The cash offer submitted by Aerostar Airport Holdings — a consortium comprised of Grupo Aeroportuario del Sureste (ASUR) and Highstar Capital IV, L.P. — to run the Luis Muñoz Marín International Airport edged out its competitor’s proposal by just $48 million, Puerto Rico Public Private Partnership Authority Executive Director David Álvarez said Thursday.
ASUR overtook Grupo Aeropuertos Avance — the other remaining consortium composed by Spain’s Ferrovial Aeropuertos and Macquarie Infrastructure and Real Assets — during an additional round of stiff competition this week after the P3 Authority determined the initial offers submitted July 10 were close enough to improve.
“The economic offers were within 10 percent of each other, so the law allowed us to open a second round of bids, which ultimately favored Puerto Rico because it’s an additional round of strong competition that allowed the bidders to improve their offer,” Álvarez said.
The negotiations hit a rough patch late last week after the finalists caught wind of the letters that two Popular Democratic Party lawmakers announced they would be sending them, threatening to launch a probe into the transaction if their party were to win the November elections.
While Aerostar reportedly did not receive or had seen the letter as of Thursday, the Spanish operator was concerned, Álvarez said.
“We had to do some damage control, and the competitor that did not win the contract required several calls on our behalf,” he said. “That was an unexpected variable we had to deal with, which required additional effort on our part.”
Ultimately, Aerostar’s $615 million upfront payment offer bested Avance’s $567 million proposal, he told a small group of business reporters during a roundtable following Gov. Luis Fortuño’s announcement of the winner.
By law, Ports must use the money to pay off its $925 million debt, enabling it to regain its capacity to adequately fund, develop and maintain maritime and regional airport operations, Álvarez said.
Pumping life back into LMM
Through the P3 transaction, the government received a proposal of nearly $2.6 billion in private infrastructure investment — the first major U.S. airport investment of its kind — from Aerostar that includes $1.16 billion for the Puerto Rico Ports Authority and an estimated $1.4 billion in capital improvements to LMM over the term of the 40-year contract.
The investments will generate 3,500 jobs in the first three years, and a total of 13,000 in the first 10 years. The airport’s transformation could start within the first 90 days of the contract — possibly before the end of the year — when the new operator would start “repairing what’s most pressing,” he said.
The P3 Authority expects the pre-contract with Aerostar to be signed by the end of the month, after which the package will be submitted to the Federal Aviation Administration for final approval. The federal agency will take no less than 60 days to review the transaction, with which it is already familiar since its staff had participation in meetings during the 18-month P3 process.
In addition to managing the airport, the new operator must meet rigorous quality and service standards — including improved check-in conditions and faster baggage claim times — that will bring about recurring investment and is expected to elevate LMM to a world-class level with respect to retail, food and beverage and service offerings, destination options and ancillary services.
As part of its commitment, Aerostar plans to develop a 35,000 square-foot area of new commercial space between Terminals B and C.
“We’re honored to be selected to be partners in the effort to improve efficiency and profitability at LMM International Airport,” said Aerostar President Agustín Arellano-Rodríguez. “We’re committed to taking LMM to the next level to better serve the people of Puerto Rico and strengthen Puerto Rico’s standing as a top tourism destination.”
“Importantly, through this agreement, all existing airport jobs will be preserved and future infrastructure investments will lead to further job creation in the years to come,” he said.
Multiple sectors on-board with deal
Members of the public and private sector checked-in Thursday with their reactions to the announcement, agreeing for the most part that it will be good all-around.
“The airlines serving Luis Muñoz Marín International Airport are excited about this next phase in the Public Private Partnership process, and congratulate Aerostar Airport Holdings on their winning proposal,” said Kevin Costello, San Juan Airport Airline Affairs committee chair and director of properties and airport affairs for JetBlue Airways, the airport’s largest carrier.
“We look forward to working collaboratively with them to develop the airport into a world-class facility that will support the airlines in offering exceptional customer service in a cost effective way,” he said. “In turn, a better airport will contribute to the Puerto Rican economy by creating new jobs, strengthening tourism and enhancing connections with the world.”
Meanwhile, Arturo Puente, Consulate General of Mexico in San Juan, said the addition of Grupo ASUR into the island’s business community will be beneficial given it’s track record in managing nine airports in that country including the busy Cancún facility.
“Today, the Cancún airport is one of the most important in Mexico, and the Quintana Roo sector where it is located handles 30 percent of all tourism in Mexico, and is our most important tourism development hub,” Puente told News is my Business. “San Juan has this airport which operates fine, but needs a capital injection and new operational methodologies, which we’re successfully doing in Mexico with regards to tourism.”
Puerto Rico Hotel and Tourism Association Chair Ismael Vega said while the airport P3 “is a step in the right direction to begin boosting tourism,” the effort should be combined with the creation of the Destination Management Organization the trade group has been lobbying for, for the better part of the last three years.
“We have to work cohesively to create a brand for Puerto Rico, which we can then use to promote ourselves properly, while achieving continuity in our promotion and marketing efforts,” he said. “While the P3 seeks to improve the airport’s physical structure, the DMO would work to increase visitor demand for Puerto Rico.”
The PRHTA is in talks with lawmakers and Fortuño administration cabinet members to produce a final bill to be submitted during the next legislative session in January.