House rejects LMM P3 in scathing report as FAA ruling looms

Written by  //  February 26, 2013  //  Tourism/Transportation  //  No comments

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The LMM is one of three aiports currently under the FAA's “Airport Privatization Pilot Program."

The LMM is one of three airports currently under the FAA’s “Airport Privatization Pilot Program.”

The Puerto Rico House of Representatives wrapped up nearly a month of probing the terms of the public-private partnership agreement proposed for the Luis Muñoz Marín Airport Monday with a scathing report that shoots down any benefit to the deal through which the government would turn over the management of the facility to a private operator.

In its 25-page report, the House Government Committee rejected the deal, called out the lack of transparency surrounding the proposed transaction and stated it “had not received a single testimony in favor of the deal.”

The committee held five public hearings earlier this month attended mostly by airport employee and union leaders, a single representative who spoke for several LMM concessions, several economists, and a couple of attorneys. None of the government officials summoned to testify — David Álvarez, executive director of the P3 Authority; Ports Authority Executive Director Víctor Suárez; and Government Development Bank President Javier Ferrer — appeared.

However, many of the people who testified — specifically business owners doing business at LMM — expressed fear about the future of their operations and the lack of information regarding potential rent increases, the report noted.

The investigation and public hearings focused on the agreement between the government and Aerostar Airport Holdings, a consortium of companies comprising Mexican airport operator Grupo Aeroportuario del Sureste (ASUR) and and partner Highstar Capital. The lease agreement involves an upfront payment of $615 million to the Ports Authority, and annual revenue-sharing payments.

During the process, three economists — Economists Association President Alejandro Silva, José Alameda and José Antonio Herrero — shot down the deal by saying it failed to contribute to the public interest and simply put, “is bad for Puerto Rico.”

They backed up their statements by saying Aerostar’s offer would spur $887.4 million in losses for Puerto Rico in the long-run and would provoke a reduction of 58.4 percent in the Ports Authority’s income, while operational expenses would reduce by a mere 20.9 percent.

“This in turn would affect all of the Authority’s other dependencies that rest on the LMM’s profits to cover their operations. The local economy, meanwhile, would lose close to $60 million annually in airport revenue,” the report said. “The island would also lose control by turning over the monopoly to a private company.”

In terms of job retention, the Committee noted that Aerostar is under no obligation to keep current federal or local employees, nor work with collective bargaining agreements in place.

Another issue raised during the hearing has to do with a non-compete clause included in the lease agreement that opponents claim would set back development and growth of regional airports, including the Ceiba facility, which boasts the longest runway in the Caribbean. The non-compete essentially imposes penalties on the Ports Authority if it approves operation certificates to new carriers in Ceiba for the next 20 years and at other airports for the next 15 years.

The report said the clause would specifically limit the growth of the Aguadilla and Ponce regional airports, which have the potential to increase passenger traffic.

“However, according to the clauses of the contract, it will not be possible to attract new airlines during the next 15 years, which would kill that potential,” the report stated, while citing figures Alameda had previously presented estimating that the P3 could trigger more than 4,700 job cuts and cause a negative impact to the economy of $377 million.

The report also concluded that consumers will also pay more in the long run to use the airport, as there is no guarantee of price controls for services.

“We must keep in mind that the airport serves mostly Puerto Ricans, rather than tourists. At the end of the day it will be Puerto Ricans who will have to pay more out of their pockets to get in and out of their island using an airport that is part of their patrimony,” the report stated. “The contract does not really warrant a ban on rate increase beyond a five-year period.”

FAA decision expected today
In mid-January, the government granted Aerostar Airport Holdings a 45-day extension on the contract signed last summer, giving the Federal Aviation Administration more time to complete its extensive review of the historic transaction.

Puerto Rico Ports Authority Executive Director Víctor Suárez

Puerto Rico Ports Authority Executive Director Víctor Suárez

That term expires today, as parties await word from the agency on what would be the first decision under its Airport Privatization Pilot Program.

“They’ve said they’re evaluating this very closely because everything they express will become precedent. There are other airports, like Midway in Chicago, that will probably be undergoing a similar process, so they’re being careful,” said Suárez, during an interview at the agency’s Isla Grande headquarters last week, when he also spoke confidently about his expectation that a decision would come down “before the contract extension expired.”

U.S. Transportation Secretary Ray LaHood spoke to Gov. Alejandro García-Padilla Monday, telling him, among other things, that “the FAA would render a decision on the application shortly.”

García-Padilla — who initially was opposed to the P3 but after taking office vowed not to block it — reportedly again told LaHood about his concerns over preventing the firing of any LMM employees as a result of the transaction and the prohibition of any increase in airport rates or fees.

If the FAA were not to issue a favorable decision, the parties could walk away penalty-free.

However, a source told this media outlet last week that the agency is expected to sign off on the deal, with some strict conditions.

To read the full report, in Spanish, click here.

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