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.

While dozens of representatives from the public, private and labor sectors asked for a turn to speak during last Friday’s Federal Aviation Administration-sponsored hearing on the proposal to transfer the operation of Puerto Rico’s main airport facility, the Luis Muñoz Marín Airport, out of the government’s hands, others have opted to go online to express their thoughts on the historic transaction.

So far, the docket set up by the FAA has drawn dozens of submissions, which upon close inspection reveal that interest in the proposed public-private partnership is wide-ranging, and is not just from locals, but from stateside organizations as well.

Most noticeably among those commenting are the Airports Council International, North America and the Maryland Department of Transportation.

While the ACI-NA did not take a position for or against the privatization of any specific airport, in its letter, the trade group said “we support greater flexibility for airports and their sponsors, increased independence of operations and means of developing investment capital to improve and expand facilities.”

However, the ACI-NA — which represents local, regional and state governing bodies that own and operate commercial service airports in the United States and Canada — said the local airport’s participation in the FAA’s Airport Privatization Pilot Program is positive.

“We believe this application represents a new approach in U.S. airport financing, oversight and management which will create opportunities for much needed airfield, terminal and concessions improvements at the Luis Muñoz Marin Airport. We applaud the…commencement of the public review and comment period on the application,” the Washington D.C.-based group said.

Friday’s daylong hearing session was the first and only of its kind that the FAA has scheduled on the island to address the P3 through which the government has selected Aerostar Airport Holdings, a consortium composed by Mexico’s Grupo Aeroportuario del Sureste and Highstar Capital, to take over LMM’s management.

Port of Baltimore

Contingent on the FAA’s final approval, Aerostar would run the airport facility for 40 years, during which the local government estimates it will receive some $2.6 billion in revenue and other benefits.

In its letter to the FAA, Maryland Department of Transportation Acting Deputy Secretary Leif Dormsjo compared the proposed LMM project to the P3 in place at the Port of Baltimore’s Seagirt Maritime Terminal, which transferred the administration of the facility to Highstar Capital’s Port America Chesapeake in January 2010.

Under the agreement inked, PAC is responsible for running the daily operations of the terminal and committing some $245 million in upfront capital investments, he said.

“I can report that Highstar Capital has been a strong and responsible corporate partner,” he said, vouching for the infrastructure investment fund manager. “The firm has been an active member of the local community, sponsoring civic events, charitable causes and educational programs.”

PAC’s management team maintains relations with the International Longshoremen Association and the American Federation of State, County and Municipal Employees, said Dormsjo referring to existing employee contracts.

Local groups drop comments
The online file also includes letters from several local hotels, namely the Courtyard by Marriott in San Juan and the San Juan Water & Beach Club — which were brief in their similar endorsements — as well as representatives outside the tourism realm, including the Puerto Rico Bankers Association and the Private Sector Coalition.

“The San Juan Water & Beach Club Hotel endorses Aerostar Airport Holdings’ intention to administer the Luis Muñoz Marin Airport,” said the hotel’s Vice President Joaquin Bolívar. “We believe that this deal is in the best interest of the future growth and development of the aviation and travel industries in Puerto Rico.”

Puerto Rico Bankers Association Executive Vice President Arturo L. Carrión

Meanwhile, in a three-page letter, the Bankers Association also expressed its support of the proposed P3, scrutinizing the transaction based on an analysis by economic firm Estudios Técnicos Inc. that concluded that by 2020, more than 22,999 jobs and $766.7 million in salaries would be supported by a projected increase in $4 billion in commercial activity at the airport.

“Estudios Técnicos concluded that the proposed P3 investment will result in substantial economic impact during the initial 10 years of the agreement,” said Arturo Carrión, executive vice president of the Bankers Association. “Local businesses will perceive $2.3 billion per year in new commercial activity, which will support 14,461 new jobs per year, and $437.4 million in annual salaries.”

Saying the needs of the airport “exceed the government’s capacity to finance its future development,” the group urged the FAA to evaluate the deal based “on the pursuit of the public interest and the economic well being of the Puerto Rican economy.”

The Private Sector Coalition said there could be “both positive and negative effects” from the P3 transaction that could only be gained by greater access to information on all aspects of the proposed deal.

The nonprofit that represents a broad swath of local business organizations also based its analysis on the Estudios Técnicos study, but said the government needs to provide more data and hike its transparency regarding all aspects of the transaction.

“Without the benefit of additional data and further clarification by the Commonwealth government we can only express that the Private Sector Coalition has endorsed the concept of the Public Private Partnership,” the group said.

The mayors of Ponce and Aguadilla — which host two of the island’s most active regional airports — also filed their comments online expressing their support of the P3, as it would benefit the future development of their facilities.

Private citizens weigh in
But not everybody who submitted their comments online is in favor of the deal.

In his comments, Josué Acevedo-Pagán, who owns transportation and logistics company Greetes, LLC, believes the proposed P3 will negatively affect Puerto Rico’s economy because the company investing is foreign “meaning that eventually the income generated from airlines and service providers will leave the island.”

“Second, the privatization will result in higher operating costs for airlines, service providers, rental car and transportation companies, among many others, these costs will eventually be passed to their customers,” he said. “Higher costs mean less travelers, less hotel occupancy, less conventions, less meetings, services companies like mine depend to subsist.”

“I believe that the privatization of the Luis Muñoz Marin International Airport will result in private monopolies, cross subsidization, higher air fare charges, and the loss of the opportunity of positive investments, other emerging airports will be forced to shut down as well,” he added. “The San Juan airport is a Puerto Rican patrimony and as such, shall be operated by the people of Puerto Rico.”

Meanwhile, citizen Ada Morales-Oyola also voiced her disagreement to turning over “Puerto Rico’s sole international airport into foreign private hands.”

“I also believe the lease is too biased in favor of the contractor and the public interest is not protected,” she said. “Employees are not protected and the contractor is given too much participation in decisions regarding other island airports.”

Describing himself as an “individual with no vested interest” in the transaction, citizen Jesús Padilla also expressed himself against the agreement, saying it will result in that “there will not be any upgrading to any of the other airports that are located in Puerto Rico.”

Jorge Bracero, president of Bracero Limousine, listed in detail some of the LMM’s most pressing needs to better serve arriving and departing passengers. (Credit: © Mauricio Pascual)

On the other hand, the owner of another well-known transportation service provider, Jorge Bracero of Bracero Limousine, addressed the age-old argument that the government has purposefully let the airport deteriorate over time.

“To that I say: There is no public administration that can correct the LMM’s operations. Period. Facilities such as our airport cannot be run without reinvesting in its infrastructure almost daily,” Bracero said. “Much less when staff directors change nearly every quarter.”

In his letter, he described a list of problems that need immediate attention, especially infrastructure-related problems he said affect the staff but also arriving and departing passengers.

“Of the improvements I mentioned, 90 percent of them involve almost no substantial monetary cost but rather the desire to make things right, as it should be,” he said. “We can not and must not continue with the hopes that our governments (past, present and future) will be able to carry [airport] to the place Puerto Rico and each of us deserves.”

The FAA has given the public through Nov. 19 to submit their comments on the transaction.

On Friday, agency representatives heard from key government officials — including Secretary of State Kenneth McClintock, Resident Commissioner Pedro Pierluisi, P3 Authority Executive Director David Álvarez, and Tourism Company Executive Director Luis Rivera Marín — as well as airport employee representatives, who spoke inside while a group protested outside the session that took place at the Verdanza Hotel in Isla Verde.

AeroStar General Manager Agustín Arellano (Credit: © Mauricio Pascual)

The Federal Aviation Administration will hold on Sept. 28 what will likely be the only public hearing on the proposed public-private partnership through which the government of Puerto Rico would turn the management of the Luis Muñoz Marín International Airport over to Aerostar Holdings, News is my Business learned.

The meeting will take place in San Juan, a little over a month after Aerostar Holdings, a consortium composed by Mexico’s Grupo Aeroportuario del Sureste (ASUR) and Highstar Capital, submitted a final draft of its application for certification as the airport’s new operator, Aerostar General Manager Agustín Arellano told this media outlet.

“We submitted the final draft on August 17, after meeting with the FAA on August 20 and 21, and knowing that the FAA has no major objections with the filing,” he said. “We have a correct filing that meets all of the FAA’s requirements as well as those of the U.S. Department of Transportation, for the final analysis.”

In the proposal, Aerostar outlined its plans for the LMM airport and its agreements with the Puerto Rico Ports Authority to improve and modernize the facility to the tune of $1.4 billion in investments.

The company also committed to making an upfront payment of $615 million, as well as annual payments of some $550 million to the Ports Authority during the life of the 40-year concession.

The process of landing the FAA’s approval requires Aerostar to meet a number of compliance and certification requirements through a process that should take about 90 days. If the FAA gives its go-ahead, the Mexican company would take over the management responsibilities in December, Arellano said.

While the FAA reviews the paperwork, Aerostar will continue working with the Ports Authority on the due diligence required prior to closing the deal, which includes establishing the exact blueprint of the properties to be leased as part of the concession.

For now, Aerostar will take over LMM’s four terminals, two runways, and additional facilities to set up future private jet operations. However, the inclusion of two major components — the airport hotel and part of the cargo activity — remains up in the air as their operators are tied up in litigation with the Ports Authority.

News is my Business learned that the hotel, currently operating under the Best Western flag, will likely be excluded from the final agreement.

A large contingent of members of the Ports Authority’s Brotherhood of Office Workers and Allied Fields protest in Isla Verde Wednesday.

Employee unrest
While Arellano was delivering a presentation of Aerostar’s plans for the airport during the “2^nd Meeting of Puerto Rico-Mexico Entrepreneurs and Professionals” at the Intercontinental Hotel in Isla Verde, outside, at least 100 members of the Ports Authority’s Brotherhood of Office Workers and Allied Fields protested against the “privatization” of the facility.

Brotherhood President Astrid Rosario led the group in blasting the government’s “privatization policy, which has only brought on instability and unrest for the island.”

“We’ve spent a year and a half denouncing administrative sloppiness and this government’s inability to manage, as well as the deliberate actions by the current management that have led our agency to a progressive indebtedness,” she said.

During the protest, the unionized workers claimed that the government has deliberately held back from investing in the airport’s facilities, while granting hefty salaries to employees in positions of trust.

Arellano confirmed Aerostar executives will meet with Brotherhood leaders today to discuss their concerns, particularly about future job security.

“We will reiterate what the governor announced, which is that all of their jobs are guaranteed, either by staying with the Ports Authority or moving over to Aerostar. This element of the agreement is favorable to the workers here in Puerto Rico, and is something I have not seen done anywhere else in the world,” Arellano said.

“They also need to know that this is not a privatization, because the government isn’t selling anything. We want to work with them, we work well with labor unions and we support the workers,” he said. “We’re not importing people, because the idea is to work with and use local talent.”

Grupo ASUR manages the Cancún International Airport, along with eight other airports throughout Mexico.

CANCÚN, Mexico – Based on the premise that aviation and airports are a global industry, Mexico’s Grupo Aeroportuario del Sureste (ASUR) is planning to apply the same high operating standards it has in place at the Cancún International Airport in this busy tourism hub to the Luis Muñoz Marín International airport in San Juan.

“Aviation is a global business, and as a global business, it is operated that way. Every airport around the world follows the same or similar operating standards,” said Carlos Trueba-Coll, general manager of the 1.3 million square-foot Cancún Airport that was used by more than 13.2 million passengers in the past 12 months.

“We want to put our expertise in airport management, our technical capacity and professionalism in place so that the Luis Muñoz Marín Airport reaches the performance levels it has the potential to achieve,” said the executive who in the next couple of weeks will be moving to Puerto Rico in preparation to head the Carolina airport’s management team.

News is my Business, along with several other Puerto Rican media outlets, was invited to Cancún by Grupo ASUR to meet with executives and tour the facility that is the gateway for 102 airline companies from across the globe.

Grupo ASUR, along with partner HighStar Holdings, recently signed off on a 40-year management agreement of the Luis Muñoz Marín Airport, after submitting the winning proposal for the public-private partnership contract to operate the facility.

In prior meetings with members of the Puerto Rican media, ASUR officials said their plan is to apply to Puerto Rico the lessons learned from running the Cancún airport — which it has completely overhauled since taking it over 1999 through a P3 agreement with the Mexican government. Back then, the airport was in shambles and processed about 7 million passengers traveling on 39 tenant airlines.

Dim or inexistent lighting, dark floors, disorganized ticketing counters, and confusing terminal layouts were what both local passengers and tourists had to deal with upon arriving at the facility.

Commercial activity is bustling at the Cancún Airport terminals.

Some 12 years and $500 million in investments later — including a second landing strip and new terminal — the airport is starkly different: cleanliness, organization and friendly treatment are the first impression passengers get immediately after stepping off the plane.

For international travelers, it takes an average of 30 minutes to go through immigrations, pick up baggage and go through customs. However, there are peak days and hours where lines are impressive, despite the existence of 40 customs booths and six baggage scanners.

That inconvenience, coupled with other airport-related issues such as renegade taxi drivers and transportation companies, and day-to-day situations that come up unexpectedly, are some of the challenges with which Cancún airport officials must deal.

However, Trueba-Coll insists ASUR has a response in place to address nearly every issue.

“We have an agreement in place with immigration that establishes that each agent is expected to process a passenger every 55 seconds, so lines should be cleared within minutes,” he said. “However, at customs, we often see unnecessary lines because their people don’t manage the passenger traffic as well as they could.”

In pursuit of a well-oiled machine
That agreement is just one of the elements of Grupo ASUR’s intricate plan to run the airport that is based on communication between the airlines, concessions and other airport components, he said. The roadmap is reviewed every five years.

Carlos Trueba-Coll, general manager of the 1.3 million square-foot Cancún Airport.

The expectation is that Grupo ASUR will take over managing the Luis Muñoz Marín Airport later this year, after the P3 agreement gets final approval from the Federal Aviation Administration. However, Trueba-Coll said in the meantime, Grupo ASUR is already working with airlines to understand their needs.

“We have to learn what their needs are to be able to find the general benefit for the airport’s components as well as the passengers,” he said. “There are things that they’ve told us that are very urgent, and other are not.”

Specifically, the airlines have already asked Grupo ASUR to fix bathrooms, and escalators and air conditioners that are not working, Trueba-Coll said.

The 4.8 million square-foot Luis Muñoz Marín International Airport handles some 8 million passengers annually.

“Puerto Rico has an important potential for capacity that is already there, but that requires a complete overhaul in terms of image and passenger flow,” Trueba-Coll said. “We have to improve passenger comfort and the conditions for the airlines that operate there.”

P3 Authority Executive Director David Álvarez (Credit: © Mauricio Pascual)

Four consortia have been shortlisted to move on to the competitive procurement process to develop a new 600-bed juvenile social treatment campus complex through a public-private partnership with the government to be located in the town of Yauco.

The shortlisted consortia are: Alianza Renacer; Balfour Beatty Capital Inc.; NBC Yauco, LLC, and P3R Plenary Properties Puerto Rico, said Public-Private Partnerships Authority Executive Director David Álvarez and Department of Corrections and Rehabilitation (DCR) Secretary Jesús González in a joint news conference Wednesday.

The 600-bed project will be developed in combination with the Department of Corrections and Rehabilitation. The new complex would feature a campus-like design with several modules housing shared services, which would cut the agency’s need to shuttle offenders between different facilities, thus reducing associated expenses. The government spends an average of $231 per juvenile offender per day. The project is known as “New Beginning” will focus on education, rehabilitation and social reinsertion.

“The focus on rehabilitation is part of the fight against crime and this project includes rehabilitation as its central goal,” González said. “We want to put this project on track to make a real difference both within and outside the gates of what will be a first-class facility in every way.”

A P3 is sought to build a state-of-the-art juvenile correctional facility in Yauco.

In early May, the P3 Authority received the statements for qualifications from 11 proponents interested in participating in the competitive procurement process. Their statements of qualifications were examined taking into account the specific criteria, namely reputation and compliance with the P3 Act, technical, financial and facilities management capabilities, electronic security systems integration, and bonus for partnering with local entities.

“The four consortia selected are of an impressive caliber and have what it takes to successfully implement the vision the administration has for this social infrastructure project,” Álvarez said. “The competition at this stage was very strong. Puerto Rico is now in a position to choose the best candidates to raise the standard of juvenile correctional facilities to another level.”

“We’re very excited to have the best international and Puerto Rican talent to do so. Certainly, we have to maximize the participation of local talent, which is an essential part of the objectives of this and other public-private partnerships,” he added.

The project will integrate a multipurpose room, better access to sunlight, better teaching facilities, common work areas, technological advances, better bedrooms and living areas than those currently available, the use of renewable energy, better visiting areas and other facilities to achieve greater family integration and recreation, sports and healthy living community facilities.

The P3 process now moves on to the next step: inviting the four qualified consortia tu submit specific project proposals, Álvarez said.

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.

The Luis Muñoz Marín International Airport in Carolina. (Credit: © Mauricio Pascual)

Exactly one week after receiving proposals from the last two remaining consortiums vying to take over the management of the Luis Muñoz Marín International Airport, Gov. Luis Fortuño announced today the government has chosen Aerostar Airport Holdings for the job.

The chosen bidders beat out Spain’s Grupo Aeropuertos for the 40-year public-private partnership contract to run Puerto Rico’s main airport facility. The winning consortium is composed by Mexico’s Grupo Aeroportuario del Sureste and Highstar Capital.

The Puerto Rico government estimates it will receive some $2.6 billion in revenue and other benefits from the P3 transaction over the term of the lease.

“Today, we’re one step closer to having the international airport we deserve, one that is more modern, more comfortable, with better services, that creates more jobs and that brings more tourists to the island,” said Fortuño during a news conference at the airport.

Pursuant to the terms of its bid, Aerostar Airport Holdings will make an upfront payment of approximately $615 million to the Puerto Rico Ports Authority.  This payment is expected to be funded by a combination of financing and equity contributions on a 50-50 basis from each of ASUR and Highstar Capital IV.

Credit Suisse Securities (USA) LLC served as financial advisor and Mayer Brown LLP and Pietrantoni Méndez & Alvarez LLC served as legal counsel to the P3 Authority.

ASUR intends to transform LMM into a world-class airport through a capital investment program of more than $1.4 billion during the term of the lease, while working with the airport community and airlines to better serve passengers.

Gov. Fortuño, flanked by local government officials and representatives from Grupo ASUR during the news conference at the LMM airport. (Credit: © Mauricio Pascual)

“We know this is a great challenge that will imply investment and teamwork, but we’re done it,” said Adolfo Castro-Rivas, CEO of Grupo ASUR. “Twelve years ago we took over nine airports in Mexico and we know that the only way to meet that challenge is to work as a team. One of our main goals is to create an airport community that works together to provide better service to the passenger, who deserves it.”

ASUR also expects that its management of the LMM Airport will help facilitate economic growth in Puerto Rico and make it a top choice for tourists travelling to the Caribbean region.

Grupo ASUR manages nine airports in the Mexico’s southeast region through a P3 agreement with the government, including the busy Cancún hub and facilities in Mérida, Cozumel, Villahermosa, Tapachula, Huatulco, Oaxaca, Minatitlán and Veracruz. The publicly traded company serves between 15 million and 17 million passengers per year.

The consortium’s cash offer will go toward paying down or paying off the Puerto Rico Ports Authority’s $925 million in total debt, $400 million of which is attributed to the airport’s burgeoning operational expenses.

It was just a week ago when the Puerto Rico P3 Authority confirmed it had received the final proposals from the two consortiums, predicting it would take about two or three weeks to review their offers.

However, it was apparent that the government agency in charge of brokering the management agreement already had a clear idea of what each competitor was proposing.

This is the second P3 agreement the Fortuño administration has signed in the past year. In late June 2011, the government selected Autopistas Metropolitanas de Puerto Rico to take over the management, maintenance and operation of the PR-22 and PR-5 toll roads.

Metropistas, as the consortium composed by Goldman Sachs Infrastructure Partners II, L.P. and Abertis Infraestructuras is known, committed to putting up $1.4 billion over the life of the 40-year highway P3 agreement.

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.

P3 Authority Executive Director David Álvarez (Credit: © Mauricio Pascual)

The two consortia in the final running for the 40-year management concession of the Luis Muñoz Marín International Airport have already been selected, with the final winner to be announced by summer, Public Private Parnership Authority Executive Director Dávid Álvarez said Wednesday.

Flanked by airport and administration officials, Álvarez confirmed what News is my Business reported last week — the process has been narrowed down to two consortia: Grupo Aeropuertos Avance, composed by Spain’s Ferrovial Aeropuertos and Macquarie Infrastructure and Real Estate; and, Aerostar Airport Holdings, which couples Mexico’s Grupo Aeroportuario del Sureste and Highstar Capital.

The finalists, he said, presented proposals that were “dramatically different” from the 10 other competitors that had their eye on the P3 when it was announced last year, which will result in the transformation of the LMM airport into a “world-class facility.”

“Following a rigorous process that sought to increase the competitiveness level of the participants, we have identified two consortia to continue down the final stretch of the process,” he said. “Qualifying the finalists allows the government to ensure that only the most committed competitors will stay in the process.”

The two groups are headed by companies with vast knowledge of airport operations in the Caribbean and Europe, and have vowed to increase the value of the LMM airport and increase passenger and flight traffic at the facility, said Álvarez.

“These two groups understand that what we want is a world-class airport, the best airport in the Caribbean, and based on their performance and the proposals they submitted last month, they’ve shown the broad vision they have for this project,” he said, adding the competitors will be required to increase passenger movement and expenditures.

During the roundtable, Álvarez showed renderings of what the airport could look like in the hands of a private operator and investor, portraying a very modern facility with open spaces and upscale shopping.

Growing passenger traffic
In 2010, Puerto Rico received some 4.8 million visitors by air and sea, each of which spent an average of $740. This represented $3.6 billion for the economy.

Jaime López, deputy secretary of Economic Development and Commerce (Credit: © Mauricio Pascual)

“If what each visitor spends is increased by $100, that’s $480 million in new money for the economy,” said Álvarez.

Jaime López, deputy secretary of Economic Development and Commerce, said during the roundtable that the goal is for the new operator to increase the number of weekly flights out of LMM from the 1,304 in June.

“What makes this an attractive investment for these companies is that passenger demand comes from different sources, the local market, tourists, the business sector and cruises. No other place in the region offers these characteristics as a destination,” said a former Tourism Company executive director.

One crucial element needed to boost flight frequency and destinations is getting U.S. Customs and Border Patrol to re-establish a Federal Inspection Service at LMM, which the U.S. Department of Homeland Security closed down after 9/11. The local government has also asked the Federal Aviation Administration and security agencies to allow Puerto Rico to participate in the Visa Waiver Program, so that passengers from the 36 countries already in the program can travel to the island without having to apply for a Visa.

“We’ve already submitted a proposal to the FAA, because we believe that this would allow airlines to once again be able to fly people through Puerto Rico to the Caribbean, Central and Latin America,” López said.

That facility would give Puerto Rico a competitive advantage as the island would be able to again offer direct flights to major destinations, such as Mexico City and Colombia, he said, noting the P3 deal is not contingent on the government’s ability to land the FIS point.

Cash influx for strapped agency
Once the contract is awarded, the selected operator will have to make an up-front payment, plus pay an annual percentage of the revenue generated, to the Port Authority. While initially the government said it stood to receive $1 billion upon signing, that amount may be higher, Álvarez said.

Port Authority Executive Director Bernardo Vázquez (Credit: © Mauricio Pascual)

“Neither amount has been determined. The proponents need to maximize both amounts,” he said.

Port Authority Executive Director Bernardo Vázquez said the money received will go toward paying down the agency’s whopping $1 billion debt, as well as “improving salary conditions for the agency’s employees.”

“With that money coming in, Ports will be able to make investments and take out loans, which it has not been able to do, as it has no credit available,” he said. “We have no credit and depend on the Government Development Bank for help.”

The government is expected to announce the company with which it will strike the public-private alliance for the airport facility before June 30, with the goal of getting the final approval from the FAA by September.

Two groups remain in competition for the LMM P3 contract. (Credit: © Mauricio Pascual)

A high-ranking executive of Mexico’s Grupo Aeroportuario del Sureste said his company is one of two groups remaining to take over the operation of the Luis Muñoz Marín International airport through a public-private partnership with the government, News is my Business learned.

The operator is reportedly up against Spanish infrastructure giant Ferrovial Aeropuertos, which runs major airport facilities in London and Ireland and has built numerous hotels and roads in Europe and the U.S. mainland.

During an earnings call with investors, Grupo ASUR CEO Adolfo Castro said the operator submitted its bid proposal on Mar. 15, “and we are now one of the two participants shortlisted to present the final piece.”

“We do not have technical date for when these have to take place, but we believe the final piece would have to be presented sometime in May,” he told investors.

Grupo ASUR — which has partnered with Highstar Capital to bid for the LMM P3 — operates nine airports in the southeast of Mexico, including the busy Cancún hub and facilities in Mérida, Cozumel, Villahermosa, Tapachula, Huatulco, Oaxaca, Minatitlán and Veracruz. The publicly traded company serves between 15 million and 17 million passengers per year.

Puerto Rico P3 Authority Executive Director David Álvarez said late Wednesday the agency has “made important progress in the airport project,” but held back from confirming the names of the consortia still competing for the contract.

However, this media outlet learned the other group in the running is Grupo Aeropuertos Avance, a consortia composed by Spain’s Ferrovial Aeropuertos and Macquarie Group.

In September, the P3 Authority announced it had selected six competitors — Grupo ASUR and Highstar; Flughafen Zürich, PSP, CCII, and IDC; Fraport and Goldman Sachs; GMR Infrastructure and Incheon Airport; Grupo Aeropuertos Avance; and Puerto Rico Gateway Group — to move forward in the bidding process that began in July 2011.

The government stands to receive an up-front payment of $1 billion as part of the P3 concession, the government official said.

The selected operator will be required to invest between $40 million and $80 million in “immediate improvements” in the first three years of the contract, which is part of the agreement reached with the airlines to give way to the P3 process. The concession will likely be for between 40 and 50 years.

More P3’s planned
In related news, Gov. Luis Fortuño told reporters Tuesday his administration is putting together a pair of new infrastructure P3’s that will likely enter the competitive process in coming months.

On the one hand, the government is seeking a private sector partner to extend and improve Rte. 5 in Bayamón, a project he said would cost $100 million to complete.

Meanwhile, he also mentioned his administration’s plans to open a P3 to extend PR-22, Puerto Rico’s busiest highway, from where it currently ends in Hatillo, further west to Aguadilla.

A P3 is sought to build a state-of-the-art juvenile correctional facility in Yauco.

The Puerto Rico Public-Private Partnership Authority announced Thursday it has opened the “Request for Qualifications” process to find a private entity to design, build, finance and maintain the proposed “Nuevo Comienzo” (New Beginning) juvenile social treatment facility in Yauco.

During a meeting with members of the media, P3 Authority Executive Director David Álvarez said the 600-bed project will be developed in combination with the Department of Correction and Rehabilitation. Interested consortiums will have until May 4 to submit their responses and take part in the qualification process.

“The objective is to deliver a marquee project that clearly demonstrates the positive difference that a P3 approach can offer in the correctional space,” he said. “The project seeks innovation in the design with a strong focus on the education and rehabilitation of the juvenile population in the system with a first in class maintenance component.”

The timetable outlined for the project shows that the goal is to arrive at a short list of proponents by May and select the winner by October 2012.

At present, Corrections is responsible for running six juvenile facilities throughout the island, which the agency has said are having a significant impact on its finances given the high costs associated with maintaining them. The government spends an average of $231 per juvenile offender per day.

Through a P3, the agency would be able to improve the services offered to juveniles in custody, while reducing its operating costs. Corrections has a consolidated budget of $447.1 million for fiscal 2012, of which between 13 percent and 15 percent will be used up by the juvenile system, Office of Management and Budget data revealed.

“We’re committed to exploring innovative ways to provide better infrastructure for our youth. This will allow us to focus on what we have to do, rehabilitate our youth to attack crime at its roots,” said Corrections Secretary Jesús González.

“We’re making sure that the new facility complies with federal requirements and best-practice standards established under the American Correctional Association,” he said. “[Corrections] will remain in charge of operating the institution and does foresee any layoffs under this partnership. ”

As a whole, Puerto Rico’s correctional system comprises 37 adult facilities housing a total of 11,664 inmates. The existing six juvenile facilities — in Bayamón, Ponce, Villalba, Guayama and Humacao — house 528 offenders, representing 66 percent of the institutions’ total capacity, according to the PPPA’s project description.

The new complex would feature a campus-like design with several modules housing shared services, which would cut the agency’s need to shuttle offenders between different facilities, thus reducing associated expenses, agency officials said.

Airport P3 moving along
The P3 announced Thursday joins another one already in progress to turn over the management of the Luis Muñoz Marín Airport in Carolina to a private operator by summer, about a year after the search began.

By summer, the LMM airport in Carolina should have a private operator. (Credit: © Mauricio Pascual)

During the roundtable, Álvarez acknowledged the process to find a private operator has taken longer than originally planned because the agency has had to field a record number of project-related questions — about 900 — throwing off the schedule somewhat.

Still, the P3 Authority has already narrowed down the list of suitors to six: Flughafen Zürich, PSP, CCII, and IDC; Fraport and Goldman Sachs; GMR Infrastructure and Incheon Airport; Grupo; Aeroportuario del Sureste and Highstar Capital; Grupo Aeropuertos Avance; and. Puerto Rico Gateway Group.

The selected operator will be required to invest between $40 million and $80 million in “immediate improvements” in the first five years of the concession, which is expected to be for between 40 and 50 years. The government stands to receive an up-front payment of $1 billion, as this media outlet has previously reported.

The PR22/PR5 PPP is garnering international recognition. (Credit: © Mauricio Pascual)

For the second time in as many months, the government’s 40-year, Public-Private Partnership concession of the PR-22/PR5 highways has nabbed an award from a prestigious international group, this time from London’s Project Finance International, a global project finance intelligence source and a unit of Thomson Reuters Professional Publishing.

The project was one of eight selected in the Americas region.

In its rationale of the deal that transferred the management and operation of the island’s busiest highway and a shorter toll road to a consortium comprising Abertis Infraestructuras and Goldman Sachs Infrastructure Partners, PFI noted several significant aspects, namely that it was the “only bank-financed toll road project in North America in 2011” and “the first brownfield toll road monetization to have successfully closed in the U.S. since 2006.”

The PFI also pointed out the “transparency” of the process as another point in the deal’s favor.

“Transparency throughout the entire procurement process was another strength, with the PPP Authority facilitating strong partnership between all parties, including government entities, investors, developers and public interest parties.”

David Álvarez, executive director of the PPPA, said, “This recognition reveals the strong potential of the PPP approach that Puerto Rico has implemented.”

“We feel proud of the recognition and look forward to a productive 2012,” he said.

The award will be handed out in London on Jan. 25.

As News is my Business first reported, last month, the American Road and Transportation Builders Association, an organization based in Washington representing 5,000 members in the transportation industry, bestowed its “Project of the Year” award to the PPP, which it said will “serve as a catalyst for expansion in the U.S. PPP market.”

Jordi Graells, President of Abertis USA

The American Road and Transportation Builders Association, an organization based in Washington representing 5,000 members in the transportation industry, named Abertis’ Jordi Graells, “Private Sector Entrepreneur of the Year” for the group’s public private partnership division.

Prior to being named president of Abertis USA, Graells played a key role in closing the $1.4 billion, 40-year PPP concession of the PR-22/PR5 highways this summer.

The deal, which also won ARTBA’s “Project of the Year,” award was the largest such investment in the U.S. this year and the first brownfield PPP deal since the Indiana Toll Road in 2006.  It is widely anticipated this deal will serve as a catalyst for expansion in the U.S. PPP market, the ARTBA said in a statement issued Tuesday.

“I am deeply honored, grateful, and encouraged by this prestigious award.  We are excited about prospects in the U.S. market and pleased that Puerto Rico delivered on their slogan, ‘Puerto Rico Does It Better,’ with the PR22/PR5 deal,” Graells said.

The ceremony took place at ARTBA’s 23rd annual PPP Conference at the Mayflower Hotel in Washington, D.C.

The conference featured more than 50 public officials and 300 transportation executives and focused on PPP deal flow and best practices in markets across the United States.

“I look forward to working with ARTBA to advance the PPP market in the U.S. so that states can accelerate job creation and deliver on much-needed infrastructure improvements,” said Graells, who will also be serving as president of the International Bridge, Tunnel, and Turnpike Association in 2012.

Abertis has participated in every major PPP deal opened in the U.S. and its territories over the past six years and was selected earlier this year in partnership with Goldman Sachs Infrastructure Group to manage Puerto Rico’s PR-22 and PR-5 toll roads through a 40-year lease valued at $1.4 billion. This is the largest such investment in any U.S. jurisdiction so far this year and compliments the company’s concession for Teodoro Moscoso Toll Bridge.

Francisco Reynés, CEO of Abertis (Credit: © Mauricio Pascual)

Metropistas, the consortium of companies that is now running PR-22 and PR-5, will use the public-private partnership agreement established with the government as the model to possibly secure similar deals in the U.S. mainland, company officials said Monday.

Francisco Reynés, CEO of Abertis — which along with Goldman Sachs Infrastructure Partners II, L.P. landed the PPP worth $1.4 billion and formed Metropistas — said the Spanish firm is setting its sights on state governments looking to hand over infrastructure management to private operators, to continue expanding its international footprint.

“We consider this project as our entrance to the U.S., because Puerto Rico is not just a Commonwealth, but a government that is doing hard work to be considered a part of the U.S.,” said Reynés during a visit to the island Monday. “Puerto Rico has been a model project, which we’ll present as our flagship project to other states.”

Reynés, who along with a delegation of Abertis executives, headed to Washington, D.C.  to meet with a number of governors today to explore possible partnerships in Virginia and North Carolina.

“Although this project may not be seen that way here, for us it is a flagship project of efficient management by the administration and the concessionaire on how a PPP project should be done,” he said. “We believe the world is closer to understanding this type of project more than before.”

Barcelona-based Abertis, which runs toll roads in Europe and Latin America, has been contemplating the possibility of expanding its footprint into the U.S. mainland since 2008 after successfully bidding $12.8 billion to run the Pennsylvania Highway, a deal that subsequently fell apart. The 75-year lease to operate and collect fares on the 537-mile turnpike would have been the biggest agreement of its kind in the U.S. to date.

“It was frustrating to see how after we won the bid, the legal framework was not in place to support the concession,” said Reynés. “The Puerto Rico project analyzed what had worked and what had not in other similar PPPs, something the governor [Luis Fortuño] told us this morning.”

The difference in Puerto Rico, he said, is that “government officials understood that the concession and the negotiation with the bidders had to go hand-in-hand, and that there had to be a legal framework in place.”

Luis Palazzi, CEO of Metropistas (Credit: © Mauricio Pascual)

Over the next three years, PR-22 and PR-5 will undergo a $56 million facelift en route to becoming world-class roads, and while improvements are already underway, it will “take time” for drivers to experience noticeable changes, said Luis Palazzi, CEO of Metropistas, during the meeting with members of the local media.

“We have been in control of the operation for 20 days. We’ve already begun working on the green areas and have implemented a security patrol system in place, and have gotten good feedback from drivers,” Palazzi said. “A lot has happened in 20 days and there’s still much more to be done.”

The list of private managers for LMM has been whittled down to six. (Credit: © Mauricio Pascual)

The list of suitors to take over the management of the Luis Muñoz Marín International Airport has been whittled down to six: Flughafen Zürich, PSP, CCII, and IDC; Fraport and Goldman Sachs; GMR Infrastructure and Incheon Airport; Grupo; Aeroportuario del Sureste and Highstar Capital; Grupo Aeropuertos Avance; and. Puerto Rico Gateway Group.

Public Private Partnership Authority Executive Director David Álvarez released the short list of companies Friday, marking the completion of the second of several phases that make up the PPP adjudication process.

The government stands to receive an up-front payment of $1 billion as part of the PPP concession, the government official said. Meanwhile, the selected operator will be required to invest between $40 million and $80 million in “immediate improvements” in the first three years of the contract, which is part of the agreement reached with the airlines to give way to the PPP process, he explained.

“The short list allows the government to figure out who is best qualified and makes the process easier in the next phase,” said Álvarez, Friday morning. “We want to have companies that are capable of bringing new airlines and traffic to the airport, to make sure it remains solid.”

“We are very excited about reputation and experience level of the consortia that will enter the bidding process,” Álvarez said. “Puerto Rico is placed in a position to choose the best operators of airports world to bring to Luis Muñoz Marín to a new level and provide an important stimulus for tourism in the island.”

Last month, the PPPA announced it had requests for qualification bids from 12 global companies interested in managing the LMM in tandem with the government. The other six interested consortia that were left out are: AENA Internacional; TAV Airports Holding; AGUNSA (Agencias Universales S.A); Grupo Aeroportuario del Centro Norte (OMA); Corporación América S.A.; and Advent International Corporation (“Advent”).

The concession will likely be for between 40 and 50 years. The short-list member consortia were selected based on three criteria: reputation and compliance with the PPP law; technical capacities; and financial capacity, Álvarez said.

After the PPP process is completed, and the operator is selected, the government must submit the proposal to the Federal Aviation Administration, which has the final word on the transaction.

Luis Palazzi, CEO of Metropistas (Credit: © Mauricio Pascual)

Autopistas Metropolitanas de Puerto Rico, the consortium the government selected in June to assume the management, maintenance and operation of PR-22 and PR-5, will take the driver’s seat today, vowing to turn the heavily transited toll highways into world-class roads.

The transition process will take about six months, during which the Puerto Rico Highway Authority will hand off its responsibilities for the infrastructure to Metropistas, as the consortium composed by Goldman Sachs Infrastructure Partners II, L.P. and Abertis Infraestructuras is known. As part of the public-private partnership agreement, the government retains the title of the roads.

“Immediately our efforts will be directed to ensure that the transition is efficient, that things continue operating properly and that users can travel on these highways with less inconvenience and greater fluidity as possible,” said Luis Palazzi, CEO of Metropistas.

So far, Metropistas has hired six former Highway Authority employees, a number that could double as the company continues recruiting staff, he said.

PR-22 is a 52-mile stretch of highway that runs from the entrance of the Minillas Tunnel in Santurce to the western town of Hatillo, boasting seven toll plazas. Meanwhile, PR-5 is a single-toll, 2.5-mile road that begins at the intersection with PR-2 in Bayamón through PR-199. The roads generate $85.1 million and about $4 million in annual revenue, respectively.

“During the transition period we will begin to invest in security issues, including implementation of a 24-hour surveillance and patrol service,” Palazzi said.

Metropistas will also repair holes, clean the main road, repair vandalism-related problems, such as graffiti, a dispatch rapid response in case of non-toxic material spills or incidents to ensure flow of vehicular traffic, and removal of dead animals on the road, he said.

Highway 22 is Puerto Rico's busiest stretch of road. (Credit: © Mauricio Pascual)

The consortium will also make its first annual $450,000 payment to the Puerto Rico Police Department — a commitment included in the PPP agreement — to improve safety equipment and patrols servicing the two highways.

After the initial transition period, Metropistas will progressively implement the work plan that it has drawn out for itself aimed at fulfilling the capital investment commitment required to rehabilitate and improve the safety and quality of both highways, as provided in the PPP concession agreement, Palazzi said.

“This commitment includes an investment here that will exceed $50 million over the first three years of operation and about $600 million to ensure the recurring conservation and maintenance of these roads during the term of the contract,” he said, referring to the 40-year agreement.

During the first year Metropistas will start investing in specific projects, such as improvements to drainage, signage, toll plazas, safety barriers, lighting and landscaping, the executive said.

“Then in the next two years [after that] we will invest in improvements to the road surface, delineation, and rehabilitation of bridges and major overpasses,” said Palazzi.

All told, Metropistas is putting up $1.4 billion to take over the highway PPP.