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

Chapter:Terminology and Organization of the Guidebook

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Suggested Citation:"Terminology and Organization of the Guidebook." 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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Suggested Citation:"Terminology and Organization of the Guidebook." 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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Suggested Citation:"Terminology and Organization of the Guidebook." 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.
×
Page3
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Suggested Citation:"Terminology and Organization of the Guidebook." 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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Suggested Citation:"Terminology and Organization of the Guidebook." 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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1 In this guidebook, the term privatization is used to reflect a long- term lease or concession, not an outright sale of the asset. Terminology The airport community has struggled to develop a common language for private involvement in airport development and operations. This lack of clarity is itself an impediment to imple- menting privatization or public-private partnerships (P3s), which this guidebook attempts to overcome by defining key terms here. Privatization In the context of infrastructure, the term privatization indicates a permanent transfer from public ownership to private ownership. The private entity takes title to the infrastructure asset, and the public entity has no further interest in its operation beyond regulatory requirements mandated by the FAA; TSA; and other federal, state, and local agencies. Full privatization of a commercial service airport under this definition has not happened in the United States and is not a topic of this guidebook. Rather, what is often referred to as privatization in the United States involves the long-term, but not permanent, transfer of operating responsibility from a public entity to a private entity. At the end of the agreement, the airport returns to public operation. Long-Term Lease A long-term lease (also known as a concession agreement) involves a contractual arrangement by which a private entity assumes the obligation to operate and maintain all aspects of an airport (as opposed to operating only a terminal or other portion of the airport) under FAA guidelines for the length of the lease term—typically at least 30 years and in some cases up to 99 years. Func- tionally, full privatization and long-term lease are similar, with two exceptions: (1) the airport reverts to public operation at the end of the long-term lease and (2) the public has the right and obligation to ensure the terms of the long-term lease are honored during the concession period. Because of the similarity between full privatization and long-term lease, the term privatization in this guidebook refers to a long-term lease. Typically, the major goal of privatization is monetization of an asset, also known as asset recycling. The public receives an upfront payment in return for the operating rights to the airport. The funds can then be utilized for other public priorities, such as debt reduction or investment in other governmental projects. When privatization does occur, there are typically requirements included in the contract to improve the asset, as well as provisions regarding other public priorities such as contracting, labor, environmental stewardship, and ensuring competition. Terminology and Organization of the Guidebook

2 Evaluating and Implementing Airport Privatization and Public-Private Partnerships P3 P3 is a broad term for the sharing of risk between a governmental entity and the private sector. A P3 is distinguished from full privatization by the public sector retaining title to the airport and from a long-term lease by the public sector retaining regulatory responsibility for the airport. The key question in defining privatization versus a P3 is which entity holds the operating certificate for the airport? So long as it is a public entity, private participation is considered to be part of a P3 and not full privatization. Under the broad umbrella of a P3, the specific responsibilities shared between the public and the private sectors are highly variable. For the purpose of this guidebook, a P3 exists when a private entity holds financial and operational risk for an airport facility. This is an intentionally narrow definition of P3 in order to focus the guidebook. A Brief History of Privatization and P3s Airport privatization began in England when the British Airport Authority (BAA), operator of seven major airports, including London Heathrow and London Gatwick, was sold in 1987 in a $2.5 billion public offering (GAO, 1996). Proceeds from this sale were used to reduce the national debt. Even after privatization, the government retained certain rights, including regula- tion of airline access, airports’ charges to airlines, safety, security, and environmental protection, and a right to veto new investments in airports or divestitures of airports. The improvements BAA made to British airports and the profits enjoyed by its shareholders created interest in the United States in privatization. This led to several partial privatizations at U.S. airports, notably the Airmall terminal concessions at Pittsburgh International Airport (1992), private management of the Indianapolis Airport Authority (1995), the initiation of the Airport Privatization Pilot Program (1996), and the subsequent privatization of Stewart Newburgh Airport (1999). Many major airports have availed themselves of private operation of terminal retail and food and beverage concessions to increase revenue and improve the customer experience; however, privatization of airport operations has, with the exception of Luis Muñoz Marín International Airport (in San Juan, Puerto Rico), not taken hold. Other infrastructure—toll roads, parking systems, utilities, and social infrastructure—has had far more instances of privatization to monetize assets and P3 to develop new capacity. A backlash against privatization of infrastructure has also occurred. Several asset monetiza- tion transactions, including the Chicago Parking System, Indiana Toll Road, and Chicago Skyway, were criticized for being poor deals for the public that undervalued the assets mon- etized. In Texas, a moratorium was placed on the authority to develop private toll roads in 2017 following public opposition to tolls on several new, privately developed highways. Pushback has also occurred against high tolls such as those on I-66 in Virginia. In part due to this back- lash, the term privatization took on negative connotations—so much so that it is rarely used by public officials or proponents who favor private involvement in infrastructure. Instead, “P3” or “PPP” are the preferred terms to reflect the positive benefits to the public and private sector that is the goal of these partnerships. Indeed, when Congress made the Airport Privatization Pilot Program permanent in the 2018 FAA reauthorization, it removed the word “privatiza- tion” from the title of the program, renaming it the Airport Investment Partnership Program. Organization of the Guidebook This guidebook provides information appropriate to different phases in implementing airport privatization—ranging from planning to contract management and oversight. As a result, it is not necessary to read the entire guidebook linearly to make use of it. The Introduction describes

Terminology and Organization of the Guidebook 3 the guidebook’s areas of focus, provides an overview of the research approach, and defines and discusses P3s in more detail. The rest of the guidebook is divided into two major parts. Part I: The Context for Airport P3s Part I offers an overview of the goals of the guidebook and the context for airport P3s: • Chapter 1 describes the current state of practice for airport P3s and summarizes findings from the annotated bibliography in Appendix A and transactions in the United States. • Chapter 2 discusses the legal and regulatory environment for airport P3s. • Chapter 3 provides a brief description of the case studies referred to throughout the guide- book. Full case study narratives can be found in Appendix C. Part II: Implementing an Airport P3 Part II walks the reader through the decision-making process in each phase of a P3 project, from project planning and procurement through financial close and operations: • Chapter 4 helps airport owners to determine project and procurement goals and assess their internal capacity to execute a complex procurement project. • Chapter 5 describes the process by which a project delivery method is selected. • Chapter 6 provides considerations in setting up the procurement structure, such as deter- mining the appropriate risk allocation between airport owner and developer, selecting the payment method and incentives/disincentives that best align with the airport owner’s pro- curement goals, and describing the necessary procurement documents to solicit a developer. • Chapter 7 discusses the two-step procurement process that includes a market sounding exercise, essential procurement documents, and other issues such as determining evaluation criteria and defining performance-based criteria. • Chapter 8 details the steps taken to reach commercial and financial close. • Chapter 9 presents an overview of what to expect during construction and operations, with a focus on contract management, performance metrics, and dispute resolution. • Chapter 10 summarizes lessons learned through case study research. Each chapter of Part II groups information in an easy-to-access way. Part II chapters are structured to contain the following: • Learning objectives that clarify what the reader will gain from reading the chapter. This is a helpful way to discern whether the chapter will provide useful insight specific to an airport’s situation. • Lessons learned, shown in the form of highlighted boxes that use case studies and illustrate best practice. While full case study narratives are located in Appendix C, the guidebook draws conclusions and lessons from each case and ties those lessons to discrete moments in the project development lifecycle. A brief description of each case study and the method- ology used to assemble the research is located in Chapter 3. • Project vignettes, which are shorter profiles of airport alternative delivery projects. Vignettes are used in this guidebook to discuss current projects or cancelled projects and highlight a spe- cific lesson learned. Vignettes were assembled using a combination of research and interviews, although—unlike the case studies—interviews were not used for each vignette. Vignettes are shorter narratives than case studies and are presented as small portraits illustrating dynamics among stakeholders, obstacles, project characteristics, or decision points that are unique to the airport owner. Vignettes are interspersed throughout the guidebook where they are rel- evant to the text. • Icons that highlight significant points of interest or issues that crosscut linear project development phases. The icons used in this guidebook are defined in Figure 1.

4 Evaluating and Implementing Airport Privatization and Public-Private Partnerships • Checklists designed to help airport owners translate theoretical concepts into concrete action. Many practitioners that have worked on P3s will explain that the process for delivery of a project using alternative project delivery methods is iterative in nature. The checklists, however, isolate best practices into actionable steps so that airport owners can approach a P3 procurement process with rigor and discipline. Appendices, References, Glossary, and List of Abbreviations The remainder of the guidebook includes Appendices A through F, references, a glossary, and a list of abbreviations. Contents of the appendices is the following: • Appendix A is an annotated bibliography. • Appendix B is a summary of transactions included in the Comparative Deal Matrix. (The Comparative Deal Matrix is explained in more detail under “Guidebook Media and Comple- mentary Tools.”) • Appendix C contains the case studies that inform the advice, strategies, and suggestions within the guidebook. • Appendix D contains additional short project profiles derived from desktop research, referred to here as “vignettes,” which can inform practitioners’ approach to alternative project delivery. • Appendix E shows the questions that compose the P3 Readiness Assessment, an online decision-tree tool developed as part of this research, as well as the six outcomes made possible by input to the tool. • Appendix F consolidates the checklists provided in this guidebook into one resource. Guidebook Media and Complementary Tools The guidebook is provided in both printed and online versions. The printed version will be useful to those who want to read the material one chapter at a time and use the various checklists with colleagues to work through implementation issues. The electronic version will be useful to those who are already familiar with P3s and are seeking specific items of interest quickly. The electronic version is more easily searchable. Some airport practitioners may have a basic understanding of P3s and experience using alter- native project delivery methods but may be unsure how to apply this guidebook to a specific project. As a result, the guidebook is complemented by two tools: • The P3 Readiness Assessment. The P3 Readiness Assessment is an interactive, online ques- tionnaire designed to assist airport owners in assessing whether their organization is prepared to implement a P3 and whether the project under consideration is a strong candidate for P3. The tool is a companion to the written guidebook and provides users a way to access the infor- mation and resources most pertinent to their needs. After users answer the questions in the Figure 1. Icons used in Part II.

Terminology and Organization of the Guidebook 5 assessment, there are six “Readiness Levels” that map answers to a level of readiness for each phase of alternative delivery implementation. Each readiness assessment includes external resources and references to sections of the guidebook (chapters, case studies, and appendices) that fit the airport owner’s circumstances. This exercise helps the user think through the dif- ferent dimensions of project execution and the factors driving the airport’s decision to use an alternative delivery method. This tool can be accessed at https://www.acrp-p3readiness.org or through the TRB website by searching on “ACRP Research Report 227”. • Comparative Deal Matrix. The Comparative Deal Matrix, an Excel tool, provides basic infor- mation on airport development projects that utilize private finance and/or include operation/ maintenance requirements. The data presented are based on publicly available transaction documents, like development or concession agreements and procurement documents, as well as industry news articles and interview findings. Practitioners may use the Comparative Deal Matrix to understand the characteristics of airport P3 transactions and the overall structure and scope of work for such projects. The Comparative Deal Matrix is available on the TRB website by searching on “ACRP Research Report 227”. Chapter 1 provides more information on this tool. Links to material on the Internet were checked at the time the guidebook was published but are subject to change as websites are reorganized. If a link appears broken, access the basic site (i.e., refer to the root site in the URL address) and then navigate through the site to find the document.

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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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