Puerto Rico moves quickly on airport privatisation

The swift negotiations highlight airlines’ changing attitudes toward airport privatisation, which was initially viewed with skepticism at the outset of the Midway Airport privatisation process but is being supported by the carriers who serve Luis Muñoz Marín International Airport in San Juan.

Puerto Rico is close to getting the airline approval it needs to privatise Luis Muñoz Marín International Airport in San Juan, a crucial step that could allow it to begin the bidding process for the territory’s main international airport early next year.

“We’re meeting with the airlines every two weeks and they’ve been very supportive of the process,” David Alvarez, executive director of Puerto Rico’s Public-Private Partnerships Authority, said in a recent interview.

Negotiations with airlines have focused less on the merits of privatisation and more on how to best execute it. “I would summarise it this way: we [airlines] will support the idea – you don’t have to convince us. We just want to know what the details are,” Alvarez said.

Those details are getting worked out and incorporated into a memorandum of understanding (MOU), which will outline the airlines’ agreement with Puerto Rico and give it the 65 percent airline approval it needs to move ahead with the Luis Muñoz Marín International Airport.

“At this point, we’re just doing revisions to the MOU,” Alvarez said. Once final agreement is reached – which he hopes will be by the end of the year – Puerto Rico could issue a request for qualifications for the airport in two week’s time since the request has already been drafted.

American Airlines, British Airways, Lufthansa and JetBlue Airways are among the airlines that serve Luis Muñoz Marín International Airport, according to the airport’s website. Additionally, one of the airport’s airlines, AirTran, was also part of the privatisation discussions at Midway.

The swift negotiations, which only began about six months ago, highlight airlines’ changing attitude toward privatisation under a 1996 pilot privatisation programme run by the US Federal Aviation Administration.

When Chicago sought to privatise its Midway Airport under the same programme, it took nearly two years to build the consensus necessary to move ahead with the process. A crucial element of the conversation, recalls a person familiar with the process, was convincing Midway’s airlines, such as Southwest, that privatisation could be good for them.

Sixty-five percent of the airlines serving the airport must agree to privatisation before an airport can be privatised under the pilot privatisation programme. With Southwest constituting 75 percent of the traffic at the airport, overcoming the airline’s initial skepticism toward privatisation was a crucial element of making the Midway bidding process even possible.

Southwest agreed to the privatisation in late 2007 and a bidding process was held in 2008. But the deal fell apart in 2009 when the winning bidder for the concession could not raise the $2.5 billion needed to close the deal.

Luis Muñoz Marín International Airport is the largest of 11 airports owned by the Puerto Rico Ports Authority, according to a recent authority presentation. The airport is responsible for 88 percent of the commercial passenger traffic to Puerto Rico and 69 percent of annual air cargo traffic, according to the presentation.

Puerto Rico hopes privatisation will improve passengers’ travelling experience, bring private sector best-practices to the airport and improve airport infrastructure investment, according to a recent presentation by Alvarez, the Public-Private Partnerships Authority executive director.