Tuesday, February 26, 2013

Privatization of Puerto Rico Airport Approved

Updated February 26, 2013, 6:01 p.m. ET

By BOB SECHLER
The Wall Street Journal


U.S. regulators said Tuesday they had approved a plan for investors to operate Puerto Rico's main airport for profit, boosting a long-standing federal effort to test the private-sector's appetite for infrastructure development.

The proposed $2.6 billion deal to lease San Juan's Luis Muñoz Marín International Airport to a private consortium is being watched by bankers and industry officials keen to import a business model that is widely used in Europe and Asia.

Airports have been attractive targets for private investors elsewhere because of rising air traffic and the opportunity to boost profits by expanding services such as terminal shopping, while cash-strapped governments are eager to find new funding to upgrade the facilities.

The Federal Aviation Administration launched a pilot airport privatization program 16 years ago, giving the cities and counties that own most commercial airports another funding option.

The plan gained little traction, in part because of broader public opposition to privatization and the availability of cheap municipal bond funding and passenger ticket-tax revenue. But rising government deficits have since spurred efforts to tap alternative sources for transportation and other infrastructure projects.

Only one airport—Stewart International Airport in Newburgh, N.Y.—was privatized under the FAA program. The 2000 deal was unwound seven years later when the Port Authority of New York and New Jersey bought the airport back from National Express Group PLC, a U.K. transportation company that opted to exit the airport business.

San Juan emerged as the largest airport in the FAA program after the 2009 collapse of efforts by the city of Chicago to lease Midway airport, as the financial crisis drained funding for the planned project.

Chicago has since revived its plans. Last week it said it had received 16 expressions of interest in running Midway under a proposed lease of 40 years or less, shorter than that envisaged under the previous plan.

The approval of the San Juan deal by U.S. Transportation Secretary Ray LaHood "is a good indicator that this can be done, and done right," said Kathleen Strand, a spokeswoman for Chicago.

Only three of the 10 slots in the FAA pilot program are filled, with San Juan joined by Midway—which occupies the sole berth for a large hub airport—and Airglades Airport, a small facility in Hendry County, Fla.

Others, such as Armstrong International Airport in New Orleans, joined the program only to drop out, in part because of public opposition to privatization.

Puerto Rico Gov. Alejandro Garcia Padilla had voiced broad reservations about privatization before taking office in January, though previously said he would stand by the San Juan deal negotiated under the administration of his predecessor, Luis Fortuno.

San Juan will be operated by a 50/50 venture between infrastructure-investment company Highstar Capital and Grupo Aeroportuario del Sureste SAB de CV, which runs nine airports in Mexico. The partners plan to invest more than $1 billion in the airport, including $615 million up front in a leasehold fee.

In addition, the consortium will pay Puerto Rico's airport authority $2.5 million a year for the first five years, 5% of revenue for the next 25 years and then 10% of revenue for the final 10 years.

Deborah McElroy, an executive vice president at the North America branch of Airports Council International, an airport industry trade group, said interest in the Puerto Rico deal among U.S. airports has been high. But she said it is unclear how many others will explore privatization.

"Ultimately, individual airports will have to determine if it's right for their unique circumstances," she said.

Source:  http://online.wsj.com

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