|The Bahamas Investor Magazine
July 3, 2008
July 3, 2008
The Lynden Pindling International Airport has long been a topic of heated debate. When it was officially opened in 1957, it was a functional, well-equipped airport, adequate to cope with tourist and domestic demand. However, that was a long time ago, and airports, if left to their own devices, don’t tend to get better with age. The heavy traffic from a booming tourism industry boosted by cheaper air travel has taken its toll over the years and in recent times the airport has fallen well below international standards.
A report by the Airport Advisory Committee commissioned by the Bahamian government in 1999 on the redevelopment and management of the airport urged quick action. In the report it states: “There is an urgent and immediate need for significantly upgrading of all the existing facilities to a standard comparable to that found at world class international airports.” By the time it reached its conclusion the committee was pulling no punches: “The Authority should prepare a master plan for the development of the airport as a matter of priority.”
As the airport is the first and last thing a tourist often sees of their holiday destination, the report did not augur well for a country whose economy is so heavily dependent on the tourist dollar. For Bahamians who have to use the facilities regularly for domestic travel it was also a matter of priority. Something had to be done and done quickly.
Enter the Vancouver Airport Services (YVRAS)—a Canadian airport operator with a long pedigree in running international facilities. The company currently manages 18 facilities around the world with a strong presence in the Caribbean, including airports in Dominican Republic, Turks and Caicos Islands and Jamaica. In 2005 it won the international tender to run Nassau Airport Development Company, known as NAD, which has a 30-year contract to manage, operate, maintain and develop the Lynden Pindling International Airport. NAD is responsible for most of the physical infrastructure of the airport, such as parking lots, terminals, runways and taxiways. YVRAS has a 10-year contract to provide the executive management of NAD and has recently entered into a partnership with Citi Infrastructure Investors to jointly pursue funding and maximize opportunities for the airport.
With the change in management came plans for sweeping reform and an ambitious overhaul of the airport’s facilities. At the helm of the redevelopment is Craig Richmond, chief executive officer of NAD.
“The redevelopment of the airport is critical to the continued success of the tourist industry in The Bahamas,” says Richmond. “Few people will return to a destination simply because of the airport but quite a few will not return because of the airport.”
A former Canadian Air Force fighter pilot, Richmond earned his feathers flying CF-104 Starfighters and CF-18 Hornets for ten years in Canada and Europe prior to joining the Vancouver International Airport Authority (YVR) as the vice president of airport operations. At Vancouver he was responsible for the safe and efficient movement of passengers and aircraft at Canada’s second busiest airport. Major areas under his direction included Security and Emergency Planning, Aviation Operations and Terminal Operations. He was also responsible for the coordination of US pre-clearance initiatives and the YVR operational liaison with US Department of Homeland Security agencies (Bureau of Customs and Border Protection and Transportation Security Administration).
He was in this role when the events of 9/11 struck. As American airspace was cleared, planes were finding safe landing north of the border. Richmond coordinated the emergency procedures landing around 35 jumbos on the airstrip. “It was a very eerie feeling,” recalls Richmond, “sitting looking out over the airfield at six o’clock in the evening on 9/11 with no planes in the air and [a] fleet of jumbos sitting on the runway.”
During his time at Vancouver he earned the nickname ‘Plumber 13’, due to his habit of working several days a year as a shift worker with the maintenance crew. He would do 12-hour shifts as a plumber’s mate doing everything from fixing fittings to unblocking toilets. This literally gave Richmond hands-on knowledge of how airports were run and what problems his employees faced on a daily basis.
A self-confessed “airport geek”, Richmond jumped at the chance to be one of five executives brought in by YVRAS to oversee the development at Lynden Pindling International Airport. “It seemed like a very exciting project,” explains Richmond. “And who wouldn’t want to spend a few years in The Bahamas?” In honour of his efforts as a plumber’s mate his colleagues at Vancouver presented him with a toilet plunger as a leaving present.
Much to his surprise, toilets continued to be a feature in his new job. Speaking to a gathering of local business people earlier this year Richmond mentioned that new washroom facilities were due to open at the airport. The room erupted with applause. “That’s the only time I have ever been applauded for mentioning toilets,” says Richmond. “It shows that the airport is very run down at the moment and people have had enough.”
The new toilets in the US departure lounge were unveiled in February this year and they mark the first step in a long road to renovation.
The plans for redevelopment are impressive and will progress in three distinct phases. The first phase, which is planned to start later this year and be completed by 2010, involves the construction of an entirely new US terminal building. The new facility will house such state-of-the-art features as a $25- to $30-million baggage system, solar panel heating, a grey water collection system and energy efficient air conditioning. The functional design will give a total terminal area of just over 585,000 square feet and features 10 gates that can use air bridges for passengers to embark and disembark. The terminal will also have four gates capable of taking Boeing 747-sized aircraft, and one capable of handling the world’s largest aircraft, the Airbus A-380. Other key features include the use of LED lighting wherever possible to save energy and cut down on heat, and an entirely “barrier free” design with elevators and ramps for wheelchair users.
The second and third phases will see a new building for arrivals replacing the existing US terminal by 2011 and by 2012 the international and domestic departures terminal will be completely overhauled.
“One thing we have learned through years of developing airports is that phased construction is much less disruptive,” adds Richmond. “If you look at some major airports, they are no longer airports but building sites with runways attached. At Nassau, through good luck and excellent planning, the passengers won’t even notice the redevelopment.”
So far the planning stage has been conducted by a Canadian company Stantec, with the aim of accurately predicting the cost of the development. The next phase will involve Bahamian companies working with Stantec as the primary consultant to add a uniquely Bahamian sense of place. “The project definition report delivered in 2007 is a financeable document,” says Richmond. “So we know what the footprint is. Now our Bahamian partners, architects and engineers will turn that functional design into something beautiful.”
Richmond estimates that at its peak the expansion project will employ 400-500 people, providing a welcome shot in the arm for the local economy. “The economic effect on the local community will be huge,” says Richmond.
NAD will be conducting an economic impact study next fiscal year to determine exactly what that will be, but a project of this size will undoubtedly provide enormous direct demand for a range of services from construction to signage. Once the expansion is complete, a recent study commissioned by NAD predicts that human traffic through the airport could increase from 3.5 million a year to 5.5 million by 2020. Richmond reckons this could hit seven million in the not too distant future bringing huge dividends for the Bahamian tourist industry.
But this type of project doesn’t come cheap and a price tag of $400 million has been projected for the development of the terminals and associated infrastructure. The projection includes a cost escalation contingency during all three phases.
The recent credit crunch and subprime crisis in the US has made lenders a little nervous but NAD is unruffled. “Now is actually a very good time for a project of this nature,” says Richmond. “The credit markets have dried up a little bit but not for infrastructure like airports as they remain a very solid investment. Ironically, during a slowdown is the best time to build. Costs for labour and materials are down and interest cuts on borrowing alone will save us millions of dollars.”
To assist with the airport’s transformation, NAD, in conjunction with the government, requested bids from both local and international financial institutions to provide funding for the overall project over a five-year period. Citibank took the helm as the financial advisor for the redevelopment and initially structured and delivered a $65 million, 12-month bridge loan, with a syndicate of both local and international participants. This loan however was refinanced at the end of last year to an operating capital loan of $80 million with some revolving credit facilities, including a $7 million line of credit. Citibank once again took the lead in this new loan, along with five other institutions, including Royal Bank of Canada and at least one international institution operating outside the jurisdiction. This seven-year long-term bank financing can be serviced by airport operations on a non-recourse basis to the government.
At press time, it is unclear which banks would be involved in financing the remaining funds for the project and NAD is looking at various options. “We have done two financings already and we have been oversubscribed. I am confident the package we put in front of the banks will be very attractive,” says Richmond. “These are long-term, 20-year loans and there is a variety of different credit instruments we are looking at to see which would be the most beneficial and flexible for us. It most likely will be long-term debt such as bonds, which banks are very comfortable funding for large infrastructure projects, and our coverage ratios are very good.”
In the meantime
Until the funding is in place and the expansion completed, however, the airport still has to be maintained. Unlike other facilities such as manufacturing plants or hotels, Nassau’s only airport cannot simply shut down for refurbishment. The continual upkeep of buildings that are in some cases more than fifty years old and see traffic of millions of people every year is costly and time consuming. NAD is a wholly owned private subsidiary of the government that receives no guarantees or grants and is a self-sustaining commercial entity. In short the airport has to operate as a business—and it hasn’t been doing that.
Airport economics are the product of a fairly straight forward equation: aeronautical revenues (such as landing fees charged to airlines) plus non-aeronautical revenues (such as parking fees) minus costs equals viability. Unfortunately, when Lynden Pindling International Airport’s figures are run through this formula they come out $6 million in the red for each year of operation. NAD has given itself five years to turn this around. “It is critical,” says Richmond. “No business can run like that.”
One way of increasing revenue is to increase landing and terminal fees. Nassau’s landing fees are incredibly competitive—so competitive in fact that they only contribute 33 per cent to the cost of maintaining the airport, a figure way below what is needed, and haven’t been raised since 1993. NAD is working in conjunction with the government to increase the fees in line with comparable US and Canadian airports.
A new passenger facility charge included in ticket prices—along with other revenue enhancements such as car parking fees—augment cash flows.
Another source of income seriously overlooked in past years is the possibility of retail in the passenger outlets. In a first step to rectifying this oversight six retail outlets opened in the US Departure Terminal earlier this year, namely Bahamas Sol, Hard Rock Café, Harley Davidson, My Ocean, Tortuga Rum Cakes and Uniquely Bahamian. These kiosks have quickly become the best performing outlets for these brands in The Bahamas.
At the official opening of the stores in January, Branville McCartney, MP, Minister of State in the Ministry of Tourism and Aviation, commented: “This is significant, not only due to the fact that this is the entry to the Islands of The Bahamas for millions of visitors to our country annually, but also because it broadens the Bahamian entrepreneurial base, while augmenting the variety and diversity of quality local products offered consumers passing through this facility.”
He added: “Revenues generated by the rental of new retail spaces will provide the Nassau Airport Development Company with some funds to assist with the operation and redevelopment of the airport. It appears to be a win-win situation for all concerned.”
Richmond expects the demand from other companies wanting to open outlets in the new terminals to easily outstrip supply. “Every major retailer operating in The Bahamas, and some that don’t, has approached us about the possibility of opening shops in the airport,” he says. “Not only is it an important stream of revenue for us but also adds value for the customer.”
NAD has put aside $10 million for the continued improvements of existing facilities, but there comes a point where refurbishment is simply a waste of money as the facilities will be bulldozed during the redevelopment anyhow. “It is a difficult time,” says Richmond. “We feel that we are in a very old, leaky vessel and we are just trying to drive it as far as we can before we can jump ship and climb aboard the brand-new one.”
With work scheduled to start later this year, the airport’s renaissance is at hand and well overdue. “I think the whole of The Bahamas will breathe a sigh of relief when the new US terminal opens,” says Richmond.
• Nassau International Airport opened November 2, 1957
• It has two asphalt runways measuring 2,537 metres and 3,358 metres in length
• The name of the airport was officially changed on July 6, 2006, in honour of the Rt Hon Sir Lynden Oscar Pindling, the first Prime Minister of The Commonwealth of The Bahamas
• More than half the airport’s international flights are to and from the US
• It is the fourth busiest airport in the Caribbean region