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Competing bills to influence US airport privatisation prospects

  • Two Illinois Senators introduce contrasting bills that could reduce or enhance airport privatisation prospects;
  • One wants municipalities to repay any Federal grants if they lease their assets to private entities;
  • The other, invoking Abraham Lincoln no less, wants to relax regulations and to create public-private partnerships;
  • ACI-NA’s Principato calls for the removal of the federal government’s restrictions on airport funding;
  • Puerto Rico’s Luis Marin airport privatisation still progressing;
  • But Ontario’s hits the buffers.

Two US senators from Illinois have introduced competing bills dealing with infrastructure privatisation. One of them, Democratic Senator Dick Durbin, introduced a measure that would require repayment of any previous federal grant monies the airport (or other infrastructure provider) had received, in the event of it being privatised. In contrast, Republican Senator Mark Kirk aims instead to encourage such privatisation. His bill would remove the limit on the number of airports that can be privatised and ease other restrictions.

Senator Durbin is the second ranking Senator so his opinion carries considerable weight. His bill could make it more difficult for cash-strapped states and cities to lease their transportation assets to private investors. It would require states and cities to repay any federal funds they used to build or maintain the assets, such as toll roads or airports, as a condition of leasing them, and thereby would likely thwart many deals before they happened. The bill also calls for more transparency in the negotiation of such deals.

The clock is ticking on a Chicago resurrection

Some critics of the various toll road deals that have taken place in the US in recent years, which exchanged the right to collect tolls to foreign investors in exchange for billion-dollar up-front payments, say they are short-sighted budget gimmicks that could end up burdening later generations. Even though it seems Senator Durbin’s bill is aimed more at surface transport deals like road tolls and parking meters, and at rail deals like Amtrak’s Northeast Corridor, its most profitable route, by implication it drags in similar airport ones and especially in Illinois where the failed lease deal for Chicago's Midway Airport arose out of multiple road toll agreements in the city. Since the mayoral election there earlier this year there is scant sign of any resurrection of the proposal and in fact Mr Durbin's new bill echoes new Mayor Rahm Emanuel's stated resolve to impede the sale of Midway Airport. The city's authorisation from the FAA for the lease of Midway expires on 31-Jul-2011.

Speaking to the US news and blog website Huffington Post, Senator Durbin said: "I'm really trying to stake some ground here on a principle and position that we ought to reflect on. The federal government is in debt. We are borrowing money to sustain our operations, and we're sending some of that money to states and localities for investment in infrastructure. We're making quite a sacrifice. If a decision is made by a local unit of government to privatise that public infrastructure, federal taxpayers should have a seat at the table. It's a caution to all of us. When we look at privatisation, we have to look at the long-term."

Illinois Republican Senator Kirk, however, takes quite the opposite view on infrastructure privatisation. In Jun-2011 he proposed legislation to allow and encourage private investment in public infrastructure, saying it would create around USD100 billion for projects cash-strapped governments can ill afford. Kirk said the challenge was to build and maintain infrastructure at a time of spending cuts by deficit-ridden governments at all levels. 

Lincoln’s legacy

His answer is to relax regulations and to create public-private partnerships “akin to how former President Abraham Lincoln launched the 19th century transcontinental railway”.

"In these times of deficits and debt, he said, we could let America grind to halt or we could give new life to Lincoln's economic legacy by building roads, airports and railroads using public-private partnerships.” He pointed to Australia “where up to 15% of new infrastructure is funded by public-private partnerships”.

Mr Kirk's proposed Lincoln Legacy Infrastructure Development Act would require that proceeds from privatisation leases or sales be reinvested in infrastructure projects.

Mr Kirk added that the measure would "eliminate barriers for innovative funding options". That proviso would be of interest to the (mainly European) operators and financiers who committed themselves to the Chicago Midway lease two years ago, despite a five-year moratorium on charges (but with no restrictions on non-aero revenue development).

There is speculation in the US media that Mr Kirk’s bill could also lead to the privatisation of Chicago’s O’Hare International Airport, though that is not the type of facility the designers of the 1996 pilot privatisation programme had in mind.

Loose interpretation

“We are running counter to the international trend,” Mr Kirk said. “When you look at all the major international airports, you’ll see London, Paris, Rome, Beijing, all partnership airports now.” (A rather loose interpretation of partnership.) The legislation comes as Congress prepares to debate the reauthorisation of existing transit and infrastructure funding.

Senator Kirk has had backing of sorts from ACI-NA’s President Greg Principato, who urged President Barack Obama to remove the federal government’s restrictions on airport funding. In a letter addressed to Mr Obama, Vice President Joseph Biden and the bipartisan congressional leadership, Mr Principato stated that allowing airports more financial freedom makes sense considering the need to reduce federal involvement in local decisions. Air service has been changing in the past five years, with data from ACI-NA showing that the US’s smallest airports lost 10% to 15% of their services from Jun-2006 through Jun-2011. Medium sized airports reportedly lost 18% of their scheduled services. It is predicted that smaller airports may lose services in the coming years.

Meanwhile, there is a real, live practical example of privatisation that seems to be nearing its conclusion. The government of Puerto Rico, a US Commonwealth country, has now issued a request for qualifications for the Luis Munoz Marin International Airport, as the country continues its effort to privatise the airport. The concession is set to be the first airport privatisation in a US-controlled territory.

Ferrovial leads the charge

Interested for-profit investors have until 08-Aug-2011 to submit documents showing they have the financial backing and technical expertise to maintain and operate the airport. Qualified investors will then bid for a 40 to 50-year airport concession. Bidding will likely be concluded by 1Q2012 and the operator in place by the end of that year. The airport management hinted that Spain’s Ferrovial Aeropuertos is “very interested” in bidding for the airport’s concession though it is almost certain also to be involved in the forthcoming concession arrangement for Spain’s much bigger Madrid and Barcelona airports.

Puerto Rico’s Public-Private Partnership Authority has secured all the required airline approvals to go forward with a long-term lease of Luis Munoz Marin International Airport under the federal Airport Privatisation Pilot Programme. Advising the government on the privatisation are Credit Suisse Securities (finance and procurement), Leigh Fisher (technical), Mayer Brown (US legal counsel), and Pietroantoni Mendez & Alvarez (local legal counsel).

The hard way

Little progress has been made however in California, where the Senate approved a bill in May-2011 that would create a local public-sector operator for Ontario airport with the ultimate aim of attracting a private operator. The City of Ontario, in which the airport is located, sold it to Los Angeles World Airports in 1985, but the bill would force LAWA to give it to the new entity. LAWA earlier this year invited expressions of interest in leasing the money-losing airport, under the federal Airport Privatisation Pilot Programme, and obtained an encouraging response. Prospects for the Senate measure in the Assembly are unclear and this long-winded procedure, transferring operations from a municipally controlled operator to a smaller municipality in anticipation of privatisation, could run and run.

A similar situation could develop in Connecticut, where Bradley International Airport in Hartford, the state capital, will now be run by the quasi-public Connecticut Airport Authority after Governor Daniel Malloy signed a law creating a new agency to operate Connecticut’s airports. Management and operation of the state’s general aviation airports will be transferred from the Department of Transportation. Bradley International was one of up to 15 airports across the US that were slated for privatisation during a period of fervour for the concept in the mid-2000s but if that is still the intention it is going about it the hard way.

Background information:

Overall, Democrats want and are calling for more investment in the nation’s crumbling infrastructure. President Obama’s 2012 budget called for a near-doubling of transport funding, to USD556 billion over six years. But because new funding sources are hard to locate, Democrats are scaling back those plans. A bill proposed in the Senate merely maintains current spending levels and still leaves a USD12 billion gap to be filled from a still unidentified source.

The Republican solution to reduced funding is simpler: to spend less. The chairman of the transport committee in the House, John Mica, is pushing a full six-year re-authorisation with no new funding source. Federal spending would fall by about 33% as a result. Mica aims to bridge some of the gap by encouraging public-private partnerships in new investments, and by opening up the system to private competition where possible.

Running concurrent with these bills is the failure to extend the FAA’s re-authorisation bill, which has already led to the cessation of airport improvement work and the laying off of 4,000 workers and, of far greater significance, the failure of the Obama Democratic government and the Republican majority in the House to agree an increase in the national debt ceiling vs. a reduction in the deficit which could result in the nation defaulting on its debt obligations. In the circumstances the two anti- and pro- airport privatisation bills are likely to take a back seat for a while.

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