Earlier this month, New York Governor Andrew Cuomo announced a $13 billion plan to transform the John F. Kennedy International Airport (“JFK”) into a world-class 21st century airport.[1] 90% of the capital for this undertaking comes from private investment.[2] This plan seeks to consolidate and centralize the existing six operating terminals at the airport (Terminals 1, 2, 4, 5, 7, 8), a popular model in an era of airport modernization.[3] $7 billion has been allocated to the airport’s new south side and it will be developed by the Terminal One Group, a consortium of Lufthansa, Air France, Japan Airlines and Korean Air Lines.[4] $2 billion has been allocated to the new north side and it will be developed by Jet Blue.[5] $2 billion of private investments will be spent on upgrading the facilities and infrastructure throughout the new airport.[6] In addition, the Port Authority of New York and New Jersey has budgeted $1 billion for these improvements.[7] Financed through a public-private-partnership (“P3”), the JFK redevelopment program demonstrates the “experience, expertise, and most importantly – the capital – that the private sector can bring to government.”[8]
What is P3? A P3 is a partnership, “usually contractual, between a governmental entity and a private party.”[9] Infrastructure-focused P3s are usually for the more expensive projects, with broader regional impacts, and usually result in public ownerships of the facilities.[10] Governments engage in P3 transactions to increase economic efficiency and decrease the risks of using private capital.[11] However, these projects might also generate long-term externalities due to their economies of scale and contiguity.[12] In the U.S., there is a greater focus on P3 infrastructure projects because the federal government is increasingly pursuing policies through transactions instead of through regulations.[13] Not many U.S. airports have been privatized so far.[14] However, the trend towards greater usage of P3s could change this.
Internationally, P3s have been used in airports for decades. In 1982, the Bundesregierung (Germany’s federal government) announced a program that would privatize airports against a backdrop of budget restrictions.[15] The first airport privatization project started in Berlin as early as 1996, although the Berlin Brandenburg International Airport has been under construction since 2006 and there is no known opening date.[16] The first German airport that became partially privatized was the Düsseldorf Airport in December 1997.[17] In 2001, the Frankfurt Airport had an IPO and ownership shifted from the Bundesregierung to a joint venture of the state, the city, airline companies, and private investors.[18] The government’s regulation of these privatized airports is cost-based; central to the regulatory regime is a revenue-sharing agreement.[19]
The Fraport Airport P3 was formalized in a “frame work agreement,” which was signed by the airport and airlines.[20] This agreement was followed by a public law contract between Fraport and the regulator, the Ministry of Economic Affairs and Transport of Hesse.[21] Key provisions of the regulatory framework include: 1) a charge-per-passenger model that links the charge to the passenger growth rate; 2) a review board consisting different stakeholders; 3) a noise protection fund that Fraport maintains and; 4) a waiver of legal claims against charges.[22]
Singapore’s Changi International Airport has been ranked as the top airport in the world by Skytrax for the past six years.[23] In comparison to other airports in the world, Changi Airport is simply mind-blowing. Unlike Fraport or JFK, Changi’s newest Terminal 5 is government-operated.[24] The government’s aversion to utilizing a P3 approach in this instance was likely due to the problems Singapore experienced in previous P3 infrastructure projects, such as the Singapore Sports Hub and the Singapore Mass Rapid Transit.[25] For P3 projects in Singapore, the private entities are usually responsible for designing, building, financing, and/or operating the facility.[26] The issue of imbalance, between the private party’s goal of profitability and the government’s concerns for political and regulatory risks, presents a practical hurdle against massive P3 infrastructure programs in Singapore.[27] Singaporeans expect the commercial managers in P3 to discount their commercial interests for the greater good of the nation, but those expectations have consistently been unfulfilled.[28] As an example, the Singapore Sports Hub has been plagued by complaints of low quality and faulty amenities.[29]
Some jurisdictions have P3 enabling statutes explicitly authorizing a public entity’s contract with private companies in infrastructure.[30] However, in New York State there are no such enabling statutes, and therefore a grey area exists in the government’s efforts to privatization many of its projects. Agencies like the Port Authority, which are functionally corporate in nature, remain political entities with regulatory responsibilities. An important inquiry moving forward is the extent to which agencies will retain their regulatory powers in the emerging transactional state.
[1]Press Release, Governor Andrew M. Cuomo, Governor Cuomo Announces $13 Billion Plan to Transform JFK into a World-Class 21st Century Airport, (Oct. 4, 2018), https://www.governor.ny.gov/news/governor-cuomo-announces-13-billion-plan-transform-jfk-world-class-21st-century-airport.
[2] Id.
[3] See Rosa Trieu, 4 International Airport Designs That Will Make Future Travel Better, Redshift by Autodesk (May 16, 2017), https://www.autodesk.com/redshift/airport-designs.
[4] Governor Cuomo, supra note 1.
[5] Id.
[6] Id.
[7] Andrew Coen, JFK Is Next New York Airport to Begin Planning for P3 Upgrade, The Bond Buyer (Apr. 6, 2018), https://www.bondbuyer.com/news/jfk-is-next-new-york-airport-to-begin-planning-for-p3-upgrades.
[8] See Mary Scott Nabers, Spotlight on the $10 Billion Development Plans for New York-JFK, Airport World: Blog (last updated Jan. 9, 2017), http://www.airport-world.com/news/general-news/6008-blog-new-york-is-embracing-the-p3.html.
[9] Symposium, Proceedings of the 2013 Annual Symposium: Developments in the Law of International Project Finance, Panel 2: Public Private Partnerships in International Energy & Infrastructure Project Finance, 9 N.Y.U. J.L. & Bus. 729, 730 (2013).
[10] David Lick & Roger E. Hamlin, Public-Private-Partnerships for Promotion of Cross-Border Trade and Transportation, 37 Can.-U.S. L.J. 171, 175-76 (2012).
[11] Id.
[12] Id. at 177 (citing Jonathan P. West, Book Review, 95 AM. POL. Sc. Rev. 219, 220 (2001), available at http://wwwjstor.org/stable/pdfplus/3117659.pdf.)(stating that gains in cost efficiency from public-private partnerships may be offset by externalities and increased costs to society.)
[13] Cf. Teven D. Solomon & David Zaring, Transactional Administration, 106 Geo. L.J. 1097, 1128 (2017) (discussing how executive orders aimed at deregulation have “all but require[d]executive agencies to act through transactions”)
[14] See Rachel Tang, Airport Privatization, Issues and Options for Congress, Congressional Research Service (Aug. 16, 2017), https://fas.org/sgp/crs/misc/R43545.pdf (discussing how pursuant to the Airport Privatization Pilot Program, 49 U.S.C. §47134, only two commercial airports in the U.S. have completed the privatization process, and there are only three active applicants to the privatization program as of August 2017).
[15] Case Study, Commercialization, Privatization and Economic Oversight of Airports and Air Navigation Services Providers: Germany, International Civil Aviation Organization (last updated Jan. 29, 2013), https://www.icao.int/sustainability/CaseStudies/Germany.pdf.
[16] Id.
[17] Id.
[18] Id.
[19] Id. See Stephen C. Littlechild, German Airport Regulation: Framework Agreements, Civil Law and the EU Directive, 21 J. of Air Transport Mgmt 63, 66 (2012) https://www.sciencedirect.com/science/article/pii/S0969699711001402.
[20] Stephen C. Littlechild, German Airport Regulation: Framework Agreements, Civil Law and the EU Directive, 21 J. of Air Transport Mgmt 63, 65 (2012) https://www.sciencedirect.com/science/article/pii/S0969699711001402.
[21] Id.
[22] Id.
[23] Harrison Jacobs, I Visited the No. 1 Airport in the World — and It Blew Me Away with a Free Movie Theater, a Butterfly Garden, and a Blazing-fast 15-minute Process from Check-in to the Gate, Bus. Insider (June 4, 2018), https://www.businessinsider.com/worlds-best-airport-number-1-singapores-changi-photos-tour-2018-6.
[24] Id.
[25] Ling Han, The Problems with PPPs in Singapore, The Diplomat (Sept. 26, 2016), https://thediplomat.com/2016/09/the-problem-with-ppps-in-singapore.
[26] Id.
[27] Id.
[28] Id.
[29] Id.
[30] Kelsey Hogan, The Business of Nation-Building: Protecting the Public in Public-Private-Partnerships: Strategies for Ensuring Adaptability in Concession Contracts, 2014 Colum. Bus. L. Rev. 420, 429 (citing Nat’l Conference of State Legislatures, Public-Private Partnerships for Transportation: A Toolkit for Legislators, March 2012 Updates and Corrections (2012), available at http://www.ncsl.org/documents/transportation/PPPTOOLKIT-update-March2012.pdf.)
