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Looking good!

Nicole Nelson discovers that its new privatised business model has breathed new life into San Juan’s Luis Muñoz Marín International Airport.

When investors claim that a project is “firing on all cylinders”, the cynic inside you could be forgiven for thinking, what else would you expect them to say? 

However, in the case of San Juan’s Luis Muñoz Marín International Airport, it is hard to argue against them.

For 18 months on from becoming only the second major US gateway to be privatised – Puerto Rico is classified as an unincorporated US territory – traffic is up, new airlines are on board and phase one of its $250 million capacity enhancement plan is close to completion.

Indeed, the airport recently announced that it expects to re-open two terminals by early next year as part of a promised infrastructure upgrade by Aerostar Airport Holdings, which in return for an initial down payment of $615 million and a pledge to invest $1.4 billion in upgrading the gateway received a 40-year operating concession from the Puerto Rican government.

According to Aerostar – a joint venture between Highstar Capital and Grupo Aeroportuario del Sureste (ASUR), which also operates Cancún Airport and eight other gateways in south-eastern Mexico – the first phase of the revamp has already generated nearly 3,000 jobs.

As a result, the key stakeholders supporting the efforts to expand, rebuild and remodel Luis Muñoz Marín told Airport World that they are “more than pleased with their initial return on investment”.

“We are firing on all cylinders,” enthuses Emmett McCann, a partner at New York-based infrastructure investment firm Highstar Capital, who sits on the Aerostar Airport Holdings board of directors, which operates and manages the San Juan facility on behalf of the Puerto Rico Ports Authority. 

“We are exceeding our original plan and feel that the pace of our passenger growth, while we get up and running, is over and above our expectations.”

McCann was instrumental in structuring the $2.6 billion transaction to lease the facility that was “in pretty ill repair” prior to the win by Highstar.

As the transition between Phase I and Phase II of the airport’s development programme is anticipated to take place in November, McCann says work has commenced on 31 capital projects mandated by the lease agreements, 65% of which are basically completed. 

In addition, another $60 million in voluntary capital projects have been initiated and completed separate from the cash enhancement plan, which calls for the massive overhaul of the terminal and the rightsizing of the terminal over the course of the concession.

Agustin Arellano, CEO of Aerostar Airport Holdings, says the upgrade encompasses everything from creating new check-in halls and security checkpoints to opening additional retail and F&B outlets.  

He says: “We are bringing down whole terminals – one by one – and rebuilding and remodelling them to make a complete project that will allow us to re-standardise the concept, the philosophy, and the new image that we would like for Puerto Rico’s number one airport.”

Arellano claims that “sustainable public-private partnership projects” like the one in place at Luis Muñoz Marín can provide the solution for airports lacking the necessary funds to develop their facilities.

And he believes that they can be particularly effective during times of economic downturn.

 

Importance of aviation

“This airport gives service to the vast majority of the people of Puerto Rico,” Arellano says, noting that nearly 80% of San Juan’s passengers are O&D Puerto Ricans, with visitors and tourists only constituting 20% of the equation. 

“Long-term, we believe that Puerto Rico has the potential to become a prime destination in the Caribbean.”  

In addition to the island’s rich history and its bounty of sun, sand and beaches, investors believe Luis Muñoz Marín International Airport’s proximity to Puerto Rico’s higher education facilities, medical services, cultural events and overall business economy give it an advantage over neighbouring islands in the Caribbean.

Arellano reveals that Aerostar is working jointly with the government and tourism industry to develop and launch new routes to Puerto Rico.

Indeed, under the terms of an Airport Use Agreement, Aerostar has established the Puerto Rico Air Travel Promotion and Support Fund to aid route development.

The escrow account has $6 million to reward signatory airlines that increase service within the first three years of the agreement.

Thus far, the co-operative effort has proved to be successful for Luis Muñoz Marín where, despite Puerto Rico’s broader macroeconomic issues, travel has done well, with passenger volumes up 5% overall over Aerostar’s forecast for the year. 

In the past 12 months, JetBlue has introduced a number of new markets, most prominent of which was Chicago O’Hare. Southwest picked up some Chicago Midway routes, and internationally Avianca has introduced a number of flights to Bogota, Columbia. 

The airport’s latest coup was the May 25 inauguration of a twice-weekly Madrid-San Juan service by Air Europa Airbus 330s. 

“I think we have made good headway,” enthuses Highstar’s McCann, noting that the airport exceeded Aerostar’s projections when around 8.5 million passengers passed through its facilities last year.

And he is confident that there is more to come in the years ahead as the creation of a virtually brand-new airport would only increase Luis Muñoz Marín’s appeal to the airlines.

Beyond the initial $15 million in capital projects mandated by Schedule Change 13 of the lease agreement – including the required fixes of damaged roadways, curbs and walkways; jet bridge repairs and refurbishment; exterior landscaping improvements; installation of Wi-Fi; upgrades to electrical utilities; and replacement of deteriorating flooring throughout the entire facility – there was also a series of projects that revolved around moving USDA baggage inspection facilities, the repair of parking garage stairs, and improvements to terminal and roadway signage.

“There were a whole bunch of things that we needed to do right out of the gate because the airport was in pretty ill repair,” admits McCann.

“Part of our plan was to completely shut down and renovate Terminals B and C, and create new facilities with better checkpoints, better ticketing, a better passenger experience, and a better airline experience.” 

In November 2013, Terminals B and C were shuttered, with all tenant airlines moved to Terminals A and D. Aerostar is on track to re-open those terminals at the end of this year or early next.

“The airlines are going to basically get a brand-new facility that is all set up for them. Getting this done as soon as possible has been a key focus of our team in San Juan,” says McCann.

For his part, Arellano says he looks forward to making good on the promise to deliver a modern airport with first-class facilities to San Juan passengers.

He says: “We want San Juan back as the premier spot in the Caribbean, providing direct competitiveness with all the airports in the region.”

Both McCann and Arellano certainly believe that Aerostar’s vision is on plan and even ahead of schedule.

“Unforeseen things always happen when you take over an airport in a public-private partnership or otherwise, but we have been very happy with our partnership with the government, airlines and passengers,” says McCann. 

“There is still a long way to go, of course. With a 40-year concession we have to take long-term view; after all, it is a marathon and not a sprint. However, at present we are hitting all of our metrics out of the gate and that has made everybody feel good about where we are and where we are going.”

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