St. Louis mayor puts brakes on Lambert privatization efforts

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St. Louis Mayor Lyda Krewson’s decision to scrap a possible privatization of the city’s airport came amid growing political opposition and deep-rooted questions over whether private interests stood to gain more than the public.

The potential privatization of the city-owned St. Louis Lambert International Airport under a federal program began when then Mayor Francis Slay submitted an application to the Federal Aviation Administration to preserve a lease slot in March 2017. It ended Dec. 20, when Krewson withdrew her support.

“When I inherited this idea in April 2017, I agreed to explore the concept to determine if we could get a better airport,” Krewson said in a letter to the city’s “working group” of officials managing the exploration process. “As we have worked, I have also been listening closely to residents, business leaders, and other elected officials. They have expressed serious concerns and trepidation about the process, and about the possibility that a private entity might operate the airport.”

The announcement came as the four member working group was reviewing 18 submissions to a request for qualifications from firms and working to finalize which firms would be invited to participate in a request for proposals.

The working group made up of representatives from the mayor, council and comptroller’s office and led by city budget director Paul Payne said the mayor’s opposition effectively ended the current effort to participate in the FAA's program.

During the exploration process, officials concluded that the airport requires about $900 million of capital investment over the next 10 to 15 years and has 1,000 acres of unused land, an under-utilized runway, and too many gates. A private operator would have been on the hook for crafting plans to cover capital costs under the RFQ.

The document spelled out how the city and private operator together could propose airport facility modifications with the operator also required to complete an initial set of capital improvements prepared by the city and airlines.

“The city would not be responsible for ongoing financing for capital projects," the document said. "Sources of funding would include: operator capital, revenues generated at the airport, Passenger Facility Charge revenue, federal grants, airline contributions.”

A deal was estimated to raise about $2 billion. About $600 million in airport debt would be retired. Legal, transportation, and financial advisors tapped to advise the city included top P3 municipal participants.

Comptroller Darlene Green was an early critic of any privatization, arguing that the city remained the best steward for the airport. Green also argued that the airport’s improved finances and recent rating upgrades put it in a better position to manage capital costs, that the process had been flawed and the public should have a say.

“The mayor has done the right thing by stopping this process," Green said in a statement. "From the very beginning, I opposed airport privatization. Our airport is well-managed and I thank all our airport employees for their hard work and dedication. I'm encouraged that the city can now move forward.”

EXPLORATION
Several public private partnership specialists in the municipal market said the failed Lambert effort highlights how P3 support must be built from the ground up locally with the case made for the benefits.

“For starters," one market source said, "any effort such as this has to be squeaky clean” and the Lambert exploration had early issues that could have been expected to fuel ethical questions.

Questions were raised early on by the involvement of wealthy businessman Rex Sinquefield, who provided the upfront funding for the exploration effort through a not-for-profit.

He can recoup those funds only if the deal came to fruition, and critics argued that any deal was rigged to benefit private interests over the public good.

The city was seeking “to structure a transaction that meets the city’s primary objectives: improvement of the airport for all stakeholders, including incremental uses of the airport’s significant excess capacity [and] net cash proceeds to the city, upfront and/or over time for non-airport purposes,” according to the RFQ.

More recently, pressure mounted to put the issue to a public vote. The Sunshine and Government Accountability Project filed a lawsuit seeking city records. Several business groups also had expressed reservations over the idea, as their questions went unanswered. While the needed majority of airlines operating at the airport had initially signed off on the exploration, their final approval was not a done deal, city officials said.

Questions were also raised over the qualifications of one of the potential bidders and conflicts of interest over whether favoritism was being showed because of the political ties of some team members. The St. Louis County Port Authority also recently advanced plans to review regional management of the airport was a better move.

The working group had been close to voting on which among the 18 potential bidders that responded last month to the request for qualifications process would be allowed to participate in the next step – a request for proposals. The city would then finalize all terms and conditions of the potential deal and a final bidding process would take place.

Layers of approval would still have been needed from the city’s aldermen and Lambert airlines to federal agencies. Slay pitched the idea in March 2017 but handed the effort to his successor, as he did not seek another term. The FAA accepted the city’s preliminary application in April 2017 and the city then moved to hire advisors. The special working group formally began meeting in July 2018.

The FAA launched the program to permit privatization of facilities built with public funds in 1996, originally with a five-airport cap that was later raised to 10. The 2018 Reauthorization Act removed the limitation on the number of airports, effectively ending the pilot program, and renamed it the Airport Investment Partnership Program. Only two airports are in the program now.

The AIPP permits airports to explore privatization to access private capital for airport improvement and development. Local or state governments and agencies own and operate almost every commercial service airport in the United States.

The only commercial passenger facility in the AIPP program today is the Luís Muñoz Marín International Airport in San Juan, Puerto Rico. Aerostar Airport Holdings operates the island's primary airport under a 40-year agreement with the Puerto Rico Ports Authority under a deal the FAA approved in 2013.

Hendry County and Airglades Airport, LLC submitted a a final application to participate in the program on August 8. The FAA issued the Record of Decision on September 30.

CREDIT
Fitch Ratings upgraded the airport to A from A-minus in the fall.

“The upgrade reflects St. Louis Lambert's demonstrated trend of rising traffic levels and sustained robust financial metrics evidenced by stable coverage ratios, declining leverage and moderating airline costs,” Fitch wrote. “Further, STL's moderate capital program should support a continuation of healthy metrics with leverage expected to steadily decline through the forecast period to below three times by fiscal 2024 under Fitch's rating case.”

St. Louis Lambert faces limited competition from other airports and modes of transportation and has moderate carrier concentration as Southwest Airlines represents 59% of total passenger levels in fiscal 2018. 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.

Ahead of a refunding earlier this year, S&P Global Ratings raised the airport's rating to A from A-minus and assigned a stable outlook while Moody’s Investors Service affirmed its A2 rating and stable outlook. Moody’s upgraded the airport’s general credit last year.

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Public-private partnership Airport revenue bonds Federal Aviation Administration City of St. Louis, MO Missouri
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