Once bitten, twice shy (weekly)

Delays surrounding the LaGuardia Airport project cannot be compared with the failed Midway privatisations, but are nonetheless disconcerting.

Upon learning of the Port Authority of New York and New Jersey’s decision to once again postpone selecting a preferred bidder for the $3.6 billion LaGuardia – Central Terminal Building (CTB) project, Infrastructure Investor spoke with a number of infrastructure investors and other industry insiders to gauge their sentiment in relation to US airport privatisations.

With the exception of one source, who downplayed the delay, everyone else agreed that this was certainly not helping a sector that has already suffered a number of setbacks, most notably being the two failed attempts – first in 2008 and then in 2013 – to privatise Chicago’s Midway Airport.

“The delay of the LGA-CBT project is certainly not helping the perception that the US airports privatisation market is expensive and hard to penetrate,” Mar Beltran, investment director, airport investments at Australia-based AMP Capital told Infrastructure Investor in a recent phone interview.

According to a Wall Street Journal article published in February, the Port Authority decided to postpone awarding the contract following a design competition that Governor Andrew Cuomo unexpectedly announced last October for both LaGuardia and John F. Kennedy (JFK) International Airport.

At the time, the Governor said he expected the Port Authority, which owns and operates the two airports, to continue its procurement process. But Port Authority chairman John Degnan told the WSJ a few months later that “we simply decided it would be prudent to see what the conceptual design is before proceeding with the process”.

But here’s the confusing thing: If the outcome of the design competition does not affect the existing bid then why delay naming a winning team? If the outcome does affect the bids already submitted, then will the bid be re-opened?

Unfortunately, the agency has not issued a statement explaining its decision for the delay and several requests for comment went unanswered.

The Port Authority held a similar stance when, in March 2014, it announced the disqualification of one of the four short-listed bidders. At the time it did not give a reason, but now, according to its website, Aerostar New York Holdings – a consortium teaming Mexican airport operator Grupo Aeroportuario del Sureste (ASUR) and Highstar Capital – was disqualified “due to procurement violations”.

The latest delay is not the only one surrounding the procurement of the redevelopment project, which includes demolishing the existing building and replacing it with a new one as well as redeveloping surrounding infrastructure. While the agency was expected to name a winning consortium in the third quarter of 2014, it reportedly pushed it back to the fourth quarter.

While no one we spoke with expects the three remaining bidders to walk away, the delays mean not only potentially higher costs for the private sector partners bidding on the project, but also that the millions the three consortia – LaGuardia Gateway Partners, LGAlliance, and LGA Central Terminal – have spent so far cannot be deployed elsewhere.

The situation prompted one source to question whether the Port Authority – at least on an operational level – ever really wanted to pursue this as a public-private partnership.

“I think it’s an authority that wants to keep control of things,” the source said. “Turning the LaGuardia terminal over to a private operator over a long period of time is a big step. Add to that the overall politics of the Port Authority, which are extremely difficult, and you have a situation where if someone doesn’t want to do something, they have a lot of room for maneuvering.”

If so, that would certainly be unfortunate – not only for the bidding teams but also for investors’ trust in the US aviation sector.