Operational Success to Set the Stage for Future US Airports Revitalization

Taking a flight out of New York’s LaGuardia Airport is desired by none, especially prior to the $4 billion ongoing rebuild of its Central Terminal B. Even so, it is painful while works are completed.

LaGuardia Airport Construction

But the project – the largest single US airport terminal public-private partnership to date – promises to change customer experience for decades to come. It is the result of a P3 agreement between operator Port Authority of New York and New Jersey (PANYNJ) and private group LaGuardia Gateway Partners.

LaGuardia was brought to financial close in 2016 and has been a lone beacon in its category. But it did motivate few others; Denver International Airport undertook a $1.8 billion reconstruction of the Great Hall at Jeppesen Terminal in 2017 and Los Angeles World Airports (LAWA) launched two projects (Automated People Mover and Consolidated Rental Car Facility) at the Los Angeles International Airport the previous year. All examples of uniquely structured P3s in the airport sector.

Yet prior to this for years, Puerto Rico’s Luis Muñoz Marín International Airport remained the only US territory airport to be completely privatized under the US Federal Aviation Administration’s (FAA) airport privatization pilot program. Aerostar Airport Holdings won the airport’s operations in a competitive bidding process in 2013.

While these projects stand testimony that US port authorities are not taking the dilapidated state of their assets lightly, precedence is still sparing. And operational airport P3s are even fewer to date to ascertain any trend at this stage.

Proof of concept

“Airport P3s probably mirror how P3s in other sectors have taken place in the US. They all require a proof of concept where at least three or more P3 projects have been constructed and commenced operations,” says Steve DeWitt, senior vice president of business development at ACS.

“We are not going to see a ground swell of projects right away, but it is worth watching ongoing procurements and assessing their success.”

LGA’s Terminal B will be completed in phases – completion is due 2021. Operations on LAX’s APM and ConRAC will only begin around 2023 if construction on each is completed on time.

The City of Nashville recently launched a ‘P3’ procurement seeking a private partner for rebuild of facilities including a hotel and parking. But many other airport authorities are still prepping feasibility studies and tenders to weigh various possibilities within the P3 model.

Dallas’ Fort Worth International Airport is contemplating a terminal rebuild for which feasibility is underway, according to an industry source. In 2018, the airport’s owners made public their plans to launch municipal bonds for various improvements at the airport.

Also, sources suggest Iowa’s capital city Des Moines is mulling a terminal rebuild for its airport, while previously announced P3s for Arizona’s Phoenix Sky Harbor and Illinois’ South Suburban Airports are still under consideration. But none of these are tender-ready yet.

Investment need

Most US airports are still far behind their European peers, says Jason Slivka, senior manager and aerospace sector lead at Mazars. “From a success standpoint, some sort of private ownership would be beneficial. We can borrow and learn from Europe and assess what levers can be pulled to make this is a success in this country as well.”

Forecasts by FAA show total passengers to/from the US are projected to increase at an average annual rate of 3.6% between now and 2037, roughly in line with GDP growth. This surpasses Canadian Transborder (3.5%) and Atlantic (3.4%) figures over the same period.

Passenger numbers to/from US will nearly double to a 467 million by 2037 from 229 million (2017) and total air cargo (revenue ton miles) is projected to increase to 66.4 billion by 2037 from 36 billion today – up an average of 3% a year.

Since no new major airport has opened in the US in almost 25 years, and together US’ top five busiest airports are already handling over 300 million passengers each year, investment is required to keep pace.

Airports, much like other US infrastructure, have suffered under investment for decades. As a result, they rank poorly when compared to other leading economies. In the World Airport Awards 2018, chosen by a customer ratings airport survey, only one US airport placed in the top 30: Denver at number 29.  Asian airports, led by Singapore-Changi, Seoul-Incheon, and Tokyo-Haneda topped the list.

It won’t be fair to label all American airports as deplorable. Capacity building and global competitiveness-wise, some need more help than others. Besides traditionally financed methods of airport rebuild, alternatives including P3s for terminal rebuilds or ancillary airport facility modernizations, airline-led terminal refurbishments are all being put to test.

Where complete privatizations are concerned, the US government recognized this need and introduced the FAA Pilot program in September 1997. And even though a 2012 Reauthorization Act increased the number of airports than can participate in the program from five to ten, to date only one airport remains fully privatized under this.

The program has limitations where only one large hub airport can participate and one of the airports must be a general aviation airport. But no reform has been brought on board to address these.

“FAA restrictions are cumbersome and project procurement is slow due to the over regulation.” says Slivka. “Private companies deserve more freedom,” he adds.

Unique sector

“Airports are at the heart of any industry,” says Brandon Davis, partner in Nossaman’s infrastructure practice. P3s can be applied to a variety of assets within airports versus other transportation sectors, he adds.

“We have everything from convenience and landside services to airside facilities, administration buildings and parking at airports. The possibilities are endless which makes it an interesting blend of other P3 sectors.” LAX’s projects are an example of this.

Jacob Adams, deputy program executive at LAWA told Icons of Infrastructure, “We hadn’t done P3s ever. But once we became aware of the design innovations, lifecycle cost efficiencies, construction timelines and risk-transfer benefits, we grew confident.”

LAWA’s homework for the APM and ConRAC projects – prior to and during tender preparation – included interviewing other public owners who had used the P3 model and learning what was hard, Adams says.

LAWA also chose the model independent of just the financial benefits it saw in the early studies. “We have already realized efficiencies brought in by private sector innovation. On the APM project, the LINX team presented a design that did not require demolition of a key parking structure which has major future benefits for the airport,” he says.

He adds that LAX is built on a small footprint and keeping this in mind, ConRAC’s private sector consortium designed certain innovations which will better utilize the space and yield the remaining land for future development.

LAWA was fortunate that the process yielded clear results on both its initial procurements with the LAX airport commissioners and LA City Council unanimously approving both P3s, a few other US airport P3 procurements did not share the same fate.

“It is still quite early in the process to evaluate what these initial airport P3s will mean for the larger industry,” Adams cautions.

But based on preliminary success, LAWA is already planning procurement for two more P3s – Cargo and Northside.

While the innovations brought on by LAWA could be a boilerplate for some, not all US airports have the same needs or budget like LAWA does. Some need advice on how to take a big-ticket project and translate it into what they need on a $50 million – $100 million budget, says Davis.

Further, relinquishing control is still a mental roadblock for many public airport owners and this was admittedly the case for LAWA as well, confesses Adams. “LAWA had a great history of procuring projects themselves, but we gave an alternative a chance and with these successes we hope to better focus on the future.”

Airports is a complicated sector and the success of its projects is dependent on several stakeholder relationships, whether those be airlines or car rental companies or the city itself.

Other than passing the test of time and concept, DeWitt says, “airport authorities will need to recognize the need and see the opportunity in what P3s can and cannot do. These shall be investigated to greater degree as the sector matures,” DeWitt says.

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