The San Juan International Airport Privatization
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Transcript of The San Juan International Airport Privatization
1
MARIO PABON ROSARIO Abogado-Attorney at Law
P.O. Box 192887
Hato Rey, Puerto Rico 00919-2887
Tel. 787-510-7538
Fax 787-721-7210
THE LUIS MUÑOZ MARIN INTERNATIONAL AIRPORT PRIVATIZATION:
A BAD DEAL FOR THE U.S. AND FOR PUERTO RICO
Mario Pabón Rosario, Esquire
September 28, 2012
RE: FAA-2009-1144
On September 28, 2012, the Federal Aviation Administration (“FAA”) will hold ONE
day of hearings in Puerto Rico in order to receive comments on the proposed privatization of the
Luis Muñoz Marín International Airport in Carolina, Puerto Rico (“LMM”). That privatization,
if approved, will take the form of a 40-year lease to Aerostar Airport Holdings (“Aerostar”), a
consortium formed on a 50%-50% basis between Aeropuertos del Sureste (“ASUR”), the
Mexican operator of various airports in the Southern part of Mexico, and Highstar Capital
(“Highstar”), a U.S. investment fund. This privatization project has been sponsored by the
Puerto Rico Ports Authority (“PRPA”) and the Puerto Rico Public-Private Partnerships Authority
(“P3A”).
From its beginning, this privatization process has been plagued by questionable practices
on the part of the P3A, such as contracting as advisors entities that would later become bidders in
the privatization process, and contracting as a legal advisor a firm that previously had bidders as
its clients. Despite having received several complaints regarding these actual or potential
conflicts, the P3A, the PRPA and other governmental entities (such as the Attorney General,
Office of the Comptroller, the Auditor General and the Governmental Ethics Office) chose to
take no action, and allowed the bidding procedure to continue, until Aerostar was chosen as the
winning bidder. On its merits, it is clear that this privatization transaction has been undertaken
on the basis of a “Study of Desirability and Convenience” containing many erroneous premises,
and drafted with the sole purpose of justifying the conclusion to which the P3A wanted to reach.
Once the Aerostar choice was made and the details of the transaction finally came to light, it has
become clear that privatizing LMM would come at a great loss to the people of Puerto Rico and
the U.S. taxpayer, and would create great economic and security risks for both nations.
2
I. Conflicts of Interest and the P3A advisors
The P3A was established pursuant to Law 29 of June 8, 2009, commonly known as the
“Public-Private Partnerships Act” (hereinafter “Law 29”). Once established, the P3A contracted
Macquarie Capital U.S.A. (“Macquarie”) as advisor for the purpose of establishing the public-
private partnership methodology, and Credit Suisse (“CS”) as advisor regarding the LMM
privatization. NOTE 1. When Macquarie’s contract was announced, an industry publication
specializing in toll roads questioned whether Macquarie could be both an advisor and a bidder at
the same time. The comment said:
The appointment of Macquarie Capital as “Advisor” was apparently negotiated,
not put up for competitive proposals.
Can they advise and participate too?
We asked Macquarie whether their employment as advisors to the PR state
precludes the group and associated elements from participating in making or
supporting P3 proposals in Puerto Rico from the private sector side.
This is new. They have usually been only on the private sector proposing side.
Can they have Macquarie Capital Advisors there in government offices, while
Macquarie Infrastructure submits bids?
Would two different Macquarie “black eyes” separated by “firewalls” be credible
against media and political criticism? (This needs a cartoonist).
After a day we haven’t got an answer.
We just emailed the Authority the same question. We’ll post any response here.
[NOTE 2]
On July 2011, the P3A issued its Request for Qualifications to Acquire a Concession to
Finance, Operate, Maintain and Improve the Luis Muñoz Marín International Airport (the
“RFQ”). Section 1.8 of the RFQ identified “Restricted Parties”, and defined same in the
following manner:
Restricted Parties (as defined below), their respective directors, officers, partners,
employees and person or legal entities Related to them (as defined in Section 1.7
above) are not eligible to participate as Members, or advise any Member, directly
or indirectly, or participate in any way as an employee, advisor, or consultant or
otherwise in connection with any Proponent. Each proponent will ensure that
each Member does not use, consult, include or seek advice from any Restricted
Party. The following Restricted Parties have been identified:
Credit Suisse Securities (USA) LLC […]
3
Finally, prospective Proponents should be aware that the list of Restricted
Parties is not exhaustive and that a party that is not included as a Restricted
Party may still be prohibited from participating in the Project pursuant to
the provision of the Ethics Guidelines. Also, the fact that a party provides or
has provided services to any Sponsor does not automatically prohibit such
party from participating in the Project. Each prospective Proponent is
responsible for ensuring that all parties engaged to provide any type of
assistance in connection with the Project are in compliance with the
provisions of the Ethics Guidelines and, to the extent that any question exists
as to compliance with the Ethics Guidelines, the prospective Proponent
should consult with the Authority (emphasis in original).
Section 1.7 of the RFQ addressed the possibility that multiple parties may form consortia
to become Proponents in the bidding process. With regard to those parties, the RFQ indicated
the following:
“Member” means a member of a Proponent. For the purpose of this Project,
Members shall include each of the following with respect to a Proponent:
--Each person or legal entity that is formally or informally reviewing the Project
and intends to participate as a potential equity investor in the Proponent that will
execute the PPP Contract for this Project. This will include (without limitation)
the ultimate holding company of any such investor or, in the case of a
managed fund or pension plan, the manager of the fund or pension plan
(emphasis ours).
[…]
A person or company is “Related” to another person or legal entity if:
-- one may exercise Control over the other, or
-- each is under the direct or indirect Control of the same ultimate person or legal
entity.
A person or legal entity exercises “Control” of another if it has the capacity to
determine the outcome of decisions about the other’s financial and operating
policies (whether formally or informally).
On August 10, 2011, the P3A announced a list of 12 Proponents for the LMM
privatization project. Among those Proponents were Grupo Aeroportuarios Avance (“GAA”), a
consortium between Ferrovial and Macquarie, and a consortium between ASUR and Highstar
(which consortium was later named “Aerostar Airport Holdings”).
On August 11, 2011, Representative Charlie Hernández publicly denounced that the
participation of GAA in the bidding process created a conflict of interest, as Macquarie was at
the same time an advisor under contract to the AP3 and a participant in the process. Under the
definitions described above, Macquarie should have been included as a “Restricted Party”, and
its participation should have been barred in the process. Furthermore, on September 15, 2011,
4
Representative Hernández denounced a conflict of interest on the part of the attorneys hired by
the P3A to prepare the contractual documents (Chicago’s Mayer Brown), as this firm had been
counsel to various of the Proponents in the privatization process. The P3A issued an outright
denial via press release, and took no further action to impede GAA’s participation in the process.
On May 21, 2012, Representative Hernández revealed that, at all relevant times during
the bidding process, Aberdeen Asset Management, plc (“Aberdeen”) held a 28.75% interest in
the ownership of ASUR. Aberdeen, in turn, was at all relevant times under the control of Credit
Suisse, which held a 24.9% interest in Aberdeen, and held a seat on Aberdeen’s Board of
Directors. Under those facts, and pursuant the definitions contained in the LMM RFQ,
Credit Suisse was a “Related Party” to ASUR, which should have barred ASUR’s
participation in the bidding process. The P3A’s response was to indicate that Credit Suisse
had sold most of its interest in Aberdeen; however, such response ignored the fact that CS’s sale
of its interest in Aberdeen occurred on February of 2012, after ASUR was accepted as a
Proponent in the LMM privatization process, and had survived the first elimination round and
become one of the six finalists for the LMM privatization.
On May 23, 2012, Representative Hernández filed a Complaint before the Puerto Rico
Attorney General’s Office, the Puerto Rico Comptroller’s Office, the Puerto Rico Office of
Government Ethics, and the Puerto Rico Inspector General, regarding the conflicts of interest in
the participation of Macquarie and Credit Suisse controlled entities as part of Proponents in the
LMM privatization process. To this date, that Complaint is outstanding; the only response
received has been from the Comptroller’s Office, which indicated that this was not under the
jurisdiction, but under the jurisdiction of the Office of Government Ethics.
Besides the clear conflicts of interest described above, the LMM privatization transaction
has been plagued by other ethically questionable events. For example, on July 9, 2012,
Representative Hernández denounced that Governor Fortuño’s reelection campaign was
receiving contributions from and having fundraisers held at the offices of Macquarie’s lobbyists.
Furthermore, on August 27, 2012, Representative Hernández denounced that Highstar Capital
(part of the Aerostar consortium) had contributed $175,000.00 to the Republican Governor’s
Association (“RGA”), which in turn was running a media campaign in favor of the reelection of
Governor Fortuño. These contributions to the RGA were significant for various reasons: (i)
there is no record of Highstar making contributions to the RGA prior to the initiation of the
bidding process; (ii) Highstar has as a founder and main advisor a Mr. Wayne Berman, one of
the Republican Party’s “superbundlers”, who has also been finance director for the RGA; (iii)
during the LMM privatization bidding process, Mr. Berman was also president of Ogilvy
Government Relations, lobbying arm of Ogilvy and Mather, the advertising superpower whose
Puerto Rico subsidiary, De la Cruz & Asociados, runs Governor Fortuño’s political campaign, at
the same time it has more than $65 million in P.R. government contracts. Mr. Berman’s
connections with Highstar and the Fortuño reelection campaign provide a plausible explanation
as to why the Puerto Rico authorities have taken no action regarding the Complaint that Aerostar
should have never been allowed to participate in the LMM privatization bidding process.
For the FAA to allow this privatization process to continue without examining the
various allegations of conflicts of interest, and to allow Aerostar to become LMM’s operator
5
without first engaging in a close examination of its member’s ethics, would be to place the future
of millions of US taxpayer’s dollars (in the form of prior grants exempted from repayment,
future grants, and PFC’s) in the hands of parties whose business practices are clearly corrupt.
II. The “Desirability and Convenience” of the LMM Privatization
Law 129 requires, as part of the privatization process, the issuance of a “Desirability and
Convenience Study” (the “Study”). With regard to the privatization of LMM, as we have seen,
that Study was prepared with the active participation of parties who later became bidders in the
process. According to the P3A, a "public-private partnership” (as they refer to this privatization
process), is desirable and convenient when the following conditions are fulfilled:
1. There is a clear and urgent need for the Project;
2. There is clarity in the transfer of risks;
3. The value analysis is positive for the public interest; and,
4. The project is viable for the government [NOTE 3].
With regard to the LMM privatization process, the P3A concluded that establishing a
“public-private partnership” was necessary for the following reasons:
1. The PRPA has had a negative performance, which has caused its debt to be degraded,
which in turn makes it impossible to obtain funds for development and repairs at the
airport;
2. The LMM airport has had a smaller growth than other airports in the total number of
passengers;
3. The LMM airport does not produce competitive earnings in areas such as food and
beverage, car rentals and parking, in comparison to other airports.
Are such conclusions based upon the facts? Our detailed review of the Study shows that
the answer is in the negative. On the contrary, as we shall see, these conclusions are based upon
erroneous premises, incorrect data and significant omissions, used to bootstrap the desired result.
A. The PRPA’s Negative Performance
When evaluating the PRPA’s financial performance, it is important to keep in mind that
the PRPA is not only the LMM airport, but includes all the other Puerto Rico airports, as well as
the maritime ports. The Study, at its page 12, concludes that the PRPA has faced difficulties in
increasing its earnings, based on the fact that the PRPA’s earnings have dropped from $157.8
million in 2007 to $136.5 million in 2008 and an increase to only $142.0 million in 2009 [NOTE
4]. Nevertheless, when reviewing the income and expense breakdown, it is clear that the PRPA
airport-based income has increased back to 2007 levels, notwithstanding the fact that in 2008
American Airlines announced a 45% decrease in capacity at LMM [NOTE 5]. In comparison,
the income from maritime operations has had a substantial decrease, dropping from $77.6
million in 2007 to $58 million in 2008, increasing slightly to $61.8 million in 2009. It is clear
6
that the PRPA’s mediocre performance is not due to LMM operations, but to other factors,
including its maritime operation.
On the other hand, the Study describes a skyrocketing increase in the PRPA’s operation
costs from 2007 to 2009. According to the Study, the costs were $135.1 million in 2007, $172.5
million in 2008, and $186.4 million in 2009. Conveniently, the Study does not contain a
breakdown of which amount of costs is attributable to the maritime operation and which amount
attributable to the airport operation.
Even if the source of the operational expenses had been duly broken down, the
information would not be sufficient to reach an honest conclusion regarding the LMM
performance. In order to reach that conclusion, it would be necessary to evaluate the earnings
and costs of the 11 individual PRPA airports, information which is not contained in the Study. A
review of that information with regard to the three largest PRPA airports (LMM, Aguadilla and
Mercedita) shows the following (Source: FAA CATS report 127):
AIRPORT 2008 2009 2010 2011
LMM
Revenues
$118,065,171 $35,474,542
[NOTE 6]
$76,704,960 $84,319,138
Expenses (including
depreciation)
$96,618,740 $45, 898,590 $22,623,901
[NOTE 7]
$40,851,509
Total Income
$21,446,431 ($10,424,048) $54,081,059 $43,467,629
AGUADILLA
Revenues
$2,940,095 $1
[NOTE 8]
$2,713,671 $4,643,554
Expenses (including
depreciation)
$8,394,577 $1 $6,222,720 $7,045,894
Total Income
($5,454,482) $1 ($3,509,049) ($2,402,340)
MERCEDITA
Revenues
$1,743,931 $379,989 $454,734 $1,456,226
Expenses (including
depreciation)
$5,709,991 $5,807,253 $3,407,743 $4,541,317
Total Income
($3,966,060) ($5,427,24) ($2,953,009) ($3,085,091)
7
The logical conclusion from the number above (as unreliable as the data appears to be, as
explained in the NOTES) is that the mediocre or poor performance of the PRPA is NOT due to
the LMM operation. Our inability to obtain the numbers relating to the maritime operation
makes it impossible to reach a conclusion regarding maritime vs. airport nature of the PRPA
losses.
Section 3.2.2. of the Study discusses the PRPA credit profile. Since LMM does not have
independent credit capacity, and has to incur indebtedness on the basis of the PRPA credit
profile, the Study emphasizes that such credit profile is weak and dependent upon the
Government Development Bank. Similar information appears in the PRPA evaluation reports
from Moody’s and Standards & Poors. Even if accurate, the fact that the PRPA has a weak
credit profile does not necessarily reflect the LMM economic capacity in comparison with the
other PRPA components, nor does it justify removing LMM from the PRPA credit profile. On
the contrary, and as will be shown later in this paper, removing LMM from the PRPA’s
portfolio, particularly in light of the Lease agreement signed with Aerostar can result in a domino
effect that would make it impossible to operate the remaining airports and seaports in Puerto
Rico.
B. The LMM reduced growth
According to the Study, during recent years there has been a reduction in the LMM
number of passengers due to factors such as (1) the 45% capacity reduction by American
Airlines, (2) “managerial challenges” at the airport, (3) increase in competition from other
airports for passengers in transit, (4) contraction in the Puerto Rican economy, (5) reduction in
the number of U.S. tourists, and (6) increased competition from other destinies in the Caribbean.
Furthermore, the Study indicates that “the airport has not been able to control its costs, as
appears from the landing fees”, which makes it less competitive. That last statement finds no
basis in the information included in the Study.
The Study indicates that the landing fees increased from $2.46 per pound of takeoff
weight in 2006 to $2.72 in 2007; were then reduced to $2.58 in 2008, and were kept at the same
level in 2009. The Study estimated the charges as $3.84 for 2010 and $3.65 for 2011, without
explaining the origin of such significant increase. As it turns out, those were the charges
adopted by the current administration via regulation in 2010 and 2011.
The Study also discussed the income for aeronautical activities (“aero”), which refers to
activities such as the use of the runways, terminals, etc. According to the Study, LMM produces
40% more than other medium hub airports in aero revenues. Also, LMM is 37% cheaper than
the closest international hub (Miami International). Nevertheless, the Study, in a clear effort to
draw negative conclusions regarding LMM, cites “increasing costs” as the reason why American
Airlines reduced its capacity in Puerto Rico.
By the same token, the Study indicates that “While LMM does generate significant aero
revenue, the Airport has very high operating costs”. It continues: “[LMM] has the second
highest operating expense per enplanement among comparable medium hubs, with levels near
major US international hubs”. For that purpose, the Study uses a graph (page 19) which, at close
8
examination, shows the fallacy of this argument. If we compare the aero revenues established on
page 18 of the Study with the costs detailed on page 19, we can see the following:
RSW, MSY, HOU, SAT and DAL are medium hubs, the same category in which LMM
finds itself. However, contrary to these airports, which are all small city airports or secondary
airports in large cities, LMM is the main airport for the island of Puerto Rico. Although LMM’s
costs are higher than the other medium hubs, all those other hubs operate with losses much
higher than LMM’s. Contrary to the picture that the Study tries to paint, the cost/income ratio is
not a factor that justifies privatizing the LMM operation.
The Study also alleges that LMM does not have quality alternatives for dining, reason for
which the food and beverage income is only $0.16 per enplanement. According to the Study,
this is extremely low when compared with airports such as JFK, LAX, MIA and ORD. Such
argument contains various false premises. First, and contrary to what the Study indicates,
since American Airlines reduced its operation in Puerto Rico, LMM is not a major transit
airport. On the contrary, 82% of its operations are origin-destination, and only 18% are
connecting flights [NOTE 9]. Obviously, in origin-destination flights, the passengers do not
necessarily stop to eat and drink at the airport, contrary to what they do in connecting airports
such as the ones cited by the Study. Second, most of the connecting flights in Puerto Rico are
flights connecting between AA and American Eagle, connections which occur at the AA
terminal, the terminal with the least food/drink alternatives in the entire airport. A visit to the
terminal back in 2010 and even today would show that terminals B and C (the terminals that
were in operation back then) have sufficient and varied food and beverage alternatives, and at
reasonable prices. Third, the Study fails to take in consideration that a substantial number of
passengers are flying low cost carriers such as JetBlue and Spirit, airlines that fly at odd hours of
the day when there is no need to eat or drink. Although there is always space for improvement in
these areas, the low level of income for food and beverage should not be justification for the
airport privatization either.
AIRPORT AERO
REVENUE
(por
enplanement)
COSTS DIFFERENCE
IAH (Houston Int’l) 12.82 9.04 3.78
ORD (Chicago Int’l) 13.71 12.72 .99
JFK (New York) 28.50 27.84 .66
MIA (Miami) 23.69 23.38 .31
SJU [LMM] 14.10 14.12 (.02)
ATL (Atlanta) 3.69 4.02 (.33)
HOU (Houston Hobby) 9.65 10.70 (1.05)
MSY (New Orleans) 9.96 11.60 (1.64)
DAL (Dallas Love Field) 2.99 7.42 (4.43)
DFW (Dallas/Fort Worth) 8.56 13.64 (5.08)
SAT (San Antonio) 7.25 13.22 (5.97)
RSW (Fort Meyers) 9.99 16.26 (6.27)
9
The Study also indicates that LMM has poor performance in the area of vehicle rentals
and parking. With regard to vehicle rentals, the Study states that “while many tourists visiting
the island rely on taxis to get to their respective hotels/cruise ships, increased awareness of
tourist activities on the island could lead to improved car rental revenue. Obviously, an
“increased awareness of tourist activities on the island” is not a factor that depends of or can be
controlled by airport management. Besides what the Study recognizes, i.e., that many tourists do
not need to rent vehicles in Puerto Rico, other factors affect this area. Airports such as JFK,
ATL and ORD have car rental revenue which is less than that of LMM, obviously due to the fact
that the passengers at those airports are either in transit or use public transportation. At LMM,
many of the passengers are Puerto Ricans who are returning from or coming to visit relatives,
and do not need to need to rent vehicles. Furthermore, the Study fails to indicate if the revenues
(and availability) that are counted for purposes of the Study are those of on-airport car rental
companies (which are a few, and generally the most expensive ones) or those of all the
companies that provide car rental services off-airport in the Isla Verde and Los Angeles
neighborhoods, only a few minutes outside the airport. If the statistics included in the Study are
only those of the on-airport companies, the numbers are misleading. In any event, given that
LMM is well served by the rental car companies established on and off airport, it does not appear
that car rental revenue is a factor that requires privatization of the airport.
With regard to parking revenues, the Study states that there is a per enplanement revenue
much smaller than that of the other mentioned airports. The Study indicates that the reason for
this reduced revenue is “poor management leading to mis-pricing and inadequate record
keeping”. Obviously, those are problems that are solved with better administration, not with
privatization. With regard to prices, it is clear that parking prices in Puerto Rico are generally
less than in the US (even at luxury hotels), so the income reflected will also be less.
Furthermore, the parking revenue statistic is also misleading, because it fails to take into
consideration the fact that LMM parking is strictly short-term (less than one day), while the
remaining airports have medium and long-term parking facilities that are heavily used. In fact,
the cities mentioned in the Study as having the highest parking fees are cities served by
Southwest Airlines, whose passengers tend to be day-trippers who depend heavily on those
services. In Puerto Rico, the concept of long-term parking is privately offered in a limited way
(there is a lot at the Los Angeles neighborhood) and it is now when, little by little, is starting to
gain popularity. Finally, with the availability of cellular phones and the cell phone parking area,
the need for short term parking has also been reduced. In the end, this area by itself is not a
justification for privatizing the airport.
C. The LMM “opportunities”
Section 3.5 of the Study discusses the “LMM opportunities”. Many of them have been
previously discussed in this paper; however, there are two areas that are worth mentioning. First,
with regard to the cargo facilities, the Study indicates that the cargo revenue at LMM has
increased significantly since 2002. However, with regard to this increase, the only thing the
Study says is that “the PRPA is evaluating options regarding its cargo facilities”. Second, the
Study emphasizes the possibility of establishing LMM as an international hub.
10
Although LMM already has the facilities and the potential to become an international
hub, our political situation as part of the US customs and immigration system limits this
potential. That is because since 2003, the US suspended the Transit Without Visa Program
(‘TWOV”). This program allowed passengers to change flights at US airports to reach other
countries without the need to obtain a US entry visa. Once the TWOV program was eliminated,
most passengers (including the passengers from all countries in the Western Hemisphere) need
some kind of visa to travel through the US, something that would make LMM impractical as a
transit hub. Presently, only the nationals of 36 countries in the world (the EU, Japan, Korea,
Singapore, Brunei, Australia and New Zealand) are exempt from US visa requirements; it is
obvious that these are not enough to create an effective transit hub in Puerto Rico.
Puerto Rico’s limited viability as a transit hub under present rules becomes obvious when
observing American Airline’s decision of moving its Latin American hub from San Juan to
Miami, although LMM is a less expensive airport, and although AA incurred in a long term
commitment with regard to its LMM terminal, which is now almost abandoned.
D. The LMM capital improvement plan
According to the Study, there is a capital improvement plan at LMM that, during the
years 2012-2014 would cost about $89.6 million. At page 25 of the Study, it is stated that these
projects would be financed by passenger facility charges (“PFC’s”). The Study then attempted
to create doubt as to the plan’s viability, indicating that “if pfc’s are not available to fund projects
for any reason, the operator will be forced to find alternative financing. In that case, the cost of
financing is likely to be much less by a concessionaire than the PRPA.
The Study conveniently failed to mention that, by the time of its publication, the FAA
had already authorized PRPA to collect at least $520 million in pfc’s until 2033, so the concern
expressed in the Study is unfounded [NOTE 10]. Furthermore, the Study fails to indicate that
there are previously approved grants from the federal government to perform the projects
indicated on page 25 of the study, which should reduce the cost of the capital improvement plan.
For example, there are grants in the amount of $82,992.00 for security measures, and $6,327,
354 for construction of the southern general aviation access road and wildlife evaluation [NOTE
11]. The omission is not casual; if the airport is privatized, all of these funds would be available
to the private operator.
E. The Desirability and Convenience Study-Conclusion
As we have detailed in this evaluation, most of the premises articulated in the
“Desirability and Convenience Study” as justification for the privatization project were not valid
then and are not valid now. Had the Study been performed in an honest manner, it would have
concluded that, although the PRPA has challenges regarding LMM’s performance, and there is
much ground for improvement, a better administration, and a better effort at improving tourism
on the part of the Puerto Rico government are the keys to a more successful PRPA. Even
Caribbean Business, a weekly newspaper that has strongly supported the public-private
partnership process, had the following to say about the LMM privatization on September 9,
2010:
11
Airport PPP Not a Magical Solution
[…]
Government officials interviewed for our front-page story consistently point to the
fact that both passenger and cargo traffic have declined at LMMIA. Their
complaints about the adequacy of the LMMIA may lead some to believe that this
reduction in traffic is the result of poor management and outdated facilities, and
that these shortcomings can be fixed by entering into a PPP to bring in a private
company to take over the management and operation of the airport through a
long-term contract.
We have no doubt that a private company will run the airport more efficiently and
will provide better services than those we receive under the management of the
Puerto Rico Ports Authority. As a result, entering into a PPP to upgrade the
LMMIA is a good move on the part of the administration. However, entering
into a PPP alone will not solve the real problems that are causing the decline
in traffic at LMMIA.
We should clarify at the outset that despite its current shortcomings, the
LMMIA is far superior to the airports of Santo Domingo, Cancun or any
other island destination in the Caribbean. In fact, from a passenger’s
perspective, the LMMIA is certainly more user-friendly than the huge and
poorly organized Miami International Airport.
The main cause of diminishing traffic is not our airport—it’s the fact that
fewer people want to travel to Puerto Rico. It’s the fact that there are fewer
airlines flying to Puerto Rico. It’s the fact that most of the airlines that are
left have cut back drastically on flights in and out of Puerto Rico because
there is less demand.
Fewer people want to come to Puerto Rico because our hotel room inventory over
the years has hardly grown. Seven thousand rooms in 1970, 13,000 rooms today.
Cancun, about 400 rooms in 1970, more than 30,000 rooms today. Dominican
Republic, 3,000 rooms in 1970, more than 65,000 rooms today. Puerto Rico has
lost its ability to grow and attract visitors. Our marketing and branding changes
completely every four years. The reasons why traffic at the airport has declined
are many.
[…]
In pursuing these PPP projects, it is essential that the government secure a sizable
upfront payment from the private entity that will receive the concession to operate
the airport. After all, the entity that is awarded the contract will be taking over a
well-developed airport, where the government has invested hundreds of millions
of dollars in the past 10 years alone.
12
We are still waiting to hear specifics about the upfront payment the administration
will receive for the PPP toll road project. The companies entering into these
agreements stand to make a substantial profit. That is why they get involved in
these projects in the first place. It follows that the government of Puerto Rico
should receive fair and adequate compensation. That’s why the private partners
should be closely monitored, especially if what is really happening with the
lotteries contract is an example-according to El Vocero-of the private company
profiting handsomely while the consumer has a hard time winning (emphasis
ours).
III. The Economic Structure of the Privatization Deal
According to the P3A, the financial terms of the Lease Agreement have been designed to
provide the PRPA with both an upfront payment and an ongoing share of airport revenues. As
reported by the P3A, Aerostar will make a one-time cash payment of $615 million (the
“Leasehold Fee”) [NOTE 12]. Furthermore, according to the P3A, Aerostar will make the
following annual payments:
a. Years 1 through 5- Annual cash payments to PRPA of $2.5 million;
b. Years 6 through 30-Annual cash payments to the PRPA of 5% of gross airport
revenues;
c. Years 31 through 40-Annual cash payments to PRPA of 10% of gross airport
revenues. [NOTE 13]
Furthermore, Aerostar will deposit $6 million at the time of closing into a Puerto Rico
Air Travel Promotion and Support Fund that aims to incentivize airlines to increase passenger
traffic to LMM. These funds will be distributed at the end of each of the first full term years
to any airlines that have increased their total passenger traffic to LMM as compared to
passenger traffic recorded during the 2011 fiscal year [NOTE 14].
Contrary to the idea that has been sold to the Puerto Rican public by P3A officers, there
will not be an actual “cash payment” of $615 million on the day of closing. Instead, on that date
the Lessee will come to closing with two things: (a) a $30.5 million check, and (b) “cash
equivalents” for the rest. In the meantime, the PRPA has to bring to closing evidence that the
PRPA debt attributable to the LMM has been retired. The PRPA has indicated that it intends to
use $505 million of the upfront payment to retire PRPA debt, and $110 million for the following
items:
a. $25 million for the Regional Airport Fund;
b. Funding for an Early Retirement Program;
c. Reserve to cover Government Development Bank guarantees;
d. Payment of transaction costs.
Under this scenario, it has to be asked: How can the PRPA come to closing with evidence
that the PRPA debt has been retired, when it has not received the $615 million payment? The
13
answer to that is: by transferring the debt to the GDB. For the explanation that follows, I have
relied upon the exhaustive and patient analysis of José Antonio Herrero, Economist.
Late in 2011, the GDB issued Puerto Rico Infrastructure Financing Authority Revenue
Bonds in the amount of $669,215,000. These bonds were issued in three separate series: one
with maturity as of June 15, 2013, in the amount of $340,000,000; a second one with maturities
ranging from 2014 through 2026 in the amount of $192,830,000, and a third one in the amount of
$136,385,000, with maturity as of 2026. The bonds are guaranteed by letters of credit issued by
the GDB. Aerostar or its members shall acquire those bonds prior to the date of closing, thus
lending the GDB the money to retire the PRPA debt. At closing, Aerostar will appear with the
evidence of having acquired the bonds (i.e., the “cash equivalent”) and a check for $30.5 million.
The next question is: how can buying bonds in the amount of $669,215,000 and bringing
a check for $30.5 million be favorable for Aerostar, when it only offered to pay an upfront fee of
$615 million plus $6 million for the Airport Development Fund? The answer is in an analysis of
the present value of the bond purchase. It goes as follows:
ISSUANCE PRICE
PRESENT VALUE
$340,000,000 due 2013 $330.1 m
$192,830,000 due from 2014 through 2026 $107.7 m
$136,385,000 due 2026 $56.9 m
$669,215,000 Total price “received” by GDB
and available to retire PRPA debt, pay costs,
create airport and retirement fund, and create
cash reserve.
Total Present Value $494.7 m
In the end, the real value of Aerostar’s upfront payment is: $494.7m plus $30.5m cash
payment: $525.2 MILLION.
In order to evaluate the benefit, if any, of this transaction to the people of Puerto Rico, it
is necessary to evaluate the present value of the 40 year lease to be granted to Aerostar. To
calculate the value of any going concern, it is necessary to calculate the operating income for the
basis year. In this case, Mr. Herrero calculated the LMM Operating Income for 2011 by adding
the revenue categories (grants, pfc’s and rental fees) and substracting the operating expenses
(salaries, utilities, maintenance, replacement, etc.), to reach an Operating Income for 2011 in the
amount of $64.1 million. Utilizing a 2% discount rate, Mr. Herrero concluded that the present
value of the LMM operation amounts to $1752.9 million. Mr. Herrero also calculated the present
value of the yearly payments agreed upon on the lease, and reached a total of $143.9 million.
With those calculations, Mr. Herrero reached the following conclusion:
Present value of LMM operation $1752.9 m
14
Present value of leasehold fee ($525.2m)
Present value of yearly payments ($143.9 m)
LMM VALUE THAT PR DOES NOT
RECEIVE
$1083.0 m
In other words, if this transaction is approved, Aerostar will receive a benefit of $1083 m
that Puerto Rico could have received, without having to risk a single cent from its pockets, given
that it will borrow the money to purchase the bonds, and Puerto Rico will guarantee that loan. It
is very difficult to determine why the PRPA would agree to such a senseless deal.
IV. The “Operating Standards”
One of the P3A’s most commonly used selling points to convince the Puerto Rican
people of the convenience of the LMM privatization is the adoption of new “Operating
Standards”. As stated in Part III (A) of the Final Application:
Another critical element is the requirement under both the Lease Agreement and
the Airport Use Agreement that Aerostar comply with detailed Operating
Standards that are an exhibit to both agreements. These Operating Standards set
out standards for ongoing maintenance and operations, both within the terminals
and on the airfield. The Operating Standards also require an annual review by an
independent engineering firm to assure that all operations are being maintained at
the legally-required levels and require Aerostar to propose and implement a plan
to respond in a timely way to any material issues that are identified.
So important are these “Operating Standards” as a selling point, that even Governor
Fortuño, when announcing the selection of Aerostar as the winner of the bidding process,
emphasized their importance, focusing on the many daily times that the private operator would
be required to, among other things, clean the airport bathrooms. However, when evaluating the
applicable clauses of the lease agreement, it becomes obvious that adherence to such standards is
practically voluntary on the part of the private operator.
Section 6.1 of the Lease Agreement establishes the “obligation” to comply with the
Operating Standards. Immediately after establishing that “obligation”, however, the lease
removes all possibility of enforcing such Operating Standards by permitting (i) long periods to
cure noncompliance, (ii) flexibility at the time of compliance, and (iii) clarification that the
Operating Standards are not violated by occasional acts. In fact, Section 6.1 states “any non-
recurring failure to meet specific time limits shall not constitute a violation”. With that
language, any hope that the operator would feel obligated to “clean the bathrooms 16 times
daily” shall cease to exist.
15
The voluntary nature of these Operating Standards becomes even clearer when examining
Section 16.1 of the lease agreement. Under that section, in order to be considered an event of
default by the lessee, any violation of the Operating Standards would require that (i) there was a
failure to comply 3 times within a calendar month, (ii) the failures would have to continue
unremedied for 30 days after notice, and there would have to be 12 months of persistent breach.
This arrangement is so cumbersome that the lessee would have to work extremely hard to
deserve having its failure to comply be considered an event of default.
Finally, nowhere in the lease agreement or the operating standards is there any
discussion of how does the PRPA intend to monitor daily compliance with the operating
standards. The only review mechanism is an annual review by an “independent” engineering
firm paid for by the lessee. As with any set of laws, rules, regulations or standards, if there’s no
enforcement mechanism, they become a simple wish list.
V. Environmental Liabilities
Section 3.2(c) of the lease agreement exempts the private operator from any liability
regarding environmental conditions existing at the time of closing. Among those pre-existing
environmental liabilities, there is a large potential liability for the damage caused to the airport
land due to leakage in the operation of the fuel system. This potential liability remains with the
PRPA.
Section 4.5 of the Desirability and Convenience Study indicates that, through the years,
this potential liability has been charged to the airlines through the rate-setting methodology.
Once the privatization takes place, the PRPA will not be able to charge this liability to the
airlines and, as we have explained before, will not have the ability to obtain funds for this
purpose. Thus, the PRPA will have a great exposure to this potential liability, without a clear
mechanism to provide funds to resolve it. When cleanup time comes, as it eventually will, it will
probably be necessary to obtain US taxpayer funds, through mechanisms as the Superfund, to
perform this cleanup, while the private operator will be happily enjoying its profits.
VI. The Effect of Privatization on the Regional Airports
As the FAA is aware, besides LMM, the PRPA owns 11 other airports in Puerto Rico, all
of which to some extent receive FAA approved funds, be either pfc’s or grants. None of these
airports is profitable; however, they provide a valuable public service to Puerto Rico by
permitting air service to reach locations on all corners of the island. In recent years, the
government of Puerto Rico has made an effort to expand passenger service to the Aguadilla and
Ponce airports, and has announced plans to use those airports as key elements of the economic
development strategy for those areas. Furthermore, the PRPA has moved the operations of the
Fajardo airport to the Ceiba airport (the former Roosevelt Roads Naval Center, now known as
José Aponte de la Torre Airport), a facility with enormous untapped potential. All of these
efforts, however, will come to a sudden halt if the LMM privatization process is allowed to
occur, and these airports will become “white elephants” which neither the government of Puerto
Rico nor the US government will be able to maintain.
16
Section 3.22 of the lease agreement establishes that the PRPA will pay “leasehold
compensation” (i.e. penalties) if any government entity obtains a 14 C.F.R Part 139 operating
certificate for (i) any airport in Ceiba during the next 20 years, or (ii) any airport anywhere else
in the island during the next 15 years. Furthermore, the PRPA will be required to pay “leasehold
compensation” if, at an airport that has a Part 139 certificate, there is an addition of new
passenger service that is not the expansion of present service (i.e., new airlines).
With regard to the Ceiba airport, Section 3.22 has the effect of making its development
impossible for the next 20 years. Following the LMM privatization, the PRPA (and the Federal
government) will have the obligation of maintaining this airport, with its 11,000 feet runway and
its 1700 acre grounds, as an airport to serve the small planes that serve Vieques and Culebra.
Given the size of its runway, it is not even efficient for that purpose, as the planes have to spend
much more time taxiing that at the old Fajardo airport.
With regard to the Aguadilla and Ponce airports, the situation is just as difficult. These
are airports that could potentially handle higher commercial passenger service. However, if the
privatization is permitted, there will be no possibility of bringing new airlines for the next 15
years, and that potential will remain untapped.
On July 30, 2012, Representative Charlie Hernández made a public denunciation of the
nefarious effects of Section 3.22. Following that announcement, the P3A has gone to great
lengths to deny the accusations, claiming, among other things, that this is a common clause and
that it has FAA approval. If the FAA has really reviewed and approved that clause, it should
take a closer look at its effects, particularly in light of the Regional Airports Operational Plan
(‘RAOP’) proposed by the P3A/PRPA.
The RAOP (Appendix F to the Final Application), although directed to the Regional
Airports, starts by adopting a basic (and contradictory) premise: Ensuring Enhancement of
LMM is Critical for Puerto Rico. Under that premise, it is claimed that LMM’s potential as an
economic generator has not been fully realized. It is also claimed that the regional airports,
which handle 11% of the passenger service in Puerto Rico, have the potential to “increase
frequency, provide cargo services, and develop other services”.
The RAOP consists of five types of measures: (i) managerial measures, (ii) support
measures for regional airports, (iii) capital improvements, (iv) efficiency and expenses, and (v)
revenues and opportunities. The ‘managerial measures’ consist of naming a ‘revenue manager’
to evaluate the revenues and the lease agreements, in a way that the PRPA can maximize
revenues (read: increase lease costs). Furthermore, the RAOP proposes the consolidation and
restructuring of the PRPA’s Engineering and Planning departments, in a way that these
departments handle the capital improvements at both the air and the maritime divisions (read:
reduce headcount).
The discussion of ‘support measures for regional airports’ goes back to the basic premise,
by indicating that “rather than a diluted aviation system, the P3 for LMM facilitates a robust
International Airport capable of serving all Puerto Rico, and promotes the optimization of the
regional airports”. As a support measure, it proposes to use the $25 million fund to be established
17
as part of the privatization agreement in the following order: (i) payment of operational
expenses, and (ii) capital improvements. This clearly shows that the intention is to invest the
least amount possible in capital improvements to the regional airports.
With regard to the capital improvements, the RAOP indicates that all future projects
should include a financial cost/benefit analysis. It is emphasized that capital improvement
projects should focus primarily on general aviation and commuter aircraft (as opposed to
commercial aviation). Also, it indicates that the PRPA should develop a capital improvement
program based on its ability to obtain funding, which, as we have previously seen, will be
questionable at best following LMM’s privatization.
The discussion of “efficiency and expenses” the report indicates that the PRPA will
investigate and evaluate all options available to reduce utility expenses, including recouping such
expenses from the airport tenants (read: increase lease costs at the regional airports). It is also
emphasized that, although regional airports handle only 11% of the passenger traffic, their
payroll expenses amount to 33% of the PRPA payroll. As a remedy to that, the report mentions
the possibility of having the regional airport employees become employees of the LMM private
operator, or that they take early retirement through the fund to be established with funds from the
LMM upfront payment.
With regard to the ‘revenues and opportunities’, the report states that the PRPA will
establish a plan to maximize revenue by reviewing all contracts such as concessions, car rentals,
etc. The report emphasizes that the landing fees and other fees at the regional airports have
historically been “below cost recovery”, and that the PRPA should revise them until they reach
cost recovery.
All of the measures contained in the RAOP, if adopted, will have one certain result: to
eliminate whatever incentive there may be for commercial airlines such as JetBlue and Spirit to
continue flying to Aguadilla and Ponce. Particularly for JetBlue, which has a new terminal
available at LMM, there is no reason to keep a separate operation at Aguadilla and Ponce if there
is no cost incentive. Once these airlines decide not to fly to the regional airports, Section 3.22 of
the LMM lease agreement will make it impossible for the PRPA to find substitutes at the
regional airports.
A further nail in the regional airports’ coffin is Section 4.9 of the proposed Use
Agreement, which creates the “Puerto Rico Air Travel Promotion and Support Fund”. As
explained previously, this fund grants monetary incentives to any airlines operating at LMM that
brings to LMM a higher number of passengers than it brought to that airport in 2011. Obviously,
given the stagnant economy, the only probable way of reaching a quick increase in the number of
passengers to LMM is for the airlines to stop flying to the regional airports. Once those flights
leave the regional airports, pursuant to Section 3.22 of the LMM lease agreement, it will be
impossible to substitute them without penalty.
Finally, it is important to notice that, although the LMM lease agreement places limits on
the PRPA’s ability to bring passenger service to the regional airports, and there is much talk
about developing cargo service in those airports, there is absolutely nothing in the contract that
18
limits or impedes LMM’s ability to increase its cargo operations. In fact, the LMM growth plan
includes ‘growing cargo operations at the airport’ [NOTE 15]. Given its already developed
cargo facilities, and the immense potential created by the availability of Terminals D and E
(American Airlines’ terminals, which Aerostar plans to mothball in the short run), compared to
the need to develop cargo facilities from the ground up at the regional airports, what are the
chances that the regional airports will be able to count on cargo business to survive (even with
the certification of Aguadilla as a Free Trade Zone)?
Reality cannot be avoided: should the LMM privatization be allowed to occur, the
regional airports will be doomed to underdevelopment and inefficiency. While the residents of
the Western and Southern parts of Puerto Rico will lose the convenience of what little passenger
service they have now, the PRPA will have to continue carrying these unproductive assets, which
will become absolutely dependent upon federal funds for their continued existence.
VII. The PRPA’s Viability Post-LMM Privatization
One important question that we had asked ourselves since the filing of the Preliminary
Application for the LMM privatization is: what will happen to the PRPA if LMM is privatized
and removed from its portfolio? As part of its effort to justify the LMM privatization, the RAOP
contains a financial pro-forma which attempts to paint a positive picture of the PRPA without the
LMM. Upon close examination, however, the effort fails.
In case there was any doubt that the PRPA is not counting on developing the regional
airports, it should be noticed that the pro-forma assumes the following: (i) minor increases in
passenger traffic; (ii) modest cargo growth at Aguadilla; (iii) regional airport capital
expenditures funded through grants, pfc’s, proceeds from the privatization or property sales; (iv)
increases in ground leases; (v) increases in aeronautical rates; and (vi) the transfer or at least 10-
11% of the PRPA employees to the private operator. After making those assumptions, the pro-
forma makes some outlandish financial projections, upon which it builds the conclusion that the
PRPA will be able to survive after privatizing LMM. The regional airports’ income and the
maritime income are projected as follows:
(In thousands of $) 2012 2013 2014 2015 2016 2017
Aero income (non-LMM) 4522 5127 5962 6585 7288 8219
Non aero airport income (non-
LMM)
3380 3613 3719 3792 3900 3971
Maritime income 76620 83034 91285 92184 93098 94027
It appears clearly from the above table that, while a modest increase is projected for
airport income, a fabulous increase is projected for maritime income. On the basis of that
fabulous increase in maritime income, it is projected that the PRPA would only have losses in
2012, and would return to profitability from 2013 on. Against that projection, it is necessary to
look at reality-based numbers:
19
(In thousands of $) 2006 2007 2008 2009 2010 2011
2012
Maritime Income 65037 66176 67943 62833 73250 61565 76620
% increase (decrease) 2% 3% (8%) 16% (16%) 24%
Source of data PRCC
Report
2010
Id. Id. Id. APPR
Fnancial
Statements
2011
Id. Pro-
Forma
(In thousands of $)
2013 2014 2015 2016 2017
Maritime income 83034 91285 92184 93098 94027
% increase (decrease) 8.4% 9.9% 1% 1% 1%
Source of data Pro-
forma
Id. Id. Id. Id.
Nowhere in the pro-forma is there a justification for the optimistic projections for years
2012-2014. Given the PRPA’s historic reality, the data contained in the pro-forma lacks
credibility, and appear to be a simple process of inflation to justify the result desired in the pro-
forma.
On March 2009, Standard & Poor’s issued its most recent rating of the PRPA debt
[NOTE 16]. At the time, the rating agency downgraded the PRPA debt to BBB-, and indicated
that the rating reflected weaknesses such as (i) the fact that the Authority’s financial performance
is integrally related to the Commonwealth of Puerto Rico and the GDB, (ii) significant volatility
in airport enplanements and cruise ship passengers and, (iii) relatively high dependency on
American Airlines and American Eagle passengers. On the other hand, the credit weaknesses
were partly mitigated by (i) strong support from the GDB, (ii) monopolistic control over all of
Puerto Rico’s airports and most of Puerto Rico’s ports, (iii) operational and financial diversity
from the authority’s two principal facilities: LMM and the Port of San Juan, and (iv) relatively
high proportion of origin and destination passengers. Furthermore, S&P indicated that, if the
ratings on the Commonwealth or the GDB were lowered, the ratings on the PRPA would have to
be lowered.
Were this privatization process allowed to proceed, the post-privatization PRPA would
still have most of the weaknesses listed above, but would not have the monopolistic control over
the airports that was considered a strength. Under those circumstances, the post-privatization
PRPA would be hindered in any effort to issue new debt, even if it was left debt-free at the time
of the privatization. Given the overextended situation in which the GDB and the Commonwealth
find themselves at the present, the PRPA may lose its viability, putting at risk the extensive
investment in grants, pfc’s and other funds that the U.S. government has made up until now.
20
VIII. The Possibility to Continue Operating in Case of Bankruptcy
One of the main requirements of the Airport Privatization Pilot Program is that the
private operator has to assure the continued operation in case of bankruptcy or insolvency.
Aerostar has attempted to satisfy this requirement by accompanying with its final application a
legal opinion from the Mayer Brown law firm. That opinion concludes that, if Aerostar becomes
a debtor under the Bankruptcy Code and thereafter fails to operate the airport in accordance with
all laws, regulations and legal requirements, the PRPA could be permitted to gain entrance to the
Airport and operate same pursuant to the “police power” provision in Section 362(b)(4) without
regard to the “automatic stay” under Section 362 of the Bankruptcy Code. Although I have not
been able to engage in an in-depth analysis of the applicable law, I have serious concerns about
the opinion.
As we all know, an airport operation takes place 24 hours, 7 days a week. Under no
circumstances it should or can stop; even when the airport is ‘closed’ due to weather conditions,
there is work to be done. The fact that the PRPA may be able to exercise its ‘police power’
without regard to the automatic stay does not necessarily mean that the PRPA would be able to
take over immediately and operate the airport. The Mayer Brown memorandum does not
appropriately address that circumstance.
Furthermore, even if the PRPA were legally able to immediately take over the operation
of the airport in case of bankruptcy, it remains to be answered: would it be capable of doing so?
As we have discussed elsewhere in this memorandum, it may very well happen that the PRPA
becomes a shadow of itself following this privatization process. It is not clear whether it would
have the resources, expertise or personnel to immediately take over and operate the Airport.
Finally, the FAA should keep in mind that the Section 18 of the lease agreement gives
extensive control rights to a “Leasehold Mortgagee” in case of default by the lessee. At this
point, it is not even known who this “Leasehold Mortgagee” is; however, this person or entity
may be the one that has the right to take over the operation in case of default by lessee. Being
unknown, it is impossible to determine if this party would be in a position to qualify to obtain an
Operating Certificate and assume the immediate operation of the airport. FAA should require a
more exhaustive analysis of the implications of this contractual language before approving the
present transaction.
IX. Conclusion
For the reasons stated in this memorandum, I respectfully but forcefully oppose the
privatization of the Luis Muñoz Marín International Airport, and call upon the FAA to DENY
the PRPA/P3A/Aerostar Airport Holdings privatization application.
Respectfully Submitted,
MARIO PABON ROSARIO
21
NOTES TO The San Juan Airport….
1. Macquarie’s contracts: 2010PPP001, valid from 9/11/09 to 6/1/2009 for $510,000.00 and
2010PPP005, valid from 4/12/2010 to 1/1/2012 for $750,000.00. Credit Suisse’s contract
2010PPP009 for $500,000.00, valid from 4/28/10 to 6/30/12.
2. Macquarie Hired to Advise Puerto Rico P3 Agency-Are They Barred from Bidding?
Tollroads News, www.tollroadsnews.com, September 25, 2009.
3. Estudio de Deseabilidad y Conveniencia: Descripción de Marco de Análisis y
Metodología, document issued by the P3A dated June 2010.
4. The income and expense amounts contained in the Study are very different from the
amounts contained in the PRPA’s 2008 audited financial statements. There, it is stated
that the 2008 earnings were $154 million (as opposed to $136 million), and the expenses
were $145 million (as opposed to $172 million). We do not know the reason why the
wrong data was used; it certainly shows a better performance by the PRPA than claimed
in the Study.
5. Conveniently hidden somewhere else in the Study, and described as a “weakness” of the
PRPA’s financial profile, it the fact that Airline service levels declined sharply in FY
2009 due to the economic downturn and the decision by American Airlines to reduce seat
capacity to the Airport by 45%, but steady growth has returned since September 2009
(page 13 of the Study). Ironically, that same fact is described as a strength in the same
page, indicating that Enplanement growth has resumed with some strength since
September 2009 due to increased service from several airlines.
6. The revenue part on the 2009 CATS report for LMM reflects 0 income from passenger
airline landing fees, terminal arrival fees, federal inspection fees and other passenger
aeronautical fees, which is an anomaly.
7. The report for FY 2010 shows 0 depreciation. This is an anomaly.
8. The Aguadilla report for 2009 was pro-forma.
9. Moody’s PRPA evaluation report, November 2, 2009.
10. PFC Approved Locations (as of 11/1/10), www.faa.gov/airports/pfc/monthly_reports.
11. Pre-application package, page 153.
12. The Leasehold Fee may be increased or decreased in the event of a decrease or increase,
respectively, of more than 25 basis points in the 10-year, mid-market LIBOR swap rate
between the bid date and the closing date.
22
13. Section 2.1 (c) of the Lease Agreement reads as follows:
(c) The Lessee shall pay to the Authority, in cash, an amount (the “Annual
Authority Revenue Share”) equal to (i) for the sixth full Reporting Year through
and including the thirtieth full Reporting Year, 5% of the gross Airport Revenues
earned by the Lessee in such Reporting Year or (ii) for the thirty-first full
Reporting Year and each succeeding Reporting Year, 10% of the gross Airport
Revenues earned by the Lessee in such Reporting Year.
The use of the word “or” in this paragraph lends itself to an interpretation
different than that given in the Partnership Report. It could be read as meaning
that the lessee will make the 5% payment for years 6-30 or the 10% payment for
years 31-40. The Partnership Report indicates that Lessee will make both
payments.
14. Section 4.9 of the Airport Use Agreement.
15. See, Public-Private Partnership Luis Muñoz Marín Airport: Selection of
Prefererd Bidder, presentation prepared by the PRPA/P3A, July 19, 2012, page 6.
16. Preliminary Application package, pages 177 et seq.