Spanish, Mexican groups submit final bids for LMM contract

Written by  //  July 11, 2012  //  Tourism/Transportation  //  No comments

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If all goes according to the government’s plan, by year’s end, the Luis Muñoz Marín International Airport should be under private management through a public-private partnership arrangement.

The two finalists in the running to take over the operations of the Luis Muñoz Marín International Airport in Carolina for the next 40 years, Mexico’s Grupo Aeroportuario del Sureste and Spain’s Grupo Aeropuertos Avance, submitted their final proposals to the government Tuesday and now must wait two or three weeks to know their fate.

In a meeting with reporters, Puerto Rico Public-Private Partnership Authority Executive Director David Álvarez said the winner of the long-term agreement should be announced by late July or early August, at which time the government will submit the terms of the deal to the Federal Aviation Administration for the final go-ahead.

“Today we complete another important step in this process that will open the door to entirely new investment in our economy,” he said.

“Through this public-private partnership we continue to further our vision that aims to transform our infrastructure into first-rate infrastructure, improve the service we offer to our people, create jobs, strengthen tourism and enhance our connection with the rest of the world,” Álvarez said, noting the FAA is expected to take about three months to decide.

The process that began a year ago this month seeks to shift the responsibility of overseeing, improving and expanding the scope of Puerto Rico’s main airport facility from the government to a private operator.

“There are two main reasons for turning over the management of the airport. To invest, you need credit capacity and money, which the Ports Authority doesn’t have, and you need management continuity, which will not happen as long as the government is involved,” said Álvarez, responding to the often-asked question of why locals are not able to take care of the LMM any longer.

At present, the Ports Authority has some $925 million in total debt, $400 million of which is attributed to the airport. The agency, he said, has no credit left to refinance or take on new debt.

The two consortia remaining of an initial 12 that expressed an interest in the contract are: Grupo Aeropuertos Avance, composed by Spain’s Ferrovial Aeropuertos and Macquarie Infrastructure and Real Assets; and, Aerostar Airport Holdings, which couples Mexico’s Grupo Aeroportuario del Sureste (ASUR) and Highstar Capital.

Puerto Rico Public-Private Partnership Authority Executive Director David Álvarez (Credit: © Mauricio Pascual)

By law, the lion’s share of the upfront payment the winning consortium makes must be used to pay off debt. While shaping the transaction, the government tweaked the terms somewhat to include a clause ensuring it would derive a percentage of the airport’s revenue every year for the life of the contract.

“We believe the airport is going to improve considerably over time and we want the Ports Authority and the government to participate in the upside of the deal, of the improvement potential,” Álvarez said. “That way Ports will have revenue that it will be able to dedicate to regional airports and maritime facilities.”

Long ‘to-do’ list
The new management is expected to comply with a significant “to-do” list to transform the LMM’s physical appearance over the next 90 days to five years, to achieve the main objective of the deal, which is to double passenger volume over the next 10 years, he said.

For the better part of the last two decades, passenger traffic at LMM has held steady at about 4.8 million, while other jurisdictions — Bahamas, Jamaica, the Dominican Republic and the U.S. Virgin Islands — have tightened their grip on Caribbean travelers by offering state-of-the-art facilities and better operating conditions for the airlines.

Employees protected, Carolina benefits
If the deal is ultimately inked, the new private operator will start paying municipal taxes to the town of Carolina, where the LMM airport is physically located. That amount is estimated at $450,000 during the first year of the contract and is expected to increase over time, Álvarez said.

Meanwhile, he said the 260 Port Authority employees assigned to the airport will be given the chance, but will not be required, to work for the selected company.

“Although the proponents are not required to hire the workers, they have both been emphatic in saying they want to hire Ports employees,” he said. “They will be presenting them with salary and benefits packages once they come into the operation.”

If the totality of the workers were to shift to the new employer, it would represent a $30 million saving for the Ports Authority in payroll and benefits expenses, Álvarez said.

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