Houston to Quito ... and beyond

Jan. 1, 2009
Airport system looks to generate revenue, new opportunities by exporting its expertise

HOUSTON — Officials from the Houston Airport System and its sister organization, the HAS Development Corporation (HASDC), are actively involved in the management of the Quito, Ecuador airport as well as the construction of a new airport to serve that nation’s capital city. That experience has led officials here to pursue becoming a central player at airports worldwide, seeking new development and management opportunities. At the same time, the move is creating new experiences for staff at HAS, which in turn builds on the breadth of knowledge available for future projects offshore.

Comments Richard M. Vacar, A.A.E., director of both the Houston Airport System and HASDC, “Right now what it boils down to is, we’re ready to fly. The revenue potential is the equivalent of what’s going on at DFW with their gas deals; it’s that big.”

Adds Robert C. White, vice president of airport services for HASDC, “We’ve got the nucleus of expertise of the Houston Airport System to put behind this privatization program. The future of airport privatization is going to be having qualified airport operators as part of the consortium.”

Both Vacar and White credit their past experience working for Lockheed Air Terminal, one of the original airport privatization groups in the U.S.

Comments White, “What we’re finding is, the privatization of airports is going into a second generation of how it works. What they found was they were able get facilities built using privatization in the past, but they didn’t emphasize the operator portion. So, once the airport was up and ready to operate, they either didn’t know how to operate it or they did it poorly in terms of generating revenue and really maximizing what that new investment was all about. It was sort of like an afterthought.”

In November, the group hired Gary Lantner to serve as president of HASDC, replacing Jeff Scheferman, who now heads up a new division, ADC&HAS, which is tasked with flushing out new opportunities such as Quito. Lantner’s background includes time at the Port Authority of New York & New Jersey, Massport, and five different airlines.

“Bob and I are at HASDC; ADC HAS, which is run by Jeff, is the privatization airport group,” explains Lantner. “That’s the group that was started in May, as we began to unbundle ourselves.

“We clearly have the mission of offering consulting and training; they have the mission of setting up and operating airports. They will come to us to rent Bob if they need to. They’re the first point of contact in sniffing out a deal.”

A complex beginning
Vacar explains that HAS got interested in broadening its scope to other airports in 1998 when it got a phone call from mega-contractor Bechtel, which was pursuing a bid related to the privatization of Mexico’s airports.

“I went to the city council and the mayor and got approval that if we did win the bid, to be able to set up a corporation to protect the city from liability and get involved with this thing,” recalls Vacar.

The bid ultimately fell through, he says, after the Mexican partners in the proposal fell short of financing.

“But word got out that Houston was very willing to be a player in these deals. We started getting calls from literally all over the world,” he says.

“A particular project popped up pretty much right away with Airport Development Corporation in Toronto. They had some partners in Brazil and Canada that wanted to operate the Quito, Ecuador airport, and build a new airport to replace it.

“ADC came to us, like Bechtel did, and wanted us to be the technical advisers on it. That’s all we would have been doing there was consulting — before 9/11. After 9/11, investment capital for privatization basically came to a halt.

“We were the only U.S. participant in this consortium. We negotiated a deal where we would get an ownership interest, what they call carried interest — meaning we didn’t have to invest directly — in the Quito project if we wanted, if we would apply to OPIC [Overseas Private Investment Corporation] to get loans, which we did.

“That’s where the financing came from, except for the equity which our partners put in, about $80 million.

“So, we became an owner and not just technical operator, and we created a corporation, HAS Development Corporation, so that we could work on that and other projects.

That’s how the corporation got formed.”

HASDC was set up as an IRS 501c3 not-for-profit corporation, says Vacar, with him as director and two outside directors appointed by the Port of Houston Authority and the Greater Houston Partnership. “The idea is, we’re all three working together on international development, therefore this all makes sense,” he says.

“We’re roughly a 15 percent business; meaning, revenues minus expenses and other obligations; a profit — what we call retained earnings for the airport improvement fund, in particular.”

Vacar is quick to point out that no HAS or city revenues are being used in the new deals. When the expected profits come in the future, they will be directed into the airport development fund, which ultimately should have a positive impact on rates and charges to the airlines, he explains.

“We created a company, it’s called ADC&HAS Management BVI. And it is there for the purpose of working in these consortiums; principally, trying to lead them to do investments at airports around the world, with a focus on the Americas. But we could do things in places like India or China.

“That corporation is currently 51 percent owned by HASDC and 49 percent owned by Airport Development Corporation of Canada,” says Vacar.

When asked if the intent is to be an equal player with groups such Macquarie Infrastructure of Australia or YVR Airport Services of Vancouver, Vacar comments, “Yes. That’s the concept.”

Vacar says that one of the more exciting aspects of this venture is the technical services agreement between HAS and HASDC, whereby the development group “borrows” talent from airport system staff. “It is a huge tool for developing talent inside the department,” he says.

Adds HASDC president Lantner, “We’re using the professional expertise of the 1,500 people at HAS to offer any airport anywhere in the world, domestic or international, if you want us to help you do something, we’ll do it as a consultant or we’ll bring you here to train you how to do it.”

According to Vacar, HAS averages some 300 man-hours a month at the Quito airport. “The people that do it do it for the experience,” he says. “They get an opportunity to get involved and show their stuff. It makes a big difference in what you get out of people. We’ve had some wonderful successes here.”

Adds Lantner, “In the U.S., Denver is the last new airport built; before that, DFW in 1973. Quito is maybe the first time in this generation of airport people for them to be actually involved in a complete new start-up airport. If you’re an airport junkie, Quito is a heck of an opportunity.”

Overall, relates Vacar, moving into the international management and development arena is not for the timid. Just setting up the structure for HASDC was extremely complex, he says, involving setting up a British Virgin Islands company and another in Uruguay.

“With the Quito deal,” explains Vacar, “there were 300 agreements and several countries involved. Then there’s the whole problem of getting the financing in place.

“This is not something that you can just waltz into.”