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T +1 (202) 466 6790 F +1 (202) 466 6797 1700 K Street NW Suite 410 WASHINGTON DC 20006 United States of America T +61 (2) 9231 6862 F +61 (2) 9231 3847.

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Presentation on theme: "T +1 (202) 466 6790 F +1 (202) 466 6797 1700 K Street NW Suite 410 WASHINGTON DC 20006 United States of America T +61 (2) 9231 6862 F +61 (2) 9231 3847."— Presentation transcript:

1 T +1 (202) F +1 (202) K Street NW Suite 410 WASHINGTON DC United States of America T +61 (2) F +61 (2) – 38 Young Street SYDNEY, NSW 2001 Australia T +64 (4) F +64 (4) Level 2, 88 The Terrace PO Box WELLINGTON New Zealand T: +33 (1) F: +33 (1) Rue Claude Chahu PARIS France --- Copyright Castalia Limited. All rights reserved. Castalia is not liable for any loss caused by reliance on this document. Castalia is a part of the worldwide Castalia Advisory Group. Airport Public-Private Partnerships: How Applicable Are International Models to the United States? By Brian F. Chase ARTBA July 23, 2010

2 1 Summary of Presentation: 1.Airport PPPs that are being used globally 2.Airport PPPs that are being used in the United States 3.Observations on what is (and is not) working in the United States 4.Predictions

3 2 Two basic forms of airport PPPs being utilized globally: 1.Contractual PPPs ­ Most common; especially in developing countries 2.Institutional PPPs ­ Used in countries with well developed institutional and regulatory capabilities

4 3 Why are airport PPPs being used? Budgetary pressures on governments worldwide forcing them to explore alternatives to traditional public sector provision of assets and services Keen interest among institutional investors (e.g., public pension funds) in alternative investment opportunities that can deliver relatively predictable, income oriented and inflation-protected returns – such as airports Desire to reduce political interference with airport management decisions International experience shows that new forms of private sector participation can boost revenues and improve services at airports Need for massive infrastructure investment across the world – including at airports

5 4 Contractual PPPs: Principal-agent relationship established between the public and private sectors based solely on a written agreement. The public partner delegates one or more airport-related tasks to its private partners; these tasks may include developing, financing, reconstructing or managing all or some part of an airport facility Examples: Management contract/operating lease/concession Completed:Gatwick (2009); St. Petersburg (2009); Pristina (2010) Pending: Mali; Brazil; Peru

6 5 Institutional PPPs: Private investor/operator and government authority are joint venture partners in a corporatized airport entity (typically followed by an IPO) IPPPs are largely unknown in the United States because of state constitutional prohibitions on public investment in business corporations (resulted from ill-advised public investments in canal and railroad companies during the19 th century) There are some interesting exceptions to this general ban that are beginning to be explored and used (e.g., HAS Development Corp.) Completed: Paris, Athens; Hamburg; YVRAS/Citi Infrastructure Pending: Prague, Seouls Incheon Airport, Poland

7 6 Observations on airport PPPs being utilized globally Majority of worlds airports remain government owned and operated, despite the many privatizations that have occurred during past two decades Nevertheless, local, regional and national governments are increasingly concluding that airports might better be operated, either entirely or partially, by the private sector Glasgow Prestwick Airport

8 7 Types of airport PPPs being used in the United States: ­ Mostly contractual PPPs ­ Largely outside of FAA Airport Privatization Pilot Program (but recent renewed interest in that program too) ­ More awareness of institutional PPPs, but so far only one established to date involving a U.S. airport (HAS Development Corp.) Question: Since the relevant regulatory framework exists in the United States for contractual PPPs involving airports, why isnt it being used more frequently?

9 8 FAA Airport Privatization Pilot Program Virtually ignored until 2008; due to mix of public airport authority antipathy and high regulatory hurdles (limited pilot; 65% airline approval requirement) To date, only one project completed in 14 years (Stewart in 1999), so perceived as high risk and expensive endeavor for PPP delivery Since Midway, however, there has been greater interest in the program Four of 5 slots now filled; one position remains available for a non-large hub or GA airport At least 10 other U.S. airports have expressed interest in privatization by lease Result: Contractual and even institutional PPPs are occurring at U.S. airports, but mostly outside of the FAAs cumbersome program (which may soon become even more difficult to use – and thus less relevant)

10 9 Examples of U.S. Airport PPPs: Orlando-Sanford Airport (TBI Airport Management) In 2008, AIB One LLC, a GE Commercial Aviation Services (GECAS) company, opened the privately-developed South Terminal at Austin-Bergstrom Airport in Texas; it was then closed down a year later (due to economic downturn and swine flu in Mexico) and returned to the citys Aviation Department In 2009, the first private greenfield commercial airport, Branson, opened. Operates entirely outside of FAAs remit, apart from safety and security requirements Other examples: ­ HAS Development Corporation (with OMERS and ADC) ­ JFK Terminal 4 ­ Fort Worth Alliance Airport ­ Management contracts at commercial airports (Albany, Burbank, Indianapolis) and GA airports (Teterboro and L.A. County) ­ Panama City ­ Stewart (prior to 2007)

11 10 Five predictions on use of airport PPPs (from most confident to most speculative)

12 11 Prediction #1: Airport investment activity involving public pension funds will continue to grow (both in United States and globally). In 2008, first institutional PPP created involving U.S. airport, HAS Development Corp., and public pension fund, OMERS ­ Was potential investor in Midway ­ Learned from example of SFO Enterprises In 2009, the Ontario Teachers' Pension Plan (OTPP) completed a transaction to increase its stake in Bristol International Airport to 49% and to sell its minority stake in Copenhagen Airport In 2010, CalPERS acquired a 12.7% stake in London Gatwick via direct investment (other investors include ADIA and S. Korean National Pension Service)

13 12 Prediction #1 (continued): Airport investment activity involving public pension funds will continue to grow (both in United States and globally). Right now, private equity firm CVC Capital Partners (which includes public pension fund investors) is leading an investor group to buy infrastructure operator Abertis ­ Abertis has interests in 30 airports in 9 countries, which handle more than 80 million passengers ­ It also (through its subsidiary, TBI) has total or partial management contracts, from governments or local authorities, at 5 U.S. airports: Hartsfield-Jackson Atlanta International Bob Hope Middle Georgia Regional Macon Downtown (GA airport) Raleigh-Durham International

14 13 Prediction #2: If completed, Puerto Ricos LMM will become the new poster child for the FAAs Airport Privatization Pilot Program (rather than Midway). Emphasis on improving airport services at lowest government cost rather than on asset monetization Recommend review of Puerto Rico PPP Authoritys related feasibility study, available at: LMM International Airport

15 14 Prediction #3: PPPs will be used to provide airline service at certain general aviation airports. At least some one-airport metro areas need more airport capacity Also, such metro areas typically suffer from high traffic congestion across broad urban area Example: Atlanta (Briscoe Field) ­ In FAAs Airport Privatization Pilot Program ­ RFQ responses from private investors/operators due on Aug. 16 ­ Goal is 10-gate terminal with dozens of fights/day Seattle (Paine Field) and San Diego (McClellan-Palomar) also in process of pursuing contractual PPPs

16 15 Prediction #4: More private investors will become interested in greenfield private airport investment opportunities such as Branson. $155 million invested by a Connecticut businessman to build the only privately-financed commercial airport in the United States No FAA grant agreement Several airlines already are using it (Sun Country, AirTran, Frontier and Branson AirExpress) Another example of a potential PPP project: Greenfield multimodal freight/industrial airport near Dallas Branson Airport

17 16 Prediction #5: U.S. airports will begin to explore using runway congestion pricing. Air Transport Assoc. challenged DOT program, but it was recently upheld by a DC appellate court Airports authorized to charge by time of day as well as by aircraft weight Goal is to reduce chronic airport delays and boost weight-based landing fee revenues (which can be lower due to increased use of regional jets)

18 17 Questions or comments? or Tel. (202)


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