US AIRPORTS GLOBAL INFRASTRUCTURE US AIRPORTS ON THE RUNWAY IN MUCH OF THE WORLD, PUBLIC-PRIVATE PARTNERSHIPS (P3S) HAVE BEEN SUCCESSFULLY USED TO DESIGN, BUILD, FINANCE, OPERATE AND MAINTAIN (DBFOM) AIRPORT INFRASTRUCTURE PROJECTS. IN CONTRAST, FOR A VARIETY OF REASONS THE P3 MODEL HAS TRADITIONALLY BEEN UNDER-UTILISED AT US AIRPORTS. HOWEVER, THIS IS STARTING TO CHANGE. THIS ARTICLE EXAMINES THE REASONS FOR THE SLOW ADOPTION IN THE US, BEFORE DISCUSSING NEW AIRPORT P3 PROJECTS THAT ARE UNDER WAY AND OTHERS THAT ARE COMING TO THE MARKET. BY RODERICK DEVLIN, VIRGINIA WONG AND KENNETH LIND, NIXON PEABODY LLP. There are two primary reasons why the US This US$20bn annual requirement is much has been slow to embrace the P3 model in the greater than the funding traditionally available airport sector; availability of multiple sources of through additional tax-exempt funding, AIP capital funding and restriction on use of airport- grants, PFC revenue, state grants and airport- generated revenues. generated income. P3s offer a potential way to Public owners of US airports have access to help fill this shortfall. a ready source of cost-effective debt financing for capital projects, in the form of tax-exempt The Trump Infrastructure Plan bond financing. In addition, the federal Airport The Trump administration’s long-awaited Improvement Program (AIP) provides grants to infrastructure plan was released in February airports for the planning and development of 2018, entitled “A Legislative Outline for public-use airport assets. Rebuilding Infrastructure in America”. The Trump Airport owners are also permitted to collect Plan, which sets forth the White House’s proposal passenger facility charges (PFCs) for each for legislative action, is broadly supportive of boarding passenger and use the resulting revenue P3s and includes various provisions that could for capital projects, subject to approval by the US specifically boost P3s in the airport sector, such Department of Transportation’s Federal Aviation as: Administration (FAA). State grants, capital l Expanding the successful Transportation contributions from airlines and airport-generated Infrastructure Finance and Innovation Act (TIFIA) income can also be used for capital projects. programme to provide loans and other credit Further, while airport P3s can potentially assistance to airport projects. produce significant revenue for the public l Extending an existing streamlined PFC owners, the FAA imposes tight restrictions on the application process from non-hub airports to use of airport-generated revenues for non-airport small hub airports. purposes, lessening the incentive for public l Limiting the FAA’s approval and oversight owners to pursue a P3. Airlines in the US have of non-critical airfield infrastructure projects also traditionally been, at best, ambivalent as to (including terminals, access and service roads, the benefit of P3s. hangars and other types of facilities) to accelerate the delivery of such projects. Growing infrastructure needs l Modifying the FAA’s Airport Privatization The FAA has noted that airport infrastructure needs Pilot Program (FAA Privatization Program). are driven by current and forecast traffic, the use As discussed in more detail below, the FAA and age of facilities and changing aircraft technology Privatization Program was introduced in 1996 such as larger aircraft that require modified gates. to encourage more private sectors to invest in There were 785.8m US passengers in 2015, a figure US airports. Participation in the programme has the FAA expects to grow to 1.2bn by 2036. been limited, however. The Trump Plan aims to In a 2017 report, the Airports Council increase participation by expanding the number International-North America (ACI-NA) estimated of airports that are eligible to participate and the cost to meet infrastructure needs at US decreasing the veto power of airlines. airports for 2017 through to 2021 at US$99.9bn, l Modifying the federal Airport Improvement or almost US$20bn per annum. Sixty-three Program to allow incentive payments for percent of this investment is required to accelerated construction. P3s have a proven accommodate growth in passenger and track-record of faster construction compared with cargo activity, with thirty percent needed to traditional procurements. rehabilitate existing infrastructure, maintain l Privatisation of specific federal assets, a state of good repair and keep airports up to including airports. The Trump Plan specifically tolerable standards. called out Ronald Reagan Washington National 34 Project Finance International Global Infrastructure Report June 2018 12 US [email protected] 34 25/06/2018 12:08:51 GLOBAL INFRASTRUCTURE US AIRPORTS Airport and Dulles International Airport, International Airport in Puerto Rico became although both airports are currently subject the second airport to participate. to long-term leases with the Metropolitan Currently, three airports have been Washington Airports Authority. preliminarily approved by the FAA to The Trump Plan also includes an participate in the programme. In 2017, Infrastructure Incentives Program, under Westchester County received three proposals to which 50% of federal funds requested in the privatise its airport, in response to a request for plan, namely US$100bn, would be used to proposals (RFP). However, with a change in the encourage additional investment funds from County’s administration the project is now in a states, local governments and the private holding pattern. sector. Eligible projects would require non- In February 2018, Hendry County in Florida federal funding for at least 80% of the project’s agreed to transfer the Airglades Airport to a costs. P3s could provide all or a portion of such private consortium under the FAA Privatization required local financing. Program, which would create the first fully Notwithstanding these positive P3 proposals, private cargo airport in the US. The application the Trump Plan and the White House’s budget process under the FAA Privatization Program included little increased revenue for US is ongoing. The County has targeted a ground- infrastructure, and indeed, in real terms, cuts breaking in 2019, with operations starting in funding to certain key aviation-relevant federal 2021. departments and agencies, including the FAA. In June 2018, the City of St Louis retained The Trump Plan offers a broad policy an advisory team to assist it in assessing proposal, but no concrete road map for the privatisation of the St Louis Lambert enacting the ideas into law, and Congress International Airport under the FAA has shown little interest in progressing this Privatization Program. proposal. It is unlikely that there will be l New York region relaunches airport P3s – In 2016, any significant movement of infrastructure the Port Authority of New York/New Jersey legislation until after the federal mid-term (NY/NJ Port Authority) gave a significant boost elections in November. to the airport P3 sector with the financing of However, as a statement of the the LaGuardia Airport’s Central Terminal P3. administration’s policy, the Trump Plan clearly The private developer, LaGuardia Gateway telegraphs support for P3s and increased Partners – a consortium of Vantage Airport private investment in US infrastructure in Group, Skanska ID and Meridiam – has general, and airports in particular. commenced construction of a new state-of- the-art airport terminal, as well as other key Airport Privatization Pilot Program airport improvements. The US$4bn-plus project The FAA Privatization Pilot Program, was partially funded by tax-exempt (AMT) administered by the US Department of and taxable bonds issued by the New York Transportation through the FAA, is intended to Transportation Development Corporation. allow airport owners greater access to private The NY/NJ Port Authority’s US$10bn sector capital and operational expertise. It planned redevelopment of John F Kennedy exempts airport owners from certain federal International Airport could involve significant requirements that historically made such P3 components. In March 2018, JetBlue Airways private sector involvement unattractive or selected a private team headed by Vantage impractical, including: Airport Group to undertake the redevelopment l A waiver of the federal prohibition on using of JetBlue’s facility, creating an integrated proceeds from the airport’s lease exclusively complex linking multiple terminals. The for airport purposes. project has a price tag in excess of US$2bn. The l Exemptions from repaying past federal grants final project is subject to review and approval due to a P3. by the NY/NJ Port Authority. l Exemptions from returning property The NY/NJ Port Authority has also retained previously acquired with federal funds or advisers for the proposed LaGuardia AirTrain returning such funds. project, which is being jointly undertaken with Crucially, airports will continue to be eligible the Metropolitan Transportation Authority. for federal Airport Improvement Program The project would provide a rail link between grants after the consummation of a P3 under LaGuardia airport and midtown Manhattan, the FAA Privatization Program – although with a target travel time of 30 minutes. A P3 such grants are capped at 70% of the cost of procurement is under consideration. improvements, as opposed to the standard l Los Angeles International Airport improvements on 75%–90%. track – Los Angeles World Airports, the operator The FAA Privatization Program has not been of the Los