U.S.Central Europe Airport Issues Conference

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U.S./Central Europe Airport Issues Conference

• Global Airport Public/Private Sector Partnership
  Trends

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Types of Airport Development

• Internal Development
• Lease and/or Operating Agreement with the
  End-User
• Lease and/or Operating Agreement with a
  Third-Party (Master) Developer
• Partnership Agreement with End-User or
  Third-Party Developer

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Internal Development

• Airport owner/operator finances, develops,
  constructs and operates the facilities utilizing
  internal staffing
• Designated internal staff will be responsible for
  project development and day-to-day management
• Risks and rewards are maintained by the airport
  operator

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Lease/Operating Agreement

• Airport enters into a lease and/or operating
  agreement with the tenant/user
• Most common form of landlord/tenant partnership
  arrangement in the U.S.
• Tenant is typically responsible for financing and
  constructing facilities
• Airport establishes rates and fees for the
  occupancy of the facility
• Risk shared between airport and tenant, but not
  equally. (Tenant has more risk, but the
  opportunity for greater rewards.)

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Master Developer Agreement

• Airport enters into a lease and/or operating
  agreement with a master developer
• Most common arrangement in concession agreements
  and non-aviation developments
• Developer is responsible for financing and
  building facilities
• Airport establishes rates and fees for the
  occupancy of the assigned area, and the developer
  negotiates with individual tenants
• Risks are primarily on the master developer, but
  so are most of the rewards

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Partnership Agreements

• Public/Private Partnership for development and
  operation of specific airport sectors
• Airport provides land and/or facilities
• Private entity usually provides
• Capital investment
• Development expertise
• Marketing
• Risks and rewards are generally shared equally,
  but can be negotiated depending upon each partys
  contribution to the project

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Successful Partnerships

• San Francisco International Airport
• Fixed Base Operation AMR Combs, now Signature
  Flight Support
• Airport built facilities and chose operator
  through RFP process
• Shared revenue structure
• Operator gained a high revenue, high exposure
  location with minimal capital outlay
• Airport maintained control over facilities, as
  well as FBOs operational environment
• Revenues were significantly greater than under a
  traditional lease arrangement

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Successful Partnerships

• Page Field Airport Fort Myers, Florida
• Small general aviation airport in South Florida
• Non-aviation land along a major thoroughfare
  paralleling the Airport
• Airport leased the land to a shopping center
  developer for the development of a large
  multi-tenant project including several big box
  retailers, restaurants, and other retail outlets
• Airport received a base ground lease payment,
  plus a percentage of the profits exceeding a
  certain threshold from the developer, plus 25 of
  equity proceeds of any sale or refinancing
• Airport gains ownership of the development at
  lease termination
• Agreement was restructured in recent years to
  provide a more beneficial and steady income
  stream to the Airport

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Successful Partnerships

• Natrona County International Airport Casper,
  Wyoming
• Air Service Development effort with Big Sky
  Airlines after discontinuation of service
• Airport lost scheduled services after United
  Airlines bankruptcy in 2002
• Natrona County was not interested in funding
  revenue guarantees, and Big Sky Airlines did not
  have the aircraft to service the market
• County bought an aircraft and leased it to Big
  Sky Airlines for 1 per year, secured in part by
  a Federal grant
• When the airline later pulled out of the market,
  the lease payment to the County increased to
  14,000 per month

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Successful Partnerships

• Jacksonville International Airport
  Jacksonville, Florida
• Partnership between the Jacksonville Airport
  Authority (JAA) and Fraport AG for Ground
  Handling Services
• Fraport serves as a contractor to JAA and is
  responsible for hiring and day-to-day ground
  handling activities
• JAA is responsible for providing all needed
  equipment renovating part of Concourse B for
  offices and equipment storage and hiring a
  manager to oversee the contract
• All ground handling personnel will be employees
  of JAA
• Up-front costs are approximately 525,000 USD,
  and the program is expected to lose up to
  210,000 USD in Year 1.
• Long term revenue projections are 8.2 million
  USD after five years, assuming six airlines and
  38 daily flights (Airlines still have the option
  to self-handle)
• Airport gains a potential income stream and the
  ability to better market to airlines on a low
  cost basis

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Keys to Success

• Find the right partner!
• Develop the right agreement
• Enforce the agreement
• Provide clear and concise expectations and
  default provisions
• Negotiate from a point of strength, not one of
  weakness (Remember, you are likely providing the
  most valuable assets in the deal . . . property
  and people!)

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For More Information

• Michael A. Hodges, MAI
• Airport Business Solutions International
• 10014 N. Dale Mabry Highway, Suite 101
• Tampa, Florida 33618-4426 USA
• 1-813-269-2525 or mhodges_at_airportbusiness.net
• http//www.airportbusiness.net