presentation capital project delivery and airport privatization · 2011-06-23 · 2 airport project...

PRESENTATION

Capital Project Delivery and Airport Privatization

Airport Project Delivery Systems Summit ACI-NA - ACC - AGCASan Jose, CaliforniaJune 8, 2011

Justin Powell

2 Airport Project Delivery Systems Summit June 8, 2011AC

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Overview

The Airport demand context: unprecedented challenges

Privatization background

Effect on capital programs and planning

Case Study

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 300Burlingame, California 94010Telephone: (650) 579-7722Fax: (650) 343-5220E-mail: [email protected]

Washington D.C. Area Office:11730 Plaza America Drive, Suite 310Reston, Virginia 20190Telephone: (703) 961-9000Fax: (703) 961-9318 www.leighfisher.com


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Conditions in the Near-Term – Unprecedented Challenges

1. Slow national and regional economic growth – it’s about more than economic conditions in your community, but also in the communities that are served from your airport

2. Continued high unemployment and a tight credit market – will continue to make it difficult for passenger growth to take hold in a meaningful way, especially in the context of higher airline fares

3. Higher airline fares (12 material industry attempts to increase fares since mid-December, 9 of which have stuck) – the airlines have been very clear about their goal of focusing on financial sustainability

4. Airline network restructuring related to consolidation and airline alliances – it is likely that airlines will use airports very differently in the future, particularly in the context of their alliances

5. Continued oil price volatility – the question isn’t about if we will get back to June 2008 oil prices, but what happens to airline capacity when oil is consistently above current levels


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AIP Funding Levels Are Likely to Decrease (If Not Today, Someday)Legislators are focused on decreasing discretionary spending

Source: “Airport and Airway Trust Fund: Declining Balance Raises Concerns over Ability to Meet Future Demands,” Government Accountability Office, February 3, 2011. AATF=Airport and Airway Trust Fund.

$5.20

$1.10

$0.40 $0.20

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Nonhub Small Medium Large

$0

$1

$2

$3

$4

$5

$6

$7

$8

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

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.

Uncommitted Balance of AATF (in billions) Average CPE Impact of AIP Grants

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.


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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

PartialPrivatization

FullPrivatization

LEAST PRIVATIZATION

MOST PRIVATIZATION

Contract Services

Management contract

Long-term lease or concession agreement(including Privatization Pilot Program)

Private airport development

Developer/project financing


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Privatization Capital Programs

Privatization offers Government an opportunity to pass off major capital costs, with upfront risk, to private bidders

– Particularly for greenfield airports where the major transition has been delayed

Accelerate capex – as in Brazil to prepare for 2014-2016 sports events– Private sector procurement

Develop a revenue and tax stream to the GovernmentThe competitive nature of the bid process can maximize:

– The bid price – the price of admission– The promised capex improvements

Many privatization RFPs have both a technical and financial offer– The current Natal, Brazil proposal (due July 12) has a minimum bid price

(US$32m) and an open-ended technical/business plan proposal (estimated capex of $402m) for terminal and landside facilities

Create an asset that will revert to Government management or be available for re-concessioning

– Santiago, Chile Terminal is up for re-bid in 2014 (15-year concession)

Follow the Money


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Maximize valuation while protecting the public interest– What level of regulation protects the public, travelers and airlines?– How can this regulation be transparent and flexible to support the

Concessionaire?

Maintain and enhance operational and development standards (including safety and security)Improve overall standards of serviceIncrease operational efficiencyFoster introduction of new ideas/alternative approaches The capital program timing is dictated by a range of factors:

– Technical specifications of the concession agreement– Political impact of a major new airport, terminal building, airfield modernization -

getting the new facilities built ASAP– If a lease, the concession duration – 20-30 years is a typical concession lease

range

Public Interest Factors are Critical


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CapEx Sequencing and Prioritization– Private operators strive to “sweat the assets”– Delay as long as possible making the CapEx investment– But in the context of customer service

Financial viability of CapEx – does it provide a reasonable return on investment? RFP technical specifications

– Government will present minimum technical specifications –over-detailed specifications may not be appropriate and also increase implementation risk

• PALs and Triggers– Should be agreement on timetable for completion of detailed technical design.– Need for flexibility by Government to deal with genuine construction time and

cost issues

Bid teams regularly include an experienced constructor/developer.– The project value is a reason for firms such as GMR (India), Hochtief

(Germany), Odebrecht (Brazil) to be involved– Constructor/developer may or may not take equity share

Capex Management


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Private Airport Regulation

Multiple regulators – pricing, safety/security, concession terms and constructionAfter 1987, as airports started getting privatized globally, accounting became clearer and it was apparent that large airports were very profitableAirlines have therefore put pressure on airports to share some of these profits by lowering chargesRegulation method for airline charges is relevant:

– Single-till (or “Residual” in the US) lumps all finances together for purpose of regulating airport profits through aeronautical charges. Non-aeronautical revenues subsidize airline charges

– Dual-till (“Compensatory” in the US) keeps non-aeronautical revenues separate from the airport profitability calculation – so the private operator keeps any upside and as such may be incentivized to have a more extensive non-aeronautical capex program

Government Transitions from Owner to Regulator


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Private Airport RegulationConcession Oversight – Balance Investment with Service Levels

Capacity is a function of level of service (LoS)– A facility can operate at varying degrees of congestion and delay depending on

level of service intended

Trading off investment needs and service levels– Providing the right facilities at the right time

Different operators and airports have different LoS standards– Within airports there is significant service differentiation (e.g. network vs. LCC

for instance Singapore Airlines vs. Tiger Airways or Malaysian vs. Air Asia)IATA - Levels of Service (LoS) Definitions

Flows Delays ComfortA - Excellent Free None ExcellentB - High Stable Very few HighC - Good Stable AcceptableD - Adequate Unstable Passable AdequateE - Inadequate Unstable Unacceptable InadequateF - Unacceptable Unacceptable

Level of Service (LoS)

State

System breakdown

Good


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Build-Operate-Transfer (BOT), and Build-Transfer-Operate (BTO) vary the transition timing of the contractor into operator or owner

– BOT arrangements in a concession agreement usually cover construction, quality control, time schedules, milestones, and similar issues

– Difference between BOT/BTO is the time at which the operator transfers the newly constructed assets to the Government. BTOs are employed when relevant legislation does not allow for the private ownership of airport facilities

Build-Own-Operate-Transfer (BOOT) permits ownership and depreciation of underlying siteLease extensions are often approved in exchange for additional capexManagement/ negotiation of capital program with Government is highly sensitive

– Construction program outlines completion dates for the various construction phases (milestones) as part of the approved project, which is usually incorporated into the concession agreement

Typical Concession Lease Contracts


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Latin America PPP ExamplesAirport Model Duration (years) Current concessionaire

Bolivia (La Paz, Cochabamba and Santa Cruz)

BOT concession 25 (2023) ACDL (Abertis and Aena International), operated by TBI

Argentina (33 airports) BOT concession 30 (2028) + 10 Corporacion America, operated by AA2000

Mexico Southeast Group (9 airports) 15% minority sale plus 50-year BOT concession followed by flotation of remaining 85%

50 (2048) ASUR, operated by Copenhagen Airports

Mexico North Central Group (12 airports) Minority sale plus BOT concession 50 (2048) OMA, operated by Aeroports de Paris

Mexico Pacific Group (13 airports) Minority sale plus BOT concession 50 (2048) GAP, operated by Aena International

Santiago Terminal, Chile BOT concession 15 (2014) SCL, operated by YVRAS

Dominican Republic (6 airports) BOT concession 25 (2027) Aerodom, (Advent, operated by YVRAS)

Honduras (Tegucigalpa, San Pedro Sula, La Ceiba and Roatan)

Concession 20 (2020) Interairports S.A., operated by Unique/IDC

San Jose, Costa Rica Management contract 20 (2019) ADC/AG Concessoes/Houston Airport System

Lima, Peru BOT Concession 30 (2031) Lima Airport Partners SRL, operated by Fraport

Cabo Frio, Brazil Concession - Local concessionaire

Peru South Group (9 airports) Concession - Corporacion America

Montevideo, Uruguay Concession 20 (2023) Puerta del Sur, operated by AA2000

Peru North Group (12 airports including Pisco)

Concession 25 (2031) Aeropuertos del Peru, operated by Swissport

Punta del Este, Uruguay Management Concession 20 (2019) Corporacion America, operated by AA2000

Quito, Ecuador Concession 35 (2040) Corporacion Quiport (Aecon/ AG Concessoes, operated by HAS)

Guayaquil, Ecuador Concession 20 (2023) TAGSA


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Case Study

GVK/ACSA/Bidvest Consortium38.7% of gross revenue share to go to Government of India/Ministry of Civil AviationAirport to cater to 35-40mppa by 2015 and will cap outKey elements:

– Improvements to existing airfield infrastructure to maximize capacity

– Modifications to terminals to expand and add capacity in a phased manner

– Expanded air cargo facilities– Additional infrastructure for

maintenance and support– Improved landside access

Mumbai International Airport Limited

CapEx Plan in excess of USD $1 billionUltimate plan would have over 80 gates and cater to over 35mppaMIAL submitted a master plan to Airports Authority of India and

started the capital program

presentation capital project delivery and airport privatization · 2011-06-23 · 2 airport project...

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