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Evaluating and Implementing Airport Privatization and Public-Private Partnerships (2021)

Chapter:Chapter 10 - P3 Principles for Airport Projects

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Suggested Citation:"Chapter 10 - P3 Principles for Airport Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Evaluating and Implementing Airport Privatization and Public-Private Partnerships. Washington, DC: The National Academies Press. doi: 10.17226/26179.
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Page89
Page 90
Suggested Citation:"Chapter 10 - P3 Principles for Airport Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Evaluating and Implementing Airport Privatization and Public-Private Partnerships. Washington, DC: The National Academies Press. doi: 10.17226/26179.
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Page90

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89 C H A P T E R 1 0 This chapter provides a summary of key principles for airport P3 implementation: • Project elements and market conditions. Depending on the project elements and market appetite, P3s can apply to small, medium, or large airports. The value of the project elements to private sector developers is highly dependent on market conditions at the time the trans- actions occur. Determining the right balance between the delivery model and project elements can drive competition and innovation by private parties. • Procurement mechanics. Procurement processes require different internal resources and process steps, resulting in a lengthier overall timeline. The procurement process must match the project and the airport’s operating context. Airports requiring more interaction with decision-makers and the public require more open procurement processes; smaller airports, or those with greater enterprise-level decision-making capability, may be best suited for private negotiations. • Stakeholder engagement. On one hand, political leaders can spur a project onward, helping airports overcome obstacles or communicating the benefits of the project to garner support. On the other hand, a politicized procurement process raises questions about the project’s impact on taxpayers and can lead to project cancellations. Perhaps most importantly, a P3 is most likely to succeed when the airport sponsor takes the time to refine its goals; understand what it is selling and how the private sector will view the opportunity; honestly assess the organization’s capacity to take on the technical, financial, and political challenges inherent in a P3; and honestly consider how much control over a project it is willing to convey to a developer. In other words, the airport must ask tough questions and honestly answer them including recognizing what is unknown. To help with this process, users of this guidebook can begin their P3 assessment by using the web-based P3 Readiness Assessment tool. This interactive online questionnaire is designed to assist airport owners in assessing whether their organization is prepared to implement a P3 and if the project under consideration is a strong candidate for a P3. The tool can be accessed at https://www.acrp-p3readiness.org. Other key findings from the research include the following: 1. Since airports generally have good access to capital markets, project funding is not frequently the driving motivation for a P3. Project innovation, delivery speed, recognizing that a project’s scope is outside core competencies, and oversight influence are much greater factors. 2. The decision to implement a P3 is not typically the result of an airport owner undertaking a deliberate process to select the delivery option that works best for a project. Rather, a P3 is often selected because a decision-maker champions the idea, encourages its use, and works to get stakeholders on board. This differs from other infrastructure sectors where project screening is more common. P3 Principles for Airport Projects

90 Evaluating and Implementing Airport Privatization and Public-Private Partnerships 3. Successful P3s are a partnership between the airport and the private sector that allocates risks according to the capabilities of each party and market conditions at the time of the transaction. The P3 transactions at Denver International Airport (before cancellation) and LaGuardia Airport combine revenue risk and availability payments for different project elements, while Los Angeles International Airport transfers construction and operating risk for the automated people mover, but not revenue risk. 4. “If you’ve seen one airport, you’ve seen one airport.” Although this phrase is trite, it is highly applicable to airport P3s, where each transaction is entirely bespoke. Market conditions, a project’s scope of work, and an airport’s unique operating environment contribute to making each transaction different. 5. Political pressure is a major factor in whether a project is delivered via P3. For projects such as those at LaGuardia Airport, Stewart International Airport, and Luis Muñoz Marín International Airport, intervention by the governor was a key part of the process. At Everett Paine Field, political pressure against commercial service meant that a hands-off approach, with the airport only entering a land lease, was the best mechanism for the development of the passenger terminal. For St. Louis Lambert International Airport, a government pledge to spend no public funds on the P3 resulted in a highly unorthodox procurement that eventually was scrapped due to opposition. 6. The procurement process must match the project. While attempts to circumvent the public process and sole-source a P3 to a preferred proponent proved unsuccessful for high-dollar deals in Kansas City and Westchester, smaller projects in Austin and at Everett Paine Field were successful in part because an expensive procurement process was avoided. 7. When a project is structured to balance revenue generation and lifecycle value, private developers are incentivized to be as creative as possible, which provides major benefits to an airport. Alternative technical concepts introduced by bidding teams at LaGuardia Airport and for the Los Angeles International Airport automated people mover, for example, resulted in designs that improve the passenger experience and keep costs lower for airlines compared with the original project plans. 8. Perhaps because of the small number of P3s in operation, most of the attention to airport P3s is given to the procurement phase. Relatively less energy is put into the planning phase (e.g., assessing organizational capacity for a P3 and studies to clarify risks and opportunities) and the operational phase. 9. Legal and regulatory rules can be successfully navigated in a very wide range of airport context and project types. Of the 42 projects in the Comparative Deal Matrix, none is known to have legal issues as the primary reason for not closing. 10. Consensus does seem to be forming around procurement for large P3 projects, with a public outreach (RFI and/or information sessions) followed by a two-step, RFQ-RFP process. 11. Compared to other delivery mechanisms, the P3 procurement process is typically lengthy, expensive, and a tremendous strain on staff resources for both the airport owner and the proponents. Very large projects have better potential to recover the cost of this upfront investment. 12. P3s can be successful at small airports such as Gary/Chicago International Airport, Austin- Bergstrom International Airport, and Everett Paine Field. Each of these relies on ground leases as the basis for P3 development and did not plan the project first and then the delivery mechanism after. 13. A P3 is not a magic bullet. Proponents of P3s may have unrealistic expectations regarding the level of risk the private sector is willing to assume and the cost associated with transfer- ring risks.

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A public-private partnership (P3) can be a dynamic tool to help infrastructure owners achieve a range of objectives on projects, such as incorporating lifecycle project costs into decision-making, benefiting from innovation in design and construction techniques, or sharing certain performance risks.

The TRB Airport Cooperative Research Program's ACRP Research Report 227: Evaluating and Implementing Airport Privatization and Public-Private Partnerships expands upon research presented in ACRP Report 66: Considering and Evaluating Airport Privatization.

Supplemental materials to the report include a Comparative Deal Matrix database, a website for the P3 Readiness Assessment, and a presentation that communicates research findings to key technical and non-technical industry stakeholders.

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