The $1 Billion Big Build

G. Hardy Acree, the director of airports for the Sacramento County Airport System, says he has heard a fair amount of criticism from airlines about the $1.08 billion terminal project at Sacramento International. “We agree to disagree on that point,” he comments. “Airports represent the communities, and airports really do have to take a long-term perspective on what their infrastructure requirements are. Going back ten years, the airlines were very much a part of the planning and programming effort. Unfortunately, you can’t turn projects like this on and off like a light switch.” Thus the project continues, following some cuts to the original plan, and Sacramento in 2011 will have a terminal/garage complex that is expected to meets its needs for the foreseeable future. That is helped by the fact that much emphasis has been placed on sustainability and meeting LEED certification standards.

Explains Acree, “We did have some scalability in the concept. We had a hotel that was to be integrated into the terminal; that has been deleted. There will be an on-airport hotel; it just won’t be in the terminal building.

“The companion garage is going to be about 5,500 spaces; it was also going to be part of the program. That too has been delayed, based on the latest forecast. Originally, the forecast that we were operating off of and from which we issued our first bond, which was May 2008, said then that we were going to need that parking capacity within about two years of DBO [design/build/operate] of the terminal building. And it just made economic sense at that point in time to include the garage as a part of the overall program. You’ve got the contractor there; the mobilization expenses already incurred as a result. The environmental was done.

“Now, the forecast as recent as December 2008 says we probably won’t need that capacity until about six years after DBO. Between the two of those we took about $200 million out of the program. Originally the program was $1.27 billion.

“The other side of the argument of why you need to move forward on these capital programs is that right now is a good time to build. We’re getting really good pricing, and the airlines will be the beneficiaries of having the capacity available when they come back and say, we need a gate tomorrow.”

Getting started
Acree arrived at Sacramento in December 1999 after gaining experience at international airports in Philadelphia, Anchorage, and Houston. He oversees International, Executive and Mather Airports, and Franklin Field. Topping his agenda upon arrival, relates Acree, was a new master plan for Sacramento International.

Explains Acree, “The most recent one had been done in the late ‘70s. They of course had updated their ALPs, but there was a philosophy of planning to build. One of the philosophies I learned from Jim DeLong [at Philadelphia] is, build to a plan. And the two concepts are diametrically opposite. After I got here we got a consultant on board and started the master planning process. That led us to do a number of programming exercises to arrive at a conclusion that we needed to develop infrastructure to replace aging, obsolete original equipment that was opened in 1967.”

The result of that effort is what is now billed as the Big Build — a landside terminal building with an airside concourse connected by an above ground airport people mover system. “It’s very reminiscent of what you see in Tampa or Orlando or Las Vegas,” explains Acree. “Those airports and others influenced our thinking a lot, particularly at Tampa.

“Where Orlando and Tampa differ is Tampa has the security checkpoints on the satellite concourse, whereas Orlando has it in the centralized terminal building. We looked at both of those models; in the post-9/11 environment, it appears to us that the Tampa concept works a lot better so we chose to go that direction.

“It’s on schedule, on budget; to be completed in the fourth quarter 2011. Because that falls into the holiday season, we’re looking at what it would cost us to accelerate the completion and open it sometime in the third quarter.”

The project has been split into two, airside and landside, and both will seek U.S. Green Building Council LEED certification, according to Acree. “The airside has already accrued the points for Silver certification; and the landside terminal is within a point of meeting Silver,” he says.

“Sustainability was very important to us. We learned lessons from others’ mistakes. As part of our due diligence, we went the design/build route versus the design/bid/build. So we used alternative delivery, where we brought the primes in at the 30 percent level of design, and we benefitted from their creativity and experiences. They brought a lot of cost-avoidance measures to the project.”

Airline leases
The airline use agreements at Sacramento International are commercial compensatory by ordinance, explains Acree, and are for 30-day terms. “Right now there’s no revenue sharing with the airlines, where previously under the prior agreement, which was a residual hybrid, there was a revenue sharing component,” he says.

Cost per enplanement (CPE) at the airport is around $10, explains Acree, and the carriers will not see a significant change in their rates and charges until the new terminal complex is complete.

“All of the cost of the program is being capitalized, so the cost of the program has not hit the rates and charges and will not hit the rates and charges until after DBO,” he explains. “We were subsidizing the airlines to the tune of about $25 million a year; the benefit of that subsidy has gone away. As a result, their CPE has increased.

“When we were operating under the previous agreement, we were at a split of about 72/28; meaning, 72 percent of all of our revenues came from non-airline, non-aeronautical sources and only about 28 percent from the airlines. That split right now is about 50/50.”

Expanded concessions could impact those charges, he says, as the airport looks to follow the Tampa model, which Acree says has the highest revenue per enplaned passenger among U.S. airports.

Incoming ACI-NA Chair Acree on the Issues

Sacramento County director of airports Hardy Acree was recently named chair of Airports Council International-North America during its annual meeting. At that time, he sat with AIRPORT BUSINESS to discuss issues facing North America’s airports and his goals for the coming year ...

On his goals as ACI-NA chair ...

“Among my goals reauthorization is at the top of the list. We need a $7.50 PFC; it needs to be indexed to inflation. Also critical is NextGen; it’s top of mind for just about everybody in this industry. The airlines are desperately needing it. As [ACI-NA president] Greg Principato likes to point out, NextGen begins and ends at the airport, so the airports have to be part of the process.”

On his confidence in FAA’s abiliity to implement NextGen ...

“I think we have to be honest. The FAA will have to look in the mirror. I’ve talked with the new Administrator and I think Mr. Babbitt knows firsthand the shortcomings of not having done more to date. We’re very fortunate to have an Administrator with his background and experience.

“I think the FAA will probably do a better job going forward. Confident? I feel better now than I felt in the past. I think there’s a political willingness to get something done. Hopefully we can deal with the diversionary issues out there like user fees; we have to focus on what needs to get done and everybody needs to be part of the solution.

On the need for permanent AMT relief ...

“Congress did the right thing by including a two-year holiday on the alternative minimum tax in the stimulus. It certainly has benefitted our program in Sacramento. We just recently sold $480 million in bonds in July that we might not have been able to sell had it not been for the AMT exemption.

“AMT is wrongly applied by IRS to penalize airport projects and classifying them as private activity bonds. So one goal is to get that exemption permanent.”

On deregulating the business of airports in the U.S. ...

“Another goal is to once and for all get started down the path of looking at how the government regulates airports economically. It’s looking at the regulations that were established during the Nixon era to economically regulate airports. We need to take another look and see if they still make sense.

“For example, the historical calculations for how you establish airfield rates and charges. Why not allow airports to establish landing fees based on hour of day? Allow airports to manage congestion with that economic tool.

“Looking at what projects are eligible for PFCs and maybe broadening it for wider application is another example. Or, I don’t know of any grant assurances that have ever been eliminated. Every time there’s another reauthorization, another grant assurance comes.

“We need to take a fresh look and see if it still makes sense for the federal government to be regulating airports economically. We clearly need safety and security oversight. But we think there’s room for improvement and taking a fresh look at how airports are economically constrained by Washington.”

On airport privatization ...

“North America now seems to be almost an island globally of having not gone to a more private-like model, I think Canada probably has a pretty good model, though they’re not happy about the rents assessed to them by Ottawa.

“We have a form of privatization, and that’s called the independent airport authority. Most of them have an independent board with political appointees; it’s a quasi-independent body whose sole purpose is to operate the airport.

“I think it is just a matter of time. You see the uptick in interest ... that has come about due to the current economic crisis that we’re in where local governments are struggling. When you’re sitting on a multi-billion asset like at Chicago, they could have realized a couple of billion dollars on their balance sheet that they’re not benefitting from.

“FAA limits how many airports can pursue it. Why should FAA care if airports are privatized or not?”