Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
25 SESSION 5 After Financial Close Valerie Holt, Consultant (retired, formerly with Metropolitan Washington Airports Authority), Moderator Panelists Arif Ghouse, Paine Field/Snohomish County Airport Shane Harbinson, City of Austin, Texas Jorge Hernandez, Aerostar Arif Ghouse described the process for bringing commercial service to Paine Field. Historically, there has been resistance in the community and support on the business side, but capacity and traffic challenges at Sea-Tac Airport spurred broader support for the project. Following an unsolicited bid, the county approved a P3 deal in 2015. The arrangement is a 30-year land lease with two 10-year options. The investor pays the county $54,000 per month in rent. The revenue share is 2.5% for the first 4 years, and 5% from years 5 to 50. Construction began in 2017, and the first commercial flights began in March 2019. The airport is expecting 1 million passengers per year in the early years and 1.2 million by 2024. Ghouse noted that the investor has invested close to $50 million in the airport to date. The airport owns, operates, invests in, and maintains runways, ramps, and infrastructure. The airport had to add staff and increase security to accommodate commercial fights and is working closely with the terminal owner and airlines to coordinate daily operations. Ghouse added that key stakeholders include FAA, TSA, the state DOT, the county sheriffâs office, county planning and development services, and the Federal Bureau of Investigation. Shane Harbinson highlighted the Austin South Terminal project, which revitalized a three-gate terminal served by ultra-low-cost carriers. He noted that adding capacity was critical to keeping the airport operational. The project was approximately $12 million, and the agreement has a 30-year term with two, 5-year extensions. Airlines operating out of the terminal have an agreement with the city to pay published landing fees, and an agreement with the developer to pay terminal fees based on enplanement and activity. Harbinson stated that key priorities for the project were affordability and reflecting Austinâs culture with the terminal. The airport is currently working to improve wayfinding, as many passengers are still going to the main terminal. The airport has had to lease four transit buses to shuttle passengers between terminals, which is costing it $1.5 million. Additional parking capacity is needed.
26 Harbinson noted that key challenges with a P3 are the extended negotiations period, sharing utilities, agreeing on airport value and value of airport services, and determining the level and allocation of human resources. Jorge Hernandez highlighted Aerostarâs agreement as holder and sponsor of the San Juan, Puerto Rico, airport. He noted that Aerostar is a joint venture between two airport management firms and is responsible for everything in the airport. San Juan is the first airport to successfully obtain funding through the AIPP. Aerostar has 34 years remaining on a 40-year lease to maintain and upgrade the airport, with a projected investment of close to $1.4 billion in capital improvements over the course of the lease. In September 2017, Hurricane Maria led to a nearly 30% decrease in passenger traffic, but that is normalizing again. Hernandez stated that critical challenges included not having enough people to manage operations post-close and the discovery of many issues not identified during inspections and due diligence. Aerostar offered an open hiring process, but very few of the 900-plus employees assigned to the airport under the Puerto Rico Ports Authority wanted to work for a private operator. Hernandez stated that in the past 6 years, Aerostar has created a central checkpoint, reconfigured ticketing areas, installed systems for bag inspection behind ticket counters, replaced boarding bridges, and more. Another $200 million will be invested in the next 5 years and will be focused on airfield infrastructure. Valerie Holt asked the panelists what the most significant post-procurement challenge was. Harbinson responded that once South Terminal operations started, all systems, particularly power supplies, were stressed. The city had to broker deals for temporary fixes with Austin Energy while the terminal operator made permanent fixes. There are monthly management meetings that have been very helpful in determining where to make adjustments and who will pay for it. Ghouse stated there have only been minor issues at Paine Field, including lack of parking in the beginning and staffing issues. There is a Boeing test facility next to the airport, and the airport worked with TSA to ensure that Boeing employees could use their badges to access the airport and airfield, which Boeing uses for test flights. Hernandez stated that staffing hundreds of positions in a very short amount of time while also addressing ongoing maintenance, infrastructure, security, and other issues was very challenging. Aerostar hired external firms to help recruit employees. Ghouse stated that the airport added 25 staff and brought on certain positionsâincluding O&M, fire, and policeâearly, despite the financial impact of doing so, to ensure it would be ready when commercial operations began.
27 Harbinson stated that the airportâs strategy was to not hire more staff for the South Terminal. There is only one airport liaison dedicated to the terminal who handles communication between the city and terminal management. Holt asked what strategies have been helpful for meeting financial monitoring and reporting requirements. Hernandez responded that it was critical to understand the different requirements for internal reporting for stockholders and sponsors, requirements for bondholders, and requirements for local and federal government. Creating a reporting structure is critical. He added that theirs is the first airport to report to FAA every year on AIPP audits, which is a very different process. It took months of discussions between the auditor, FAA, attorneys, and another firm to define the requirements. Hernandez stated that the level of scrutiny for Aerostar is much greater than when the Ports Authority was in charge of the airport. Ghouse stated that because the airport is only 4 months into operations, no reporting has occurred yet, but noted that the bigger issue is the arrangement the airport has with Boeing. Boeing pays the airport to keep the runway available for testing planes, and there is an agreement outlining how Boeing will contribute financially to ensure the airfield is maintained. Boeing pays the airport to keep a runway available, formulated on the basis of the percentage of weight landed. As commercial air traffic increases, the fee that Boeing pays will go down. Ghouse noted that Boeing has been outstanding to work with. Harbinson stated that it is important for Austin to document financials and costs associated with the South Terminal because the legacy carriers in the main terminal do not want to pay for any of it. He added that once the airlines in the South Terminal hit more milestones, the airport will collect more revenue from them. Gloria Bender asked Hernandez whether there is anything that could be done before closing to avoid unexpected surprises after financial close. Hernandez responded that more time in due diligence to really understand the status of the airport infrastructure would be helpful, but due diligence is often time constrained. He stated that it is important to focus on airfield infrastructure, which can be very costly, and to prioritize from outside in to mitigate the biggest exposures from a cost perspective. He added that negotiating full access to the airport during the process is key. Harbinson stated that it is important to conduct feasibility studies on facilities and what improvements need to be made. Li Pei Wang asked the panelists whether they would have implemented any aspects of the process differently or retained different staffing or expertise. He noted that in hindsight, it would have been helpful for LaGuardia to retain outside legal counsel for another 6 months. Hernandez stated that they have also had good surprises, such as a dramatic increase in parking revenue after they took over parking operations. He added that, overall, Aerostarâs performance has been slightly ahead of what was anticipated.
28 Harbinson noted that having the flexibility to make changes in the agreement with legal counsel is helpful, as there will always be surprises. He added that regular meetings have been very helpful, but noted that the people who are most involved after the agreement is in place are not the people who are most involved during the negotiations. Ghouse stated that Paine Field had engaged economists and legal counsel before signing the lease agreement and noted that it is helpful to be as explicit as possible in contracts to avoid different interpretations of requirements.
