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Analysis: Rescinding airport P3 could cost gov’t up to $8M, lawsuit risk

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

If the Puerto Rico government were to walk away from the public-private partnership that turns over the responsibility of managing and operating the Luis Muñoz Marín International Airport to Aerostar Holdings, it would have to compensate the consortium with as much as $8 million for its troubles, according to the 40-year lease agreement signed earlier this year.

The possibility arises from declarations made in recent months by Gov.-elect Alejandro García-Padilla and members of his Popular Democratic Party in opposition to the deal inked by the current administration with Mexico’s Grupo Aeroportuario del Sureste (ASUR) and its consortium partner Highstar Capital to run the airport.

However, everybody involved is in “wait-and-see” mode because the Federal Aviation Administration — which will close its public comment period on the proposed transaction exactly one week from today — must give the final go-ahead needed for the deal to officially take off.

The agency has received close to 200 online submissions from individuals and businesses with vested interest in the transaction since September, when it held its first and only public hearing in Puerto Rico on the agreement that involves an upfront payment of $615 million to the Puerto Rico Ports Authority and subsequent annual revenue-sharing payments for the life of the deal.

If upon scrutinizing the deal and the public’s input, the FAA were to deny the petition from the government and Aerostar Holdings, then each party could walk away from the deal without any obligation to the other, financial or otherwise. The government would continue running the airport.

Furthermore, if the agency OKs the deal under its Airport Privatization Pilot Program before the new administration takes over in January, then the deal would likely stand.

But, if the FAA’s final determination comes down in 2013, and the García-Padilla administration makes good on its intention of not following through on the P3, then it would not only be liable for compensating Aerostar according to the terms of the lease agreement, but could also open itself up for a potential lawsuit, a source close to the transaction told this media outlet.

“The government would have to reimburse Aerostar’s expenses up to $8 million, but Aerostar would have to first back up those expenses with reasonable evidence,” said the source. “This would only apply if the government were to walk away. It would have to make up for that.”

Typical termination fees for these types of agreements hover at between $10 million and $20 million, but in this case, the government talked the number down considerably, the source said.

The PDP’s campaign platform does not address the LMM P3 deal, nor specific plans for the facility.

PDP platform is unspecific
In his campaign platform, García-Padilla was not specific about what his administration’s plans are to improve the LMM airport, but the document did acknowledge that the Puerto Rico Ports Authority’s finances “are precarious as they depend on the effectiveness of the current or prospective concessions of its most important assets such as the LMM [not yet approved].”

In the platform, the party mentioned focusing on ports and airports to “promote and revive” Puerto Rico’s economic development. Among other priorities, the PDP mentions developing and expanding facilities to meet the changing requirements of customers (both passengers and cargo).

“Our ports and airports have to be equipped with the technology and equipment needed to ensure a continuous and efficient flow of cargo and passengers. For this, the maintenance of facilities, so forgotten in recent years, will be a priority,” the document stated, without specifying how those goals will be financed.

As part of its justification for turning over the management of the airport to private hands, current Ports Authority representatives have said it is the only way to pay down the agency’s existing $1 billion debt and ensure the investments the LMM airport needs to become a “world-class” facility.

Author Details
Author Details
Business reporter with 29 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other segments of Puerto Rico’s economy.

1 Comment

  1. FJ November 12, 2012

    From what I read it is far from being at least a reasonable deal. So, if it isn’t a good for Puerto Rico then it’s better to pay the $8M fine now than having to leave with it for 40 years.


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