MIAMI — Despite some setbacks in privatizing major U.S. airports, including the economic downturn and contraction among airlines, prospects remain good for future public-private partnerships, industry experts and airline officials said here Tuesday.
Though many airports experienced a decline in passengers, and higher debt loads contributed to some downgrades, levels have “bottomed out” and there are signs of growth, Standard & Poor’s managing director Kurt Forsgren told attendees at The Bond Buyer’s Transportation Finance/P3 Conference.
The current challenges for airports will be modifying financial profiles to fit new baseline traffic forecasts and pressures to keep costs low, he said, noting that the forecasts and associated risks play an essential role in how proposed airport concessions are viewed by analysts.
Puerto Rico, one of four privatization projects in the Federal Aviation Administration’s pilot program, is moving ahead with a public-private partnership at Luis Munoz Marin Airport, the busiest airport in the Caribbean.
“We believe that it is an airport with unrealized potential,” said David Alvarez, executive director of the Puerto Rico Public-Private Partnerships Authority. “We believe we can take it to the next level by partnering with a private concession.”
Studies underpinning the development of the airport P3 have shown that under its current structure, Luis Munoz has not maximized the revenue potential, particularly in food and beverage services and parking facilities, he said. Privatizing has the potential to increase traffic, provide new infrastructure investment, lower costs at the airport and for airlines, and strengthen the airport’s credit.
The P3 presents opportunities for prospective investors and airport operators, Alvarez said, adding that Puerto Rico is committed to privatizing the airport and is working at an accelerated pace to develop the procurement process.
The FAA privatization program requires airline approval for a P3 to move forward. That’s how Southwest Airlines got involved in the failed attempt to privatize Midway Airport in Chicago, said Southwest senior attorney Michael AuBuchon.
“I think it’s still a prime airport for privatization,” he said.
Southwest supported Midway’s privatization as a tool to control costs, particularly after major improvements were completed in the last 10 years.
“The privatization allowed us to get a more predictable rate stream,” AuBuchon said. “That certainly was something Southwest was interested in.”
While the privatization collapsed in the wake of the financial crisis, he said the proposal “was a great deal for Southwest and other carriers” and it would have allowed Midway to operate more like a business.
“Would another deal be the same? Probably not,” AuBuchon said. “We would look at any other deal at Midway or any other airport very carefully, and it would have to work for us.”
The vast availability of funding, such as FAA grants, and airports’ abilities to access the capital markets are major reasons airport privatizations have not taken off in the United States, said Susan Warner Dooley, a vice president and national director of aviation strategic, business and financial planning at HNTB Corp.
But privatization could allow an airport to proceed with a major capital program more quickly and cost effectively, and provide a non-traditional approach to airline charges, she said.