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THE LUIS MUÑOZ MARIN INTERNATIONAL AIRPORT PRIVATIZATION: A BAD DEAL FOR THE U.S. AND FOR PUERTO RICO

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September 28, 2012

RE: FAA-2009-1144

On September 28, 2012, the Federal Aviation Administration (“FAA”) will hold ONE day of hearings in Puerto Rico in order to receive comments on the proposed privatization of the Luis Muñoz Marín International Airport in Carolina, Puerto Rico (“LMM”). That privatization, if approved, will take the form of a 40-year lease to Aerostar Airport Holdings (“Aerostar”), a consortium formed on a 50%-50% basis between Aeropuertos del Sureste (“ASUR”), the Mexican operator of various airports in the Southern part of Mexico, and Highstar Capital (“Highstar”), a U.S. investment fund. This privatization project has been sponsored by the Puerto Rico Ports Authority (“PRPA”) and the Puerto Rico Public-Private Partnerships Authority (“P3A”).

From its beginning, this privatization process has been plagued by questionable practices on the part of the P3A, such as contracting as advisors entities that would later become bidders in the privatization process, and contracting as a legal advisor a firm that previously had bidders as its clients. Despite having received several complaints regarding these actual or potential conflicts, the P3A, the PRPA and other governmental entities (such as the Attorney General, Office of the Comptroller, the Auditor General and the Governmental Ethics Office) chose to take no action, and allowed the bidding procedure to continue, until Aerostar was chosen as the winning bidder. On its merits, it is clear that this privatization transaction has been undertaken on the basis of a “Study of Desirability and Convenience” containing many erroneous premises, and drafted with the sole purpose of justifying the conclusion to which the P3A wanted to reach. Once the Aerostar choice was made and the details of the transaction finally came to light, it has become clear that privatizing LMM would come at a great loss to the people of Puerto Rico and the U.S. taxpayer, and would create great economic and security risks for both nations.

I. Conflicts of Interest and the P3A advisors

The P3A was established pursuant to Law 29 of June 8, 2009, commonly known as the “Public-Private Partnerships Act” (hereinafter “Law 29”). Once established, the P3A contracted Macquarie Capital U.S.A. (“Macquarie”) as advisor for the purpose of establishing the public-private partnership methodology, and Credit Suisse (“CS”) as advisor regarding the LMM privatization. NOTE 1. When Macquarie’s contract was announced, an industry publication specializing in toll roads questioned whether Macquarie could be both an advisor and a bidder at the same time. The comment said:

The appointment of Macquarie Capital as “Advisor” was apparently negotiated, not put up for competitive proposals.

Can they advise and participate too?

We asked Macquarie whether their employment as advisors to the PR state precludes the group and associated elements from participating in making or supporting P3 proposals in Puerto Rico from the private sector side.

This is new. They have usually been only on the private sector proposing side. Can they have Macquarie Capital Advisors there in government offices, while Macquarie Infrastructure submits bids?

Would two different Macquarie “black eyes” separated by “firewalls” be credible against media and political criticism? (This needs a cartoonist).

After a day we haven’t got an answer.

We just emailed the Authority the same question. We’ll post any response here. [NOTE 2]

On July 2011, the P3A issued its Request for Qualifications to Acquire a Concession to Finance, Operate, Maintain and Improve the Luis Muñoz Marín International Airport (the “RFQ”). Section 1.8 of the RFQ identified “Restricted Parties”, and defined same in the following manner:

Restricted Parties (as defined below), their respective directors, officers, partners, employees and person or legal entities Related to them (as defined in Section 1.7 above) are not eligible to participate as Members, or advise any Member, directly or indirectly, or participate in any way as an employee, advisor, or consultant or otherwise in connection with any Proponent. Each proponent will ensure that each Member does not use, consult, include or seek advice from any Restricted Party. The following Restricted Parties have been identified:

 Credit Suisse Securities (USA) LLC […]

Finally, prospective Proponents should be aware that the list of Restricted Parties is not exhaustive and that a party that is not included as a Restricted Party may still be prohibited from participating in the Project pursuant to the provision of the Ethics Guidelines. Also, the fact that a party provides or has provided services to any Sponsor does not automatically prohibit such party from participating in the Project. Each prospective Proponent is responsible for ensuring that all parties engaged to provide any type of assistance in connection with the Project are in compliance with the provisions of the Ethics Guidelines and, to the extent that any question exists as to compliance with the Ethics Guidelines, the prospective Proponent should consult with the Authority (emphasis in original).

Section 1.7 of the RFQ addressed the possibility that multiple parties may form consortia to become Proponents in the bidding process. With regard to those parties, the RFQ indicated the following:

“Member” means a member of a Proponent. For the purpose of this Project, Members shall include each of the following with respect to a Proponent:

--Each person or legal entity that is formally or informally reviewing the Project and intends to participate as a potential equity investor in the Proponent that will execute the PPP Contract for this Project. This will include (without limitation) the ultimate holding company of any such investor or, in the case of a managed fund or pension plan, the manager of the fund or pension plan (emphasis ours).

A person or company is “Related” to another person or legal entity if:

-- one may exercise Control over the other, or

-- each is under the direct or indirect Control of the same ultimate person or legal entity.

A person or legal entity exercises “Control” of another if it has the capacity to determine the outcome of decisions about the other’s financial and operating policies (whether formally or informally).

On August 10, 2011, the P3A announced a list of 12 Proponents for the LMM privatization project. Among those Proponents were Grupo Aeroportuarios Avance (“GAA”), a consortium between Ferrovial and Macquarie, and a consortium between ASUR and Highstar (which consortium was later named “Aerostar Airport Holdings”).

On August 11, 2011, Representative Charlie Hernández publicly denounced that the participation of GAA in the bidding process created a conflict of interest, as Macquarie was at the same time an advisor under contract to the AP3 and a participant in the process. Under the definitions described above, Macquarie should have been included as a “Restricted Party”, and its participation should have been barred in the process. Furthermore, on September 15, 2011, 4.

Representative Hernández denounced a conflict of interest on the part of the attorneys hired by the P3A to prepare the contractual documents (Chicago’s Mayer Brown), as this firm had been counsel to various of the Proponents in the privatization process. The P3A issued an outright denial via press release, and took no further action to impede GAA’s participation in the process.

On May 21, 2012, Representative Hernández revealed that, at all relevant times during the bidding process, Aberdeen Asset Management, plc (“Aberdeen”) held a 28.75% interest in the ownership of ASUR. Aberdeen, in turn, was at all relevant times under the control of Credit Suisse, which held a 24.9% interest in Aberdeen, and held a seat on Aberdeen’s Board of Directors. Under those facts, and pursuant the definitions contained in the LMM RFQ, Credit Suisse was a “Related Party” to ASUR, which should have barred ASUR’s participation in the bidding process. The P3A’s response was to indicate that Credit Suisse had sold most of its interest in Aberdeen; however, such response ignored the fact that CS’s sale of its interest in Aberdeen occurred on February of 2012, after ASUR was accepted as a Proponent in the LMM privatization process, and had survived the first elimination round and become one of the six finalists for the LMM privatization.

On May 23, 2012, Representative Hernández filed a Complaint before the Puerto Rico Attorney General’s Office, the Puerto Rico Comptroller’s Office, the Puerto Rico Office of Government Ethics, and the Puerto Rico Inspector General, regarding the conflicts of interest in the participation of Macquarie and Credit Suisse controlled entities as part of Proponents in the LMM privatization process. To this date, that Complaint is outstanding; the only response received has been from the Comptroller’s Office, which indicated that this was not under the jurisdiction, but under the jurisdiction of the Office of Government Ethics.

Besides the clear conflicts of interest described above, the LMM privatization transaction has been plagued by other ethically questionable events. For example, on July 9, 2012, Representative Hernández denounced that Governor Fortuño’s reelection campaign was receiving contributions from and having fundraisers held at the offices of Macquarie’s lobbyists. Furthermore, on August 27, 2012, Representative Hernández denounced that Highstar Capital (part of the Aerostar consortium) had contributed $175,000.00 to the Republican Governor’s Association (“RGA”), which in turn was running a media campaign in favor of the reelection of Governor Fortuño. These contributions to the RGA were significant for various reasons: (i) there is no record of Highstar making contributions to the RGA prior to the initiation of the bidding process; (ii) Highstar has as a founder and main advisor a Mr. Wayne Berman, one of the Republican Party’s “superbundlers”, who has also been finance director for the RGA; (iii) during the LMM privatization bidding process, Mr. Berman was also president of Ogilvy Government Relations, lobbying arm of Ogilvy and Mather, the advertising superpower whose Puerto Rico subsidiary, De la Cruz & Asociados, runs Governor Fortuño’s political campaign, at the same time it has more than $65 million in P.R. government contracts. Mr. Berman’s connections with Highstar and the Fortuño reelection campaign provide a plausible explanation as to why the Puerto Rico authorities have taken no action regarding the Complaint that Aerostar should have never been allowed to participate in the LMM privatization bidding process.

For the FAA to allow this privatization process to continue without examining the various allegations of conflicts of interest, and to allow Aerostar to become LMM’s operator 5 without first engaging in a close examination of its member’s ethics, would be to place the future of millions of US taxpayer’s dollars (in the form of prior grants exempted from repayment, future grants, and PFC’s) in the hands of parties whose business practices are clearly corrupt.

II. The “Desirability and Convenience” of the LMM Privatization

Law 129 requires, as part of the privatization process, the issuance of a “Desirability and Convenience Study” (the “Study”). With regard to the privatization of LMM, as we have seen, that Study was prepared with the active participation of parties who later became bidders in the process. According to the P3A, a "public-private partnership” (as they refer to this privatization process), is desirable and convenient when the following conditions are fulfilled:

1. There is a clear and urgent need for the Project;

2. There is clarity in the transfer of risks;

3. The value analysis is positive for the public interest; and,

4. The project is viable for the government [NOTE 3].

With regard to the LMM privatization process, the P3A concluded that establishing a “public-private partnership” was necessary for the following reasons:

1. The PRPA has had a negative performance, which has caused its debt to be degraded, which in turn makes it impossible to obtain funds for development and repairs at the airport;

2. The LMM airport has had a smaller growth than other airports in the total number of passengers;

3. The LMM airport does not produce competitive earnings in areas such as food and beverage, car rentals and parking, in comparison to other airports.

Are such conclusions based upon the facts? Our detailed review of the Study shows that the answer is in the negative. On the contrary, as we shall see, these conclusions are based upon erroneous premises, incorrect data and significant omissions, used to bootstrap the desired result.

A. The PRPA’s Negative Performance

When evaluating the PRPA’s financial performance, it is important to keep in mind that the PRPA is not only the LMM airport, but includes all the other Puerto Rico airports, as well as the maritime ports. The Study, at its page 12, concludes that the PRPA has faced difficulties in increasing its earnings, based on the fact that the PRPA’s earnings have dropped from $157.8 million in 2007 to $136.5 million in 2008 and an increase to only $142.0 million in 2009 [NOTE 4]. Nevertheless, when reviewing the income and expense breakdown, it is clear that the PRPA airport-based income has increased back to 2007 levels, notwithstanding the fact that in 2008 American Airlines announced a 45% decrease in capacity at LMM [NOTE 5]. In comparison, the income from maritime operations has had a substantial decrease, dropping from $77.6 million in 2007 to $58 million in 2008, increasing slightly to $61.8 million in 2009. It is clear 6 that the PRPA’s mediocre performance is not due to LMM operations, but to other factors, including its maritime operation.

On the other hand, the Study describes a skyrocketing increase in the PRPA’s operation costs from 2007 to 2009. According to the Study, the costs were $135.1 million in 2007, $172.5 million in 2008, and $186.4 million in 2009. Conveniently, the Study does not contain a breakdown of which amount of costs is attributable to the maritime operation and which amount attributable to the airport operation.

Even if the source of the operational expenses had been duly broken down, the information would not be sufficient to reach an honest conclusion regarding the LMM performance. In order to reach that conclusion, it would be necessary to evaluate the earnings and costs of the 11 individual PRPA airports, information which is not contained in the Study. A review of that information with regard to the three largest PRPA airports (LMM, Aguadilla and Mercedita) shows the following (Source: FAA CATS report 127):

AIRPORT

2008

2009

2010

2011

LMM

Revenues

$118,065,171

$35,474,542

[NOTE 6]

$76,704,960

$84,319,138

Expenses (including depreciation)

$96,618,740

$45, 898,590

$22,623,901

[NOTE 7]

$40,851,509

Total Income

$21,446,431

($10,424,048)

$54,081,059

$43,467,629

AGUADILLA

Revenues

$2,940,095

$1

[NOTE 8]

$2,713,671

$4,643,554

Expenses (including depreciation)

$8,394,577

$1

$6,222,720

$7,045,894

Total Income

($5,454,482)

$1

($3,509,049)

($2,402,340)

MERCEDITA

Revenues

$1,743,931

$379,989

$454,734

$1,456,226

Expenses (including depreciation)

$5,709,991

$5,807,253

$3,407,743

$4,541,317

Total Income

($3,966,060)

($5,427,24)

($2,953,009)

($3,085,091)

The logical conclusion from the number above (as unreliable as the data appears to be, as explained in the NOTES) is that the mediocre or poor performance of the PRPA is NOT due to the LMM operation. Our inability to obtain the numbers relating to the maritime operation makes it impossible to reach a conclusion regarding maritime vs. airport nature of the PRPA losses.

Section 3.2.2. of the Study discusses the PRPA credit profile. Since LMM does not have independent credit capacity, and has to incur indebtedness on the basis of the PRPA credit profile, the Study emphasizes that such credit profile is weak and dependent upon the Government Development Bank. Similar information appears in the PRPA evaluation reports from Moody’s and Standards & Poors. Even if accurate, the fact that the PRPA has a weak credit profile does not necessarily reflect the LMM economic capacity in comparison with the other PRPA components, nor does it justify removing LMM from the PRPA credit profile. On the contrary, and as will be shown later in this paper, removing LMM from the PRPA’s portfolio, particularly in light of the Lease agreement signed with Aerostar can result in a domino effect that would make it impossible to operate the remaining airports and seaports in Puerto Rico.

B. The LMM reduced growth

According to the Study, during recent years there has been a reduction in the LMM number of passengers due to factors such as (1) the 45% capacity reduction by American Airlines, (2) “managerial challenges” at the airport, (3) increase in competition from other airports for passengers in transit, (4) contraction in the Puerto Rican economy, (5) reduction in the number of U.S. tourists, and (6) increased competition from other destinies in the Caribbean. Furthermore, the Study indicates that “the airport has not been able to control its costs, as appears from the landing fees”, which makes it less competitive. That last statement finds no basis in the information included in the Study.

The Study indicates that the landing fees increased from $2.46 per pound of takeoff weight in 2006 to $2.72 in 2007; were then reduced to $2.58 in 2008, and were kept at the same level in 2009. The Study estimated the charges as $3.84 for 2010 and $3.65 for 2011, without explaining the origin of such significant increase. As it turns out, those were the charges adopted by the current administration via regulation in 2010 and 2011.

The Study also discussed the income for aeronautical activities (“aero”), which refers to activities such as the use of the runways, terminals, etc. According to the Study, LMM produces 40% more than other medium hub airports in aero revenues. Also, LMM is 37% cheaper than the closest international hub (Miami International). Nevertheless, the Study, in a clear effort to draw negative conclusions regarding LMM, cites “increasing costs” as the reason why American Airlines reduced its capacity in Puerto Rico.

By the same token, the Study indicates that “While LMM does generate significant aero revenue, the Airport has very high operating costs”. It continues: “[LMM] has the second highest operating expense per enplanement among comparable medium hubs, with levels near major US international hubs”. For that purpose, the Study uses a graph (page 19) which, at close 8 examination, shows the fallacy of this argument. If we compare the aero revenues established on page 18 of the Study with the costs detailed on page 19, we can see the following:

AIRPORT

AERO REVENUE (por enplanement)

COSTS

DIFFERENCE

IAH (Houston Int’l)

12.82

9.04

3.78

ORD (Chicago Int’l)

13.71

12.72

.99

JFK (New York)

28.50

27.84

.66

MIA (Miami)

23.69

23.38

.31

SJU [LMM]

14.10

14.12

(.02)

ATL (Atlanta)

3.69

4.02

(.33)

HOU (Houston Hobby)

9.65

10.70

(1.05)

MSY (New Orleans)

9.96

11.60

(1.64)

DAL (Dallas Love Field)

2.99

7.42

(4.43)

DFW (Dallas/Fort Worth)

8.56

13.64

(5.08)

SAT (San Antonio)

7.25

13.22

(5.97)

RSW (Fort Meyers)

9.99

16.26

(6.27)

RSW, MSY, HOU, SAT and DAL are medium hubs, the same category in which LMM finds itself. However, contrary to these airports, which are all small city airports or secondary airports in large cities, LMM is the main airport for the island of Puerto Rico. Although LMM’s costs are higher than the other medium hubs, all those other hubs operate with losses much higher than LMM’s. Contrary to the picture that the Study tries to paint, the cost/income ratio is not a factor that justifies privatizing the LMM operation.

The Study also alleges that LMM does not have quality alternatives for dining, reason for which the food and beverage income is only $0.16 per enplanement. According to the Study, this is extremely low when compared with airports such as JFK, LAX, MIA and ORD. Such argument contains various false premises. First, and contrary to what the Study indicates, since American Airlines reduced its operation in Puerto Rico, LMM is not a major transit airport. On the contrary, 82% of its operations are origin-destination, and only 18% are connecting flights [NOTE 9]. Obviously, in origin-destination flights, the passengers do not necessarily stop to eat and drink at the airport, contrary to what they do in connecting airports such as the ones cited by the Study. Second, most of the connecting flights in Puerto Rico are flights connecting between AA and American Eagle, connections which occur at the AA terminal, the terminal with the least food/drink alternatives in the entire airport. A visit to the terminal back in 2010 and even today would show that terminals B and C (the terminals that were in operation back then) have sufficient and varied food and beverage alternatives, and at reasonable prices. Third, the Study fails to take in consideration that a substantial number of passengers are flying low cost carriers such as JetBlue and Spirit, airlines that fly at odd hours of the day when there is no need to eat or drink. Although there is always space for improvement in these areas, the low level of income for food and beverage should not be justification for the airport privatization either.

The Study also indicates that LMM has poor performance in the area of vehicle rentals and parking. With regard to vehicle rentals, the Study states that “while many tourists visiting the island rely on taxis to get to their respective hotels/cruise ships, increased awareness of tourist activities on the island could lead to improved car rental revenue. Obviously, an “increased awareness of tourist activities on the island” is not a factor that depends of or can be controlled by airport management. Besides what the Study recognizes, i.e., that many tourists do not need to rent vehicles in Puerto Rico, other factors affect this area. Airports such as JFK, ATL and ORD have car rental revenue which is less than that of LMM, obviously due to the fact that the passengers at those airports are either in transit or use public transportation. At LMM, many of the passengers are Puerto Ricans who are returning from or coming to visit relatives, and do not need to need to rent vehicles. Furthermore, the Study fails to indicate if the revenues (and availability) that are counted for purposes of the Study are those of on-airport car rental companies (which are a few, and generally the most expensive ones) or those of all the companies that provide car rental services off-airport in the Isla Verde and Los Angeles neighborhoods, only a few minutes outside the airport. If the statistics included in the Study are only those of the on-airport companies, the numbers are misleading. In any event, given that LMM is well served by the rental car companies established on and off airport, it does not appear that car rental revenue is a factor that requires privatization of the airport.

With regard to parking revenues, the Study states that there is a per enplanement revenue much smaller than that of the other mentioned airports. The Study indicates that the reason for this reduced revenue is “poor management leading to mis-pricing and inadequate record keeping”. Obviously, those are problems that are solved with better administration, not with privatization. With regard to prices, it is clear that parking prices in Puerto Rico are generally less than in the US (even at luxury hotels), so the income reflected will also be less. Furthermore, the parking revenue statistic is also misleading, because it fails to take into consideration the fact that LMM parking is strictly short-term (less than one day), while the remaining airports have medium and long-term parking facilities that are heavily used. In fact, the cities mentioned in the Study as having the highest parking fees are cities served by Southwest Airlines, whose passengers tend to be day-trippers who depend heavily on those services. In Puerto Rico, the concept of long-term parking is privately offered in a limited way (there is a lot at the Los Angeles neighborhood) and it is now when, little by little, is starting to gain popularity. Finally, with the availability of cellular phones and the cell phone parking area, the need for short term parking has also been reduced. In the end, this area by itself is not a justification for privatizing the airport.

C. The LMM “opportunities”

Section 3.5 of the Study discusses the “LMM opportunities”. Many of them have been previously discussed in this paper; however, there are two areas that are worth mentioning. First, with regard to the cargo facilities, the Study indicates that the cargo revenue at LMM has increased significantly since 2002. However, with regard to this increase, the only thing the Study says is that “the PRPA is evaluating options regarding its cargo facilities”. Second, the Study emphasizes the possibility of establishing LMM as an international hub.

Although LMM already has the facilities and the potential to become an international hub, our political situation as part of the US customs and immigration system limits this potential. That is because since 2003, the US suspended the Transit Without Visa Program (‘TWOV”). This program allowed passengers to change flights at US airports to reach other countries without the need to obtain a US entry visa. Once the TWOV program was eliminated, most passengers (including the passengers from all countries in the Western Hemisphere) need some kind of visa to travel through the US, something that would make LMM impractical as a transit hub. Presently, only the nationals of 36 countries in the world (the EU, Japan, Korea, Singapore, Brunei, Australia and New Zealand) are exempt from US visa requirements; it is obvious that these are not enough to create an effective transit hub in Puerto Rico.

Puerto Rico’s limited viability as a transit hub under present rules becomes obvious when observing American Airline’s decision of moving its Latin American hub from San Juan to Miami, although LMM is a less expensive airport, and although AA incurred in a long term commitment with regard to its LMM terminal, which is now almost abandoned.

D. The LMM capital improvement plan

According to the Study, there is a capital improvement plan at LMM that, during the years 2012-2014 would cost about $89.6 million. At page 25 of the Study, it is stated that these projects would be financed by passenger facility charges (“PFC’s”). The Study then attempted to create doubt as to the plan’s viability, indicating that “if pfc’s are not available to fund projects for any reason, the operator will be forced to find alternative financing. In that case, the cost of financing is likely to be much less by a concessionaire than the PRPA.

The Study conveniently failed to mention that, by the time of its publication, the FAA had already authorized PRPA to collect at least $520 million in pfc’s until 2033, so the concern expressed in the Study is unfounded [NOTE 10]. Furthermore, the Study fails to indicate that there are previously approved grants from the federal government to perform the projects indicated on page 25 of the study, which should reduce the cost of the capital improvement plan. For example, there are grants in the amount of $82,992.00 for security measures, and $6,327, 354 for construction of the southern general aviation access road and wildlife evaluation [NOTE 11]. The omission is not casual; if the airport is privatized, all of these funds would be available to the private operator.

E. The Desirability and Convenience Study-Conclusion

As we have detailed in this evaluation, most of the premises articulated in the “Desirability and Convenience Study” as justification for the privatization project were not valid then and are not valid now. Had the Study been performed in an honest manner, it would have concluded that, although the PRPA has challenges regarding LMM’s performance, and there is much ground for improvement, a better administration, and a better effort at improving tourism on the part of the Puerto Rico government are the keys to a more successful PRPA. Even Caribbean Business, a weekly newspaper that has strongly supported the public-private partnership process, had the following to say about the LMM privatization on September 9, 2010:

Government officials interviewed for our front-page story consistently point to the fact that both passenger and cargo traffic have declined at LMMIA. Their complaints about the adequacy of the LMMIA may lead some to believe that this reduction in traffic is the result of poor management and outdated facilities, and that these shortcomings can be fixed by entering into a PPP to bring in a private company to take over the management and operation of the airport through a long-term contract.

We have no doubt that a private company will run the airport more efficiently and will provide better services than those we receive under the management of the Puerto Rico Ports Authority. As a result, entering into a PPP to upgrade the LMMIA is a good move on the part of the administration. However, entering into a PPP alone will not solve the real problems that are causing the decline in traffic at LMMIA.

We should clarify at the outset that despite its current shortcomings, the LMMIA is far superior to the airports of Santo Domingo, Cancun or any other island destination in the Caribbean. In fact, from a passenger’s perspective, the LMMIA is certainly more user-friendly than the huge and poorly organized Miami International Airport.

The main cause of diminishing traffic is not our airport—it’s the fact that fewer people want to travel to Puerto Rico. It’s the fact that there are fewer airlines flying to Puerto Rico. It’s the fact that most of the airlines that are left have cut back drastically on flights in and out of Puerto Rico because there is less demand.

Fewer people want to come to Puerto Rico because our hotel room inventory over the years has hardly grown. Seven thousand rooms in 1970 are 13,000 rooms today. Cancun, about 400 rooms in 1970, more than 30,000 rooms today. Dominican Republic, 3,000 rooms in 1970, more than 65,000 rooms today. Puerto Rico has lost its ability to grow and attract visitors. Our marketing and branding changes completely every four years. The reasons why traffic at the airport has declined are many.

In pursuing these PPP projects, it is essential that the government secure a sizable upfront payment from the private entity that will receive the concession to operate the airport. After all, the entity that is awarded the contract will be taking over a well-developed airport, where the government has invested hundreds of millions of dollars in the past 10 years alone.

We are still waiting to hear specifics about the upfront payment the administration will receive for the PPP toll road project. The companies entering into these agreements stand to make a substantial profit. That is why they get involved in these projects in the first place. It follows that the government of Puerto Rico should receive fair and adequate compensation. That’s why the private partners should be closely monitored, especially if what is really happening with the lotteries contract is an example-according to El Vocero-of the private company profiting handsomely while the consumer has a hard time winning (emphasis ours).

III. The Economic Structure of the Privatization Deal

According to the P3A, the financial terms of the Lease Agreement have been designed to provide the PRPA with both an upfront payment and an ongoing share of airport revenues. As reported by the P3A, Aerostar will make a one-time cash payment of $615 million (the “Leasehold Fee”) [NOTE 12]. Furthermore, according to the P3A, Aerostar will make the following annual payments:

a. Years 1 through 5- Annual cash payments to PRPA of $2.5 million;

b. Years 6 through 30-Annual cash payments to the PRPA of 5% of gross airport revenues;

c. Years 31 through 40-Annual cash payments to PRPA of 10% of gross airport revenues. [NOTE 13]

Furthermore, Aerostar will deposit $6 million at the time of closing into a Puerto Rico Air Travel Promotion and Support Fund that aims to incentivize airlines to increase passenger traffic to LMM. These funds will be distributed at the end of each of the first full term years to any airlines that have increased their total passenger traffic to LMM as compared to passenger traffic recorded during the 2011 fiscal year [NOTE 14].

Contrary to the idea that has been sold to the Puerto Rican public by P3A officers, there will not be an actual “cash payment” of $615 million on the day of closing. Instead, on that date the Lessee will come to closing with two things: (a) a $30.5 million check, and (b) “cash equivalents” for the rest. In the meantime, the PRPA has to bring to closing evidence that the PRPA debt attributable to the LMM has been retired. The PRPA has indicated that it intends to use $505 million of the upfront payment to retire PRPA debt, and $110 million for the following items:

a. $25 million for the Regional Airport Fund;

b. Funding for an Early Retirement Program;

c. Reserve to cover Government Development Bank guarantees;

d. Payment of transaction costs.

Under this scenario, it has to be asked: How can the PRPA come to closing with evidence that the PRPA debt has been retired, when it has not received the $615 million payment? The 13 answer to that is: by transferring the debt to the GDB. For the explanation that follows, I have relied upon the exhaustive and patient analysis of José Antonio Herrero, Economist.

Late in 2011, the GDB issued Puerto Rico Infrastructure Financing Authority Revenue Bonds in the amount of $669,215,000. These bonds were issued in three separate series: one with maturity as of June 15, 2013, in the amount of $340,000,000; a second one with maturities ranging from 2014 through 2026 in the amount of $192,830,000, and a third one in the amount of $136,385,000, with maturity as of 2026. The bonds are guaranteed by letters of credit issued by the GDB. Aerostar or its members shall acquire those bonds prior to the date of closing, thus lending the GDB the money to retire the PRPA debt. At closing, Aerostar will appear with the evidence of having acquired the bonds (i.e., the “cash equivalent”) and a check for $30.5 million.

The next question is: how can buying bonds in the amount of $669,215,000 and bringing a check for $30.5 million be favorable for Aerostar, when it only offered to pay an upfront fee of $615 million plus $6 million for the Airport Development Fund? The answer is in an analysis of the present value of the bond purchase. It goes as follows:

ISSUANCE PRICE

PRESENT VALUE

$340,000,000 due 2013

$330.1 m

$192,830,000 due from 2014 through 2026

$107.7 m

$136,385,000 due 2026

$56.9 m

$669,215,000 Total price “received” by GDB and available to retire PRPA debt, pay costs, create airport and retirement fund, and create cash reserve.

Total Present Value $494.7 m

In the end, the real value of Aerostar’s upfront payment is: $494.7m plus $30.5m cash payment: $525.2 MILLION.

In order to evaluate the benefit, if any, of this transaction to the people of Puerto Rico, it is necessary to evaluate the present value of the 40 year lease to be granted to Aerostar. To calculate the value of any going concern, it is necessary to calculate the operating income for the basis year. In this case, Mr. Herrero calculated the LMM Operating Income for 2011 by adding the revenue categories (grants, pfc’s and rental fees) and substracting the operating expenses (salaries, utilities, maintenance, replacement, etc.), to reach an Operating Income for 2011 in the amount of $64.1 million. Utilizing a 2% discount rate, Mr. Herrero concluded that the present value of the LMM operation amounts to $1752.9 million. Mr. Herrero also calculated the present value of the yearly payments agreed upon on the lease, and reached a total of $143.9 million. With those calculations, Mr. Herrero reached the following conclusion:

Present value of LMM operation

$1752.9 m

Present value of leasehold fee

($525.2m)

Present value of yearly payments

($143.9 m)

LMM VALUE THAT PR DOES NOT RECEIVE

$1083.0 m

In other words, if this transaction is approved, Aerostar will receive a benefit of $1083 m that Puerto Rico could have received, without having to risk a single cent from its pockets, given that it will borrow the money to purchase the bonds, and Puerto Rico will guarantee that loan. It is very difficult to determine why the PRPA would agree to such a senseless deal.

IV. The “Operating Standards”

One of the P3A’s most commonly used selling points to convince the Puerto Rican people of the convenience of the LMM privatization is the adoption of new “Operating Standards”. As stated in Part III (A) of the Final Application:

Another critical element is the requirement under both the Lease Agreement and the Airport Use Agreement that Aerostar comply with detailed Operating Standards that are an exhibit to both agreements. These Operating Standards set out standards for ongoing maintenance and operations, both within the terminals and on the airfield. The Operating Standards also require an annual review by an independent engineering firm to assure that all operations are being maintained at the legally-required levels and require Aerostar to propose and implement a plan to respond in a timely way to any material issues that are identified.

So important are these “Operating Standards” as a selling point, that even Governor Fortuño, when announcing the selection of Aerostar as the winner of the bidding process, emphasized their importance, focusing on the many daily times that the private operator would be required to, among other things, clean the airport bathrooms. However, when evaluating the applicable clauses of the lease agreement, it becomes obvious that adherence to such standards is practically voluntary on the part of the private operator.

Section 6.1 of the Lease Agreement establishes the “obligation” to comply with the Operating Standards. Immediately after establishing that “obligation”, however, the lease removes all possibility of enforcing such Operating Standards by permitting (i) long periods to cure noncompliance, (ii) flexibility at the time of compliance, and (iii) clarification that the Operating Standards are not violated by occasional acts. In fact, Section 6.1 states “any non-recurring failure to meet specific time limits shall not constitute a violation”. With that language, any hope that the operator would feel obligated to “clean the bathrooms 16 times daily” shall cease to exist.

The voluntary nature of these Operating Standards becomes even clearer when examining Section 16.1 of the lease agreement. Under that section, in order to be considered an event of default by the lessee, any violation of the Operating Standards would require that (i) there was a failure to comply 3 times within a calendar month, (ii) the failures would have to continue unremedied for 30 days after notice, and there would have to be 12 months of persistent breach. This arrangement is so cumbersome that the lessee would have to work extremely hard to deserve having its failure to comply be considered an event of default.

Finally, nowhere in the lease agreement or the operating standards is there any discussion of how does the PRPA intend to monitor daily compliance with the operating standards. The only review mechanism is an annual review by an “independent” engineering firm paid for by the lessee. As with any set of laws, rules, regulations or standards, if there’s no enforcement mechanism, they become a simple wish list.

V. Environmental Liabilities

Section 3.2(c) of the lease agreement exempts the private operator from any liability regarding environmental conditions existing at the time of closing. Among those pre-existing environmental liabilities, there is a large potential liability for the damage caused to the airport land due to leakage in the operation of the fuel system. This potential liability remains with the PRPA.

Section 4.5 of the Desirability and Convenience Study indicates that, through the years, this potential liability has been charged to the airlines through the rate-setting methodology. Once the privatization takes place, the PRPA will not be able to charge this liability to the airlines and, as we have explained before, will not have the ability to obtain funds for this purpose. Thus, the PRPA will have a great exposure to this potential liability, without a clear mechanism to provide funds to resolve it. When cleanup time comes, as it eventually will, it will probably be necessary to obtain US taxpayer funds, through mechanisms as the Superfund, to perform this cleanup, while the private operator will be happily enjoying its profits.

VI. The Effect of Privatization on the Regional Airports

As the FAA is aware, besides LMM, the PRPA owns 11 other airports in Puerto Rico, all of which to some extent receive FAA approved funds, be either pfc’s or grants. None of these airports is profitable; however, they provide a valuable public service to Puerto Rico by permitting air service to reach locations on all corners of the island. In recent years, the government of Puerto Rico has made an effort to expand passenger service to the Aguadilla and Ponce airports, and has announced plans to use those airports as key elements of the economic development strategy for those areas. Furthermore, the PRPA has moved the operations of the Fajardo airport to the Ceiba airport (the former Roosevelt Roads Naval Center, now known as José Aponte de la Torre Airport), a facility with enormous untapped potential. All of these efforts, however, will come to a sudden halt if the LMM privatization process is allowed to occur, and these airports will become “white elephants” which neither the government of Puerto Rico nor the US government will be able to maintain.

Section 3.22 of the lease agreement establishes that the PRPA will pay “leasehold compensation” (i.e. penalties) if any government entity obtains a 14 C.F.R Part 139 operating certificate for (i) any airport in Ceiba during the next 20 years, or (ii) any airport anywhere else in the island during the next 15 years. Furthermore, the PRPA will be required to pay “leasehold compensation” if, at an airport that has a Part 139 certificate, there is an addition of new passenger service that is not the expansion of present service (i.e., new airlines).

With regard to the Ceiba airport, Section 3.22 has the effect of making its development impossible for the next 20 years. Following the LMM privatization, the PRPA (and the Federal government) will have the obligation of maintaining this airport, with its 11,000 feet runway and its 1700 acre grounds, as an airport to serve the small planes that serve Vieques and Culebra. Given the size of its runway, it is not even efficient for that purpose, as the planes have to spend much more time taxiing that at the old Fajardo airport.

With regard to the Aguadilla and Ponce airports, the situation is just as difficult. These are airports that could potentially handle higher commercial passenger service. However, if the privatization is permitted, there will be no possibility of bringing new airlines for the next 15 years, and that potential will remain untapped.

On July 30, 2012, Representative Charlie Hernández made a public denunciation of the nefarious effects of Section 3.22. Following that announcement, the P3A has gone to great lengths to deny the accusations, claiming, among other things, that this is a common clause and that it has FAA approval. If the FAA has really reviewed and approved that clause, it should take a closer look at its effects, particularly in light of the Regional Airports Operational Plan (‘RAOP’) proposed by the P3A/PRPA.

The RAOP (Appendix F to the Final Application), although directed to the Regional Airports, starts by adopting a basic (and contradictory) premise: Ensuring Enhancement of LMM is Critical for Puerto Rico. Under that premise, it is claimed that LMM’s potential as an economic generator has not been fully realized. It is also claimed that the regional airports, which handle 11% of the passenger service in Puerto Rico, have the potential to “increase frequency, provide cargo services, and develop other services”.

The RAOP consists of five types of measures: (i) managerial measures, (ii) support measures for regional airports, (iii) capital improvements, (iv) efficiency and expenses, and (v) revenues and opportunities. The ‘managerial measures’ consist of naming a ‘revenue manager’ to evaluate the revenues and the lease agreements, in a way that the PRPA can maximize revenues (read: increase lease costs). Furthermore, the RAOP proposes the consolidation and restructuring of the PRPA’s Engineering and Planning departments, in a way that these departments handle the capital improvements at both the air and the maritime divisions (read: reduce headcount).

The discussion of ‘support measures for regional airports’ goes back to the basic premise, by indicating that “rather than a diluted aviation system, the P3 for LMM facilitates a robust International Airport capable of serving all Puerto Rico, and promotes the optimization of the regional airports”. As a support measure, it proposes to use the $25 million fund to be established as part of the privatization agreement in the following order: (i) payment of operational expenses, and (ii) capital improvements. This clearly shows that the intention is to invest the least amount possible in capital improvements to the regional airports.

With regard to the capital improvements, the RAOP indicates that all future projects should include a financial cost/benefit analysis. It is emphasized that capital improvement projects should focus primarily on general aviation and commuter aircraft (as opposed to commercial aviation). Also, it indicates that the PRPA should develop a capital improvement program based on its ability to obtain funding, which, as we have previously seen, will be questionable at best following LMM’s privatization.

The discussion of “efficiency and expenses” the report indicates that the PRPA will investigate and evaluate all options available to reduce utility expenses, including recouping such expenses from the airport tenants (read: increase lease costs at the regional airports). It is also emphasized that, although regional airports handle only 11% of the passenger traffic, their payroll expenses amount to 33% of the PRPA payroll. As a remedy to that, the report mentions the possibility of having the regional airport employees become employees of the LMM private operator, or that they take early retirement through the fund to be established with funds from the LMM upfront payment.

With regard to the ‘revenues and opportunities’, the report states that the PRPA will establish a plan to maximize revenue by reviewing all contracts such as concessions, car rentals, etc. The report emphasizes that the landing fees and other fees at the regional airports have historically been “below cost recovery”, and that the PRPA should revise them until they reach cost recovery.

All of the measures contained in the RAOP, if adopted, will have one certain result: to eliminate whatever incentive there may be for commercial airlines such as JetBlue and Spirit to continue flying to Aguadilla and Ponce. Particularly for JetBlue, which has a new terminal available at LMM, there is no reason to keep a separate operation at Aguadilla and Ponce if there is no cost incentive. Once these airlines decide not to fly to the regional airports, Section 3.22 of the LMM lease agreement will make it impossible for the PRPA to find substitutes at the regional airports.

A further nail in the regional airports’ coffin is Section 4.9 of the proposed Use Agreement, which creates the “Puerto Rico Air Travel Promotion and Support Fund”. As explained previously, this fund grants monetary incentives to any airlines operating at LMM that brings to LMM a higher number of passengers than it brought to that airport in 2011. Obviously, given the stagnant economy, the only probable way of reaching a quick increase in the number of passengers to LMM is for the airlines to stop flying to the regional airports. Once those flights leave the regional airports, pursuant to Section 3.22 of the LMM lease agreement, it will be impossible to substitute them without penalty.

Finally, it is important to notice that, although the LMM lease agreement places limits on the PRPA’s ability to bring passenger service to the regional airports, and there is much talk about developing cargo service in those airports, there is absolutely nothing in the contract that limits or impedes LMM’s ability to increase its cargo operations. In fact, the LMM growth plan includes ‘growing cargo operations at the airport’ [NOTE 15]. Given its already developed cargo facilities, and the immense potential created by the availability of Terminals D and E (American Airlines’ terminals, which Aerostar plans to mothball in the short run), compared to the need to develop cargo facilities from the ground up at the regional airports, what are the chances that the regional airports will be able to count on cargo business to survive (even with the certification of Aguadilla as a Free Trade Zone)?

Reality cannot be avoided: should the LMM privatization be allowed to occur, the regional airports will be doomed to underdevelopment and inefficiency. While the residents of the Western and Southern parts of Puerto Rico will lose the convenience of what little passenger service they have now, the PRPA will have to continue carrying these unproductive assets, which will become absolutely dependent upon federal funds for their continued existence.

VII. The PRPA’s Viability Post-LMM Privatization

One important question that we had asked ourselves since the filing of the Preliminary Application for the LMM privatization is: what will happen to the PRPA if LMM is privatized and removed from its portfolio? As part of its effort to justify the LMM privatization, the RAOP contains a financial pro-forma which attempts to paint a positive picture of the PRPA without the LMM. Upon close examination, however, the effort fails.

In case there was any doubt that the PRPA is not counting on developing the regional airports, it should be noticed that the pro-forma assumes the following: (i) minor increases in passenger traffic; (ii) modest cargo growth at Aguadilla; (iii) regional airport capital expenditures funded through grants, pfc’s, proceeds from the privatization or property sales; (iv) increases in ground leases; (v) increases in aeronautical rates; and (vi) the transfer or at least 10-11% of the PRPA employees to the private operator. After making those assumptions, the pro-forma makes some outlandish financial projections, upon which it builds the conclusion that the PRPA will be able to survive after privatizing LMM. The regional airports’ income and the maritime income are projected as follows:

(In thousands of $)

2012

2013

2014

2015

2016

2017

Aero income (non-LMM)

4522

5127

5962

6585

7288

8219

Non aero airport income (non-LMM)

3380

3613

3719

3792

3900

3971

Maritime income

76620

83034

91285

92184

93098

94027

It appears clearly from the above table that, while a modest increase is projected for airport income, a fabulous increase is projected for maritime income. On the basis of that fabulous increase in maritime income, it is projected that the PRPA would only have losses in 2012, and would return to profitability from 2013 on. Against that projection, it is necessary to look at reality-based numbers:

 

(In thousands of $)

2006

2007

2008

2009

2010

2011

2012

Maritime Income

65037

66176

67943

62833

73250

61565

76620

% increase (decrease)

2%

3%

(8%)

16%

(16%)

24%

Source of data

PRCC

Report

2010

Id.

Id.

Id.

APPR

Fnancial Statements 2011

Id.

Pro-Forma

(In thousands of $)

2013

2014

2015

2016

2017

 

Maritime income

83034

91285

92184

93098

94027

 

% increase (decrease)

8.4%

9.9%

1%

1%

1%

 

Source of data

Pro-forma

Id.

Id.

Id.

Id.

 

Nowhere in the pro-forma is there a justification for the optimistic projections for years 2012-2014. Given the PRPA’s historic reality, the data contained in the pro-forma lacks credibility, and appear to be a simple process of inflation to justify the result desired in the pro-forma.

On March 2009, Standard & Poor’s issued its most recent rating of the PRPA debt [NOTE 16]. At the time, the rating agency downgraded the PRPA debt to BBB-, and indicated that the rating reflected weaknesses such as (i) the fact that the Authority’s financial performance is integrally related to the Commonwealth of Puerto Rico and the GDB, (ii) significant volatility in airport enplanements and cruise ship passengers and, (iii) relatively high dependency on American Airlines and American Eagle passengers. On the other hand, the credit weaknesses were partly mitigated by (i) strong support from the GDB, (ii) monopolistic control over all of Puerto Rico’s airports and most of Puerto Rico’s ports, (iii) operational and financial diversity from the authority’s two principal facilities: LMM and the Port of San Juan, and (iv) relatively high proportion of origin and destination passengers. Furthermore, S&P indicated that, if the ratings on the Commonwealth or the GDB were lowered, the ratings on the PRPA would have to be lowered.

Were this privatization process allowed to proceed, the post-privatization PRPA would still have most of the weaknesses listed above, but would not have the monopolistic control over the airports that was considered a strength. Under those circumstances, the post-privatization PRPA would be hindered in any effort to issue new debt, even if it was left debt-free at the time of the privatization. Given the overextended situation in which the GDB and the Commonwealth find themselves at the present, the PRPA may lose its viability, putting at risk the extensive investment in grants, pfc’s and other funds that the U.S. government has made up until now.

VIII. The Possibility to Continue Operating in Case of Bankruptcy

One of the main requirements of the Airport Privatization Pilot Program is that the private operator has to assure the continued operation in case of bankruptcy or insolvency. Aerostar has attempted to satisfy this requirement by accompanying with its final application a legal opinion from the Mayer Brown law firm. That opinion concludes that, if Aerostar becomes a debtor under the Bankruptcy Code and thereafter fails to operate the airport in accordance with all laws, regulations and legal requirements, the PRPA could be permitted to gain entrance to the Airport and operate same pursuant to the “police power” provision in Section 362(b)(4) without regard to the “automatic stay” under Section 362 of the Bankruptcy Code. Although I have not been able to engage in an in-depth analysis of the applicable law, I have serious concerns about the opinion.

As we all know, an airport operation takes place 24 hours, 7 days a week. Under no circumstances it should or can stop; even when the airport is ‘closed’ due to weather conditions, there is work to be done. The fact that the PRPA may be able to exercise its ‘police power’ without regard to the automatic stay does not necessarily mean that the PRPA would be able to take over immediately and operate the airport. The Mayer Brown memorandum does not appropriately address that circumstance.

Furthermore, even if the PRPA were legally able to immediately take over the operation of the airport in case of bankruptcy, it remains to be answered: would it be capable of doing so? As we have discussed elsewhere in this memorandum, it may very well happen that the PRPA becomes a shadow of itself following this privatization process. It is not clear whether it would have the resources, expertise or personnel to immediately take over and operate the Airport.

Finally, the FAA should keep in mind that the Section 18 of the lease agreement gives extensive control rights to a “Leasehold Mortgagee” in case of default by the lessee. At this point, it is not even known who this “Leasehold Mortgagee” is; however, this person or entity may be the one that has the right to take over the operation in case of default by lessee. Being unknown, it is impossible to determine if this party would be in a position to qualify to obtain an Operating Certificate and assume the immediate operation of the airport. FAA should require a more exhaustive analysis of the implications of this contractual language before approving the present transaction.

IX. Conclusion

For the reasons stated in this memorandum, I respectfully but forcefully oppose the privatization of the Luis Muñoz Marín International Airport, and call upon the FAA to DENY the PRPA/P3A/Aerostar Airport Holdings privatization application.

 

Respectfully Submitted,

MARIO PABON ROSARIO

 

 

NOTES TO The San Juan Airport….

1. Macquarie’s contracts: 2010PPP001, valid from 9/11/09 to 6/1/2009 for $510,000.00 and 2010PPP005, valid from 4/12/2010 to 1/1/2012 for $750,000.00. Credit Suisse’s contract 2010PPP009 for $500,000.00, valid from 4/28/10 to 6/30/12.

2. Macquarie Hired to Advise Puerto Rico P3 Agency-Are They Barred from Bidding? Tollroads News, www.tollroadsnews.com, September 25, 2009.

3. Estudio de Deseabilidad y Conveniencia: Descripción de Marco de Análisis y Metodología, document issued by the P3A dated June 2010.

4. The income and expense amounts contained in the Study are very different from the amounts contained in the PRPA’s 2008 audited financial statements. There, it is stated that the 2008 earnings were $154 million (as opposed to $136 million), and the expenses were $145 million (as opposed to $172 million). We do not know the reason why the wrong data was used; it certainly shows a better performance by the PRPA than claimed in the Study.

5. Conveniently hidden somewhere else in the Study, and described as a “weakness” of the PRPA’s financial profile, it the fact that Airline service levels declined sharply in FY 2009 due to the economic downturn and the decision by American Airlines to reduce seat capacity to the Airport by 45%, but steady growth has returned since September 2009 (page 13 of the Study). Ironically, that same fact is described as a strength in the same page, indicating that Enplanement growth has resumed with some strength since September 2009 due to increased service from several airlines.

6. The revenue part on the 2009 CATS report for LMM reflects 0 income from passenger airline landing fees, terminal arrival fees, federal inspection fees and other passenger aeronautical fees, which is an anomaly.

7. The report for FY 2010 shows 0 depreciation. This is an anomaly.

8. The Aguadilla report for 2009 was pro-forma.

9. Moody’s PRPA evaluation report, November 2, 2009.

10. PFC Approved Locations (as of 11/1/10), www.faa.gov/airports/pfc/monthly_reports.

11. Pre-application package, page 153.

12. The Leasehold Fee may be increased or decreased in the event of a decrease or increase, respectively, of more than 25 basis points in the 10-year, mid-market LIBOR swap rate between the bid date and the closing date.

13. Section 2.1 (c) of the Lease Agreement reads as follows:

(c) The Lessee shall pay to the Authority, in cash, an amount (the “Annual Authority Revenue Share”) equal to (i) for the sixth full Reporting Year through and including the thirtieth full Reporting Year, 5% of the gross Airport Revenues earned by the Lessee in such Reporting Year or (ii) for the thirty-first full Reporting Year and each succeeding Reporting Year, 10% of the gross Airport Revenues earned by the Lessee in such Reporting Year.

The use of the word “or” in this paragraph lends itself to an interpretation different than that given in the Partnership Report. It could be read as meaning that the lessee will make the 5% payment for years 6-30 or the 10% payment for years 31-40. The Partnership Report indicates that Lessee will make both payments.

14. Section 4.9 of the Airport Use Agreement.

15. See, Public-Private Partnership Luis Muñoz Marín Airport: Selection of Prefererd Bidder, presentation prepared by the PRPA/P3A, July 19, 2012, page 6.

16. Preliminary Application package, pages 177 et seq.