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

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6 This guidebook expands upon research presented in ACRP Report 66: Considering and Evaluating Airport Privatization (Ernico et al., 2012). ACRP Report 66 assists airport opera- tors, policymakers, and other relevant stakeholders as they consider and analyze the potential advantages and disadvantages of implementing various approaches to airport privatization. The report covers a range of potential options, from service contracts to private airport owner- ship or development. Since the publication of ACRP Report 66, there have been a number of airport transactions that would be characterized as public-private partnerships (P3s). Broadly speaking, P3 refers to a range of project delivery methods that are outside of the traditional design-bid-build (DBB) delivery method for contracting. This guidebook refers to P3 as including contracting methods that use private equity and/or a long-term opera- tions and maintenance agreement. Forms of P3 that fall under this characterization include design-build-finance (DBF), design-build-operate-maintain (DBOM), design-build-finance- operate-maintain (DBFOM), and privatization. More information on the alternative project delivery methods covered in this guidebook is included in this Introduction. The glossary contains information on the terms used in this guidebook. A 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 goal of this guidebook is to provide a user-focused document and supporting decision-making tools that enable airport practitioners to evaluate whether P3 could be the right method to deliver a project and, if so, to implement different P3 models to reach their intended objectives. As this is a very broad topic, this guidebook is focused on the following main objectives: • Identifying lessons learned in U.S. airport alternative delivery encompassing P3 and priva- tization transactions. This includes expanding on ACRP Report 66 and considering key transactions that have taken place since its 2012 publication. • Operationalizing information to help airport executives, board members, and political leadership consider a P3 by providing tools to help airport practitioners and policymakers assess whether a P3 is right for their organization. • Providing information on strategies and capabilities necessary for achieving the benefits of successful implementation. This includes best practices for selecting a privatization model, for designing a fair and transparent procurement process to select a private developer that will provide the greatest benefit to stakeholders, and for overseeing the implementation and operation of the project. • Helping small/mid-sized airports understand how a P3 can work for them. • Focusing particularly outside the FAA’s Airport Investment Partnership Program (AIPP), previously known as the Airport Privatization Pilot Program (APPP), since few airports are Introduction

Introduction 7 candidates for the AIPP, the process typically focuses more on monetizing existing assets than project development, and the procedures are highly proscribed with strong technical support available from the FAA’s Office of Airport Compliance and Management Analysis. Overview of the Research Approach This guidebook focuses on the concepts and methods applied by public agencies to successfully execute P3 transactions. It considers the phases that make up the planning, procurement, and oversight processes and offers detailed information that allows practitioners to move smoothly through each phase. The guidebook also includes a series of real-world project examples, high- lighting the role that specific procurement practices played in the successful delivery of projects. These examples illustrate effective practices in an approachable and understandable way. To accomplish this, the research examined P3 in airports and in other transportation modes to demonstrate key considerations in planning and implementing the procurement process. The research team refers to existing resources and data sources to collect best practices from across the transportation sector. Next, the team utilized outreach methods to identify and study specific projects. Project examples used in the guidebook may draw from different types of procurement (unsolicited proposals, competitive bidding processes, terminal transactions, revenue risk trans- actions, and multi-procurement) and the ways that practitioners went about using alternative procurement processes to achieve their goals. The guidebook also refers to examples from a range of project types and geographic areas, with a focus only on project delivery methods with a financing and/or operations component. Examples in the guidebook also help show the range of outcomes achievable using different P3 methods. Given that the state of the practice is still emerging, there is limited existing literature or research specifically related to airport alternative delivery implementation. As a result, the team’s research methods focused on the review of project-related materials and information gathered through direct outreach to practitioners with transaction experience for their input capturing and distilling current and emerging information. The research approach was guided by the following principles: 1. The primary audience for research results is an airport director, board member, or politician who has selected a project for potential P3 delivery and is seeking to evaluate whether P3 is the best option and, if so, to maximize the probability of success. 2. Users require a quick, easy way to access the content of this guidebook in order to directly apply lessons learned to their unique airport circumstances, As such, this guidebook is accompanied by an interactive, web-based tool to guide the user in implementing a P3. This tool can be accessed at https://www.acrp-p3readiness.org. 3. Airports are unique, with differences in governance structures, roles in the aviation system, the pool of stakeholders, their economic importance as the “front door” to communities, and the regulations and grant assurances that guide their operations. This makes the pre- procurement phase very intensive as each stakeholder must be considered in advancing the project. 4. Airports are “miniature cities” that include roads, ground transportation, utilities, commer- cial and industrial activities, land development, and other activities, in addition to serving the aviation community and passengers. Airport P3s can focus on individual assets, such as terminals, cargo facilities, people movers, or parking/rental car facilities. They can also focus on terminal operations or a combination of these elements. Depending on the assets included, the assessment, implementation, and oversight of a P3 may look quite different. In light of To avoid confusion, AIPP is utilized throughout this guidebook to refer to both the AIPP and its predecessor, the APPP.

8 Evaluating and Implementing Airport Privatization and Public-Private Partnerships this, the research approach focused on “evergreen” principles that apply to nearly any P3 but includes branches for several likely directions depending on the details of the project being delivered. 5. Because P3s are unique and complex, case studies can include extensive detail that, while very interesting, may not apply to other airports or projects. Thus, the research approach focused on the P3 implementation process more than the details of the outcomes. Key questions included why certain processes and procedures were selected, whether they were effective, and what improvements could be made. What Is a P3? This seemingly simple question—what is a P3?—is more complicated and more important than it seems. A P3 is a contractual agreement between a public agency (referred to throughout this guidebook as an “airport owner”) and a private entity that allows for greater private partici- pation in the delivery of projects. Airports are a form of public-use infrastructure that exists to facilitate the business of private companies such as airlines, retail and food and beverage concessionaires, rent-a-car operators, freight forwarders, and other tenants and users. Thus, by definition, the public and the private sectors are involved in airports. Furthermore, most airports outsource some portion of operations, such as by contracting for janitorial services, parking operations, terminal concessions management, or other services, and thus already have some partnership with the private sector. On the other end of the spectrum, some immediately think of P3 as privatization—or full private ownership and/or control of an asset. This view can raise concerns about whether the asset is being developed and operated in the public interest or only for the benefit of the private shareholders. The lack of common language defining P3s creates the potential for different stakeholders to have different assumptions about what is (and is not) occurring when a P3 is considered. A P3 is a subset of alternative project delivery methods, ranging from design-build to privati- zation (see Figure 2), which have emerged as useful strategies for sharing risks that are typically borne by infrastructure owners. The risks transferred to the private sector may include any or all portions of a project, including financing and revenue, and have the potential to enhance the project value and or/performance for the public sponsor. O&M = operations and maintenance. Figure 2. The range of alternative delivery methods and spectrum of risk transfer.

Introduction 9 For this research, a P3 is defined as a private operator having responsibility for at least two of the following: • Design and construction of a project; • Operations of the facility developed; and/or • Providing financing with the expectation of repayment over time through project revenue or availability payments from the airport owner. Financing that is expected to be repaid at completion is not included in this definition. A high-level overview of procurement options includes the following delivery models considered P3 for this guidebook: • DBF. In this option, an airport owner issues a single contract for design and construction. A private developer provides upfront project financing, with repayment from the airport owner over time. Note that this definition excludes DBF with immediate payment to the developer at project completion. • DBOM. In this option, the airport owner issues one contract to develop the project and, once completed, to operate and maintain the facilities. Funds for the project are provided by the owner. • DBFOM. In this option, the private party is responsible for independently delivering an asset and then operating and maintaining the asset over a set period of time under a development agreement. Funding and financing are the responsibility of the developer, although some funds from the project sponsor could be included. This guidebook assumes the user has a working knowledge of the alternative project delivery models described. If this is not the case, readers should review ACRP Report 66: Considering and Evaluating Airport Privatization (Ernico et al., 2012) before continuing with this guidebook. ACRP Report 66 defines the spectrum of privatization and P3 models and describes the operat- ing environment characteristics that shape airports’ use of privatization for project delivery. The report documents the relative advantages and disadvantages of alternative project delivery methods considering legal and regulatory frameworks unique to U.S. airports. The research presented in ACRP Report 66 functions like a “primer” for those unfamiliar with project delivery, its alternative forms, and its application in the U.S. airport context.