National Academies Press: OpenBook

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

Chapter:Chapter 1 - Understanding the State of Practice

« Previous: Part I - The Context for Airport P3s
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Suggested Citation:"Chapter 1 - Understanding the State of Practice." 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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Page13
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Suggested Citation:"Chapter 1 - Understanding the State of Practice." 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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Page14
Page 15
Suggested Citation:"Chapter 1 - Understanding the State of Practice." 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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Page15

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13 Understanding the State of Practice The state of practice for airport P3s in the United States is a dichotomy. On the one hand, interest in P3s is seemingly at a peak based on the numerous and aggressive bidders on recent procurements, strong attendance and focus at industry conferences, and the interest of several major foreign airport operators and developers seeking to enter the U.S. market. On the other hand, deal flow remains slow and is even in negative territory with the undoing of the P3 for the Great Hall project at Denver International Airport and the decisions at Westchester County Airport and St. Louis Lambert International Airport to abandon the FAA AIPP process. This begs the question: Why are airport P3s so difficult to implement? Compared to P3s for other infrastructure, airport P3s have been far fewer and less likely to reach closing once initiated. P3s for toll roads, transit, and social infrastructure (e.g., schools, courthouses, and so forth) generally face less skepticism and fewer challenges from stakeholders. Some of the major reasons for the failure of airport P3s to reach financial close include the following: • A diversity of stakeholders including airlines, airport tenants, users, employees, federal and local governments, and the public. • Greater public interest in airports, which serve entire regions and are viewed as trophy assets representing the “front door” of communities. • Far more safety and security regulations than other infrastructure assets. • Differing rules for approval and usage of funding from local and federal sources. • Financing may be tax-exempt, but subject to the Alternative Minimum Tax or fully taxable, depending on how the funds are being utilized. • Miscommunication or misunderstanding about what a P3 is and what can and cannot be accomplished through a P3. In particular, P3 proponents may have unrealistic expectations regarding the level of risk the private sector is willing to assume and the cost associated with transferring risks. At the same time, some stakeholders are opposed to P3s on principle and will seek to derail transactions. • Local control of airports means that most airport P3s are one-time transactions and the staff is going through the process for the first time. In contrast, several state departments of trans- portation (such as in Texas, Florida, and Virginia) have developed processes and in-house expertise based on involvement in numerous surface transportation P3s. Despite these challenges, interest in airport P3s is growing as airport owners and public officials better understand the potential benefits. C H A P T E R 1

14 Evaluating and Implementing Airport Privatization and Public-Private Partnerships State of Practice: Alternative Project Delivery in the Airport Context Airport decision-makers are charged with the responsibility to select the project delivery model best suited to their airport’s needs, shepherd projects from procurement through comple- tion, and ensure that the project delivery method delivers the intended schedule, budget, and performance outcomes. Public agencies require an expanded skillset to meet the complexity of P3 project delivery. Extensive experience in the transportation sector over the past 30 years has produced a range of resources and tools on P3s, including academic articles, industry white papers, and federal educational resources. Researchers and practitioners have endeavored to grow transportation agencies’ capacity to deliver complex projects in an environment of con- strained resources. A review of existing resources and tools related to privatization and P3s provides an understanding of the many ways that practitioners have approached alternative project delivery for surface transportation. Since the first airport privatization effort in the U.K. in 1987, however, there has been a comparatively limited group of resources available explicitly for airport practitioners. Appendix A summarizes resources that offer the most transferable best practices and delivery tools relevant to airport decision-makers. Over the past 30 years, privatization and P3s have evolved from an occasional or rare cir- cumstance to a more accepted tool within public agencies’ procurement toolbox. The tenor of research and resources available reflects this evolution. This guidebook, then, focuses specifically on resources and tools developed following the publication of ACRP Report 66: Considering and Evaluating Airport Privatization in 2012 (Ernico et al., 2012). Researchers for this guidebook began by reviewing more than 60 resources and categorized them into three groups: airport- specific, federal and state, and industry resources. Researchers then isolated the resources and tools that focused on transferable best practices, alternative project delivery value propo- sition, information on funding and financing, tools and techniques, program development, and public policy. The annotated bibliography in Appendix A includes relevant resources that were devel- oped after ACRP Report 66 was published. This annotated bibliography is mostly limited to resources produced within the United States, considering the operating and governance envi- ronments unique to U.S. airports. Select international resources documenting case studies were also included due to the few resources dedicated specifically to airport privatization. Sources included government and scholarly airport-specific resources, airport industry resources such as from consultants and financiers, and federal/state P3 resources not focused on airports, but having transferrable best practices and lessons learned. Airport-specific sources tend to focus on definitions of P3 and not best practices, industry sources are oriented toward case studies and market analysis, and federal/state sources are not tailored to the unique operating environment of airports. As a result, this guidebook serves to fill a knowledge gap. Transactions in the United States Airport privatization and P3s involve myriad contractual structures and delivery methods to deliver complex and challenging projects. This section gives practitioners a sense of the unique features of an alternative delivery transaction—the scope of work, capital value, proposers, advisors, and other characteristics—and provides a sense of the breadth and depth of airport alternative delivery transactions in the United States. This macro-level view of airport alterna- tive delivery transactions allows practitioners to draw comparisons between different airport transactions. The Comparative Deal Matrix is a complementary product to this guidebook. The Compar- ative Deal Matrix displays information on airport development projects that utilize alternative

Understanding the State of Practice 15 project delivery methods, private finance, and/or include operation/maintenance require- ments. Project delivery methods include DBF, DBOM, and privatization (lease or sale). Facilities included in the matrix include full airport, terminal, and supporting facility (parking and related infrastructure). The data presented are based on publicly available transaction docu- ments such as development or concession agreements and procurement documents, as well as industry news articles and interview findings. The Comparative Deal Matrix is not designed to be comprehensive of all airport development projects; rather, it focuses on those projects considered P3s or privatizations, including those enabled by the AIPP. Practitioners may use the Comparative Deal Matrix to understand the characteristics of airport alternative delivery transactions and the overall structure and scope of work for such projects. Figure 3 summarizes the number of transactions, project delivery methods used, locations, and the largest and smallest transaction size (in total capital value) presented in the Comparative Deal Matrix. The Comparative Deal Matrix is an Excel workbook to assist practitioners in understanding the structure and scope of alternative delivery transactions in the United States. The Comparative Deal Matrix contains information on the deals researched for the guidebook. Appendix B lists the transactions presented in the Comparative Deal Matrix. EWR = Newark International Airport, AUS = Austin Bergstrom International Airport AIPP Figure 3. Summary of Comparative Deal Matrix.

Next: Chapter 2 - Legal and Regulatory Context for Airport P3 Transactions »
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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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