Fluor not ‘moving away’ but will be selective with PPP partners

The US engineering company, which reported more than $500m in losses in the second quarter, said it would seek a ‘more balanced’ risk allocation for future projects.

Fluor Corporation will not abandon fixed-price public-private partnerships but “will evaluate these on a case-by-case basis”, David Parker, a vice-president at the US engineering and construction company, told Infrastructure Investor.

“We are not moving away from fixed-price PPP projects as an investor, developer, builder or operator,” he said in an emailed statement. “The fact is, there are very few active transportation PPP procurements in North America at the moment and we expect the pipeline of new PPP procurements coming to market in 2020 will be quite limited.”

He added that market competition and Fluor’s own selection criteria – “including the requirement for more balanced risk sharing between the owner and private sector” – will limit how many procurements it takes on next year.

In August, Fluor reported a net loss of $555 million for the second quarter. A month later, chief executive Carlos Hernandez announced that the company would sell its government-focused business, as well as construction assets, as part of a strategic review launched in May.

Fluor is among a number of firms active in North America’s PPP market that have reported steep losses over the past year.

In July, Montreal-based SNC-Lavalin cited fixed-price PPPs as the “root cause” of C$367.6 million ($276.3 million; €249.2 million) of negative cashflows during the second quarter. As a result, Ian Edwards, the company’s interim president and chief executive, said it would “stop all lump-sum turnkey contracting”.

Sweden’s Skanska Group said in October 2018 that it would stop bidding for mega PPPs in the US. The announcement came after Skanska wrote down SEK 900 million ($92.9 million; €83.8 million) related to the construction phase of two fixed-price PPPs.

Following Fluor’s second-quarter losses, three US light-rail PPPs that the construction company is developing received credit rating downgrades from Fitch Ratings. The ratings agency lowered the credit outlook to negative for the $2.2 billion Eagle P3 project in Denver; the $4.9 billion automated people mover development at Los Angeles International Airport; and the $5.6 billion Purple Line light rail project in Maryland.

Fitch cited “credit deterioration of key project counterparties” for all three PPPs.

Michael Steuert, Fluor’s chief financial officer, said on a call with analysts last month following the company’s strategic review that maintaining a solid investment-grade rating was a “key priority”.

“We expect to have more than sufficient resources to meet current and future cash requirements and have no expectations of either utilising our revolving credit facility or raising any additional capital,” Steuert said.