Heavy investment in major development

posted on 6th April 2018

7. AS-Win15_HeavyInv_1Airports constantly need to invest in new infrastructure and new facilities, but it is an expensive process. When it comes to building entirely new gateways the costs can be, unsurprisingly, huge

There’s much, perhaps, to learn from how the industry has gone about building entirely new airports in recent times. Such massive investments are comparatively rare, and sometimes – as in the case of Ciudad Real, the white elephant of a gateway near Madrid that is now being sold off – they represent a salutary lesson.

Northwest Florida Beaches in the US offers a much more favourable example. Opened on 23 May 2010, it was the first international airport to be built in the US since 9/11. The gateway is located in West Bay, northwest Florida, near Panama City and Panama City Beach. It serves the big US carriers of Delta, Southwest and United, as well as Silver Airways.

Northwest Florida Beaches is owned and operated by the Panama City-Bay County Airport and Industrial District. ‘The Airport Authority’ is actually an independent special district created by the Florida legislature; it operates, improves and expands the airport’s various facilities – including its runways, hangars, passenger terminal building, airport grounds and road connections to the public highway system.

Parker McClellan, the airport’s executive director, has been with the gateway for five years now. He explains how and why the decision was taken to build a new airport in West Bay. Before it was decided to move away from the old airport, Panama City-Bay Co (PFN), consideration was given to extending the runway and expanding the airport more generally, but because of environmental reasons and the proximity of the local community, this wasn’t really a viable development, he informs.

While there was certainly resistance from some of the local community to the move – their local asset was moving to become a more regional asset, McClellan notes – there just didn’t seem to be another option than to find an alternative site. As luck would have it, the St Joe’s Company, the largest landowner in the region and possibly in the state of Florida, was prepared to donate the land on which the new gateway now stands. The location was carefully selected in a spot such that, despite being in an area also home to a number of US Air Force bases, including the large Eglin AFB (Air Force Base), Northwest Florida Beaches’ operations don’t impact on military airspace or operations.8. AS-Win15_HeavyInv_2

The new airport was carefully planned from the start as a commercial business. The US$325 million development – the biggest-ever public project in the area – was financed from a combination of state grants, Federal Aviation Administration (FAA) funds, the sale of the old airport, a loan from Florida’s State Infrastructure Bank (SIB) and the airport’s own bank loans.

INSTANT SUCCESS NOT ALWAYS POSSIBLE

“There was an expectation that as soon as the airport opened it would be an instant success,” McClellan observes. However, that is not always possible, especially with a whole new gateway. “Certainly we have had our share of successes, but there have been challenges too.”

Amongst the latter was the totally unforeseeable BP Deepwater Horizon oil spill into the Gulf of Mexico in 2010. However, just a few short years later, Northwest Florida Beaches has doubled the number of carriers that it handles (up from two to four) and monthly passenger traffic reached a new height earlier this year.

Moreover, success can also be measured, McClellan notes, at least in part by the number of businesses that are now looking to establish a presence at the gateway, whether they be maintenance, repair and overhaul (MRO) companies or any other commercial aviation-related enterprise looking to benefit from growing traffic through the airport. Despite its distance from any major conurbations, he is confident: “There are big opportunities for growth now. Bigger than there ever has been in the past.”

The airport’s master plan is going to develop the gateway further, partly as a response to growing requirements and partly to encourage further growth. Within the next five to seven years, the airport is planning to build a new 7,500-foot cross-wind runway to support its general aviation business, while a further runway parallel to the gateway’s existing single runway is another longer term possibility under consideration. The adjective ‘International’ forms part of the airport’s full name and – while Northwest Florida Beaches does not welcome international services right now – the capacity and the infrastructure is there to do so. “And so is the expectation,” McClellan informs.

“The whole community should be proud of the vision that it took to build this facility,” he continues. Building it was “a stress on the community but you can see its success in the growth of its traffic and the businesses that want to come here. We want to serve the community and to share in its success.”

GROWING PAINS

It’s not only the construction of entirely new airports that requires large-scale financing. Gateways that are growing their traffic volumes also need to fund new facilities and infrastructure to support their expansion.

Seattle-Tacoma International Airport (Sea-Tac) is one of the USA’s fastest-growing gateways – the fastest-growing large hub airport in the US, it is said. It handled 37.5 million passengers in 2014 and envisages coping with 66 million by 2034. Moreover, this year has seen triple the amount of growth than had been expected. A programme of rapid development has therefore been essential, both to cope with the current levels of expansion, and to prepare for further growth.

The airport’s Sustainable Airport Master Plan (SAMP) brings together long-term development strategies covering five, 10 and 20-year future timeframes. Focus areas of SAMP currently include airfield enhancements within the existing three-runway configuration, terminal development and potential expansion, roadway improvements and cargo facility modernisation.

According to the airport authority, the Port of Seattle, Sea-Tac is the first large hub airport in the US to fully integrate sustainability as a primary component of its master planning. Sustainability is taken to include reducing environmental impacts while retaining economic performance and working collaboratively with local communities. SAMP is expected to result in a capital improvement programme and financing plan that will deliver improvements on the airfield, for terminals and on landside projects.

AIRFIELD IMPROVEMENTS

On the airfield, Sea-Tac’s centre runway is being reconstructed this year (a process due to be completed as Airside goes to press), while additional aircraft stands are also being built. With regard to the former, the project to reconstruct the 9,426-foot runway has included the installation of a new light emitting diode (LED) airfield lighting system and an automated electronic foreign object debris (FOD) detection system. Sea-Tac will be only the second US airport to have such an automated FOD system.

The reconstruction of runway 16C/34C is expected to be the last such reworking of a Sea-Tac runway for 40 years, all three of the gateway’s runways having been built or reconstructed in just the last seven years. Work on 16C/34C was expected to be completed by the end of October 2015, with the reconstruction having no material effect on ongoing airport operations.

With regard to the aircraft stands and gates, Sea-Tac predicts that 35 additional gates are going to be needed by 2034 (the airport currently has 88), with 16 of these being additional international widebody aircraft gates (Sea-Tac currently has 11 of these). The airport has already recently invested in its freighter stands. In June, the gateway showed off the results of a $23 million investment in two cargo handling areas north of the main terminal. These spaces can handle simultaneous parking of two large aircraft, up to and including B747 size.

In respect to its terminals, Sea-Tac is expecting to break ground on a north satellite renovation early next year – under a project called the North Sea-Tac Airport Renovation programme, or NorthSTAR. NorthSTAR will include the addition of further gates at the satellite terminal, increasing the number there from 12 to 20. Funding for the $503.6 million improvement will come from a combination of airline fees and the Airport Development Fund, as well as a contribution from the facility’s sole airline user, Alaska Airlines. Construction on NorthSTAR is expected to start in the summer of 2017 and to be completed by Autumn 2018.

Sea-Tac is also planning a new International Arrivals Facility (IAF), although this programme remains at the conceptual design phase. If implemented, the new facility would increase the gateway’s passenger handling capacity by almost 60% and would nearly double the number of existing gates capable of serving international widebody aircraft. Again, no local taxpayer money would be used: funding is instead expected to come through a combination of cash, landing fees and the use of a passenger facility charge (PFC) – an additional fee paid on passenger tickets typically to raise funds for an airport’s construction project.

And, finally, landside projects are expected to entail improvements to parking and roads at the airport. These various developments are all about “managing growth”, explains Perry Cooper, the airport’s manager aviation public affairs. “It’s not a matter of trying to attract more passengers – they are coming – it’s about needing to be smart in how we handle the effects of the growth and how we meet the needs of the travelling public in the next five, 10- and 20-year periods.”

EFFICIENCIES

When it comes to the execution of any major airport infrastructure development programme, there have been – as might be expected – some mixed results. Vast amounts of money have been spent by some on new facilities at existing gateways that have proved either not fit-for-purpose or that have been left dormant because the requirement that previously existed has passed on. Moreover, entirely new gateways have been built only to take the form of expensive white elephants, Spain’s Ciudad Real – conceived as an alternative gateway to Madrid Barajas International – being an example here previously cited. But, as we have seen above, others have got it right, and continue to do so.

But when any airport operator considers how to meet demands for growing capacity at any airport, whether it be increasing requirements from passengers or airlines, its first thought shouldn’t be about physical expansion but rather toward investing in efficiency, insists Angela Gittens, director general of Airports Council International (ACI), the trade body that represents airports right around the world.

It can be hugely expensive to expand the built environment, she points out, especially for what might be termed ‘mature’ airports in Europe and in parts of the US, which have very little space into which they can expand. ACI believes the emphasis can better be placed in many cases on improving the processes and the technologies, even staffing levels, all of which also contribute in such a big way to the successful operations of any airport.

For airports to succeed, at least as commercial entities, it’s all about meeting their customers’ expectations, Gittens points out. Airport operators should be looking at more than just space and infrastructure as critical factors in meeting their goals, she says – just as important are the processes and the technologies that they can deploy to meet the needs of their customers and thereby achieve their own strategic objectives.

Of course, sometimes a physical expansion of a gateway’s infrastructure is needed and, when it comes to the cement and marble side of airport expansion, ACI supports and promotes a number of processes which an operator should adopt if it is to grow efficiently and with the minimum of risk – not least in terms of good master planning in the initial phase and full ongoing consultation with all the airport’s stakeholders. Accounting for the strategic plans of a gateway’s airlines in the airport’s own expansion programme is also highly desirable, though not always completely achievable – not all carriers wish to divulge their long-term thinking (and some, at least some of the smaller airlines, may not have such far-sighted thinking anyway).

The airport operator’s strategy and plans also have to be communicated to all those expected to use the facility, not only to the carriers flying in and out but to the local community as well. Two-way discussion will allow for the needs and wishes of all concerned to be factored into the airport development plan as far as is feasible.

Also vital to any airport infrastructure programme, Gittens emphasises, is the need to build flexibility into the design. It’s critical that the operator realises that not only will things in the future not be as they are now, but that they are also highly unlikely to be exactly as envisaged. Security requirements can change, Customs requirements move on, capacity demands can swing wildly, customer and community expectations can evolve with remarkable rapidity.

But once the decision to invest in new infrastructure is taken, there are many obstacles to be overcome, not the least of which can be the lack of space that was referred to above (a situation facing the likes of New York’s La Guardia and London’s Heathrow, to name but a couple of the more prominent examples). The local community may have objections on the grounds of traffic congestion or noise, or the political environment might not be conducive to further expansion of the national aviation industry (there may be environmental concerns, for example).

Airports will also have to square the circle of keeping aircraft flying in and out and large numbers of passengers moving through the gateway while any new infrastructure is laid down and potentially disruptive building work is carried out.

FINANCING

Of course, there is a last resort if these challenges prove insurmountable: as with Northwest Florida Beaches, to build an entirely new gateway. The cost, of course, of such a development is massive. Moreover, unless the old facility continues to function, it has proved very difficult in the past to transition a commercial airport into anything else (many will keep operating even though another, perhaps bigger, gateway is built to meet increasing demands for capacity, while some will continue to operate but as smaller concerns, perhaps as general aviation or flying training facilities, for example).

Whether an operator is developing an existing gateway or building an entirely new one, financing the project is going to be a major undertaking. Some governments may be prepared to provide cash, but that is becoming rarer. Assuming that the state is not prepared to provide the necessary funding, it is going to be the private sector to which the existing or future operator will naturally turn.

In some countries, India might be one such, the regulatory environment can make it difficult to source even private funding, investors perhaps being unwilling to stake huge amounts of money on projects that might not provide a commercially viable long-term rate of return without an unacceptably high degree of risk. Whatever the national regulatory environment in place, what will be crucial, Gittens says, is that governments and/or regional authorities be very clear about what they hope to achieve from any new airport (or significantly enlarged one).

They should be transparent with investors, with airlines and with the local community about what the airport is expected to achieve and how it will do it. Investors in particular will need to be confident in the security of their money and that the goalposts won’t be moved part-way into the development programme.

Those investors will tend to fit into two sorts of categories: the pension fund type investors who are looking to secure a reasonable rate of return over the long term, and the infrastructure construction type conglomerates (such as TAV or Ferrovial) that can have a multi-faceted interest in the facility and its long-term future. Both will need a high degree of confidence in the long-term viability of the gateway if they are to commit their money to any major infrastructure development project.

KEEPING THE CUSTOMER HAPPY

Airlines have, of course, a major stake in airport performance, and many of them have worked with various airport authorities in regards to the latter’s development programmes. It is, after all, changing airline requirements that determine many of the changes that airports need to make in order to offer their carrier customers the service they deserve.

The International Air Transport Association (IATA), the global trade association for the airline industry, has therefore also involved itself in the vital issues associated with gateway development around the world. According to David Stewart, IATA’s head of airport development, “One of the key objectives as agreed with our airline members is to participate early, as airports formulate and develop their expansion planning strategies. Early participation ensures that facilities provided are fit for purpose and that they offer opportunities for the aviation industry to grow cost-effectively.”

He continues: “IATA attempts to engage early on with governments, civil aviation authorities and airport authorities as they plan their aviation infrastructure. It convenes Airline Consultative Committees (ACCs) to encourage and support ongoing interaction and dialogue between senior representatives of the international airline community and major airports around the world. IATA also provides ‘peer review’ and other consulting services to assist agencies with the planning processes.

IATA has updated its Airport Development Reference Manual (ADRM), which acts as a guide for governments, airport authorities and the consulting community. Designed to provide insight into best practice in airport development and design, key subjects covered include aviation forecasting, master planning, terminal design, airfield design and economic and project funding options. IATA is also becoming increasingly engaged with airports to ensure A-CDM (airport collaborative decision making) implementation such that airports deliver the maximum possible benefits for airlines.

MULTIPLE AUTHORITIES

Airports do not of course always provide everything that carriers would like when it comes to their airside infrastructure. Many of them are not, indeed, free to provide the necessary aviation infrastructure. In most cases they answer to or must respond to higher authorities such as civil aviation authorities and governments.

Yet, says Stewart: “The understanding of the need to provide aviation infrastructure in order to properly support aviation as a key element to economic growth and stability varies considerably between governments and jurisdictions. Where the link is understood and supported, airports are able to respond to and provide necessary infrastructure. Where these same agencies understand the link between affordable and cost-effective aviation infrastructure, there economic funds also tend to be spent wisely.

“But, in all cases, it is important that airports engage with us to ensure major design and build projects that best meet airline requirements,” he insists.

Perhaps if they always did so, IATA and its members would be more satisfied with the results of many airport development programmes. With regard to recent infrastructure development projects, Stewart says: “Unfortunately, there are currently many more poor examples than good ones. In too many cases, providers of new aviation infrastructure are struggling against uninformed bureaucracy and misdirected regulation.

“However we have had some joint successes,” he notes. For example: “Our relationship at London Heathrow has continued to benefit from ongoing ‘constructive engagement’, leading to full involvement of the entire airport community in planning and ongoing development issues, including the proposed third runway.”

Plus: “We continue to work together with the South African Government regarding airport development in the region. Airports and airlines continue to benefit from active dialogue in Asia, in particular in Hong Kong and more recently in Beijing.

“And, in the Americas, international airlines benefit from ACC involvement in Lima, Peru and most recently in Mexico City, as the government makes plans for a new airport there,” Stewart concludes.