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Puerto Rico’s governor on Tuesday approved turning over the operations of Puerto Rico’s largest airport to a private company as part of an estimated $2.6 billion deal that began under his predecessor and has been fiercely protested.
Gov. Alejandro Garcia Padilla said that while he would have managed things differently, the U.S. territory’s government already had committed to the deal.
“Puerto Rico gave its word and we must be firm and transparent in honoring it,” he said in an announcement hours before the deal would have expired, with dozens of protesters gathered outside Garcia’s office pledging civil disobedience in upcoming weeks.
Garcia had faced pressure from unions and legislators from his own party who have criticized the proposed 40-year contract with Aerostar Airport Holdings, saying it will lead to lost jobs, reduced wages and potentially higher costs for passengers.
Garcia, however, said the deal needed to be signed because the island’s Port Authority has to pay a $600 million debt Wednesday and a $340 million debt in June.
“Right now, the Port Authority has zero dollars to invest in this airport,” he said. “As everyone who has visited the airport knows, its infrastructure has to be improved greatly and quickly.”
It is the second U.S. airport to sign a deal under the Federal Aviation Administration‘s pilot privatization program, which was approved in 1996 and aims to allow states or local governments to tap into private funds.
The FAA informed Puerto Rico’s government late Monday that it had approved the lease deal “subject to certain conditions,” Port Authority Director Victor Suarez said.
Among the requirements is that the Port Authority cannot use airport revenue from other regional airports to compensate Aerostar. It also must submit an annual performance report on its regional airports as well as a transition plan on the 35th year of the agreement.
The FAA said the Port Authority has collected nearly $26 million in passenger facility charges, but the money has not been used for projects that were approved to use those funds. The FAA added that it is unclear whether the unaccounted funds were used for allowable airport purposes, and said that under the deal the Port Authority must submit an audit of that account.
Under the deal, Aerostar would make an initial payment to Puerto Rico’s government of $615 million, through $350 million in investment-grade bonds and $265 million in equity. It would make additional payments of $2.5 million annually for the next five years. It would then pay 5 percent of airport revenues for 25 years and 10 percent for the remaining decade of the contract.
Port Authority union employees and their allies protested the deal for months, fearing the loss of stable government jobs. But Garcia said they should support it.
“If this deal wouldn’t have gone through, it’s important for you to know that there would be no money to pay your salary,” he said. “There would be no money to honor your retirement.”
Aerostar has pledged to retain an undetermined number of current employees, the FAA said in its decision.
Aerostar has said it plans to invest $250 million in the next four years on improvements including centralizing check-ins and adding 35,000 square feet (3,250 square meters) of retail area. It plans to spend a total of $1.4 billion on capital improvements over the next 40 years and set aside $6 million in an escrow account to reward airlines that increase their service in the first three years of the agreement.
Port Authority spokesman Juan Rivera said the island’s airport gets about 8.5 million passengers a year and is served by 20 airlines that make more than 150 flights daily. The government has struggled to boost passenger traffic, expand and modernize the airport and make improvements to terminals and taxi ways and runways.
The Port Authority is nearly $1 billion in debt, and officials have said they would use the new revenue to renovate the island’s regional airports and its cruise ship piers.