Skip to main content

Legal Impediments to Airport P3s in the United States

  • 107 Accesses

Part of the Competitive Government: Public Private Partnerships book series (CGPPP)

Abstract

The financial and regulatory structure for airports in the United States places the Federal Aviation Administration at the center of a complex and sweeping regulatory scheme that imposes pervasive oversight over the nation’s airport infrastructure. The agency regulates airports primarily based on contractual agreements tied to federal grants, functionally ensuring the nation’s airport infrastructure is continually subject to cradle-to-grave regulatory oversight. These grants are typically funded by airline ticket taxes but in current-dollar terms, money available through federal grants has been declining; at the same time, airports face a dire backlog in capital investment in airport infrastructure. As a result, new and creative funding structures, like public-private partnerships, are gaining traction. But with federal regulation touching nearly every element of airport operation and financing, airport proprietors who want to take advantage of creative funding opportunities face a daunting task. Proprietors and potential investors must navigate a vague, intricate, and changing federal regulatory landscape coupled with myriad state and local laws—a hurdle that may prove too much for potential investors, especially those unfamiliar with airport financing.

Keywords

  • Federal Aviation Administration
  • P3s
  • Airports
  • Capital
  • Funding
  • Infrastructure
  • Development
  • Privatization
  • Airport finance

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1007/978-3-030-83484-5_6
  • Chapter length: 22 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   169.00
Price excludes VAT (USA)
  • ISBN: 978-3-030-83484-5
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Hardcover Book
USD   219.99
Price excludes VAT (USA)

Notes

  1. 1.

    Various financial structures are all lumped into the public-private partnership, or P3, basket, including design-build-finance-operate-maintain (DBFOM); design-build-finance (DBF); and, even under certain circumstances, traditional design-build (DB) arrangements.

  2. 2.

    The COVID-19 pandemic undoubtedly has slowed the growth and substantially reduced travel demand. But historic figures strongly suggest that travel demand will resume after the crisis—whether that lasts 1, 2, or more years, travel will resume in a time frame that is much faster than the time it takes to plan, design, and construct substantial airport infrastructure. New runways or substantial capital projects at US airports can often take in excess of a decade from initial concept to operation.

  3. 3.

    One of the principal reasons for Congress’ failure to raise the PFCs cap is vigorous opposition to any increase by large US air carrier trade groups. Airlines for America (A4A) has embarked on an aggressive program to convince the Congress that airport proprietors have plenty of borrowing capacity and revenue from users to finance infrastructure maintenance and improvements so an increase in the PFC levy authority is unnecessary (Airlines for America, 2019).

  4. 4.

    While Khan’s data are somewhat out-of-date with the growth of private investment in the United States in the last 10 years, the US infrastructure investment remains far behind from that in Europe and Asia. Some recent high-visibility failures of P3 projects undoubtedly will impede any ability of the US market to catch up with their worldwide competitors.

  5. 5.

    The Federal Aviation Administration uses the term “airport sponsor” which is functionally the same as an airport proprietor. FAA uses the term “sponsor” to distinguish airport proprietors who receive FAA grants.

  6. 6.

    The distinction between ownership and operation is important here. While virtually all commercial airports in the United States are publicly owned (Branson, Missouri being the notable exception), many airports contract with service providers to operate all, or portions of, these airports. Firms such as Vinci Airports (formerly Airports Worldwide and TBI) provide turnkey operational services at commercial and general aviation airports including Orlando-Sanford, Ontario International, and Hollywood-Burbank. It is not uncommon for individual terminals to be privately operated as well.

  7. 7.

    A majority of the procedural protections for the issuance and interpretation of regulations under the Administrative Procedure Act, 5 USC § 500 et seq., which provides the framework for most agency-administered regulation, do not apply to requirements included in AIP grant agreements on the theory that the requirements are the product of a consensual contract that the airport proprietor agreed to the requirements as a condition of receiving the grant.

  8. 8.

    The FAA requires fair market rent for non-aeronautical functions but does not require fair market rent for aeronautical functions so long as the airport proprietor does not unjustly discriminate against similarly situated enterprises and is able to come as close as possible to financial self-sufficiency in the proprietor’s particular circumstances (Airport Compliance Manual, 2009).

  9. 9.

    In February 2020, Denver International Airport CEO Kim Day reportedly told Council members in private meetings that she and the airport management were to blame for the Great Hall Project’s failure (Slowey, 2020a).

  10. 10.

    As a practical matter, states prescribe which government entities may issue private activity bonds and what projects are eligible for such financing. The commonly authorized issuers include, for example, hospital authorities, housing authorities, regional development authorities, and solid waste management authorities (Brooks et al., 2017). In the case of the LaGuardia Airport Terminal B redevelopment project, the “New York Transportation Development Corporation” loaned the proceeds of “special facilities bonds” to partners to finance construction (New York Transportation Development Corporation, 2016). Should private activity bonds go into default, the “conduit borrowers,” such as Gateway Partners, carry financial liability, not the “conduit issuers,” such as the New York Transportation Development Corporation (Kagan, 2018).

  11. 11.

    Note that this statistic may be somewhat misleading because it based upon the value of, not the number of, P3 projects. In large states like California, a single large project could skew the total value statistics.

  12. 12.

    For the current status of airport privatization efforts in the US, see the FAA website. (Federal Aviation Administration, 2019).

  13. 13.

    Some FAA requirements, such as mandates for disadvantaged business enterprises and prohibitions on unjust discrimination, apply not only to a proprietor but to its contractors. So Propeller is not entirely free of FAA regulation, but most of its business operations are free of the routine regulatory oversight that FAA exercises over airport proprietors, including oversight of terminal leasing terms, financial arrangements with carriers and terminal access issues.

  14. 14.

    The celebratory and self-congratulatory tone of Governor Cuomo’s statement and press release suggests a more specific, fleshed-out plan for the multi-project upgrade than currently exists or, at least, than currently publicly disclosed. In February 2019, Governor Cuomo announced a $344-million expansion of JFK’s Terminal 8, an American Airlines and British Airways partnership. The accompanying press release contains few details (Press Release, 2018).

Abbreviations

ACI:

Airports Council International

AIP:

Airport Improvement Program

AIPP:

Airport Investment Partnership Program

APM:

Automated people mover

APPP:

Airport Privatization Pilot Program

ConRAC:

Consolidated rent-a-car facility

DBF:

Design-build-finance

DBFOM:

Design-build-finance-operate-maintain

DOT:

Department of Transportation

FAA:

Federal Aviation Administration

JFK:

John F. Kennedy International Airport

PFC:

Passenger Facility Charge

PRPA:

Puerto Rico Ports Authority

P3s:

Private-public partnerships

TIFIA:

Transportation Infrastructure Finance and Innovation Act

References

Download references

Acknowledgments

The authors are deeply indebted to Matthew Seligman and Laura Boyer, law students at the University of Colorado, for their thoughtful editing of drafts of this chapter.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Peter J. Kirsch .

Editor information

Editors and Affiliations

Rights and permissions

Reprints and Permissions

Copyright information

© 2022 Springer Nature Switzerland AG

About this chapter

Verify currency and authenticity via CrossMark

Cite this chapter

Kirsch, P.J., Fischer, A.C. (2022). Legal Impediments to Airport P3s in the United States. In: Hakim, S., Clark, R.M., Blackstone, E.A. (eds) Handbook on Public Private Partnerships in Transportation, Vol I. Competitive Government: Public Private Partnerships. Springer, Cham. https://doi.org/10.1007/978-3-030-83484-5_6

Download citation