. Airport Privatization Continuum The U.S. airport industry has a rich and deep history of experience
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Disincentives to Privatization in U.S.
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
The U.S. airport model is unique
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
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The U.S. Experiment – Airport Privatization Pilot Program
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
Initial interest in the APPP was limited
Proposed legislative reform: increase the slots from 5 to 10; remove 65% requirement (consult instead); expand the type of airport “slots” that are available
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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:
3. Gwinnett County Briscoe Field Airport, Georgia (preliminary approval May 2010) 4. Hendry County Airglades Airport, Florida
(preliminary approval October 2010)
Stewart International Airport, Newburgh, New York by National Express Group (approved 2000-2007, 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)
Inactive Active
One slot remaining – more slots to come or two track U.S. model?
Status of the Airport Privatization Pilot Program
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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
Full Privatization Pursuant to Pilot Program (49 USC § 47134)
Full Privatization Outside Pilot Program (FAA Order 5190.6B)
Eligible Airports No more than five airports eligible to participate. Only one slot currently available for a non-large hub airport.
No cap on number or type of airports.
Use of Sale Proceeds 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.
Sale proceeds must be used for airport purposes.
Grant Repayment FAA may excuse public airport sponsor from any repayment obligation that may exist.
FAA will excuse public airport sponsor from any repayment obligation that may exist.
AIP – Entitlement Private operator is eligible for grants from the Entitlement Fund.
Private operator is not eligible for grants from the Entitlement Fund.
Rates and Charges 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.
Rates and charges must be reasonable and not unjustly discriminatory, pursuant to Grant Assurances.
Private Operator’s Charges on Passengers
Private operator is authorized to impose, collect and use a Passenger Facility Charge.
Private operator is authorized to impose charges on passengers, subject to reasonableness and non-discrimination requirements of the Grant Assurances.
Daniel S. Reimer KAPLAN KIRSCH & ROCKWELL LLP (303) 825-7000 [email protected]