Lambert retreat underscores political hurdles of airport privatization
St. Louis’ decision to pull the plug on privatizing its airport illustrates the rocky political path that must be overcome to turn over a major municipal asset to private operators, Fitch Ratings said in a new report.
“The decision not to pursue a long-term operational lease of the St Louis Lambert International Airport evidences the difficulty of airport privatization for U.S. airports,” Fitch global infrastructure and project finance analysts Seth Lehman and Jeffrey Lack said in a report released Wednesday, “St. Louis Case highlights Political Barriers to Airport Privatization.”
“For such essential assets, reaching consensus with key stakeholders and determining the value for both the city and for equity investors under a long-term lease are central challenges in these transactions,” the report warns.
St. Louis failed to reach such consensus or make that case leading Mayor Lyda Krewson last month to abruptly scrap the exploration process amid growing public and corporate opposition and deep-rooted questions over whether private interests stood to gain more than the public.
Krewson inherited the lease exploration under a federal program from former Mayor Francis Slay who had submitted an application to the Federal Aviation Administration to preserve a lease slot in March 2017.
A city working group that included mayoral, council, and comptroller representations had been poised to announce which bidding applicants were qualified to submit request proposals. A deal was estimated to raise about $2 billion for city use after $600 million of existing airport debt was retired.
A lack of interest didn’t drive the decision further underscoring how political support can make or break a process. “Eighteen companies submitted requests for qualifications, which is indicative of the strong private sector interest to participate when such opportunities arise,” Fitch said. “Similar to many other city- or county-owned airports, Lambert is a core asset and has strong financials, making it attractive to private investors.”
Chicago twice canceled its exploration of privatizing Midway International Airport due to limited bidding interest during tougher economic cycles.
Privatization, allowed under the federal Airport Investment Partnership Program — if approved by local and federal authorities and a majority of airport airlines — has seen limited interest. Puerto Rico's Luis Munoz Marin International Airport was privatized under a 40-year lease with Aerostar Airport Holdings. Stewart Airport in New York was also privatized but has since reverted to public ownership.
“P3s on narrower airport assets are more common, with varying degrees of progress,” Fitch said. The Los Angeles automated people mover system and car rental facility, and passenger terminal projects at New York City's JFK and LaGuardia Airports, are currently in negotiations or in construction phases. The P3 project for terminal redevelopment and concession expansion at Denver Airport was recently terminated by the city and county due to construction delays and related disputes that could not be amicably solved, Fitch said.
The lease exploration resulted in warnings that the St. Louis airport needs $900 million of infrastructure upgrades over the next 10 to 15 years. Lambert benefits from a series of recent rating upgrades if it’s to finance work on its own. Fitch upgraded the airport last year one notch to A.
While the potential lease was scuttled the airport’s future is under discussion by local and regional officials. Several neighboring counties are eyeing a plan that would establish regional ownership and control of the airport and it would create a special sales tax district to raise funds. Such a plan “is unprecedented in the industry for a large-hub airport,” Fitch noted.
A local union and the St. Louis NAACP are pressing the mayor to reconsider her decision and have asked the potential bidders to make their offers public so the public can assess whether privatization would benefit the airport.
The airport served 7.9 million passengers in fiscal 2019. The airport capital plan for 2019-2023 totals $249 million and calls for $83 million in borrowing. The cost per passenger fell to $8.87 in fiscal 2018 from $11.13 in 2017.
S&P Global Ratings rates Lambert revenue bonds A with a stable outlook. Moody’s Investors Service assigns its A2 rating and a stable outlook.