TITLE. ACI Annual Conference 2012 Calgary, Alberta, Canada. Second level. Public/Private Partnership: Will it Work for Your Airport?

Transcription

1 ACI Annual Conference 2012 Calgary, Alberta, Canada Public/Private Partnership: Will it Work for Your Airport? Neil Raynor, VP Airport Development

2 Ongoing projects in some 100 countries International network of offices in 35+ countries 2011 Revenue: $7.2B Fifth with level backlog of $10B A diversified, international company A large diversified corporation with growing airport interests founded in Canada 101 years ago 28,000 employees At airports we look at things from an owners, operators, developers and constructors perspective Significant experience in P3 participation across a wide range of infrastructure projects

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4 Malta International Airport 65 Year Concession SNC-Lavalin s Ownership: 16%

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8 Globally, significant private investment in airports is not new Since the BAA privatization in 1987, more than 20 countries have completed the sale or lease of airport facilities including: Argentina, CLICK TO Australia, EDIT MASTER Austria, TEXT Bahamas, STYLES Bolivia, Cambodia, Canada, Chile, China, Second Colombia, level Denmark, Dominican Republic, Germany, Hungary, Italy, Japan, Malaysia, Mexico, New Zealand, Singapore, South Africa and Switzerland In the United States the experience has been more limited but there are still many examples of private sector involvement in public airports through Contracting Services, Project Financing, Unit Terminal Development, etc Less experience of full airport privatization, Stewart International, NY and Branson, Mi are exceptions, but there is renewed interest in what P3 could offer

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10 Best practices in PPP development include Achieving a balanced approach towards risk transfer, with the risk shifted to the party most suited to managing that risk Undertaking a complete due diligence of the airport, gaining a clear understanding of Third operating level costs and future revenues, as well as capital requirements over the course of the concession Establishing a clear economic regulatory framework with the Government to provide economic certainty and avoid any lengthy disputes downstream Involving key stakeholders in the early stages of the process in order for them to get comfortable with the planning, design, management,development and operations initiatives

11 Key risks/ success factors include but certainly not limited to Risks which need to be mitigated: Regulatory: Unanticipated changes post hoc Financing: the Midway Airport dilemma - victim of the financial markets crash, which resulted CLICK in TO the EDIT investors MASTER inability TEXT to STYLES secure financing on the asset Traffic: Consistent and stable passenger traffic growth, preferably O/D Transparency: Lack of transparency in airlines and airports commercial arrangements Success Factors which need to be present: Strong political support Fifth to enable level successful and timely execution Mature aviation regulatory environment No overbearing economic regulation: competitive price monitoring Professional personnel beyond political interference Experience Concessionaire Opportunity to develop non aeronautical revenues enhancing the commercial attractiveness of the airport

12 What s In It For Me? What s in it from the Government s Perspective? Access to upfront payment Reduces budgetary pressures Protect public interest through appropriate economic regulation Attract an experienced private operator Capital improvements without having to invest money Job creation through enhanced commercial activity Laying off of future commitments such as pensions What s in it for the Investor? Access to a near-natural monopoly with high barriers to entry Long term concession potential to achieve high ROI Deploy expertise in managing and developing airports Leveraging portfolio of assets

13 Some thoughts about financing and executing major airport investments Financial: Not just about more efficient finance as Government can often borrow at cheaper rates if they have the capacity Need access to aeronautical and non-aero revenues and debt will be priced to reflect the un-realized CLICK TO value EDIT of MASTER the entitytext STYLES Overall financial Second performance, level improved cash flow in percent of total revenue, operating and EBITDA margins have all shown improvements following private sector involvement Construction: Pure contractors are only interested in large projects and short-term construction project profits Contractors with reasonable equity participation, as well as industrial investors, are motivated to ensure that only appropriately sized facilities are built, are designed against life-cycle cost principles and then properly maintained Operational: Streamline operations and operating more cost efficiently its not about cutting jobs Overall: Our experience is that private sector projects are delivered more on-time and on-budget

14 Human Resources with the right skills and motivation Generally we find that in mature markets the incumbent middle management and employees are very capable but often held back by the bureaucratic culture Need effective senior Third management level with the necessary knowledge & experience of best business practices across the commercial landscape Training and Education, plus Technology and Knowledge transfer in best practices are the key to success

15 PPP in the US airports market early days but growing interest The current situation in the US is untenable: The Airport and Airway Trust Fund has inadequate revenues due to softness in air travel and unbundling of airline fares - AIP funding is in jeopardy PFCs CLICK continue TO EDIT to MASTER lose value TEXT because STYLES of inflation Increasing political pressure on the continuance of Tax-Exempt Debt But issues still exist that need to be addressed: Desire to retain control limited interest in partial ownership Potential requirement to repay prior grants upon the sale or lease of an airport Federal and State Regulations that limit airline charges, restrict revenue diversion which in turn limits incentive for State & Municipal Governments to engage unless gains can be realized, potential need to repay prior grants on sale or lease of an airport, and loss of property tax exception Contractual Constraints such as airline agreements and collective bargaining agreements with public sector unions But things are moving....

16 Not part of the FAA pilot program No CLICK federal TO grant EDIT assurances MASTER TEXT apply STYLES Developed and operated by a private, for-profit investor group Case Study Branson, Missouri The first privately funded commercial airport in the U.S. Started construction in July 2007 and project was completed in May 2009 $114 million of tax-exempt Fifth bonds level issued by the Branson, Missouri Regional Airport Transportation Development District and $50 million in private equity As of August, 2012 AirTran Airways/Southwest Airlines offered nonstop service to Atlanta, Baltimore- Washington, Chicago, Houston, and Orlando with plans to add Dallas-Love Field Frontier Airlines offered nonstop service to Denver Branson AirExpress offers seasonal service: in 2012 they served Austin and Nashville

17 Case Study: Luis Muñoz Marín Airport (SJU) The busiest airport in the Caribbean with 8M pax and 445M tons of cargo Located in the capital city of San Juan Significant aeronautical infrastructure Good CLICK mix TO of US EDIT domestic MASTER airlines: TEXT STYLES AA, US Airways, Delta, jetblue, United, Southwest International carriers include Iberia, Copa, BA 40-year concession term Dual-till system gives operator access to all non-aeronautical revenue Continued access to PFCs and AIP grants Defined projects to be completed by operator within specified time frame Additional major capital improvements will be subject to MII approval In FAA approved process, received approval of more than 65% of airlines which defined Prospective Airline Rates and Charges Operating Standards Required Capital

18 SJU Concession In July 2012, Aerostar Airport Holdings LLC selected from 12 bidders to run the airport, in a deal valued at $2.57 billion Aerostar, comprises Aeroportuario del Sureste, an operator of nine airports in Mexico, and Highstar Capital, which Fourth has level made investments in Baltimore and London Includes a $615 million up front payment to the Ports Authority, as well as annual payments over the life of the contract of $550 million The deal is subject to U.S. FAA approval which is anticipated by years-end

19 Thank you for your attention Neil Raynor

20 AIRPORT AVIATION SOLUTIONS + BUILDING CONNECTIONS