I’ve only been to San Juan, Puerto Rico, once, in 2010. The airport looked like something out of the 1950s: shabby corridors, a generic news outlet, a generic restaurant, and a few tacky souvenir shops. And that was only the superficial view of a traveler. Underlying problems were far more serious. Former New York Times reporter John Tierney researched the situation and learned that “on rainy days the ceiling leaked, the floors of the boarding bridges from the gates to the planes were riddled with holes, and it often took days or weeks to repair a broken toilet.” Even worse, the Instrument Landing System (ILS) was not reliable, due to trees that interfered with its signals. For some reason, FAA had not intervened in this outrageous safety problem, and pilots had been making only visual approaches for years.
All that changed after San Juan’s Luis Munoz Marin International Airport (SJU) was privatized in 2013. This was the only successful privatization (via long-term public-private partnership lease) under the former FAA Airport Privatization Pilot Program. The winning bidder, Aerostar, immediately chopped down the trees blocking the ILS and proceeded to redesign the concourses, install new jetways, and implement a state-of-the-art baggage-screening system, while also opening the airport to an array of new retail outlets. The first three years’ changes were documented in Tierney’s article in the Winter 2017 issue of the Manhattan Institute’s City Journal.
I have yet to experience the transformed San Juan airport, but I’ve often wondered whether the ongoing investments by Aerostar continue to improve things there. So, I was pleased to learn that an update was provided by Jorge Hernandez, CEO of Aerostar Airport Holdings last month at the GAD Americas conference, held in San Juan. What I summarize here is based on an article by Carole Hedden in Aviation Daily on May 30.
In his presentation, Hernandez explained that since 2013 Aerostar has invested $296 million into the airport. Under the terms of the 40-year P3 lease, Aerostar also made an up-front payment of $615 million to the Puerto Rico government and agreed to annual revenue-sharing of 5 to 10% of airport revenue as ongoing lease payments. Its mission, agreed upon with the FAA and the Commonwealth government, was to rehabilitate and modernize the airport to maintain its Part 139 certificate.
The renovations still have a way to go, thanks in part to the growth in air travel at SJU. Hernandez told conference attendees that Aerostar will spend another $257 million over the next five years to make additional airside improvements, along with further improvements to the terminals and upgrades in security.
The major carriers serving SJU—American, Delta, JetBlue, and Southwest—endorsed the privatization since the agreement gave them greater certainty regarding future fees and charges, as well as offering a greatly improved airport. And the results of the improvements are evident in SJU’s strong growth since 2013. Annual enplanements in 2013 were 4.1 million; they had already doubled to 8.3 million by 2016. However, between Hurricane Maria in 2017 and the subsequent pandemic, enplanements plunged to 4.8 million in 2020. But as tourism recovered in 2021, enplanements reached a record high of 9.7 million, with 155 daily flights. International cargo and passenger traffic has increased by 230% since 2013.
I’m not aware of any U.S. airport that’s anywhere near the decrepit condition that SJU was in prior to the P3 lease. But the very positive experience in San Juan offers a counterpoint to knee-jerk assumptions that airport privatization would come at the expense of airlines and/or air travelers. SJU was de-politicized via privatization and thereby freed to operate as a real business, serving its airline and passenger customers. Many relatively well-run U.S. airports are still micromanaged to varying degrees by city or county governments. These airport managements must focus part of their attention on dealing with those political overseers, rather than focusing on how best to serve their customers.
The former Airport Privatization Pilot Program was expanded by Congress to all U.S. air-carrier airports in 2018 and renamed the Airport Investment Partnership Program. How long-term P3 leases might affect other U.S. airports is the subject of a 2021 Reason Foundation policy study.
This piece was originally published in Reason Foundation