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JFK’s New Terminal One accentuates the appeal of the airport P3

Analysis

Although the steam ran out of airport leases long ago in the US and all manner of attempts to kick-start that activity have failed, that is not the case with public-private partnership transactions ('P3s' as they are known).

There are numerous examples across the country, providing new or refurbished terminals, car parks, car rental buildings, people movers and other examples of infrastructure which probably would not have been built otherwise.

The most recent example is in New York, a city whose airports have been roundly criticised by politicians in the past.

A revised agreement has been concluded to build a new terminal by way of a P3 consortium, which will be the largest and most modern there, on the other side of the airport from another one already under way.

The full-scale leasing of airports may be out of fashion in the US but this example alone shows that the P3 project to build new infrastructure is not.

Summary

  • JFK’s USD9.5 billion New Terminal One (NTO) project is confirmed; it will be largest terminal there.
  • It is one of several, including Terminal 6 – also a public-private partnership project.
  • ‘Groundbreaking’ Minority/Women-owned Business Enterprises participation.
  • Detail scarce on sustainability.
  • P3s are sought for all major projects at New York airports.
  • The P3 partners collectively have expertise and strength in depth.
  • P3s will continue to lead the way in airport projects in the US.  

JFK’s New Terminal One coalition and PANYNJ announce USD9.5 billion project will begin in 2022

There are numerous public-private construction and management contracts under way at New York’s three main commercial airports – JF Kennedy (JFK), LaGuardia and Newark Liberty. The latest to make an announcement about its progress is the New Terminal One consortium at JFK.

The New Terminal One group is a coalition of airlines, labour, minority- and woman-owned businesses and operating and financial partners, including The Carlyle Group, together with its dedicated airport platform, CAG Holdings; JLC Infrastructure; Ullico; and Munich Airport International to construct and operate a 2.4 million sq ft terminal at JFK.

NTO is one of two major new international terminals, one each on the airport's north and south sides that were proposed in Oct-2018. After that, following a competitive review of leasing proposals, the operator, the Port Authority of New York and New Jersey, entered into exclusive negotiations for their development with the objective of transforming JFK and increasing the airport's capacity to accommodate projected growth.    

NTO selected a design build team, led by AECOM Tishman, and Gensler, a design and architecture firm.      

On 13-Dec-2021 the Port Authority of New York and New Jersey (PANYNJ) reached a revised agreement with The New Terminal One (NTO), to start phased construction of the terminal.

The USD9.5 billion project will take place on the current Terminal 1, Terminal 2 and former Terminal 3 sites and will include 23 new gates, a new arrivals and departures hall, dining and retail amenities, lounge space, an indoor green space.  It will create over 10,000 jobs, including 6,000 in construction.

Largest terminal at JFK

The New Terminal One will be the largest international terminal at JFK and aspires to be among the top rated airport terminals in the world.        

Construction is slated to begin in mid-2022, with the first new gates scheduled to go live in 2026 before a full project completion around 2030.

NTO’s private partners will provide financing to cover the required investment for the terminal, while PANYNJ will undertake a number of infrastructure upgrades and improvements, including projects on roads, parking and utilities, such as a new electrical substation.

NTO claims it will “advance” the plan for a unified, modern airport with world-class passenger amenities, state-of-the-art security and streamlined roadway access.

MWBE participation is “historic” and “nation-leading”

Within the spirit of the times in the US, and especially in New York, there is a goal of 30% for contracts and financing interests to be awarded to Minority/Women-owned Business Enterprises (MWBEs), also in keeping with other such public-private-partnership (P3) projects at New York’s airports.

In addition there will be “extensive opportunities for local business and jobseekers guided by a community advisory council”.     

In fact, JLC Infrastructure's participation as a minority-owned equity investor in the project is notable not only in that it continues the state's trend of MWBE firms creating wealth by investing in such a major public-private partnership – beyond the provision of goods and services such as construction contracts – but by doing so at the 30 percent level, which is claimed to be both “historic” and “nation-leading”.   

Almost all the public and private sector dignitaries who commented publicly on the project made specific and overt reference to the MWBE provisions.

Well outside the modest scope of the Infrastructure Bill

No specific mention was made in the promotional text released by any of the partners of the recently passed US Infrastructure Bill, which allocated the princely sum of USD25 billion for “airport repairs and efforts to reduce congestion and emissions.”

Clearly this project falls well outside the very limited scope of that bill’s contribution to the airport sector, as indeed do all of the projects at New York’s principal airports.

At USD9.5 billion it would account for almost 40% of it. (It is also worth noting that the AirTrain project to connect LaGuardia Airport with Manhattan at a cost of over USD2 billion has been suspended while other alternatives are considered, following the resignation of the state Governor, Andrew Cuomo. For more information on that project see: https://centreforaviation.com/analysis/reports/new-york-laguardia-airport-airtrain-in-danger-of-cancellation-571341).

Similar P3 projects at LaGuardia and Newark airports

Those other projects are in play at another terminal at JFK (JFK Millennium Partners – including JetBlue Airways – construction of a new USD3.9 billion state-of-the-art Terminal 6), and also at LaGuardia airport, where two of them are responsible for the total rebuild of the facility, and at Newark Liberty International Airport.

Quite apart from events at JFK, In the past five years PANYNJ has negotiated four P3s, two at LaGuardia and two at Newark, which have collectively totalled USD11.5 billion in investment. ‘Design-Build’ is now the default position on all PANYNJ projects and P3s are sought for all major projects.

Moreover, one of Newark Airport project’s revenue streams is from customer facility charges; the first to use a revenue-risk P3 model.

It consists of a six-storey parking and rental car facility plus an adjacent quick turnaround facility for washing and servicing incoming rental cars – and it is accessible from the terminal via an elevated walkway. Best of all, the contract shifts major risks from the airport operator to the private developer/operator, ConRAC Solutions, which is financing the USD480 million project.

So there is a great deal of innovation going in these P3 projects in New York.

The full cost of the JFK terminal will be privately financed by the NTO consortium, which includes the financial partners Carlyle, JLC Infrastructure, and Ullico. A joint venture of Munich Airport International and CAG Holdings (Reach Airports) is the operating and technical services partner to the consortium.    

There follows a brief overview of the partners.

Carlyle Group

Carlyle Group is a global private equity firm with USD293 billion of assets as of Dec-2021.

An infrequent player in the airports sector, it headed up the AirportsAmerica Group that bid for the Chicago Midway Airport lease in 2008/9 (as Carlyle Infrastructure Partners). In 2011 it submitted an EoI for the operation of the Los Angeles’ area Ontario Airport, then operated by Los Angeles World Airports, and the following year was shortlisted for Edinburgh Airport in Scotland, which was being divested by BAA plc and partnered with the Qatar Investment Authority to bid for a near 40% stake in Turkey’s TAV Havalimanlari Holding.

In 2018 Carlyle Group was reported to be considering an involvement with the proposed privatisation of St Louis Lambert airport (which was cancelled).

Specific airport infrastructure platform set up in 2019

In Sep-2019 the Carlyle group set up CAG Holdings, a dedicated US-based investment platform for airport infrastructure investment opportunities globally.

In Jul-2021 it signed an agreement with Esken Limited for a conditional investment of GBP125 million through a senior loan facility, convertible into a 29.99% stake in London Southend Airport.

Active airports for Carlyle Group/CAG Holdings

JLC Infrastructure (Loop Capital)

Loop Capital is a full service investment bank, brokerage and advisory firm that began as a municipal bond firm in 1997.

JLC was founded by Loop Capital and Magic Johnson Enterprises in 2015. In Aug-2017 New York’s then Governor Andrew Cuomo announced that LaGuardia Gateway Partners, the firm building the western half of New York LaGuardia Airport under the aforementioned P3 schemes, had invited JLC Infrastructure, the JV comprising Magic Johnson Enterprises and Loop Capital Markets, to become a Minority-owned and Women-owned Business Enterprises (MWBE) with LGP.

That marked the first time in the state's history that there would be an MWBE firm investing equity in a public-private construction project. Johnson has repeatedly expressed interest in investing in an infrastructure project.

Denver project cancelled

In Jul-2018 Denver International Airport and Great Hall Partners launched a USD650 million project to renovate the Jeppesen terminal.

The project was a public-private partnership with Great Hall Partners, consisting of Ferrovial Airports, JLC Infrastructure and Saunders Concessions. The 34-year agreement called for Great Hall Partners to design and construct all improvements over four years, followed by 30 years of operations and maintenance within specific commercial areas of the terminal, including approximately 50 retail and restaurant units.

But a year later the contract was cancelled for “many reasons” according to the airport authority, including the poor quality of the concrete used.

In Nov-2019 the STL Aviation Group, a consortium including Oaktree Transportation Investment Fund, JLC Infrastructure / MJE-Loop Capital Partners, Ullico and Vinci Airports / TBI Airport Management, bid for the subsequently cancelled St Louis Lambert Airport concession.

Active airports for JLC Infrastructure (Loop Capital)

Ullico has made two airport infrastructure bids – both in the US

Ullico is the only labour-owned insurance and investment company in the US, opening in 1927.

Ullico closed its first infrastructure investment deal in Dec-2012, on the water and wastewater infrastructure of Rialto, California. In Feb-2013 it was unsuccessful at the RfQ stage in the lease transaction for Chicago Midway Airport, acting as a solo bidder.

It shares a key commonality with Carlyle Group and JLC/Loop as a bidder in the St Louis Lambert airport lease as mentioned previously, and in the case of JLC/Loop as a consortium partner.

Active airports for Ullico Infrastructure Fund

Munich Airport International: global investment, operational and consulting experience gained over many years

MAI is the consulting division of the operator of Germany's second largest airport and was instigated in 2010.

Since then it has pursued consulting, airport operation and management, investment opportunities at (inter alia): Zagreb Airport, Ljubljana Joze Pucnik Airport (Slovenia),  various Bulgarian airports including Sofia and Plovdiv, Vlora Airport in Albania, Lombok Airport, West Java Kertajati International Airport and Batam Hang Nadim Airport in Indonesia, Tegucigalpa Toncontin International Airport  and Palmerola International Airport (Honduras), Siddharthanagar Gautam Buddha Airport (Nepal), Newark Liberty International Airport, Bhogapuram Airport (India), Kuwait International Airport Terminal 4, Taif Airport (Saudi Arabia), several Brazilian airports, including Belo Horizonte Tancredo Neves International Airport, Santiago International Airport in Chile, Greek regional airports, various airports in Myanmar, as well as work on behalf of ACSA (South Africa).

Apart from Munich Airport and including this deal at JFK, MAI is active at seven airports, classifying it as a ‘Major Global Investor’ in the CAPA Global Airport Investors Database, the source of the information above.

Active airports for Munich Airport International

Collectively these organisations clearly have expertise and strength in depth.

Airline partners have a role to play

Mention should also be made of the airline partners.

In other New York region P3s airlines are active players, such as JetBlue at the T6 development at JFK and Delta Air Lines with its replacement for its existing Terminals D and C at LaGuardia.

That degree of complicity does not apply with the NTO but there are airlines party to the lease agreement, namely Lufthansa, Air France, Japan Airlines and Korean Air Lines; themselves in a consortium.

Historically, full airport leases give a considerable degree of power to airlines to agree or veto them, and although this is a P3 and therefore not subject to the same regulations, the strategic interest of the airlines will not be overlooked.

Lease extended to 2060 to assist investment recovery

The announcement is considered by PANYNJ to “reflect a significant vote of confidence by the private sector in the future of JFK Airport, the return of air travel, and the economic recovery of the region.”

A key element of the restructured agreement is an extended lease term to 2060 to provide sufficient time after the terminal opens to enable the private investors to recover their multi-billion-dollar investments. The City of New York's ten-year emergency extension of the master lease for JFK Airport, which had been set to expire in 2050, enabled this important element of the restructured deal with NTO.   

At the same time, PANYNJ is scheduled to vote on the authorisation of the full USD2.9 billion of funds which were included in its 2017-2026 Capital Plan for the JFK Redevelopment programme.

These funds are allocated to enabling infrastructure in direct support of JFK Redevelopment, including roadway improvements, utilities, improved parking facilities, a ground transportation centre and airfield work. (PANYNJ advises that, to date, approximately USD1.24 billion of those funds have been authorised through separate board actions).

Port Authority capital is leveraging private investment at a rate of more than 5:1 – when the full private investment of more than USD15 billion that has been committed to the four projects comprising the full JFK redevelopment programme is taken into account.  

Terminals being replaced had become obsolescent

As part of the project PANYNJ will undertake a number of infrastructure upgrades and improvements, including roads, parking, and utilities, including a new electrical substation.

The NTO will be built on the sites of the current undersized and outdated Terminal 1, the aging and obsolete 59-year-old Terminal 2, and the site of the former Terminal 3, which was demolished in 2013.

There is little traffic at any of the terminals that are being replaced.

As the chart below shows, T1 accounts for only 7.3% of capacity in the week commencing 13-Dec-2021. While T2 is reported to be open to Delta services, it does not register in data provided by OAG.

New York John F Kennedy International Airport: system seat capacity terminal share

The project was initially scheduled to break ground in 2020.

Due to the severe impact of the COVID-19 on air travel, the terms of the agreement needed to be restructured. The restructured deal just announced marks a major step forward in the ambitious plan to transform JFK into a unified, 21st century global gateway.

Detail scarce on sustainability

On the subject of sustainability, a prerequisite now of any new airport terminal, details are still patchy.

A PANYNJ press release speaks of sustainability enhancements that will include the use of renewable energy technologies, such as a solar hot water, aircraft de-icing and fluid recovery, and the conversion of diesel ground service equipment to an electrically powered ground service fleet (across the airport) – such as baggage tractors and belt loaders.    

Modern features

NTO says state-of-the-art technology will further improve the customer experience and security in the new terminal, including elements such as touchless passenger journey, digital passenger flow and queue management, TSA security lanes featuring the latest technology, advanced video search analytics, biometric-based systems, and a flexible design to accommodate future technology and/or regulatory changes.    

Builds on other components

The New Terminal One project builds on the momentum of the other three major components of the airport's transformation:

  • The USD3.9 billion development of the aforementioned Terminal 6, which will connect with JetBlue's existing Terminal 5 and was approved by the Port Authority Board of Commissioners in Aug-2021.
  • The USD1.5 billion expansion of Terminal 4, led by Delta and JFK International Air Terminal, which was approved in the spring of 2021 and will begin construction in the immediate future.
  • Work began in Dec-2019 on the USD425 million expansion of JFK's Terminal 8, led by American Airlines, which operates the terminal, and British Airways, which will be relocating to Terminal 8 from Terminal 7, set to be demolished to make way for the new Terminal 6.    

US airports have frequently been criticised for their lack of modernity and have been labelled by politicians as ‘Third World’ standard.

New York has not been exempt from this criticism. The initiatives in New York – and especially at JFK – go a long way towards redressing the issue.

P3s continue to lead the way

It is somewhat ironic that these initiatives are mainly funded by the private sector, which despite the introduction of a government privatisation programme for airports as long ago as 1996, and its re-establishment under a new, improved programme within the past two years, has failed to succeed in its aims.

There is still only one successful airport lease, and that is in the commonwealth territory of Puerto Rico. The other one was returned to the public sector, coincidentally PANYNJ, many years ago.

The State’s new Governor, Kathy Hochul, who replaced the aforementioned Andrew Cuomo, said, “Today's announcement loudly proclaims the confidence the private sector has in the future of JFK Airport and of our region”.

So that confidence is there, as was manifested in the global interest in the St Louis Lambert airport lease, which was abandoned by the city’s mayor.

But it is far more likely in the future to be evident in P3 projects like this rather than in full airport leases. That way, governments do not lose control over their airports and can rein in projects or even cancel them altogether, as happened at Denver

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