Aerostar signs 40-year lease to manage LMM airport

Written by  //  July 25, 2012  //  Tourism/Transportation  //  No comments

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The Luis Muñoz Marín Airport in Carolina needs significant upgrades to become a modern, world-class facility, Aerostar executives say. (Credit: © Mauricio Pascual)

The job of modernizing the Luis Muñoz Marín International Airport so that it becomes a world-class international gateway that is profitable and attractive to travelers will require significant capital investments and networking — and will not happen overnight.

So said high-ranking executives from Mexico’s Grupo Aeroportuario del Sureste (ASUR) and its Aerostar Airport Holdings consortium partner Highstar Capital, after signing the 40-year lease agreement Tuesday to take over the management and operation of the Luis Muñoz Marín International Airport, through a public-private partnership with the government of Puerto Rico.

During a meeting with members of the media, consortium executives offered details of their plan for the facility, which calls for improving the sprawling airport’s infrastructure and promoting it globally to attract more airlines and passenger traffic.

“This won’t be easy and it won’t happen overnight, but it’s what we’re proposing to do,” said Adolfo Castro, chief executive officer of Grupo ASUR. “First, we have to rehabilitate and modernize the airport. The airport is not just a place through which passengers transit, but rather cohesive activity to create demand, so we have to work on in conjunction with other sectors of the tourism economy.”

“We’ll never have a greater volume of international passengers unless we work together,” Castro said, adding that Aerostar will work with other components of the tourism chain to create demand through cruise ship and hotel packages and improve transportation services.

Further down the road, the operator will work on securing new routes and working with carriers on increasing frequencies to those markets that may be underserved or served through connecting flights that may become direct routes.

Adolfo Castro, chief executive officer of Grupo ASUR (Credit: © Mauricio Pascual)

The lease agreement signed Tuesday involves an upfront payment of $615 million to the Puerto Rico Ports Authority, which is expected to be funded by a mixture of debt financing incurred by Aerostar and equity contributions by each of ASUR (through its Cancun Airport subsidiary) and Highstar Capital.

During the 40-year term, Aerostar will be required to make annual revenue-sharing payments to the Puerto Rico Ports Authority, fixed at $2.5 million per year for the first five years, 5 percent of gross airport revenues for the sixth through the 30th years and 10 percent of gross airport revenues for the years 35 through 40.

“This announcement is the most important thing to happen in the U.S. airport market and the global airport market. This P3 is a breakthrough for the market and Puerto Rico is again showing itself as a leader in the U.S. P3 market,” said Emmett McCann, managing director of Highstar Capital.

“This airport is the first thing you see when you come to Puerto Rico and we want to enhance that experience for travelers,” he added. “We want to become the leading airport in the Caribbean in passenger volume and customer satisfaction.”

‘This airport cannot look like Dallas’
Prior to submitting its final bid, Aerostar hired a company to visit Puerto Rico to get a feel for the island’s identity in terms of architecture, its people, and its traditions, to pin down how LMM should be transformed, Castro said.

“In the offer we presented, we included certain renderings in which we tried to incorporate the elements we found. For example, we learned that Puerto Ricans, like Mexicans, like color, we’re not afraid to use it on walls or other structures. We also learned that arches and spending time in cafés or plazas is fitting with the lifestyle. That’s the concept we’re going to try to capture in the airport,” he said.

“We can’t arrive at this airport and have it look like Dallas or Houston. We want to make it so that when people land here, they feel like they’re in San Juan,” the executive noted.

That said, Aerostar executives said they will begin locally sourcing its labor and construction-related needs and working with local businesses to address the airport’s issues.

On the “to-do” list is an urgent need to upgrade basic infrastructure, tackle the problem of passenger processing times, especially at the security checkpoints, improving terminal layout to make better use of the space and cut down on maintenance costs, working with concessions to improve the offer, and work with airlines to improve collaboration among them.

Agustín Arellano, Grupo ASUR’s director of engineering and compliance, who will oversee the Puerto Rico operations (Credit: © Mauricio Pascual)

The lease agreement requires Aerostar to make certain repairs and minor structural upgrades to LMM — such as replacing broken floors and installing Wi-Fi connectivity in the terminals — within 18 months of the closing.

“We have to work with the airlines to develop a modernization plan that doesn’t restrict or block their day-to-day operations,” said Agustín Arellano, Grupo ASUR’s director of engineering and compliance, who will oversee the Puerto Rico operations.

So far, 98 percent of the airlines operating at LMM are on-board with the P3 arrangement. As part of the agreement, the airlines will collectively pay $62 million per year for landing, parking and terminal fees and fees for “exclusive use space” in the first five years of the lease, regardless of the level of passenger traffic. Beginning in the sixth year, the annual payment will be increased annually by the U.S. consumer price index.

The P3 agreement also requires Aerostar to contribute $6 million to a new “Puerto Rico Air Travel Promotion and Support Fund” to be distributed among airlines who increase passenger traffic to LMM Airport in the first three years of the lease.

“We’ve worked hard for two years to complete a good partnership through this project and bring to Puerto Rico the best team and the best experience,” Arellano said. “ASUR is here to work and develop the local market. What is being said that the airport is being handed over to private hands is not true. We’re getting the airport on loan to manage and maintain it for 40 years, but it remains property of Puerto Rico and its people.”

Now that the contract has been signed, it will be submitted to the Federal Aviation Administration for the final approval. The stateside agency will open a public comment cycle giving the public and interested parties a chance to submit their opinions through a public docket, Puerto Rico Public-Private Partnership Authority Executive Director David Álvarez said.

That comment and review period may take between 60 and 90 days and will include a public hearing session at a date and place to be determined by the FAA, he said.

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