Taxiing before take-off

US Congress first passed legislation to permit public authorities to explore the possibilities of airport privatisation in 1996. Since then only one major privatisation in the continental US has been completed – a $2.6 billion lease of the Luis Munoz Marin Airport in Puerto Rico in 2013.

No mainland airport has been able to match that achievement – not for want of trying. A total of 12 airports have made an application to the Federal Aviation Administration (FAA) since 2001. Nearly all of these applications were subsequently withdrawn.

The latest failed attempt was for Westchester County Airport in New York State. The sale was authorized by the FAA in December 2016 and Macquarie Infrastructure Corp was subsequently selected to operate and develop the asset. However, the privatisation plans were put on hold in January 2018 following a change in local government, and the application to the FAA was eventually withdrawn in March this year (2019).

Only two assets remain in the FAA’s Airport Investment Partnership Program which would suggest the campaign for more privatisations is moving backwards; however the privatisations of those two assets have in fact moved forward during the last month.

Significant hurdles to these deals being realised remain, and no one is anticipating a flood of follow-on transactions, but they could at least demonstrate what can be achieved in this sector.

Responses to the RFQ for the larger of these assets – St Louis Lambert International Airport – are due on 1 November (2019) and the process is expected to attract a larger number of international bidders.

No lack of interest

The City of St Louis issued the much anticipated RFQ for its airport privatisation on 4 October. It had been a long-time coming.

Advisers were picked for the project in January 2018 and were subsequently approved by the city’s Board of Estimate and Appointment in June of that year. The deal started to create quite a buzz in the market last summer, with city representatives attending conferences to promote the airport and meet with potential investors.

That the RFQ took close to another 18 months to arrive does not seem to have dampened market appetite. Among the interested parties are said to be major international airport operators such as Munich Airport International, ADP, Vinci and Fraport.

One source said they also expected a number of financial investors to be very interested in the asset, given the surplus capital floating around the market and the dearth of major infrastructure assets to invest in.

The characteristics of the asset look good on paper too.

The site has three main runways, one auxiliary crosswind runway, and two main terminals. Total passenger numbers and freight cargo are showing healthy growth, while non-aero revenues in the four years between 2014 and 2018 had a compound annual growth rate of 4.2%.

There is significant room for expansion also, given significant unused capacity at the existing runways and around 1,200 acres of unused land at the site.

Everglades opportunity

Also moving forward is the privatisation of the much smaller Airglades Airport in Hendry County on the outskirts of the Florida Everglades.    

In October (2019), the FAA approved the sale of the small general aviation airfield to its operator Airglades International LLC (AIA), with Star America coming in as an equity sponsor and AvPORTS as the airport operator. The purchase price is just $13 million but is part of a larger project to design and build a new cargo airport at the site.

Star America is expected to indirectly own between 85% and 90% of the asset at financial close, with AIA indirectly owning the remaining equity.

Total project costs have been estimated at $461 million, with equity investors providing $184.6 million and a further $276.9 million coming from debt investors, according to FAA documents.

The existing site covers 2,560 acres and the project developers intend to acquire a further 305 acres and build a new 10,000-foot runway for air cargo operations.

Design and construction are expected to take around 2.5 years to complete. The FAA’s approval is on condition of the project reaching financial close by 17 October 2020.

Lesser-spotted privatisation

While these two projects offer hope to the fledgling private airports sector in the US, they are the only two proposals either approved or awaiting approval from the FAA.

A lack of political and public support continues to hinder the efforts of those keen to see more US airports privatised.

As one source says, airport operators have long acted as a convenient form of political patronage in the US. These companies are full of political appointees and so calls for changes to this comfortable arrangement are often met with sharp opposition.

Even when privatisation has the support of the current political administration, wider public support may not be there. Recent submitted comments to the FAA in regards to the St Louis deal include complaints of “profits over people” and that consumers will not be able to punish private sector airport operators that are failing – if you want to catch a flight from St Louis, you have to use that airport.

But this type of opposition presumes that the public sector is already doing a good job of managing these assets. However, most users of US airports can see plenty of room for improvement, particularly if they are familiar with services at major hub airports in Europe or Asia.

Retail offerings at US airports, particularly flight-side, are often lacking and many of these assets have not been properly refurbished in a long time.

In the case of St Louis, the city recognises the need to invest in the asset to improve the user experience but doesn’t have the cash to do so. Private sector investors, with an incentive to increase revenues, should have the funds and motivation to deliver these improvements.

Privatisation plans for St Louis and Airglades have political support at present but the bureaucratic process of bringing a project to financial close is far from straightforward.

Once the FAA gives final approval to the agreed deal for St Louis, the Transportation Security Administration will then need to approve it, as will a majority of the City Working Group, and then the Board of Estimate and Apportionment, and finally the Board of Aldermen.

The first privatisation of a mainland US airport looks set happen, probably, sometime soon.

Asset SnapshotLuis Munoz Marin International Airport

Est. Value:
N/A
Full Details

Asset SnapshotWestchester County Airport

Value:
N/A
Full Details

Asset SnapshotSt Louis Lambert International Airport

Value:
N/A
Full Details

Asset SnapshotAirglades Airport New Cargo Airport

Value:
N/A
Full Details

Transaction SnapshotLuis Munoz Marin International Airport PPP

Financial Close:
27/02/2013
Value:
$615.00m USD
Equity:
$205.00m
Debt:
$410.00m
Debt/Equity Ratio:
67:33
Concession Period:
40.00 years
PPP:
Yes
Full Details

Transaction SnapshotWestchester County Airport Privatisation PPP

Value:
$595.00m USD
Concession Period:
40.00 years
PPP:
Yes
Full Details

Transaction SnapshotSt Louis Lambert International Airport Privatisation PPP

PPP:
Yes
Full Details

Transaction SnapshotAirglades Airport New Cargo Airport

Value:
$461.50m USD
Equity:
$184.60m
Debt:
$276.90m
Debt/Equity Ratio:
60:40
Full Details