Summary:
- ACI-NA calls for urgent USD100 billion investment in airport infrastructure (again) and adjustment to the passenger facility charge;
- The PFC adjustment was overlooked last year - it is a reasonable demand;
- The stated need for investment must be considered in the light of the actual capex now, which is greater than imagined (but not on new airports).
This is a familiar refrain from ACI-NA, one that (re)surfaces at the beginning of each year and when there is a whiff of change in the air such as President Trump's 'Infrastructure Plan' in Feb-2018. And the amount demanded has been the same in each of the last three years.
The first requirement is to try to establish the validity of the "USD100 billion needed" claim. Construction activities at US airports fall into two categories as everywhere else: existing airports and new airports.
In the latter category there is next to no activity. According to the CAPA Airport Construction Database, there are only three new airport construction projects in the whole of North America right now out of 219 worldwide, or 1.4% of the total. And they account for just USD700 million in capital expenditure, out of USD215 billion worldwide.
CHART - New airports under construction (projects)
Source: CAPA - Centre for Aviation Airport Construction Database
That's only 0.3%. It is still the case that the most recent primary airport in the US was built in the mid-1990s. And the one before that, in the early 1970s. As we have said before, "make do and mend" seems to be the maxim there.
On the other hand, the 'mending' part is quite comprehensive. Referring again to the CAPA Airport Construction Database, North America is not far behind both the much bigger Asia and Europe regions in terms of existing airport construction projects, as the table below illustrates, and those 181 projects there, 19.2% of the global total, are valued at USD128.4 billion or 22.7% of the total.
In that sense North America as a whole is punching its weight. It's worth remembering too that the current population of North America is 366 million compared to 743 million in Europe and 4.5 billion in Asia.
TABLE - Construction projects for existing airports
Source: CAPA - Centre for Aviation Airport Construction Database
Looking at the distribution of these construction projects across U.S. cities it can be seen in the table below that there is already a great deal of construction expenditure at the main city gateway/hub airports. Two notable facts arising from the table are: (1) these airports alone account for over USD100 billion of capital expenditure right now and (2) on average known projects should be completed within the next five years.
Moreover, it is increasingly the case that new and refurbishment terminal projects (not runways) at large primary airports are being undertaken by public-private-partnerships (P3s). There are at least 12 of these in the US, which are complete, underway or envisaged. And they are spreading into other aspects of airport operation. For example at Los Angeles LAX there are P3s for its huge USD5 billion people mover project and for a consolidated car rental facility. Typically, though not always, private sector involvement equals more rapid delivery though the US airport business is still slow to respond to the advances made by the private sector.
TABLE - Airport construction projects by US cities
Source: CAPA - Centre for Aviation Airport Database
The Feb-2018 President Trump Infrastructure Plan did deliver some much-needed change and hint at more to come. A number of changes were made to the 1996 US Airport Privatisation Pilot Programme in 2018 including the removal of the numerical and categorical limitations. Henceforth, any US airport may be long-term leased, and without limit of number. It has been renamed the Airport Investment Partnership Programme.
There were some other improvements but two Holy Grails for reformers were overlooked. Firstly, a new law did not change one provision of the original pilot programme that is considered a uniquely US obstacle to getting privatisation approval, namely the requirement for airline approval of the lease deal via a double super-majority of airlines (65% of all the airlines serving the airport must approve the deal terms and also those representing at least 65% of the annual landed weight).
Secondly, and this is what ACI-NA refers to, the administration's budget request in 2018 did not endorse calls from airports to eliminate the federal cap on PFCs. The Senate version of the FY2018 DoT appropriations bill proposed to raise the PFC cap from USD4.50 to USD8.50 for originating passengers. That would have the effect of potentially almost doubling the income received from passengers and providing the "self-help" to airports of local dollars they can invest, which might even avoid the need to privatise them.
That is a reasonable call from ACI-NA though Congress is always likely to take a dim view of something that would impose a further tax burden on the general public. As for the USD100 billion infrastructure claim, that is less convincing.