Airports may begin seeking more public-private partnership agreements as financing needs mount and more private investors step forward, market participants said at a panel here last week.
Budgetary pressures on local governments top the list of factors that could motivate more airport authorities to pursue P3s, Brian Chase, an associate specializing in private infrastructure investment at Castalia Advisors, said during a P3 conference hosted by the American Road and Transportation Builders Association last week.
In addition to revenue needs, airports may be lured into P3 financing of their infrastructure by the emergence of public pension funds as infrastructure investors and by resistance to the “siren song of the municipal market,” Chase said.
“Just because you have the lowest cost for borrowing money doesn’t make you a responsible borrower,” Chase said of municipal bond issuers, noting that reliance on lowest-cost borrowing caused a disaster in the mortgage market.
Additionally, airport groups have noted that airports have unique characteristics — a hybrid of public and private use and ownership — and financing rules that are restricted in their use of federal grants and passenger charge revenues used to repay bonds.
A provision in the American Recovery and Reinvestment Act removed one of the restrictions, exempting airport bonds from the alternative minimum tax through the end of this year — a provision that airport groups want Congress to extend or make permanent, arguing that it revived airport bond issuance.
Concessions for terminals and other facilities may be options for P3 agreements, said Lynn Hampton, president and chief executive officer of the Metropolitan Washington Airports Authority.
But there are factors that may keep airports from fully privatizing, such as the access their issuers have to low-cost financing, she added.
The Federal Aviation Administration already has a nearly 15-year-old pilot program to help airports enter into P3 arrangements for airport improvement and development.
It allows up to five public airports to be owned, managed, leased, or developed by private companies without having to comply with some of the federal rules that hinder the deals.
If approved, the public airport sponsor is exempt from having to repay federal grants or return property bought with federal assistance, and can use proceeds from the deal for non-airport purposes.
But there has been limited interest in the program.
As of June, the FAA had only four active applications, from Chicago Midway International Airport, Gwinnett County Briscoe Field in Georgia, Louis Armstrong New Orleans International Airport, and Luis Munoz Marin International Airport in Puerto Rico.
The FAA still has one slot available for a non-large hub or general aviation airport, but Chicago’s final application submitted in late 2008 for the Midway deal currently holds the program’s only large hub airport slot.
Applications for another five airports have been either withdrawn or terminated, according to the FAA; three of them pulled out in 2001.
The potential Puerto Rico airport deal — a long-term lease to a concessionaire in order to improve infrastructure and service and help pay down existing debt — could set the stage for future agreements under the FAA program, Chase said.
The Puerto Rico Port Authority is expected to release a request for qualifications in late November, then a request for proposals in December. The FAA must approve the agreement before it can become effective.
Michelle Kaske contributed to this story.