Bullish on Airports: American Airports, with a new injection of capital, to get aggressive in marketplace

April 8, 2003

Privatization of New Orleans Lakefront Airport in Final Stages

In mid-March, FAA ended a 60-day comment period on the privatization of the New Orleans Lakefront Airport in which American Airports Corporation would enter a 50-year lease to operate and develop the facility. A follow-up hearing is scheduled for May 10, after which American Airports’ officials anticipate final approval.

Lakefront is the second airport in the Federal Aviation Administration’s airport privatization pilot program. Stewart International Airport in Newburgh, NY, was the first airport approved under the program, in which up to five airports were allowed to take part, as directed by Congress. A key motivation for entry into the program is the potential for legalized revenue diversion in the form of payments to the airport sponsor by the private contractor.

Under the agreement involving Lakefront Airport, American Airports, based in Santa Monica, CA, will take over control of the facility for a period of 50 years through a lease agreement, with the Orleans Levee District paid an annual rent of $300,000 for the first three years. In year number four, it’s reported that the District would receive the $300,000 plus 11 percent of airport gross revenues, up to $3 million. In addition, the Orleans Levee District has asked that the FAA forego federal grant repayments; allow American Airports to earn compensation on airport operations; and, allow the District to use revenues generated from the agreement to be used for non-airport-purposes (revenue diversion).

It’s reported that the Levee District was subsidizing Lakefront Airport by anywhere from $1-2 million per year, historically.

American Airports officials say they have some 100 acres at Lakefront available for development, and anticipate new hangar construction and refurbishing of existing facilities to be their initial focus. The next step, they say, is to market the airport to airline-class charter operations, citing the example of Orlando Sanford (FL) Airport at which private operator TBI has had success in that arena. At New Orleans, the focus would be on tourism and convention business activities. "The New Orleans Convention & Visitors Bureau is crying for more [airline] seats," explains Scott Fuller, vice president for American Airports.

Once the commercial charter business begins to take shape, American Airports plans on constructing a new airline terminal at Lakefront, according to Robert Clifford, executive vice president. "We do have an existing terminal," he explains, "and we obviously have to create the necessary security areas; but as the charter business grows, at some point in time we’ll ultimately build a new terminal. We already have the area designated on the east side. That’s in our long-term plan."

American Airports officials say there aren’t too many parallels between the privatization of Stewart International and New Orleans Lakefront, particularly since Stewart is a Part 139 facility with scheduled commercial air carrier service and Lakefront is a general aviation airport. However, they do say that monitoring the Stewart privatization process helped facilitate their efforts.

Explains Fuller, "We did learn a lot from Stewart in the application process, which helped cut this down quite a bit."

Other development plans, according to Clifford, include targeting educational institutions and training organizations for location at Lakefront, as well as developing an aviation mall at which complementing aviation companies could become a one-stop shop for aircraft owners. "Scott [Fuller] built an aviation mall concept at Gwinnett [County Airport, GA] and we think there’s an opportunity for that at Lakefront," says Clifford. "It would be great if we could get a maintenance company in there, a paint company, a completions center, upholstery shop, so that they can all work within a synergy."

According to Fuller, all airport operations staff at Lakefront as of February have been offered positions with American Airports once the lease is signed, with the exception of management. He says that maintenance staff are under contract with the Levee District, an arrangement that he expects to continue after the takeover, at least for the short-term.