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Friday, September 28, 2012

Pierluisi Supports Public-Private Partnership for Luis Muñoz Marín International Airport

Carolina, Puerto Rico—Resident Commissioner Pedro Pierluisi today expressed his support for the application submitted by the government of Puerto Rico to enable Luis Muñoz Marín International Airport (LMM) to be operated pursuant to a public-private partnership in order to modernize the airport and promote economic development on the Island.

Pierluisi testified at a public hearing convened by the Federal Aviation Administration (FAA), an agency within the U.S. Department of Transportation. The panel of federal officials that heard testimony consisted of representatives from the FAA and the Transportation Security Administration, an agency within the U.S. Department of Homeland Security. The purpose of the hearing was to receive input from the Puerto Rico public on the local government’s application seeking federal authorization for LMM to participate in the congressionally-authorized Airport Privatization Pilot Program.

“I respectfully submit that the Puerto Rico application is consistent with the objectives of the pilot program, as it was envisioned by Congress and the FAA. When Congress established this program in 1996, it sought to determine whether new investment and capital from the private sector can be attracted through innovative financial arrangements in order to modernize and otherwise improve the U.S. airport system,” Pierluisi testified.

The Resident Commissioner noted that Congress recently enacted legislation to expand the total number of airports authorized to participate in the pilot program from five to 10.

“Luis Muñoz Marín International Airport is one of Puerto Rico’s most important pieces of infrastructure, an essential part of our transportation network, and our gateway to destinations in Puerto Rico, the 50 states, and abroad. The airport employs many workers and is a major contributor to our economy. My constituents want—and their leaders must strive to provide—a world-class airport that meets the highest safety standards, features modern amenities, and promotes the Island’s positive image as a prime tourist destination and a preferred place to conduct business. I firmly believe that inclusion in the pilot program is the best way to achieve these objectives,” the Resident Commissioner testified.

Pierluisi highlighted three main reasons why he supported LMM’s participation in the pilot program was appropriate.

First, he noted that, given the poor bond rating of the airport sponsor, the Puerto Rico Ports Authority, and the questions surrounding the capacity of the federal Airport and Airway Trust Fund to meet future demand across the U.S. airport system, “participation in the pilot program will help ensure that credit can be obtained to finance critical capital improvements” at LMM.

Specifically, the Resident Commissioner explained that the Ports Authority is “burdened with significant debt and cannot generate the funds necessary to provide the people of Puerto Rico and visitors to the Island with the airport they deserve. He pointed out that, between 2004 and 2008, the debt of the Ports Authority increased by 63 percent. In 2009, the Ports Authority had a credit rating that was one level above “junk” status. In 2010, Moody’s Investors Service warned that the credit rating could be further downgraded, which compelled the Puerto Rico Government Development Bank to purchase all of the bonds issued by the Ports Authority. To this day, the Ports Authority remains effectively shut out of the bond market.

In addition, Pierluisi argued that another factor that counsels in favor of a long-term lease was the uncertainty surrounding the future availability of federal funds to make improvements to the airport. He noted that “the financial condition of the federal Airport and Airway Trust Fund has deteriorated over the last decade.” The Trust Fund helps finance FAA investments in the U.S. airport system. These investments include improvements in construction, security and technology.

“In short, the combination of a lack of access to credit on the part of the Puerto Rico Ports Authority to finance its capital improvement plan, along with the potential for reduced federal funding from the Trust Fund, are key factors that prompted the government of Puerto Rico to consider leasing the airport to a private operator in order to ensure that the airport is sustained and strengthened for the future,” Pierluisi said.

Second, the Resident Commissioner observed that “the operational and passenger characteristics of this airport make it uniquely suited for a long-term lease, as compared with other airports in the U.S. system.” He argued that LMM, given its current usage, cannot generate sufficient revenue on its own from fees to finance its capital improvement plan.

“Nationally, between 2001 and 2011, the volume of U.S. air traffic increased by about 14 percent, representing an increase of 108 million passenger enplanements. This level of growth has helped generate the funds necessary for many airport sponsors across the nation to finance capital improvements at the airports they operate,” Pierluisi said.

“By contrast, the number of passenger boardings at Luis Muñoz Marín has generally remained stagnant, which has served to prevent the fees that are charged to airlines, passengers, concessionaires and others from being used to fund necessary capital improvements at the airport. In 2011 alone, the number of passenger enplanements at Luis Muñoz Marín declined by over 6 percent compared to 2010. Indeed, over the past 20 years, Puerto Rico has experienced no growth in the number of passenger enplanements, instead consistently hovering between four and five million boardings per year,” the Resident Commissioner added.

Finally, Pierluisi argued that participation in the pilot program “will lead to additional routes, better services for the flying public, and enhanced economic development opportunities for my constituents.”

“I believe inclusion in this pilot program represents the most prudent course of action because it will provide an incentive for the new operator to modernize the airport and attract more airlines, more flights, and more passenger traffic. This increase in volume, in turn, will promote the economic development of Puerto Rico by bringing more visitors to the Island, thereby increasing hotel occupancy and spending at restaurants and others businesses,” Pierluisi said.

“Inclusion in the pilot program would help ensure that capital is available to convert Luis Muñoz Marín International Airport from a substandard facility into a state-of-the-art airport that will be a source of pride for the people of Puerto Rico and a jewel in our nation’s aviation system. An improved airport will attract more routes and more passengers, will better connect Puerto Rico with the United States and the rest of the world, and will strengthen the Island’s economy and create jobs,” the Resident Commissioner said in conclusion.