Puerto Rico issues airport RFQ

Puerto Rico hopes to select a winning bidder for the 40- to 50-year concession of Luis Muñoz Marín International airport by December 31. If the privatisation succeeds, the private operator will be required to make an upfront payment to support capital expenditures at the airport.

Puerto Rico has issued a Request for Qualifications (RFQ) for a 40- to 50-year concession of the US island territory’s busiest airport, just weeks after choosing Goldman Sachs and Abertis to run its most heavily-traveled highway.

The Puerto Rico Public-Private Partnerships Authority (PPPA) has issued the RFQ for the Luis Muñoz Marín International Airport, located near the capital city of San Juan, which is owned and operated by the Puerto Rico Ports Authority. Responses to the RFQ are due 8 August, and the PPPA expects to shortlist bidders within two to three weeks of that deadline. The PPPA hopes to select a winning bidder for the concession by 31 December, according to the RFQ.

David Alvarez, executive director of the PPPA, said the potential privatisation could draw “fresh capital for investing in the infrastructure” of the airport, as well as help address some of the financial challenges the Ports Authority faces in upgrading the airport.

While the government will retain ownership of the airport, Alvarez emphasised that a private operator could “maximise” the airport’s development.

“The airport right now is under-utilised,” Alvarez said. “We know that the airport has greater capacity… to bring about more flights, more passengers and more economic activity,” he said, adding that the government of Puerto Rico has not yet been able “to realise the full potential of the airport”.

Alvarez said the concession agreement will require the private sector operator to make both an upfront investment to support capital expenditures at the airport and to make recurring investments for future infrastructure upgrades.

The number of annual enplanements, or passengers boarding flights at Luis Muñoz Marín International Airport, has fallen since 2005, according to the RFQ, but is expected to increase to 4.6 million by 2020.

The announcement of the Luis Muñoz Marín RFQ comes just a few weeks after the PPPA announced Goldman Sachs Infrastructure Partners II and Spanish developer Abertis as the winning bidders for a 40-year concession of two toll roads known as PR-22 and PR-5. Goldman and Abertis bid a total of $1.4 billion for the concession, including an upfront payment to the government of about $1.1 billion.

The PR-22/PR-5 concession marked Puerto Rico’s first toll roads public-private partnership (PPP), according to a previous statement.

Joe Seliga, partner at law firm Mayer Brown, which is acting as US legal counsel to the PPPA for the airport concession, said the PPPA and other government authorities are “very focused on moving [the Luis Muñoz Marín airport] transaction forward particularly after the success of the toll road concession.”

“Our sense is that there is tremendous excitement in the market,” he said.

In 2009, Puerto Rico Govenor Luis Fortuño signed into law an act enabling the use of PPPs and established the PPPA to procure projects across a variety of sectors. The PPPA considers projects including roads, airports, schools, energy and water, according to its website.

The Luis Muñoz Marín International Airport holds one slot in the 1996 pilot privatisation programme run by the US Federal Aviation Administration (FAA), which allows up to five airports in the US to pursue privatisation.

One requirement for participation in the FAA programme is that 65 percent of airlines operating at the airport must agree to the privatisation process.

Puerto Rico authorities have currently signed on 84 percent of airlines operating at Luis Muñoz Marín, as measured by the airlines’ landed weight at the airport, according to Alvarez. American Airlines has the largest share of landed weight at the airport, with about 26.4 percent, while Jet Blue has the next largest share at 15.4 percent, according to the RFQ.

A spokesperson for the PPPA said American Airlines and Jet Blue have endorsed the process, as have Delta, Federal Express, UPS, US Airways, Air Tran, and American Eagle, which together make up 42.7 percent of landed weight at the airport, according to the RFQ.

Seliga said the process of negotiating with airlines took less than a year. He said the airlines that have not yet signed on to the process “are not necessarily opposed to the transaction”. The remaining airlines each “comprise a much smaller proportion of the landed weight and so their level of engagement is not the same”, he said.

Seliga, whose firm also advised the City of Chicago on the Midway Airport concession, which did not ultimately reach financial close, said the process of signing on airlines had happened in less time than at Midway. Airlines operating at Luis Muñoz Marín were more familiar with the process because they had more “direct experience with privately operated airports”, Seliga said.

Alvarez said the PPPA will continue to negotiate with airlines about the proposed privatisation.

“We have reached more than the threshold but we are not stopping there. We continue to work with other airlines that have not been able to finalise their approval,” Alvarez said.