Over the past three decades, governments worldwide have increasingly turned to the private sector to design, build, finance, operate, and maintain infrastructure, including electric, gas, and water utilities; airports, seaports, and toll roads; and pipelines and telecommunications facilities.

Existing infrastructure entities needing reconstruction or modernization have been “privatized” via either outright sale or long-term leases. (These are referred to as “brownfield” transactions.)

For new infrastructure, governments award long-term design-build-finance-operate-maintain (DBFOM) concessions via a competitive process. These long-term public-private partnerships (P3s) have terms typically between 30 and 50 years. These transactions for new projects are referred to as “greenfield” projects.

While the United States still lags behind many countries in Europe, Asia/Pacific, and Latin America/Caribbean in using these kinds of P3s, this difference arises in part because much non-transportation infrastructure that was state-owned and operated in Europe and other regions was historically investor-owned in the U.S.—such as telecommunications, electric and gas utilities, pipelines, and a fraction of water and wastewater utilities.

On the other hand, major transportation infrastructure such as airports, seaports, and toll roads that have been widely privatized in Europe, Asia/Pacific, and Latin America/Caribbean countries are still mostly government-owned and operated in the United States.

Both brownfield and greenfield infrastructure projects require long-term financing. Facilities owned and operated by governments are often financed 100% by government revenue bonds or general-obligation bonds, which in the United States are exempt from federal taxation. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via long-term revenue bonds.

To level the financial playing field for U.S. public-private partnerships, Congress has provided for tax-exempt private activity bonds (PABs), which are now widely used for such projects.

The large financing needs for privately financed infrastructure have led to the development and growth of infrastructure investment funds, which raise equity to be invested in privately owned or P3 infrastructure.

Public-sector pension funds, seeking to increase the overall return on their investments, are also making significant equity investments in revenue-generating infrastructure, generally via infrastructure investment funds.

Likewise, insurance companies and sovereign wealth funds are now making long-term investments in this kind of revenue-generating infrastructure.

This report reviews 2024 developments in private/P3 infrastructure investment, focusing on transportation infrastructure.

While the report’s scope is global, it pays particular attention to U.S. developments in P3 infrastructure and the continued growth in pension fund investment in this field.

Part 2 reviews the ongoing role of infrastructure investment funds worldwide.

Part 3 provides an update on the largest companies and major P3 projects under way globally and in the United States.

Part 4 then reviews pension funds’ increasing investment in revenue-generating infrastructure.

Read the full Policy Brief:

The post Annual Transportation Finance Report 2025 appeared first on Reason Foundation.

Governments have used long-term public-private partnerships for surface transportation projects for the past 60 years.

As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II. Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe).

In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity).

The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s. Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation.

Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies.

However, in the late 1990s and early 2000s, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model.

Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects.

In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit. The capital markets generally find such a concession agreement compatible with financing the project via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit. In the highway sector, nearly all long-term concession P3 projects in Canada, Germany, the United Kingdom, and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes added express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called “hybrid concessions” in this report.

Of the top 10 worldwide surface transportation P3s that reached financial close in 2024, four used availability payments, bucking what had been a growing trend over the last seven years. In 2023, seven of the top 10 P3s used availability payments.

The growing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

For the past seven years, almost three-quarters of the largest P3 projects, by financial value, have used availability payment public-private partnerships.

See the full Report here:

The post Annual Surface Transportation Infrastructure Report 2025 appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms: the privatization of the British Airports Authority (BAA) and the corporatization of the New Zealand government’s air traffic control functions as Airways New Zealand.

BAA was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later, government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners.

The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere.

The outlier has been the United States, which has only three P3-leased airports (San Juan International, Tweed New Haven, and Avon Park Executive in Florida) and a small number of P3 arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their air traffic control systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government.

Within the first decade of this trend, the leading air traffic control providers organized a trade association called the Civil Air Navigation Services Organization (CANSO).

Today, CANSO has 93 full members (providers of ATC services) and 91 associate members (mostly supplier companies). CANSO is the ATC counterpart of the global organizations for airlines (IATA) and airports (ACI).

This brief reviews developments in the United States and worldwide regarding private-sector participation in airports and air traffic control.

While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term P3 leases continues.

Read the full Report here:

The post Annual Aviation Infrastructure Report 2025 appeared first on Reason Foundation.

Annual Surface Transportation Infrastructure Report 2025

Annual Transportation Finance Report 2025

The post Annual Privatization Report 2025 appeared first on Reason Foundation.

Worldwide over the past three decades, governments have turned to the private sector to design, build, finance, operate, and maintain infrastructure, including electric, gas, and water utilities; airports, seaports, and toll roads; and pipelines and telecommunications providers. In many cases, existing infrastructure entities needing reconstruction or modernization were “privatized” via either outright sale or long-term leases.

For new infrastructure, governments awarded long-term design-build-finance-operate-maintain (DBFOM) concessions via a competitive process. These long-term public-private partnerships had terms typically between 30 and 50 years.

The sale or lease of an existing facility is referred to as a “brownfield” transaction, while a public-private partnership to develop and operate a new facility is a “greenfield” transaction.

While the United States still lags behind many countries in Europe, Asia/Pacific, and Latin America/Caribbean, this difference arises in part because, in the United States, much infrastructure that was state-owned and operated in Europe and other regions was historically investor-owned in the U.S.—such as telecommunications, electric and gas utilities, pipelines, and a fraction of water and wastewater utilities.

On the other hand, major transportation infrastructure such as airports, seaports, and toll roads that have been widely privatized in Europe, Asia/Pacific, and Latin America/Caribbean countries are still mostly government-owned and operated in the United States.

Both brownfield and greenfield infrastructure projects require long-term financing. Facilities owned and operated by governments are often financed 100% by government revenue bonds or general-obligation bonds, which in the United States are exempt from federal taxation. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via long-term revenue bonds. To level the financial playing field for U.S. public-private partnerships, Congress provided for tax-exempt private activity bonds (PABs), which are now widely used for such projects.

The large financing needs for privately financed infrastructure have led to the development and growth of infrastructure investment funds, which raise equity to be invested in privately owned or P3 infrastructure.

Public-sector pension funds, seeking to increase the overall return on their investments, are also making significant equity investments in revenue-generating infrastructure.

Likewise, insurance companies and sovereign wealth funds are now making long-term investments in this kind of revenue-generating infrastructure.

This report reviews 2023 developments in public-private partnerships and private infrastructure investment, focusing on transportation infrastructure. While the report’s scope is global, it pays particular attention to U.S. developments in P3 infrastructure and the continued growth in pension fund investment in this field.

Part 2 reviews the continuing growth of infrastructure investment funds worldwide.

Part 3 provides an update on the largest companies and major P3 projects under way globally and in the United States.

Part 4 reviews pension funds’ increasing investment in revenue-generating infrastructure projects.

Annual Privatization Report 2024 — Transportation Finance

The post Annual Privatization Report 2024 — Transportation Finance appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms: The privatization of the British Airports Authority and the corporatization of the New Zealand government’s air traffic control functions as Airways New Zealand.

British Airports Authority (BAA) was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners.

The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere.

The outlier has been the United States, which has only two P3-leased airports (San Juan International and Tweed New Haven) and a small number of public-private partnership arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their ATC systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government. Within the first decade of this trend, the leading air traffic control providers organized a trade association called the Civil Air Navigation Services Organization (CANSO). Today CANSO has 93 full members (providers of ATC services) and 91 associate members (mostly supplier companies). CANSO is the air traffic control counterpart of the global organizations for airlines (International Air Transport Association) and airports (Airports Council International).

This brief reviews developments in the United States and worldwide regarding private-sector participation in airports and air traffic control.

While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term public-private partnership leases continues.

Read the full report here:

The post Annual Privatization Report 2024 — Aviation appeared first on Reason Foundation.

Governments have used long-term public-private partnerships for surface transportation projects for the past 60 years.

As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II.

Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe). In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity).

The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies.

In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession public-private partnership model.

Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit.

The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit. In the highway sector, nearly all long-term concession public-private partnership projects in Canada, Germany, the United Kingdom, and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes added express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called “hybrid concessions” in this report.

Of the top 10 worldwide surface transportation public-private partnerships that reached financial close in 2023, seven used availability payments, continuing what had been a growing trend over the last seven years.

In 2022, five of the top 10 public-private partnerships used availability payments.

The growing use of availability payment concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

Annual Privatization Report 2024 — Surface Transportation

The post Annual Privatization Report 2024 — Surface Transportation appeared first on Reason Foundation.

The post Annual Privatization Report 2023 appeared first on Reason Foundation.

Since the late 1980s, governments have privatized many state-owned infrastructure enterprises, including airports, electric utilities, gas utilities, pipelines, railroads, seaports, telecommunication providers, and toll roads. Some of these facilities were sold to investors, in whole or in part (e.g., many European airports). In most other countries, public infrastructure facilities were leased to investors under long-term public-private partnerships.

A growing number of governments are also using such public-private partnerships (P3s) to finance, build, and operate new airports or airport terminals, electricity facilities, seaports, and toll roads. The sale or lease of an existing facility is called a “brownfield” transaction (in part because significant refurbishment may be needed). By contrast, P3s for brand-new facilities are referred to as “greenfield” transactions.

In the United States, a significant amount of infrastructure is owned and operated by the private sector, including most U.S. energy production and distribution, electric and gas utilities, and a fraction of water and wastewater utilities. These assets may be held through publicly traded corporations or (in the case of energy) master limited partnerships, or they may be owned directly by private investors.

In transportation, however, nearly all U.S. airports, seaports, and toll roads are government-owned enterprises, generally by either state or local governments. Both brownfield and greenfield infrastructure projects require long-term financing.

In the public sector, such facilities are often financed 100% by government bonds, which in the United States are tax-exempt. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via either bank loans or long-term borrowing, such as revenue bonds.

These large financing needs have led to the development and growth of infrastructure investment funds, most of which raise equity to invest in privately owned or P3 infrastructure. Public pension funds, seeking to increase their overall return on investments, are also making significant equity investments in revenue-generating infrastructure. Likewise, insurance companies and sovereign wealth funds are investing equity in private or privatized infrastructure.

Inframation reports that in 2022 investors put $148.75 billion in new money into infrastructure investment funds.1 Pension funds continued to increase their investment in infrastructure, in most cases by placing a specific allocation with one or more of the infrastructure funds, but a handful of large pension funds have built professional staffs that enable them to make direct investments in individual facilities.

This report reviews 2022 developments in the infrastructure investment fund world, focusing on transportation infrastructure. While the scope of the report is global, it pays particular attention to U.S. developments in P3 infrastructure and the growth of U.S. pension fund investing in this field.

Part 2 reviews the continuing growth and scope of infrastructure investment funds worldwide.

Part 3 then provides an update on the largest companies and major P3 projects underway globally and in the United States.

Finally, Part 4 reviews pension funds’ increasing investment in revenue-generating infrastructure.

Annual Privatization Report 2023 — Transportation Finance

The post Annual Privatization Report 2023 — Transportation Finance appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms. Those events were the privatization of the British Airports Authority (BAA), and the corporatization of the New Zealand government’s air traffic control (ATC) functions as Airways New Zealand.

BAA was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners. The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-size airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere.

The outlier has been the United States, which has only two P3-leased airports (San Juan International and Tweed New Haven) and a small number of P3 arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their ATC systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government.

Within the first decade of this trend, the leading ATC providers organized a trade association called the Civil Air Navigation Services Organization (CANSO). Today, CANSO has 88 full members (providers of ATC services) and 91 associate members (mostly supplier companies). CANSO is the air traffic control counterpart of the global organizations for airlines (IATA) and airports (ACI).

This report reviews developments in the United States and worldwide regarding private-sector participation in airports, air traffic control, and airport security. While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term public-private partnership leases continues.

Annual Privatization Report 2023 — Aviation

Table of Contents

Part 1 Introduction

Part 2 Airports
2.1 Airport Privatization Overview
2.2 Airport Industry Changes in 2022
2.3 Global Airport Privatizations and P3 Concessions
2.4 US Airport Privatization and Public-Private Partnerships

Part 3 Air Traffic Control
3.1 Air Navigation Service Providers
3.2 Global Space-based ATC Surveillance
3.3 Digital, Remote Air Traffic Control Towers
3.4 Us Air Traffic Control Reform

Part 4 Airport Security
4.1 Contract Screening
4.2 Trusted Traveler

The post Annual Privatization Report 2023 — Aviation appeared first on Reason Foundation.

Governments have used long-term public-private partnerships for surface transportation projects for the past 60 years. As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II. Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe).

In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity). The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies.

In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model. Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit.

The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit and public buildings.

In the highway sector, nearly all long-term concession P3 projects in Canada, Germany, the United Kingdom, and a number of Central and Eastern Europe countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes added express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called hybrid concessions in this report.

Five of the top 10 worldwide public-private partnerships that reached financial close in 2022 used availability payments, continuing a growing trend over the last seven years. In 2021, seven of the top 10 P3s used availability payments. The growing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

Annual Privatization Report 2023 — Surface Transportation

Table of Contents

Part 2 Private Highway Projects

Part 3 International Surface Transportation Infrastructure 2022
3.1 Largest International Surface Transportation Public-Private Partnerships
3.2 Countries Reaching Financial Close on First Public-Private Partnership
3.3 International P3 Activity by Region

Part 4 Surface Transportation Concessions, 2022
4.1 Largest US Surface Transportation P3s
4.2 2021 Surface Transportation P3s

Part 5 Federal Policy on P3 Concessions
5.1 Surface Transportation Reauthorization
5.2 Overview of Financing Tools
5.3 Other Federal Tolling Policy

Part 6 P3 Legislation and Highway Activity by State
6.1 Overview of State P3 Legislation
6.2 2022 State Legislative P3 Activity
6.3 State Concession Activity

The post Annual Privatization Report 2023 — Surface Transportation appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control (ATC) systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms. Those events were the privatization of the British Airports Authority (BAA) and the corporatization of the New Zealand government’s ATC functions as Airways New Zealand.

BAA was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners. The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere. The outlier has been the United States, which has only one P3-leased airport (San Juan International) and a small number of public-private partnership arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their ATC systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government. Within the first decade of this trend, the leading ATC providers organized a trade association called the Civil Air Navigation Services Organization (CANSO). Today CANSO has 86 full members (providers of ATC services) and 88 associate members (mostly supplier companies). CANSO is the ATC counterpart of the global organizations for airlines (IATA) and airports (ACI).

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their air traffic control systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government.

This report reviews developments in the United States and worldwide regarding private-sector participation in airports, air traffic control, and airport security. While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term public-private partnership leases continues.

The post Annual Privatization Report 2022 —Aviation appeared first on Reason Foundation.

Since the late 1980s, governments have privatized many state-owned enterprises, including infrastructure such as airports, electricity, gas, railroads, seaports, telecommunication providers, and toll roads. Some of these facilities were sold to investors, in whole or in part (as is the case with many European airports). In other countries, public infrastructure facilities were leased to investors under long-term public-private partnerships (P3s). Thereafter, a growing number of governments also used such P3s to finance, build, and operate new airports or airport terminals, electricity facilities, seaports, and toll roads. The sale or lease of an existing facility is called a “brownfield” transaction (in part because significant refurbishment may be needed). By contrast, P3s for brand new facilities are referred to as “greenfield” transactions.

The sale or lease of an existing facility is called a “brownfield” transaction (in part because significant refurbishment may be needed). By contrast, P3s for brand new facilities are referred to as “greenfield” transactions.
In the United States, a significant amount of infrastructure is owned and operated by the private sector, including most U.S. energy production and distribution plus electric and gas utilities, as well as a fraction of water and wastewater infrastructure. These assets may be held through publicly traded corporations or (in the case of energy) master limited partnerships, or they may be owned directly by private investors. In transportation, however, nearly all U.S. airports, seaports, and toll roads are government-owned enterprises, generally by either state or local governments.

Infrastructure projects of both brownfield and greenfield types require long-term financing. In the public sector, such facilities are often financed 100% by government bonds, which in the United States are tax-exempt. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via either bank loans or long-term borrowing, such as via revenue bonds. These large financing needs have led to the development and growth of infrastructure investment funds, most of which raise equity to invest in privately owned or P3 infrastructure (though a more recent development is infrastructure debt funds, as well). Public pension funds, seeking to increase their overall return on investments, are also making significant equity investments in revenue-generating infrastructure.

Infrastructure Investor reports that during 2021 investors put $136 billion in new money into infrastructure investment funds. Pension funds continued to increase their investment in infrastructure, in most cases by placing a specific allocation with one or more of the infrastructure funds, but a handful of large pension funds have built professional staffs that enable them to make direct investments in individual facilities.

This report reviews 2021 developments in the infrastructure investment fund world, focusing on transportation infrastructure. While the scope of the report is global, it pays particular attention to U.S. developments in P3 infrastructure and the growth of U.S. pension fund investing in this field.

Part 2 reviews the continuing growth and scope of infrastructure investment funds worldwide.

Part 3 then provides an update on the largest companies and major P3 projects underway globally and in the United States.

Finally, Part 4 reviews pension funds’ increasing investment in revenue-generating infrastructure.

Annual Privatization Report 2022 — Transportation Finance

The post Annual Privatization Report 2022 — Transportation Finance appeared first on Reason Foundation.

Governments have used long-term public-private partnerships (P3s) for surface transportation projects for the past 60 years. As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s as France and Spain emulated the model pioneered by Italy prior to World War II.1 Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe). In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity). The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies. In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model. Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit. The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit and public buildings. In the highway sector, nearly all long-term concession P3 projects in Canada, Germany, the UK, and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes the addition of express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called “hybrid concessions” in this report.

Seven of the top 10 worldwide P3s that reached financial close in 2021 used availability payments, continuing a growing trend over the last seven years. The increasing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

Part 2 Private Highway Projects

Part 3 International Surface Transportation Infrastructure 2021
3.1 Largest International Surface Transportation Public-Private Partnerships
3.2 Countries Reaching Financial Close On First P3
3.3 International P3 Activity By Region

Part 4 U.S. Surface Transportation Concessions, 2021
4.1 Largest U.S. Surface Transportation P3s
4.2 2021 Surface Transportation P3s

Part 5 Federal Policy On P3 Concessions
5.1 Surface Transportation Reauthorization
5.2 Overview Of Financing Tools
5.3 Other Federal Tolling Policy

Part 6 P3 Legislation And Highway Activity Per State
6.1 Overview Of State P3 Legislation
6.2 2021 State Legislative P3 Activity
6.3 State Concession Activity

Annual Privatization Report 2022 — Surface Transportation

The post Annual Privatization Report 2022 — Surface Transportation appeared first on Reason Foundation.

Transportation Finance by Robert Poole

Surface Transportation by Baruch Feigenbaum

The post Annual Privatization Report 2022 appeared first on Reason Foundation.

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Annual Privatization Report 2021

The three transportation-focused chapters of Reason Foundation’s Annual Privatization Report, a publication now over three decades old, were recently released. The Transportation Finance section, authored by Reason’s Robert Poole, looks at transportation public-private partnerships (P3s) and infrastructure investment worldwide. Baruch Feigenbaum’s Surface Transportation chapter focuses on U.S. and foreign P3 projects related to highways and passenger rail, as well as federal and state-level enabling legislation and regulatory concerns. The Aviation chapter, also authored by Poole, examines trends in airport privatization and other airport regulation issues.

Fire “Alliance” Model Takes Competition Out of EMS 

In a series of articles, Reason Foundation’s Austill Stuart touches on various anti-competitive concerns with California’s Assembly Bill 389 and the so-called fire “alliance” model, which fire districts use as a stopgap to take over emergency medical services (EMS) fully without being subject to competitive bidding. With AB 389 passed and sent to Gov. Gavin Newsom’s desk, Stuart’s most recent article, “California passes EMS bill but doesn’t address anti-competitive landscape,“ discusses the remaining problems with competitive bidding in EMS.

Tackling Space Traffic and Orbital Debris

While space is vast, earth-bound humans use a limited and increasingly busy area to place satellites and space stations. In a new policy brief, Reason Senior Fellow Rebecca van Burken shows how public-private partnerships will need to play a key role in addressing the growing mand-made orbital debris (“space junk”) problems and managing space traffic in the coming decades.

Capitol Hill’s Spending Raises Concerns Amidst Inflation Unknowns

Current U.S. inflation numbers—which remained at a year-over-year rate of 5.4% in June and July—may turn out to be a worrying trend or just a blip over the long run. While some economists and federal oversight agencies continuously warn of the potential problems related to the federal government’s deficit spending, Congress keeps ignoring them. In a pair of articles in The Hill, Reason’s Marc Joffe warns against Congress’ continued spending and calls out budgetary and spending gimmicks embedded in the proposed $3.5 trillion reconciliation package. He also looks at credit rating agencies’ reactions to the current politics surrounding raising the U.S. debt limit. 

News & Notes

State Government

Puerto Rico Energy Agency Remains in Privatization Battle: The Puerto Rico Electric Power Authority (PREPA), subject to several privatization attempts over recent years, saw dueling political bodies fighting over the utility’s fate. In May, Gov. Pedro Pierluisi vetoed a bill that would have delayed privatizing PREPA, arguing that the bill undermines an established operations and maintenance (O&M) contract with LUMA Energy entered in 2020. The Puerto Rico House of Representatives tried to work around the governor’s veto by voting 43–0 (two abstaining) to deny authorizing $750 million to PREPA to implement the LUMA contract. After initially asking the legislature to reconsider and release the funding, the Financial Oversight and Management Board for Puerto Rico, which is responsible for moving the territorial government and PREPA through bankruptcy, voted to overrule the House. In doing so, the board cited its granted budgetary authority from the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, to implement PREPA’s obligations under the contract. The board won out, with the contractors taking over O&M duties in June.

Court Ruling Requires Kentucky to Rebid Managed Medicaid Contracts: A judge issued a ruling in April that nixes the state’s six managed Medicaid contracts, worth a combined $8 billion, and requires the state to rebid them. This is the state’s third denial over managed Medicaid contracts over the past few years. In 2019, Gov. Andy Beshear killed the first set, and a rebid resulted in the same contract winners: Aetna, Humana, Molina, UnitedHealthcare, and WellCare. Anthem, which submitted a bid but was not selected, challenged Molina’s placement over hiring a member of Beshear’s transition team. The challenge was denied, though Anthem was brought on as a sixth contractor. The current contracts will remain in place as dates for the new bidding process are secured.

Connecticut Lottery Releases RFPs after RFQ Gets Strong Response: In May, after receiving 15 responses to a request for qualifications (RFQ) earlier in the year, the Connecticut Lottery Corporation (CLC) released a request for proposals (RFP), seeking private firms capable of handling online and retail sports betting in the state. The terms call for providing up to 15 sports betting retail locations and roughly 2,900 lottery retail locations. While local news outlets pointed to a late July award announcement, pitting tribal casino operators against each other with respective online gaming operators—Foxwoods aligned with DraftKings, and Mohegan Sun with FanDuel—no further updates were available at press time. The state gaming agency released another RFP in August related to online gaming only, perhaps signaling a change in procurement strategy. 

Local Government

Chicago Moves Closer to First Casino: In April, the city of Chicago issued a request for proposals (RFP) from private firms that want “to apply for the sole casino license in the country’s third-largest metropolitan market.” The city seeks a developer to construct and operate the city’s first casino while meeting Leadership in Energy and Environmental Design (LEED) certification for all buildings, as well as requirements for using minority-owned businesses and local residents to complete much of the work. Proposals were due in late August and the city hopes to award a contract next year.

NYC Housing Administration Releases Repair RFP: The New York City Housing Administration (NYCHA) issued an RFP for a large-scale repair contract worth an estimated $360 million. The contract winner will be responsible for repairs in four Chelsea (Manhattan) developments that include 24 buildings and 2,073 apartments. The RFP review and the scoring process will all include residential input.

Dallas Issues P3 for Public Library: In August, the city of Dallas announced an RFP for a private partner to build or remodel the city’s library branch at North Oak Cliff, located southwest of the city. The contract sought will be more or less a design-bid project, as the city looks for its partner to create a “turnkey” facility that likely will require extensive worker training, but no long-term operations or management considerations.

Kansas City Releases RFP for Homelessness P3: The Land Bank of Kansas City, Missouri, released a combined request for proposals/qualifications (RFP/Q) to find partners to rehabilitate or rebuild, as well as manage and maintain, over 100 city-owned properties. The city would sell each property for $1 to qualified organizations, which would be required to begin construction within 120 days of the sale date. Partners would then offer the housing to homeless and low-income (≤30% area median income) households. Proposals were due in June. An additional RFP, released in August, seeks partners to develop more low-income housing by converting vacant buildings.

Oregon County Receives Green Light for Courthouse P3: In May, the Clackamas County (Oregon) Commission approved a competitive process to find a private consortium to design, build, and finance a new courthouse for the county, following up with an RFQ in July. The county will require a minimum 50-year useful life for the new building, which replaces a structure that dates to 1936. Officials hope a structure can be completed by 2025.

Corrections

Alabama Prison P3 Financer Exits, Leaving Uncertain Future: An Alabama private prison project’s underwriting and financing companies withdrew in late April over activist criticism. The project called for a CoreCivic-led consortium to design, build, partially finance, and maintain two new state-operated facilities that would be leased back to the Alabama Department of Corrections (ADOC). In response, Alabama State House Speaker Hal McCutcheon said some of his colleagues wanted a special legislative session to look for a “Plan B.” A 2019 notice from the U.S. Department of Justice describes conditions in ADOC facilities as violating the Eighth Amendment to the Constitution’s protections against cruel and unusual punishment. The ADOC’s many problems include overcrowding, violence, lack of supervision, and numerous overdoses on synthetic cannabis and other drugs. In late 2020, the U.S. Department of Justice filed a lawsuit against the state over the conditions. The state legislature is holding a special session that will include prison construction issues starting next week.

Tennessee Corrections Abandons Behavioral Health Contract Selection: In a brief press release, the Tennessee Department of Corrections (TDOC) announced in May that it would issue a new RFP to rebid its facilities’ behavioral health services and exit a $123 million contract awarded to Centurion last year. While not giving specifics, the decision appears to have come in response to a complaint about the contract filed by Corizon, a rival bidder who previously won contracts in 2012 and 2016 for the services. The complaint accuses Wesley Landers, chief financial officer for the Tennessee Department of Corrections, of having “ongoing communication with Centurion senior executives, including Wells, providing confidential information such as drafts of the bidding documents,” the Missouri Independent reports, while also increasing performance bond requirements from $1 million to $118 million, effectively eliminating Corizon from winning the contract. The trial over the contract is set for November.

Water

Santa Clara Retries Water Delivery P3: In May, the Santa Clara (CA) Valley Water Authority (SCVWA) issued an RFQ for its latest attempt at securing an expedited water P3 to deliver potable water to the city, a  design-build-finance-operate-maintain (DBFOM) availability payment project of up to 30 years. The authority hopes to benefit greatly from securing a partner who can deliver the project quickly and reliably while also committing to a lifecycle-focused maintenance schedule. SCVWA also looks to utilize performance-based metrics where possible, including for the needed pipeline’s construction, service reliability, and maintenance/stewardship. Either San Jose’s or Palo Alto’s wastewater treatment facilities will provide source water and will require constructing a nearby advanced wastewater treatment facility and, terminating the pipeline at the existing Los Gatos Recharge Station. SCVWA previously released RFQs for the project in 2016 and 2018 and had hoped to shortlist proposers this summer.

Fargo-Moorhead P3 Clears Milestone: The Fargo-Moorhead Flood Mitigation Project passed a major milestone in June when the Metro Flood Diversion Authority chose Miami-based Red River Alliance to design and build a $1 billion diversion channel to prevent flooding along the Red River in Fargo and neighboring parts of Minnesota. The Army Corps of Engineers is also assisting the local authority with the project. A financing package was also approved for the deal, which includes $569 million in guaranteed federal loans expected to save $438 million in borrowing costs. The P3 is also expected to save $330 million in construction costs compared to traditional procurement methods.

Buffalo Issues Largest-Ever Environmental Impact Bond: The Buffalo Sewer Authority issued a $54 million Environmental Impact Bond in June, the agency noted in a press release. The project—a collaboration between the agency; the Ralph C. Wilson, Jr. Foundation; Environmental Consulting and Technology, Inc.; Morgan Stanley; and Quantified Ventures—seeks to modify 200 acres of green infrastructure to better manage stormwater. Through planting trees, installing permeable pavement surfaces, and other stormwater-diverting technologies, the city hopes to prevent combined sewer overflows that occur when stormwater overwhelms “combined” (designed to divert sewage as well as stormwater) sewage structures prevalent in many large cities.

FEDERAL GOVERNMENT

Study of U.S. DOT Database Shows P3s Delivering for Disadvantaged Compared to DBB: A study published in July by the board of the National Academy of Sciences’ Transportation Research Record found that, despite P3 opponents’ claims to the contrary, P3s perform well in delivering opportunities for organizations within the U.S. Department of Transportation’s Disadvantaged Businesses Enterprises (DBE) program. While authors—University of Maryland engineering professors Kunqi Zhang and Qingbin Cui—also note the delivery method itself had little effect on DBE attainment, the greater scope of contracting and subcontracting opportunities within P3s compared to Design-Bid-Build (DBB) appeared to offer greater opportunities for DBE than DBB for the 134 project contracts they examined in the USDOT’s Major Transportation Project Database. Most likely due to the lack of available long-term data, their analysis focused on the design-build side of the P3 projects exclusively, although many projects in the study included operations and maintenance (O&M) in their respective contracts, which can provide even more opportunities for DBEs.

NASA Seeks Private Flight Support Partner: In late July, NASA released a draft RFP to solicit private partners to provide operations support at the agency’s Johnson Space Center in Houston. The support NASA seeks will focus on several key areas, including updating and maintaining navigation software and spaceflight enabling services and supporting research and development services.

National Fish and Wildlife Federation and International Paper P3 Announce Grant Awards: The National Wildlife Federation and International Paper Company announced in June that they would award nine habitat restoration grants to states in the Mississippi valley. Aggregate goals of the funded projects include planting 3.6 million trees and restoring 8,000 acres of wetlands. In addition to International Paper and the NFWF, the program received funding from the Walton Family Foundation, the Arbor Day Foundation, and the American Forest Federation. 

Coast Guard Waterways Commerce Cutter RFP: The United States Coast Guard issued an RFP in May for a partner to design, build, and deliver 30 new Waterway Commerce Cutter (WCC) vessels to replace its aging fleet. WCCs predominantly serve as “tenders” in U.S. intercoastal waterways for construction and repairs of marine aids. Responses to the RFP were due at the end of July, and the Coast Guard plans to award a contract next year, with full delivery of the ships by 2030, a Congressional Research Service release noted. 

Quotable Quotes

“This paper examined DBE goal and DBE attainment on 134 contracts, 37 of which have data on the DBE attainment. P3 was compared with two other groups: design–bid–build (DBB) and design–build (DB)/construction manager at risk (CMAR). The research addressed the long-held suspicion that small firms lose in P3s.”

—Authors Kunqi Zhang and Qingbin Cui in their Transportation Research Record study, which found major transportation P3 projects offer more opportunities for small and disadvantaged businesses than design-bid-build projects.

“The $750 million operational reserve is not a payment to LUMA Energy but a requirement under the operation and maintenance agreement that ensures PREPA would have sufficient funds to operate and pay vendors and fuel suppliers. A significant portion of the funding will also go towards investments in the grid and reconstruction projects that will eventually be reimbursed by FEMA…PREPA’s lack of funds to maintain the system and inability to maintain adequate cash reserves are some of the reasons that exacerbated PREPA’s problems and inability to respond quickly to hurricanes Irma and Maria. The operational reserve is a critical step toward ensuring that never happens again, especially when managed by a professional operator.”

– Natalie Jaresko, executive director of the Financial Oversight and Management Board of Puerto Rico, in a press release.

“After years of planning, we are beyond excited to begin the RFP process for Chicago’s first casino… We look forward to collaborating with world-class operators to develop a premier entertainment destination that will catalyze growth in our dynamic economy, create sustainable, good-paying jobs for our workforce and bring new financial opportunities to our businesses.” 

– Chicago Mayor Lori E. Lightfoot in a press release on the city’s casino-resort development project.

The post Privatization and Government Reform News: Transportation P3s, solutions for space debris, and more appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control systems were essentially all run by government departments. Two events in 1987 launched an ongoing wave of organizational and government reforms. Those events were the privatization of the British Airports Authority (BAA) and the corporatization of the air traffic control functions of the New Zealand government as Airways New Zealand.

BAA was privatized as a single entity, comprising the three major London airports plus several other United Kingdom (UK) airports. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new owners. The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere. The outlier has been the United States, which has only one P3-leased airport (San Juan International) and a small number of public-private partnership arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their air traffic control systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government. Within the first decade of this trend, the leading ATC providers organized a trade association, the Civil Air Navigation Services Organization (CANSO). Today, CANSO has 93 full members (providers of ATC services) and 89 associate members (mostly supplier companies). It is the air traffic control counterpart of the global organizations for airlines (IATA) and airports (ACI).

This report reviews developments worldwide and in the United States regarding private-sector participation in airports, air traffic control, and airport security. While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term P3 leases continues, as does interest in reform of the country’s ATC system.

Annual Privatization Report 2021 — Aviation

Part 1 Overview

Part 2 Airports
2.1 Airport Privatization Overview
2.2 Airport Industry Changes In 2020
2.3 Global Airport Privatizations And P3 Concessions
2.4 U.S. Airport Privatization And Public-Private Partnerships

Part 3 Air Traffic Control
3.1 Air Navigation Service Providers (ANSPs)
3.2 Global Space-Based Air Traffic Control Surveillance
3.3 Digital Remote Air Traffic Control Towers
3.4 U.S. Air Traffic Control Reform

Part 4 Airport Security
4.1 Contract Screening
4.2 Trusted Traveler

Annual Privatization Report 2021 — Aviation

Other chapters of the 2021 Annual Privatization Report are here and previous editions of the Annual Privatization Report are available here.

The post Annual Privatization Report 2021—Aviation appeared first on Reason Foundation.

• Airport privatization survives the pandemic
• Inspector General on troubled FAA Logistics Center
• Airlines’ risky eVTOL plans
• Bad-mouthing billionaires in space
• A new era in airline competition
• News Notes
• Quotable Quotes

Airport Privatization and P3s Survive the Pandemic

The global trend of private investment in airports—via outright purchase, long-term lease, or public-private partnership (P3) projects at airports—continued at a reduced pace during the pandemic year of 2020. These activities are documented in Reason Foundation’s 2021 Annual Privatization Report: Aviation, which is available now to this newsletter’s readers and being published later this week.

The aviation section includes an updated table of reported 2019 revenue of the world’s 39 largest fully or partially investor-owned airport companies, with the five largest being Aeroports de Paris, Aena Aeropuertos, Fraport, Heathrow Airport Holdings, and Vinci Airports. Despite the dire financial straits of airports worldwide in 2020, some privatizations have continued taking place.

After negotiations in 2020, Bulgaria’s Sofia Airport began operating under a 35-year concession (won by Meridiam, Strabag, and Munich Airport) in early 2021. Bolivia is negotiating a 30-year concession for the Viru Viru Airport in Santa Cruz with Aeroports de Paris. And following up on planning done in 2020, Brazil this spring raised $600 million from auctions of 22 medium-size airports, 15 won by CCR and seven by Vinci Airports.

In Asia, India awarded GMR Airports a 40-year concession to develop and operate a new airport in Bhogapuram, designed for six million annual passengers. Adani Enterprises acquired GVK and its 74% stake in the project under way to develop Mumbai’s second airport And Flughafen Zürich signed a 40-year concession to finance, develop, and operate Delhi’s second airport, planned for 12 million annual passengers. Japan’s planned 2020 privatization of the Hiroshima Airport was postponed to sometime this year. And in the Philippines, the proposed new Manila airport at Sangley Point was put on hold after the government rejected China Communications Construction Co. as the developer/operator. But the $14 billion project by San Miguel Corporation for the new airport at nearby Bulacan, under a 50-year concession, is proceeding as planned.

The biggest airport privatization news of all concerned Sydney International Airport, Australia’s largest. The airport company raised AU$2 billion in equity in 2020 and retained its BBB+ credit rating, while also receiving a token investment from giant infrastructure investment fund Brookfield. Early this month (too late for inclusion in the Annual Privatization Report), the airport received a buyout offer of AU$22.3 billion (US $17 billion) from IFM Investors, QSuper, and Global Infrastructure Partners. The bid represents a multiple of 26 times the airport’s 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA, a measure of cash flow). This news was followed by multiple reports that a consortium led by Macquarie Group Ltd. is exploring a rival bid, but the airport company has now rejected the IFM bid; others are still expected.

Taken together, these developments suggest that investor interest in airports has survived 2020’s huge downturn in air travel and that at least some infrastructure investors are taking a long-term view of airports as revenue-generating infrastructure.

In the United States, most current public-private partnership activity centers on individual projects at airports, such as consolidated rental car centers (Los Angeles, Newark), new terminals (LaGuardia, JFK, Paine Field), cargo facilities (Atlanta and Anchorage), and others such as a passenger lounge (San Diego), a commercial development on airport land (Phoenix-Mesa), and a tunnel connecting a commuter rail station with the airport terminal (Ontario, CA). But there is one new whole-airport P3 lease under way. Tweed New Haven Airport and its contract management company AvPORTS are negotiating a long-term lease under which the company will upgrade the existing terminal, lengthen the runway to accommodate the 737s of the airport’s newest airline, Avelo, and later develop a new terminal.

The report also covers recent private-sector activities in air traffic control, with particular attention to the growing subscription base of Aireon, which offers global space-based surveillance of aircraft flights in the 70% of the world where there is no radar surveillance (oceans, polar regions, and mountain areas). Also summarized in the Annual Privatization Report: Aviation is the continued implementation of remote (digital) control towers, especially in Europe, where developers of the technology are partnering with innovative air navigation service providers. A growing number of these projects enable arrivals and departures at multiple small airports to be managed from a single remote tower center.

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Inspector General Faults FAA Logistics Center for Management Failures

As the operator of the air traffic control system, the Federal Aviation Administration (FAA) deals with a huge number of components for a wide array of facilities and equipment. A key player in this process is the agency’s Logistics Center in Oklahoma City. According to a recent audit report by the Department of Transportation’s Office of Inspector General (OIG), the center has more than a million parts in its inventory, worth about $735 million. Each year it ships and receives about 200,000 parts, supporting over 77,000 systems. And the place is a mess. (Report No. FI2021029, July 12, 2021)

The main focus of the report is a dysfunctional inventory system, implemented in 2016 and the subject of two previous OIG audits, in 2016 (on the non-standard way in which the new system was procured) and another in 2019. Basically, while the former system kept accurate track of items coming in for repair, new or repaired items going back to the field, and “excess, obsolete, or unserviceable (EOU) items,” the new system does not. The 2021 audit finds that these known problem have still not been addressed. The center does not (cannot?) assess the age of inventory items and hence maintains “excessive quantities of old and unserviceable parts.” When a new part is sent to the field to replace a non-functioning part, the latter is supposed to be shipped to the center for possible repair within 30 days—but more than 10,000 such parts, worth $38 million, have not been returned from the field. OIG auditors found $1 million in discrepancies between the new inventory system and the records of its warehouse management system. And “year after year, [the center] continues to accumulate excess inventory parts held for repair,” increasing from $359 million worth in 2017 to $431 million in 2020. According to the OIG audit, the excuse for all these problems is that the new (2016) inventory system does not have the capabilities of the system it replaced.

This is a tragic comedown for the FAA Logistics Center, which at the turn of the 21st century was being seen as a model of “reinventing government.” Norman Bowles, who became the center director in 1996, had previously served as a team leader on then-Vice President Al Gore’s National Performance Review. Prior to that, Bowles was a senior official in the U.S. Department of Transportation’s (DOT’s) then-new Office of Commercial Space Transportation. Prior to his appointment to head the Logistics Center, it was “derided inside and outside the [FAA] . . . as a costly and inefficient government distribution center that could be better managed by the private sector.” As an article in Government Executive documenting the Bowles-led reinvention noted, “Parts weren’t always in stock, repairs often took weeks, and the center had not taken an inventory of its 20 million items in two decades.”

Bowles reinvented the center to focus on serving its FAA customers in the field. After studying the problems, he persuaded Congress to distribute the center’s $120 million annual budget to those customers. Henceforth, they would have to pay for repairs, giving them incentives to consider alternatives rather than what tended to happen: costly repairs of aging parts that would have been much cheaper to replace with new ones. Moreover, the bureaucratic organization was based on functions, rather than on major products and services. That often meant a project had to involve people from several divisions, rather than being a pre-existing team focused on, say, radar systems. Bowles reorganized into system-related divisions and provided all employees with extensive training on customer service and performance. He also created a board of directors, made up of managers from each of the center’s new divisions. The Logistics Center achieved ISO 9000 certification for high performance, and it received the very first President’s Quality Award, comparable to the Malcolm Baldridge Award in the private sector.

Bowles retired from FAA in 2003, leaving government service to move to Colorado and take on new challenges as a professional ski and snowboard instructor and professional mountain hiking guide. You can read the detailed 2002 Government Executive article on the reinvention of the Logistics Center here.

I have no idea how the Logistics Center went from being a widely praised success to being something more like its pre-Bowles identity. There is no mention in the OIG report of the transition Bowles and his management team implemented 20 years ago. There is only this in-passing reference on page 18:

“[A]s FAA acknowledges, the Agency was billing customers for unreturned [items] before the implementation of [the new inventory system]; we recommend that FAA return to that practice. Unfortunately, FAA does not plan to do so, citing development costs for software modification.”

In other words, it appears that the pre-reinvention bureaucratic culture has returned to the Logistics Center, and no one in FAA seems to care.

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Airlines Taking a Big Chance on eVTOL Startups

As a lifelong aviation geek, I remain fascinated by the growing array of startups seeking to develop (and in some cases, operate) electric-powered vertical take-off and landing (eVTOL) aircraft. One of the newest developments is airlines placing sizeable, albeit conditional, orders with various startup eVTOL companies: American and Virgin Atlantic with Vertical Aerospace and United with Archer Aviation. JetBlue, while not yet placing any orders, has invested in Joby Aviation via its Technology Ventures Fund.

I remain skeptical about the cost-effectiveness of battery power for these new aircraft and also about how quick or easy it will be to obtain FAA certification in this country and EASA certification in Europe. There is also a growing cadre of skeptics of both an eVTOL air taxi business model (given how small the short-haul commercial helicopter market is) and whether air taxis are a logical line-extension of airline business models. Aviation Week’s Ben Goldstein suggests that if airlines do expand into shuttling passengers to airports, “that would amount to a substantial broadening of their existing businesses, akin to taking on ground transportation such as an in-house taxi or limousine service.” He notes that Virgin Atlantic scrapped its car chauffeur service in February 2020. Goldstein quotes aviation consultant George Hamlin as saying, “Adding complexity to your present business that doesn’t reinforce your core business significantly would seem to be a mistake. You’re going to get management distracted from its present mission, which thus far has not proven to produce robust profits over a long period of time for most airlines, apart from Southwest.”

Another consultant, Craig Jenks of Airlines/Aircraft Projects, suggested to Goldstein that he doesn’t think airlines know exactly how they would use eVTOLs. “The spectrum of ways that they can be used is absolutely huge, but you don’t know which uses will be winners.”

Even more skeptical is Cai von Rumohr of Cowen, an investment bank. After noting that airlines’ conditional orders require only minimum deposits and can be dropped if the projects don’t seem to be working out, von Rumohr suggested, “The airlines’ current eVTOL investments look mainly like relatively cheap opportunities to boost ESG ratings.”

Nearly all the leading eVTOL startup companies are aiming at relatively short-haul air taxi service, of up to 50 miles, sufficient to bring commuters from far-flung exurbs or suburbs to central business districts or to a major airport. One prominent exception is Lillium, which is targeting short-haul inter-city trips of up to 150 miles, assuming it can get batteries to support that kind of range in an eVTOL. Its current plans are to start such services between cities in Germany and in Florida. Rather than marketing its vehicles to airlines, it plans to obtain its own air operator’s certificate (AOC). That range could also serve routes between metro areas and resort destinations, such as Martha’s Vineyard, the East Hamptons, or some ski areas near Los Angeles and San Francisco.

One troubling sign emerged in mid-July from what purports to be a robust, privately financed industry. “Electric Air Taxi Companies Want to Be Included in Infrastructure Bill”, read the headline in a July 15 article on AviationToday.com. In a letter addressed to House and Senate leaders of both parties, 19 companies asked that any pending infrastructure legislation include funding “for deployment of electric aircraft charging infrastructure.” I guess their reasoning is: ‘If Washington has cash to hand out, why not get in line for it?’

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Bad-Mouthing Billionaires in Space

While most of us cheered the successful flights of Richard Branson (Virgin Galactic) and Jeff Bezos (Blue Origin) to the edge of space, their successful flights also resulted in calls for regulation, taxation, and outrage at the flights’ carbon footprints. As commercial space continues to grow in volume, these questions will have to be addressed, since space travel will eventually become somewhat more like air travel, as technology improves and costs come down.

A good example is the new Air Force program called Rocket Cargo. As Aviation Week’s Lee Hudson reported, the advent within the next few years of 100-ton commercial reusable rockets makes it feasible to consider suborbital flights to deliver military supplies, disaster relief, and eventually suborbital cargo and passenger service—a staple of science fiction for more than half a century. Decreasing costs from reusability and other innovations (SpaceX and Blue Origin) make the idea at least conceivable. Under its Rocket Cargo program, the Air Force Research Laboratory has created the Rocket Experimentation for Global Agile Logistics project, aiming for multiple proof-of-concept demonstrations over the next three years. Suborbital passenger flights would be much faster than any planned supersonic transport projects.

The Blue Origin and Virgin Galactic flights prompted a social media storm of criticism of huge carbon footprints associated with rocket launches. House Transportation & Infrastructure Committee Chair Peter DeFazio (D-OR) told Politico, “Commercial space launch vehicles emit a stunning amount of carbon dioxide—more in a few minutes than the average car would emit in two centuries of driving.” It’s true that a Falcon 9 is estimated to produce the equivalent of 395 transatlantic airline flights due to its hydrocarbon fuel. On the other hand, Blue Origin’s rocket engines use liquid hydrogen and liquid oxygen, producing zero CO2, as vetted by Politifact. But since most rockets do burn hydrocarbons, why single out commercial ones, when the same is true of NASA and military rockets?

Angst over billionaires investing their own money to reduce the cost of access to space seems to be responsible for singling out commercial launches. On July 20, the day of Blue Origin’s historic launch, Rep. Earl Blumenauer (D-OR) called for a per-passenger tax on the price of commercial space launch tickets and a two-tiered excise tax on the launch companies, one tax rate for suborbital flights, and a higher tax rate for orbital launches. He made an analogy to airline passenger ticket taxes but failed to mention that those are user taxes that pay for airport and air traffic control infrastructure, not taxes aimed at redistributing wealth. Blumenauer would also exempt NASA flights, yet those launches impose the same constraints on air traffic control infrastructure and air travel as commercial launches. Rep. Blumenauer wants the tax revenue to support the “public good,” not air and space infrastructure.

Yet the more commercial space grows, the more those launches and recoveries will conflict with the flight paths of airliners and private aviation. FAA’s barely-out-of-diapers Space Data Integrator (SDI) is a start, scheduled to begin this summer feeding launch and recovery trajectory data from the space vehicles to FAA’s ATC System Command Center in Warrenton, VA, as Aviation Week’s Bill Carey reported in the June 28-July 11 issue. But SDI does not use that real-time data to define the aircraft hazard area (AHA) for various time periods connected with launch and recovery. This essential component is still in prototype form and has only been used for testing, Carey explained. Axios reports that SDI alone is expected to reduce airspace closures from an average of four hours to “only” two. Also still being researched is equipping launch vehicles with ADS-B for additional real-time surveillance. It costs FAA money to research, develop, and operate systems like SDI and the AHA generator. The users of the airspace who create the need for these services should clearly be paying fees for the services, just as they pay various spaceports for the launch facilities they use.

And at some point well beyond where we are today, passengers on commercial launch vehicles will begin to expect the kind of safety standards that have made commercial aviation one of the world’s safest ways to travel. Currently—and correctly—commercial passenger launch is still in the experimental, development stage. The industry asked for, and Congress has granted and extended, future dates before which such launches will graduate from being experimental. Under current law, launch companies are only responsible to prevent harm to non-consenting parties (such as the owner of a house damaged or destroyed by a launch vehicle gone astray). Passengers sign consent forms acknowledging the experimental nature of the flights. For a thoughtful explanation of why this makes sense, see Rand Simberg’s book, SAFE Is Not an Option, with cover blubs from notables, including Stuart Witt of Mojave Air & Space Port.

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Airline Competition About to Blossom

According to the trendy new approach to antitrust now emerging at the Justice Department and the Federal Trade Commission, the criterion should be the number of firms in the market, not customer welfare. Advocates of this approach point to the huge U.S. domestic market share of the current Big Four airlines (American, Delta, Southwest, and United) as if this is inherently bad for air travelers. But evidence that passengers have few choices or face monopolistic prices is lacking. And when we get to a post-pandemic airline market, airline competition is about to increase dramatically.

To begin with, the combined market share of what I’ll call the legacy ultra-low-cost carriers (Allegiant, Frontier, and Spirit) has increased from 5% to 10% in the past five years. They survived the pandemic in better shape than American, Delta, and United, and are all now in the process of significant expansion. Both Frontier and Spirit plan to double in size, with large fleet expansions under way. Frontier plans to add 150 A320s to its existing 110-aircraft fleet while Spirit says it will add 160 planes of that family to its existing 160-plane fleet. Unlike the other ultra-low-cost carriers (ULCCs), Spirit is moving into major hubs, with a big entry into Miami International set for October, for example. Miami is a major hub for American, but there are lots of unused or under-used gates available. Southwest has been following a similar strategy in recent years.

What I find most interesting is the emergence of three new ultra-low-cost carriers in the U.S. market. Breeze, founded by serial airline entrepreneur David Neeleman, gets the most publicity, but Avelo and Porter are following a similar strategy: target mostly unserved nonstop markets with affordable jet service. At a recent conference, airline analyst Bill Swelbar of Swelbar-Zhong presented the results of his research on such markets. In 2019, there were 665 U.S. city pairs with at least 30 passengers a day traveling between them but with no nonstop service. By June 2021 that number had increased to 885. Swelbar also noted the pandemic-related migration away from some of the country’s largest metro areas, providing more residents of smaller cities who will still need to travel, for business as well as leisure.

When Breeze announced its first 39 routes in May, all but two met Swelbar’s criteria (though resulted from Breeze’s own analysis). The initial focus cities are Charleston, New Orleans, Norfolk, and Tampa. Flights to all 16 destinations served by the 39 routes were planned to begin by July 22. Neeleman announced that Breeze has a further 100 cities under consideration, beyond the initial 16. Initial service is being provided by Embraer e190s with 108 seats and E-195s with 118 seats. Those routes will all be less than two-hours’ duration. Breeze will begin taking delivery of an order for 60 larger Airbus A220 in October, and those jets will serve routes with longer than two-hour flight times.

Avelo began serving its initial 12 cities from Burbank on April 28. Its announcement in early July that two of the routes (to Grand Junction, CO, and Bozeman, MT) would be suspended, led Zach Griff at thepointsguy.com, asking, “Could trouble be brewing for one of America’s newest startup airlines?”

But trial and error is how entrepreneurial firms gain empirical data to supplement their modeling. Avelo continues working with Tweed New Haven Airport (HVN) getting ready to launch service from there by the end of the year, basing three 737s there. In June, Avelo committed $1.2 million for near-term improvements to the existing passenger terminal, to which airport contract manager AvPORTS is adding $2.8 million. AvPORTS has reached an agreement with HVN to finance a $100 million capital improvement program that includes lengthening the runway by 1,000 feet (to facilitate fully-loaded 737 operations) and an all-new passenger terminal, under a 43-year lease agreement.

The newest new-entrant is Canada’s Porter Airlines. After having shut down flight operations during most of the COVID-19 pandemic, Porter is being remade into a much larger low-cost carrier. It has ordered 80 Embraer E195-E2 jets with transcontinental range. While it will resume operating smaller aircraft out of its original home base at downtown Toronto’s Billy Bishop Airport, it will operate the E195s from Toronto Pearson as well as Montreal, Ottawa, and Vancouver. And among the many planned routes will be service to “sun destinations” in the United States (expanding well beyond its current routes to Myrtle Beach and Orlando) plus destinations in the Caribbean and Mexico. Thus, Americans in “sun” cities planning travel to Canada will have a new alternative.

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News Notes

Is U.S. Slot Reform in Sight?
President Joe Biden’s sweeping executive order intending to increase competition includes reference to increased competition at airports, which led many media sources to suggest that slots at several major airports could be seen as unfairly benefitting incumbent carriers at the expense of new entrants. Alas, the actual language refers only to “improve[d] airport congestion management, implementation of airport competition plans pursuant to 49 USC 47106(f), and slot administration,” but the order does not call for any study or actual policy change.

Steep Approaches Approved for London City Airport
Airframe company Embraer has received EASA certification for its new E190-E2 to operate into London City Airport (LCY) on a 5.5-degree glideslope (compared to the standard 3 degrees). This is made possible by the aircraft’s new approach software, activated by a “steep approach” switch on the control panel, and by the capabilities of LCY’s new remote tower. The steeper approach will reduce noise exposure near the airport, while also providing greater clearance from tall buildings within two miles of the runway’s western threshold.

Tests Under Way to Reduce Contrail Formation
Eurocontrol’s Maastricht Upper-Area Control Center (MUAC) is conducting tests of whether high-altitude contrails can be reduced or eliminated by changing the cruise altitude of jetliners by a few thousand feet, to avoid meteorological conditions under which ice condenses from water droplets in engine exhaust. The tests are taking place during late afternoon and evening hours this summer. In separate tests, a team of Germany’s DLR and NASA is measuring the extent to which contrails can be reduced by powering aircraft with sustainable aircraft fuels (SAF). Initial tests show that the use of low-aromatic SAF can yield a 50%-to-70% reduction in contrail formation. Non-CO2 effects, including contrails, account for two-thirds of aviation’s impact on radiative forcing.

France Used Laser to Destroy Drone in Test
The French military reported the successful destruction of a drone, using a laser-powered cannon. The anti-drone system was developed under contract by French startup company Cilas. The objective is to protect sensitive institutions such as military bases, nuclear plants, and (presumably) airports from drone intrusions. The French government also announced that it intends to have an anti-drone system in place to protect the facilities of the 2024 Summer Olympics. The system tested on July 7 can detect drones at up to 3 km, track them, and destroy them once they are within 1 km of the laser cannon.

Denver Begins Phase 2 of Great Hall Renovation
Despite having been unable to work with a design/build/finance/operate/maintain partner to expand and renovate its airside terminal (Great Hall), Denver International Airport is making good progress on its scaled-back modernization using conventional contracting. Phase 1, which is adding check-in positions and restrooms, is on track to be completed by the end of 2021. And on July 12, the airport began phase 2, which will add an expanded security area on the north end of the terminal, with state-of-the-art screening technology. Hensel Phelps is the contractor for both phases of the renovation, with a budget of $770 million.

United Backs Another Electric Aircraft Startup
Together with its regional airline partner Mesa Airlines, United Airlines has invested in Sweden’s Heart Aerospace, along with placing a conditional order for 200 of its planned 19-passenger electric-powered commuter aircraft. The ES-19 is targeted to begin service in 2026, assuming no technology problems and U.S. and European certification. This is not an electric VTOL, but rather a conventional-airframe commuter plane powered by batteries instead of petroleum-based fuel. Earlier this year, United also placed a conditional $1 billion order for eVTOL air taxis under development by Archer Aviation.

Bahamas Seeking P3 to Upgrade Smaller Airports
The government of the Bahamas is seeking to enter into a long-term public-private partnership (P3) to redevelop the airports of what it terms its Family Islands. Those islands include Abaco, Eleuthera, Exuma, Grand Bahama, Great Harbor Cay, and Long Island. The Ministry of Tourism & Aviation hired Leigh Fisher in April to develop the request for proposal (RFP)for the project, and it held a forum for interested parties on June 28. The winning P3 team will redevelop, operate, and maintain these airports for a term of years that has not yet been announced.

Cargo Glut Benefits Some Smaller Airports
According to a June 21 report in the Journal of Commerce, freight forwarders are shifting many inbound air cargo shipments to secondary airports, to avoid ground handling bottlenecks at major hubs. One of the airports benefitting is Rockford International, 85 miles from Chicago O’Hare, which already hosts Amazon Air. Another beneficiary is Rickenbacker International near Columbus, OH. Its cargo carriers include Cargolux, Cathay Pacific Cargo, Emirates SkyCargo, and Korean Air Cargo. Major traditional cargo hubs such as O’Hare and LAX have seen record incoming cargo this year, but are plagued by delays in unloading and moving that cargo to where it is destined.

French Aviation Consortium Selects Paris Airports for Hydrogen Projects
A consortium led by Aeroports de Paris (ADP) has selected (no surprise) the Paris airports as the location of 11 projects dealing with hydrogen aircraft propulsion. Companies taking part include U.S. company Universal Hydrogen, Air Liquide, Ecodrome, and a number of others. The H2 Hub Airport project is led by ADP, Airbus, Air France-KLM, and the Ile-de-France Region, all of which are convinced the hydrogen is the aviation fuel of the future.

Court Dings FAA for Changed Air Routes at LAX
The Ninth Circuit Court of Appeals ruled on July 8 that FAA made a “serious error” in changing the Los Angeles International Airport arrival routes it had announced in 2016, without a “proper” environmental review of the change. The city of Los Angeles filed suit against the 2018 changes, which imposed different noise and emission consequences on various communities than the original arrival routes. The changes were part of the Southern California Metroplex plan aiming to standardize approach and departure routes to reduce overall noise and other impacts. Los Angeles has also filed suit against FAA for Metroplex changes affecting departures to the south from the Burbank Airport (BUR).

Over 100 Governments Now Signed Up for CORSIA
International Civil Aviation Organization’s carbon offsetting plan for global aviation as of this month has more than 100 national governments signed up for the voluntary phase, 2021-2023. Sixteen island and less-developed countries signed up recently, including the Bahamas, Belize, Oman, Suriname, Tonga, and Vanuatu, bringing the total to 104. Some 35 governments are mandated to take part in the second phase, through 2035, in which their airlines will be required to offset their carbon emissions. Those 35 include all major industrial countries, including China and Russia.

CLEAR Health Pass Available for Hawaii Travel
Travelers from the U.S. mainland to Hawaii can avoid the 10-day arrival quarantine if they are signed up for CLEAR’s Health Pass technology, under which their vaccination status can be verified. CLEAR announced the agreement with Hawaii on July 9.

Heathrow Reopens Terminal 3
London Heathrow (LHR) announced that its Terminal 3, shuttered since May 2020, has reopened to traffic as of July 15. Virgin America and its partner Delta Air Lines are the largest carriers at T3, but have operated their pandemic-reduced schedules from T2 and T5 until now. While T3 was closed, it actually was used for arrivals from “red list” countries with high infection rates.

July 6 Was National Air Traffic Control Day
Unfortunately, I did not get the word in time to celebrate, but I learned about it a few days later from an online aviation discussion group. Senate Joint Resolution 188 (in 1986) focused attention on the air traffic control system and the role that controllers play in keeping air travel safe. President Ronald Reagan officially proclaimed the day on July 6, 1986, seeking to honor both the controllers who had not gone on the (illegal) 1981 strike, as well as all those who had joined FAA as it built the system back to full capability.

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Quotable Quotes

“In our view, the competition among airlines serving the domestic [U.S.] market generally and the business and leisure markets specifically is about to get very interesting. This will have an impact on the airports and the related supply chain, and people should not be surprised when it happens. Combining a market’s economic and demographic underpinnings with the absolute number of local passengers that were forced to connect pre-COVID, in effect creates a ready-made list of airports to serve, whether as an incumbent or a new entrant.”
—Bill Swelbar, in Sean Broderick and Ben Goldstein, “Breeze Airways Launches Into Changing U.S. Market,” Aviation Week, June 14-27, 2021

“The real difficulties with hydrogen are storing it and managing refueling. Hydrogen is very flammable, and although the flame shoots upwards, the ease with which it ignites and the fact that the flame is invisible make it a serious hazard. Storing liquid hydrogen for long periods requires carefully constructed tanks with inbuilt refrigeration, like the tank NASA uses at the Kennedy Space Center. Handling hydrogen gas at pressures of 700 to 800 atmospheres requires special couplings with refueling only being done by trained personnel under close supervision. It would appear that hydrogen is not practical for longer-range intercontinental aircraft. Although in principle light or short-range aircraft have enough space in the wing, in practice either the range or the payload would be reduced because of the weight of the hydrogen tanks. The real problems are the difficulty of storing a liquid at extremely low temperatures or a gas at very high pressure.”
—Peter Rez, Arizona State University, “Vaporware: Can Hydrogen Replace Fossil Fuels in Aviation?” AOPA Pilot, Aug. 2021

“There are two reasons to hop on a taxi: convenience and speed. But unlike a car, an eVTOL needs dedicated vertiports to land and take off. Air-taxi companies are partnering with firms like parking-garage owner REE and construction contractor Ferrovial to build them, but if restrictions on helicopters are a good guide, many cities won’t be able of willing to host enough vertiports to make for a financially viable air-taxi network.”
—Jon Sindreu, “Air Taxis Could Be Coming, but Not in the Way You Might Think,” The Wall Street Journal, July 2, 2021

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