Words of Advice for St. Louis Mayor Lyda Krewson on STL Privatization

STL Privatization
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STL Privatization

Words of Advice for St. Louis Mayor Lyda Krewson

Airport Privatization Pilot ProgramUsually such events are announced by a Notice in the Federal Register. However, Transportation Secretary Elaine L. Chao announced on April 24, 2017 that the FAA had accepted the City of St. Louis’s preliminary application for St. Louis Lambert International Airport to participate in the agency’s Airport Privatization Pilot Program (P3).

The fact that the highest-ranking officer in the DoT issued a Press Release signifies that Secretary Chao regards airport privatization as an important Trump Administration Initiative; her words underline that theme

“Today’s announcement to accept the St. Louis Lambert International Airport’s preliminary application to participate in FAA’s Airport Privatization Pilot Program demonstrates the administration’s commitment to leveraging innovative financing strategies to revitalize our nation’s aviation infrastructure…As we’ve already seen in San Juan, this approach to airport management increases productivity, revenue and operating efficiency for airports, creating greater access to capital for infrastructure needs.”

saint louis mayor krewson STL PrivatizationSaint Louis Mayor Krewson seems as though she is not as committed to STL’s privatization proposal as Sec. Chao is to the concept. Perhaps, the fact, that here predecessor Mayor Francis Slay submitted the initial application, may make her cautious. He actually went to Washington, on March 23, 2017, to deliver the request and said that a lease to the private sector would be “shot in the arm” for STL.

The FAA issued a Fact Sheet on April 24, 2017 which reviewed all of the pending P3 requests and in summarizing the STL, it recited the following statement from the City’s March application:

The City said in its preliminary application that it thought airport privatization would be good for the airport, the City, and the Metro region. Their goal is to create Public-Private Partnerships that would use innovative ideas to improve airport operating revenues with a private operator. Some of the ideas include maximizing additional parking revenue and increasing cargo revenue by utilizing additional land assets. The City anticipates that this venture would expand regional economic development and align with other multi-modal transportation projects, such as highways and rail to support airport infrastructure.

The point of such a document is to convince the FAA staff that the P3 request is a matter of some importance and to set the tone for processing it on a timely basis. The above text conveys neither a sense of urgency nor the significance of the project to the applicant.

Mayor Krewson responded to Secretary Chao’s public pronouncement with the following quote with somewhat languid language:

“…said she is open to studying the program to identify how a lease agreement could benefit the city and the airport.”

“This is a great opportunity to explore a public private partnership for the airport,” she said in the statement. “I appreciate their consideration of our application and look forward to working with the FAA throughout the process, but as always, the key is in the details.”

By stating that the on file P3 request is NOW being studied by the Applicant’s new mayor sends a message to the FAA staff that they may place the papers on the mañana pile. That is a problem.

P3 is not an option favored by most airport executives and employees. The expectation is that the private sector management, which will generate added revenues, invest capital and reduce costs, will have little use for the existing staff. It is not surprising that STL Director Rhonda Hamm-Niebruegge was not in Washington on Mayor Slay’s visit there.

STL has a more than adequate airfield; the airlines are aware that there is capacity there. In contrast, Chicago is committed to adding runways and gates to meet demand. Why is ORD overflowing with flights while STL is not? It is a matter of demographics and airline hubbing; the underlying demand for flying to/from the Windy City supports a level of schedules. Plus, the airlines can add ORD seats because the banks of arrivals/ departures for connections. No capital spending will remedy this basic problem.

P3 is not a panacea. Most large airports are managed by competent staff; these professionals know how to market their airports, plan development, finance projects, etc. P3 draws on the resources of private sector, like when/why/how to put capital at risk. If the aegis for the STL participation in this program was to radically transform, to convert, for example, the airport from a facility primarily for passengers to one focused on cargo carriage, then using private funds to make that transition would be appropriate. The external experts would be better at calculating what massive investments would be needed, how long the transition would take, how quickly/deeply the passenger airlines would exit (how much of a deficit would accumulate), how long it would take for the FedEx’s/UPS’s to move flights to the repurposed airport and on and on.

Time is important.

  • Private capital will not wait around for a long time while the FAA and/or the City determine whether the P3 will be approved and implemented. These funds need to be placed to make a return.
  • Delay creates opportunities for opponents to attack the privatization.
    • Neighbors will organize for fear that the private dollars will result in increased flights/noise.
    • Employees/unions will take political actions to stop this threat to their jobs.
    • Existing tenants may also attempt to scuttle the deal; the new landlord may want to displace them.
    • Environmental activists will use this as an opportunity to add to their agenda.

A successful P3 involves substantial political commitment. An airport is an area of political penumbra; by ceding control to a private entity, summer jobs, preferred parking spots, favored airport tenants, etc. is lost. Local elected officials with real belief in the benefits of P3 are needed to convince unions, neighbors, tenants, etc. to support the project. The Mayor’s study of the potential or privatization needs to be completed quickly and if the application is to be further pursued, it would be important that her support be communicated to local constituents and to the FAA.STL Privatization

A P3 proposal with a precisely defined set of goals with a strong coalition backing it and with a well-financed and highly competent private operator (to be selected) could restore St. Louis’ status as an aviation gateway. Without those essential ingredients, a lot of consultant fees will be spent with little return to the local economy.

MAYOR KREWSON, it’s a challenge with great upside and downside; study carefully.

 


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