I was President and CEO of Airports Council International – North America (ACI-NA) for eight years, from July 1, 2005 through June 30, 2013. During those eight years, I had more conversations than I could possibly count with people who wondered why airport privatization has not taken off in the United States. Many of these conversations were with people heavily involved in running or financing privatized airports around the world. Many were held with U.S. colleagues who thought privatization would provide benefits. In the world’s largest economy, and primary bastion of capitalism, airport privatization has remained the rarest of infrastructure animals. Why?
There are fundamental differences in how climate change impacts airports. Airports are operationally different from, say, power stations or seaports. For example power stations are intrinsically enclosed facilities; their encasement against external elements is relatively straightforward. With seaports, appropriate walls or physical barriers can be erected to shelter against potential increases in rough seas or in sea-levels.
For airports, it is not possible to simply build physical barriers to close them off against adverse atmospheric effects that may afflict flight operations.
This is part three of a series where I explore concepts associated with people management, inspired by Greg Principato's post on the key concern of airport executives: people. Part one is on discipline and part two on development.
So far, we’ve discussed people management techniques that apply to your current workforce. This article relates more to building or replenishing your team in a way that should see its output increase. It is also a relatively controversial concept.
The reasons why workforce diversity is still a “special interest” activity rather than part of our “day to day” varies. It is likely to be a combination of poorly implemented corporate policy, fearful entrenched management and, even cultural prejudice (be it racism, sexism, agism, etc.). It might also be because diversity interventions can conflict with a person’s morals and values.
To help us avoid some of these problems, we’re are going to look at two limited premises - the benefits of diversity and unconscious biases - and one technique leaders can use to embrace and promote diversity. And unless otherwise stated, this article considers diversity across multiple domains including gender, disability, ethnicity, etc.
Diversity is Better Business
There appears to be at least two different types of arguments that diversity is not only good business but better business. The first category puts forward that diverse teams perform better than non-diverse teams. The second category argues that with society becoming more diverse generally, businesses need to embrace diversity in order to maintain their workforce.
In the first case, research abounds with comparisons between businesses said to be more diverse and those considered less with results said to show that the first group outperforms the second. The diversity being examined includes numbers of women on the board, gender in the general workforce (.docx file), and ethnic diversity in the general workforce.
Since the numbers all vary, readers are encouraged to explore these and other links to satisfy themselves on whether performance and diversity correlate.
On the second point, demographics of western society typically show that the representation “traditional” white, male workforce is shrinking relative to other sections of society. In non-western societies, change is also occurring due to globalisation and an increasingly mobile society.
In order to attract and retain this “new” workforce, business has to embrace diversity (often referred to as diversity’s twin, inclusion). In a competitive job market, those companies and those teams that work to foster an inclusive environment, will get their pick of the talent. Why would you want to shut out a growing segment of the labour pool?
Barriers to Better Business
And yet people, leaders and team members, still put up barriers to diversity. The reasons may vary with fear, apathy and ignorant bliss as examples but this author believes that they are always rooted in some internal bias.
These biases may be deep-rooted prejudices or they may be rather superficial rules of thumb based on experience or the cultural context in which one has grown-up. Sometimes, they might be rather explicit and conscious or they can be quite unconscious. It could be argued that all biases have an unconscious root*.
It’s Not Your Fault
Unconscious biases are a product of our experiences. As we have travelled through life, we have learnt things, who to trust, what works well, where danger lurks, and we have constructed mental models of the world to guide us in future decisions. Interestingly, it is just as much about what we don’t experience that can bring our mental models undone when the world changes around us.
Take for example the Australian business leader that was “humiliated” in front of a large audience when a strong diversity trainer called him on stage with a Torres Strait Islander woman. In turn, he was shown that the woman on stage struggled in life due to personal characteristics he didn’t share and that he had never even thought about them, either positively or negatively.
This often manifests in an attitude that there isn’t a problem in need of fixing and even minorities are not immune. At a Women in Airports Breakfast held a couple of years ago, the panelists, three very successful airport leaders, were asked about pay disparity between men and women. In response, all three stated that they had never had a problem with their own remuneration and, in the aggregate, dismissed the questioner's concerns. Those familiar with this issue will be able to point to research that shows that "women, on average, earn less than men in virtually every single occupation for which there is sufficient earnings data for both men and women to calculate an earnings ratio".
The Challenge is to Challenge
So, if we accept that diversity is essential to future success and that we may be operating on unconscious biases, what can we do about it?
The answer is to challenge our decisions regarding our team. Obviously, this relates to selection decisions but it also includes the requirements we set for positions, the feedback we give our current team and the individuals we identify for development opportunities.
At first, it is worthwhile to just challenge your own decisions and choices. Ask yourself, why do I prefer Dave over Ramona? The answer might not even be that you have always had a man in that role. It could be that your childhood friend was named Dave or that your first ex-girlfriend was named Ramona**. Once you have identified any biases, you should be able to look past them.
In organisations actively promoting diversity, they may have implemented procedures designed to challenge potentially biased decisions. In some HR departments, they have been instructed to challenge essential requirements put forward by hiring managers. They are asking questions like why is a degree from particular colleges required and why do they require past experience with certain companies? And in other cases, job advertisements must pass an additional stage gate where an independent manager must review the content for potentially biased language.
In all these cases, the result of the challenge may be that nothing changes. Dave might be the best candidate for the position and that job might require a Stanford education with experience at a management consulting company. The point is that these decisions were challenged and, over time, a more inclusive bias will become the norm.
From Decisions to Concepts
The natural progression from challenging decisions is to begin to examine the concepts behind these decisions. For example, if we go back to Dave and Ramona and our essential requirements for their job, through the process of challenging these decisions, we might end up challenging the concept of “best candidate for the position”.
Let's say that Dave is better at the job. You can pick the measure by which this assessment is made, past performance, advanced qualifications, original research that has progressed humankind’s understanding of the field, but the assumption is that he is better. If selected, Dave will become a part of your team and a social dynamic now comes into play. How will Dave contribute to the team environment as compared to Ramona? Are we even considering this as part of the selection process?
In the graph below, we are assuming that Dave is “better” at doing the job and that Ramona is “better” in terms of contributing to the team. What constitutes “better” now depends on the role and the dynamics of the existing and even future team. This picture is not a rule for assessing men versus women, experience versus new ideas, or Anglo-Celtic versus Latin heritage, it’s just a hypothetical example.
The graph offers three ways of comparing the two of them and coming to a decision of which to select for the role in your team. The left hand version could be described as the “best person for the job” approach and, interestingly, could be considered the most anti-discriminatory. It doesn’t consider gender, age or ethnicity at all. The middle graph considers the potential impact of diversity on the team and considers it in tandem with the traditional approach. Maybe Ramona becomes the “better” choice and maybe Dave is still your preferred candidate. On the right hand side, the technical aspects are reduced to the minimum requirements, a simple tick of the “can they do the job” box with the diversity score added to the base. Here Ramona is the clear choice because of what she may add to the team.
Which approach to take is always the choice of the hiring manager but at least now they might be challenging their approach within the context of what they want to achieve. If diversity is important to them they’ll tend to the middle or right. If performance is important to them, where might they go?
If there is one thing that is true for this field of business, is that discussion is necessary. If we are to do diversity “right”, we need to bring in a range of points of view. To that end, we welcome your comments and feedback below.
* Some very introspective or mindful people may have explored all their own feelings to establish their biases but I would consider these people relatively rare.
** After writing this, I became completely aware of how biased towards a male reader this article is. Perhaps this is because this is the audience that needs to read this, or that I perceive that female leaders are under represented in the airport sector generally or that I am a closet misogynist - I hope its not the latter.
Photo: Header by
/Unsplash, graph by author
This is part two of a series where I explore concepts associated with people management, inspired by Greg Principato's post on the key concern of airport executives: people. The first article in the series looked at discipline.
There seem to be a million internet memes on developing your staff with the “what if we don’t and they stay” posting on LinkedIn on a seemingly four-week cycle. So, it seems almost needless to discuss why we need to invest in our teams but we will, briefly, and then will move into some ideas on development that won’t break the bank.
Faster, Better, Quicker
Continuous improvement is a hallmark of modern business and it doesn’t just relate to safety. Stock holders in publicly-listed airports expect growth & returns, customers expect increased service & amenity and executives want to deliver on these expectations. One of the biggest problems for airports, is that the infrastructure to deliver on some of these expectations takes time to build. In the meantime, we often expect our people to do more with what they have.
But this is only the start of the story. You can’t just dump these expectations on people without creating an environment that encourages and supports the growth in the people we need to support the growth in the business.
A second big argument for developing your people harks back that well-trodden meme I mentioned earlier. The third point in that discussion, for me, would be, “if we don’t invest, they (the good ones at least) will leave”. Part of what people think of as being talented, is having the drive to learn, grow, progress. If our people aren’t getting this from their job, they will look for it elsewhere.
Development as an incentive is a great retention strategy. This author has definitely stayed on with a company offering a development opportunity where alternate career paths were available. It must be remembered, however, that it’s not a guarantee. Some people will leave after having developed a new skill at your expense. The goal is to, with respect to your overall program, think in the aggregate rather than the specific.
Another great reason for taking a strong stance on development is that it can be greatly rewarding from a purely personal point of view. In spite of all the worry associated with people leaving after you have invested time and money in them, seeing a team member that you have supported and developed leave to take a new opportunity; one that they wouldn’t have dreamed was a possibility before, is exciting and extremely satisfying.
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The Three Es
In a lot of internet and company literature, development activities are often broken down into experience, exposure and education. They even have a rule regarding how much of each but we’ll get to that in a moment.
- Experience can be described as learning by doing. At its most basic level, this is on-the-job training of new team members to bring them up to the minimum standard. Moving beyond this, experience involves assigning team members work beyond or outside their current duties.
- Exposure is similar to experience in that it is often a workplace setting but it doesn’t involve any actual doing. It often includes work shadowing or even mentoring. It can also include attending a networking event or a conference.
- Education is the more traditional view of development typically involving off-site training in either short or longer term, formal settings.
Now the rule often cited in relation to the three Es is 70:20:10 - as a breakdown of the ratio between the three activities. Some sources seem to cite this rule as descriptive rather than prescriptive but it's not a bad guide to use in development planning.
So which ratio relates to which activity? Experience should represent 70% of the development plan, exposure should make-up 20% and education is the other 10%. As the bulk of development should relate to experience, let’s look at a great approach to using it in the development of a team member.
Work hardening is a metallurgical process by which a material is strengthened by incrementally straining and releasing a piece of it. Using stretch in development is a similar concept but more mental than physical, of course. A stretch project is a task or project that is thought to sit beyond the team member’s current job level.
Assigning a team member a stretch project works on a couple of levels:
- Firstly, it challenges the team member and fights against stagnation and boredom.
- It can (should) lead to a sense of achievement, pride and increased job satisfaction.
- It also, perhaps selfishly, gets an important project done.
This may seem like exploitation and, if not initiated from a position of collaboration, it could be. It is, therefore very important that the development discussion involves whether the team member is looking for a stretch assignment, in what areas they want to develop and what is their current capacity to take the project on. A stretch project should always be a collaborative decision and for a manager, extra care should be taken to avoid implied expectations - i.e. if you don’t take this project, you won’t be considered for other development opportunities.
Supporting a Growth Mindset
It takes a supportive corporate culture for stretch to work. Much like the implied expectations mentioned above, a culture that doesn’t accept failure will not support stretch projects. No team member will accept a stretch project, if they see it as a poisoned chalice. A positive culture is one that cultivates a growth mindset.
A growth mindset puts learning at the forefront and, as such, comes at the world with a certain set of assumptions. The big ones associated with the discussion here are:
- Challenge is a part of learning.
- Effort leads to learning.
- Criticism is for learning.
Does this mean failure is an option? It depends what you consider a failure. Mistakes are inevitable and are not be feared. Failure will only occur when the goals are not clear, the team member hasn’t fully accepted the project and the manager isn't supporting the project. This is not a set and forget activity.
Building Momentum and Keeping it Up
A support structure is essential to the success of a stretch project. If the company has a formal project management process then this is a good place to start but regular documented meetings looking at the project itself as well as the needs of the team member are a minimum. Since time is often our most precious commodity, it is also our most precious gift. Schedule time to support your team member and their success will be your success - see the personal satisfaction section above.
In the final article of this series, we will take an exciting look at workforce diversity in the airport field. As always, please feel free to contribute to the conversation below with a comment or feedback.
At some point in the careers of most airport managers, the job becomes less about technical expertise and more about leading people. There are plenty of books on leadership, business and management by more eloquent, intelligent and talented people than this author. But in recently building a new airport team and operating model in a challenging regional airport environment, three areas of focus came to the fore.
The first of these is operating discipline. This area is, by far, the most foundational. It takes significant work to set up but it has a long lasting effect.
Operating discipline isn't some militaristic objective with a view to everyone doing exactly the same thing, marching to the beat of a drum played by the manager. It should not be considered or implemented as a restrictive regime limiting the free will of frontline staff.
But we can't escape the fact that many aspects of airport operations, such as security, airside safety, customs, quarantine, etc. are highly regulated with prescribed standards. Furthermore, there can often be unforgiving consequences to errors either through regulatory sanctions or real-world impacts to people and property.
class="p1">So how do we create an environment that ensures what needs to happen happens and still lets people have some ability to exercise creativity and initiative?
Focus on Outcomes
It might seem too easy to simply say “set the destination, not the route”, but let’s consider this approach first.
The reason for anyone to do anything, in business, is to realise a desired outcome - to achieve an objective. That outcome could be to declare the runway serviceable, to confirm a passenger’s eligibility to enter your country or to have a clean floor.
By starting out from this position, you and your team members will share the “vision” of what the process is trying to achieve. This can be powerful; Especially if the subsequent process you design doesn’t result in the desired outcome or the variables outside of the original plan get in the way. Sharing the vision will help make the process more resilient and self-correcting, but more on that below.
The Verb in this Situation is Build
What you build is completely up to you but generally there would be documented descriptions of the work required - call them Standard Operating Procedures (SOPs), Safe Work Method Statements (SWMS), Standard Work Practices (SWPs), it doesn’t matter what the name is.
As you build, keep in mind the old saying often attributed to Einstein, “everything should be as simple as possible, but not simpler”. Be critical of everything that goes into any work process. There is danger in too much, it will be too difficult, ignored or circumvented, and there is danger in too little, parts of the work missed altogether or the ramification of certain results not understood.
Sometimes there is no room for creativity. A manufacturer’s requirements on a pre-start test of a walk-through metal detector is a pretty specific process. If the equipment has to checked at 15 points with a test piece in a specific orientation, then that’s what has to happen. There is no way around that.
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While not advocating a specific approach to developing these work processes, it is strongly advised that whatever approach you take, it is consistent in itself. After all, that is our objective here.
If you do go down the SOP route, make up a standard template, use code references, date the procedure, use versioning, have standard pre-task activities, icons to highlight hazards and a standard approach to numbering steps. Set a culture of meeting expectations but set them with your team.
Here are some tips to help with the process:
- Talk to the people that do the job - Hopefully, those in your team currently doing the work know how it is done, collectively, at least. They are the best source of information for what you want to set as the documented process.
- Observe the work - Sometimes what people say they do and what they actually do is different. This is not necessarily a comment on their honesty but often the best operators can’t articulate what they do.
- Manufacturers’ requirements - When dealing with equipment, it is best to listen to the people that designed and built it.
- Risk-based approach - Consider conducting a risk assessment such as a Job Safety (or Step) Analysis.
Adding in the Airport People Power
Obviously, simply having a documented process is not going to result in predictable outcomes on its own. Training in the process will be required as will time to hone skills and develop experience. Let’s save this for a future article.
Try as you might, you won’t get everything right the first time. Even if you did, the environment might change or new tools become available. This is where a set of continuous improvement processes are required.
The first practical process to consider is how are corrections or improvements documented for changes to be made. There is probably nothing easier than using a red pen, literally. Have a supply of red pens handy and whenever anybody identifies an issue with a process, ask them to write the details down on a copy of the process using red pen and give it to the person responsible for making changes.
In addition to people learning on the job, it is also good to bring in fresh eyes on a regular basis. Observations of the work in action are invaluable but don’t focus just on adherence to the process. Have observers also consider the objective of the process too. It might be that circumstances have changed and what used to produce the outcome you wanted, isn’t working anymore.
Discipline requires effort - both to build and to maintain. When so much is at stake, safety, security and compliance, we can’t afford to lose it.
In my next article, we will explore the development of airport people beyond the basics, on-the-job training and experience. In the mean time, we are also interested in hearing about our readers experiences, please leave a comment or feedback below.
In my first article Public Private Partnership (PPP): What You Need to Know, I explained the role of Public Private Partnerships (PPP) and their significance in the development of airports. The activity involves consolidating numerous variables, and disparate interests and motivations into a single working framework i.e. the Airport Master Plan. In this article, I will outline the process that enables these variables to be rationalised and how the PPP mechanism is kick-started.
Public Private Partnership Process
An airport Public Private Partnership exercise is a deal-making activity similar in principle to a merger and acquisition initiative. It is propelled forward by certain built-in logic and compelled by an affinity for the asset. There is a seller-buyer relationship with “offeror” and “offeree” interactions.
The PPP process is usually a one-off, non-standard activity, and is often supported on both sides by external specialists; legal, financial and technical. As in any sale and purchase interaction, there is tension between seller and buyer that is played out. In the PPP instance, conclusion to the deal-making is marked by a milestone which is designated in this article as “Transaction Close”.
At Transaction Close, a Concession Agreement between the parties is signed. The terms and conditions in the transaction will thereon chart the path of the airport’s future development.
Transaction Close is therefore pivotal to an airport’s intended PPP development transformation. This point paves the way for the implementation of design and construction activities (or variations thereof), and the structuring of associated financial and legal frameworks. It is also the point for introducing changes in the management and operational regime at an airport.
The process of reaching Transaction Close is nevertheless intricate and challenging. Elaborating this in a simple way is the main aim of this article.
Getting to Transaction Close may be described as a 4-phase process (see figure).
Phase 1 - Recognition and Conception
This initial phase is usually seller-driven. An airport’s owner needs to appreciate the particular attributes of their airport as a productive and performance-based asset. The airport needs to internally acknowledge its commercial potential or enterprise value. A comprehensive understanding of these attributes is fundamental in transforming an airport as bait to lure-in investors.
Firstly, the operational and performance attributes of an airport asset needs to be articulated. It includes calibrating the airport’s socio-economic significance to the local and wider national economy. This is also the point where mandated Strategic Development Goals (SDG’s) are leveraged into the overall Public Private Partnership strategy.
Leveraging an airport’s attributes and articulating its asset value are important. An investor needs information to quickly judge whether an airport can be a viable business proposition, or otherwise. The investor also needs to know if extraneous burdens and risks are within tolerable limits. This represents the public sector offering. Setting this up often requires a shift in the seller’s operational and management mindset.
Then a plan needs to be hatched and resources deployed to present the airport as a prospectus to investors. Internal operational adjustments may also be instituted in parallel to embellish the offering.
As this is typically a detailed non-standard and one-off activity, the services of external specialists are usually brought in. Amongst the output produced is a comprehensive and integrated Airport Master Plan, that coincidentally also includes an Airport Business Plan.
The end result is both parties (seller and buyer) must pick up a compelling belief in the asset’s future potential. Their respective goals in this context must appear tenable. Both establishment and corporate buy-ins are therefore essential; to motivate moving forward and to commit further resources towards advancing the scheme.
For a prospective airport investor, acquiring a positive affinity for the airport asset is important. At this stage, the prospective investor must already sense enterprise value in the airport’s operational future.
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Phase 2 - Viability and Validation
This stage of proceedings is essentially investor-driven.
Mutual interest arising from the parties is formalised through some form of Memorandum of Understanding (MOU). For the public sector offeror, enabling policies, legislative and regulatory frameworks should be suitably deliberated and mandated. Similarly for the private sector investor, Board approvals would be needed as a precondition to proceed.
An MOU defines the rights and obligations, and the mode of conduct in further proceedings. This is especially important with respect to the access and exchange of confidential and/or commercially sensitive information. An MOU invariably also describes an exit plan; i.e. the process in which parties may abort proceedings at various stages of inquiry.
Formal due diligence and the gathering of detailed information begins here. The objective is to obtain robust evidence to ensure enterprise value exists and can be potentially drawn out from the airport’s future [improved] operations.
Amongst data exchanged and examined are all manner of technical, financial and legal information in accordance with the provisions of the MOU. They will study the airport’s facilities and systems, its organisation and human resources structures. There will also be analyses of contractual and commercial arrangements that are currently in place. The quality and presentation of data (i.e. consistency with accepted business best practice) play an important part in catalysing positive affinity towards the asset.
On the seller’s side, due diligence entails reviewing the potential investor’s financial standing, including its managerial and technical capacity to fulfil future expected obligations in the airport context.
The respective findings of the parties are exchanged and deliberated. For the public offeror, these are assessed for compliance against prevailing policy, legislative and regulatory mandates.
For the private investor, the information is checked for compliance against existing Board mandates. Non-compliances arising are further deliberated until revised mandates and/or approvals may be obtained.
As data are gathered and parties become more informed, the nitty-gritty starts and the plot thickens. If conditions at this stage appear tenable, the prospects for partnership will gain traction. Gradually, the fabric of a Public Private Partnership will take shape.
A satisfactory outcome from the above proceedings will lead to the drafting of a Concession Agreement, the next phase.
Phase 3 - Constructing the Mechanism
The foundations of a PPP are formed through the assembly and alignment of technical, contractual and financial variables associated with an asset and its future outlook. Abstract visions and expectations are massaged into solid financial and contractual form that aligns with technical realism.
There are many bundled obligations and various layers of sub-components to bind together. Counter-measures against inherent vulnerabilities need to be formulated.
This gets rather complicated for airports. There will be constraints imposed by each element, and will infringe on the respective interests of the parties. For instance, technical or regulatory requirements may demand capital commitments that are higher than original investor expectations. Borrowing regimes may be obstructive and workers’ unions require excessive pandering. Or contractual provisions may become too onerous, and timelines stretched, and so on.
Provisions are also made to respond to a changing world in the long-term; where established or understood regulations may be vulnerable to political and bureaucratic machinations and change. These risks need to be mitigated and provisions for adjustments and exit strategies need to be put in place.
During this phase, tolerances and compromises to entrenched interests are tested, reworked and assessed. Cohesiveness and the spirit of collaboration between parties must prevail to draw all variables and conflicting interests into balanced convergence.
From the above, a Concession Agreement is constructed. This is the point where serious semblance of a Public Private Partnership would begin to appear.
Phase 4 - Reaching Consensus
The Concession Agreement is a pivotal component that formally binds relevant contractual, technical and financial variables together to make the PPP pursuit work. It is a comprehensive document that instructs on the duties and obligations of the relevant parties within the PPP construction.
During this phase, the negotiating parties will jockey to establish a strong bargaining position.
Both parties will formally define their respective objectives for negotiation and parameters of acceptances.
The final aggregation of these elements is the result of repeated cycles of negotiation and deliberation where internal and external variables, persuasive and dissuasive, are all rationalised, to the best extent possible. They normally have to be passed by the Regulatory Authorities (Public Sector) and Executive Board (Private Sector) for formal approval.
Assuming the trajectory is positive, deal-making is completed when consensus is reached and the Concession Agreement signed. This is when Transaction Close is attained, and when the Public Private Partnership initiative becomes a reality.
The substance of the Concession Agreement will stipulate downstream parameters for the airport throughout the PPP concession period; design and construction requirements, and its future operational and management regime. Along with contractual provisions, financial arrangements are similarly aligned in sync. Its substance (or lack of) is pivotal to the success (or failure) of the entire PPP endeavour.
This article paints an overly simplistic picture of an undeniably complex process. There is certainly much of the devil lurking in the detail.
The four phases described in reaching Transaction Close do not necessarily play out as distinct sequential activities. Rather they merge from one-phase to another. Often, reversals and backtracking may arise. The path that eventually plays out may be rather contorted and protracted.
At the same time, airport development pursuits are characteristically substantial capital items and are operationally complex. Airports are also variously different from one to another in operational character and technical attributes. Their risk profiles are different. Pitfalls are many. Public Sector leveraging of SDG’s needs to be done with judgemental care as do the pacifying of excessive expectations on returns-on-investment. Standard textbook processes may be limiting in this context and may be an anathema to understood sensibilities.
As proceedings draw closer to Transaction Close, the dialogue tends to be increasingly dominated by financiers and lawyers. As part of a box-ticking process of elimination motivated by time-cost expediency, it is also convenient for technical aspects to be deemed resolved or “fixed” by this stage. This is when technical elements risk being prematurely marginalised. In an airport environment, interdependencies between technical, financial and contractual are inextricable. Any alienation of technical considerations can unwittingly permeate imbalances and performance vulnerabilities in the critical finalisation of the Concession Agreement. This is a compelling point in airport PPP’s.
Garnering cohesiveness and collaboration to advance the process towards multi-party convergence is therefore daunting. Data quality and the nuanced delivery of information matter. Shepherding parties, to commit resources towards a complex activity where the outcome depends upon the solidarity of others, requires a well rounded team, and insightful leadership.
Alas, our reality remains imperfect. And perfection tends to be a troublesome beast easily downtrodden by advocacies of distorted cost-consciousness and reckless quick-fixes. In an airport environment, ill-judged shortcuts taken in the name of expediency is indeed risky. Their results can be severely punishing.
That being said, insightful and thorough scoping remains doable for a balanced and well calibrated Concession Agreement. With diligence and depth of care, a good Transaction Close for airports certainly remains a viable and worthy goal. I hope this article has offered some clarity in advancing your airport Private Public Partnership intentions or have triggered further thoughts on the subject. Will you leave questions or comments in the area below?
References and Suggested Reading Throughout the article, the term “asset” refers primarily to airports, their related infrastructure and facilities. There may be overlapping generalities that may apply to other classes of assets. Notwithstanding, this article is to be read in the context of airports and their particular characteristics as a special facility that processes aircraft, people and cargo. For simplicity, Transaction Close as used throughout this post shall mean to encompass both “Commercial Close” and “Financial Close”. There are variations and different interpretations of this process. An alternative example by EPEC may be found here In the context of this article, the term “investor(s)” may also refer to lender(s) to the transaction. Although this first phase of activity is usually driven by the Public Sector (seller), unsolicited Public Private Partnership proposals or those catalysed by the Private Sector do exist. They nevertheless invariably require the concurrence of the Public Sector in order to proceed.Generalised (non-airport) details on Public Priave Partnerships may be gleaned from the World Bank PPP Reference Guide How Berlin’s Futuristic Airport Became a $6 Billion Embarrassment
Figure is by author
Editor's Note: When we published the Introduction to Airport Planning post June 2014, we had no idea that it would be one of the best read posts. So today, I am pleased to welcome Azlan Morad who is writing for us about a hot topic: Public Private Partnership, aka PPP, P3 or 3P. We welcome your comments!
Airports that are well and professionally-run generally present themselves as attractive assets. They become even more valuable if they can also make business sense and demonstrate profitability as operational enterprises in their own right.
Being both operationally efficient and profitable is an enviable state for a modern airport to be in; where operational capacities are in equilibrium with profit generation; where there is sufficient plough-back potential to make the airport asset self-sustaining and viable as a going-concern. In the context of an airport, this self-sustainability exemplifies “value”; it demonstrates continuity and an airport’s ability to catalyse the local economic multiplier.
Operational Concept of an Airport
Balancing operational efficiencies in-line with meeting private investor prerogatives is nonetheless a complex process.
This article aims to outline a perspective into this world; of merging private investor/lender interest with publicly-owned airport infrastructure assets. It is an example of juggling intricate variables for transforming airport operations and its ownership into a sensible business proposition. From the underpinnings influencing decision-making, the post also alludes to the use of the airport master plan(see 515 - Master Plans) as a tool; to structure discourse, to help close the trust deficit, and to draw-in group consensus towards reaching transaction close.
Manoeuvring to balance operational efficiencies whilst aligning with investor/lender prerogatives also implies dealing with inherent complexities that make up the nature of airport operations. Intricacies associated with a typical mainstream airport may include:
Consolidating Operational and Commercial Considerations at Airports
Reading into the crystal ball of future air traffic growth remains an inexact science. Deciphering their implications for fresh capital to upgrade or replace existing airport facilities requires acute technical judgement. Dealing with risk-averse investor/lenders requires added commercial acumen. In a traditional airport environment, juggling with these issues within a private-sector context is often a departure from airport operational norms. Soliciting specialist input and the use of appropriate tools in these circumstances become compelling.
Over recent decades, there has been unprecedented demand for larger airports capable of handling ever larger aircraft and more passengers and cargo.
In the 1930’s, a typical aircraft carried about 10 passengers. Today, an Airbus A320 or Boeing B737, the industry’s workhorses, carries around 150 - 170 passengers each.
Since the 70’s, with the advent of larger aircraft such as the Boeing B747 (c.400 pax), and latterly the Airbus A380 (c.550 pax), operations and processes at mainstream airports needed rapid scaling up. By 2012, the successful market penetration of Low-Cost-Carriers (LCCs) and the opening up of former Soviet Block countries have dramatically escalated air traffic growth around the world.
The overall traffic increases not only demanded physically larger airport facilities but also required more complex technology adoptions, systems and HR specialisation (1).
These have spurred airport investments across the globe. In 1995, worldwide cumulative annual investments in airports stood at c.USD 15 bil. By 2015, the annual figure was c.USD 60 bil. Cumulative airport investments by 2025 is projected to be c.USD 80 bil. per annum (2).
Scaling-up and the Motivation for Attracting Private Investments at Airports
Public Private Partnership
Airports are traditionally state-owned assets operated as an extension of the government bureaucratic machinery. With dramatic increases in air traffic and congestion, legacy airport stakeholders face unprecedented complications. They often impose heavy demands that could no longer be expediently accommodated within existing bureaucratic structures. Their large investment budgets additionally strain government coffers that also challenge other pressing social obligations, e.g. in housing, health, education, and so on.
These financial burdens add unwanted strains to public authorities and have triggered interest in drawing private investment into financing airport infrastructure development. And the Public Private Partnership (PPP) model provides the guidelines to fulfil this aim.
Although a sensible proposition, soliciting private money into the realm of public-owned airport assets brings with it a number of issues and complicates the airport development equation. It is no longer enough for airports to operate in a technically compliant manner to fulfil safety prerogatives. To attract private investment, airport stakeholders must now fulfil additional commercial requirements to demonstrate that investment in their airport is “worthwhile”.
To feed investor appetite, legacy airport stakeholders need to consider and prove:
Profitability and growth;
Effectiveness of institutions for safeguarding investment;
Concession given by incumbent beneficiary to the investor/lender is equitable;
Operational and investment risk can be managed within acceptable thresholds.
These are some considerations airport stakeholders and investors juggle with to draw out a business dimension from airport operations and ownership. If successful, the resolution of these issues collectively forms the basis for authorising the release of monies for investment.
Paradigm Shift in Airport Operations and Ownership
Consolidating Operational and Investment Prerogatives
A comprehensive “big-picture” appraisal is essential to forge critical decision-making (Figure 2). It requires broad-spectrum analyses where numerous technical, financial and legal data are consolidated into a coherent whole. This is the path both airport stakeholders and investors take to reach a comprehensive and balanced plan-of-action.
In a Public Private Partnership transaction, strategy plans may include, but are not limited to:
Growth strategy plan
Commercial and budgetary optimisations
Operational efficiency enhancement
Stakeholder and key constituent buy-in
Technology adoption and integration
Governance strengthening and culture change
Each of the above headings necessarily carries significant detail intertwined with technical, legal and financial considerations. They document strategies that translate into their airport’s process flows, their facility requirements, technology required, the HR needs and management structures, contractual frameworks, financial statements, and so on.
Closing the Trust Deficit
Merging the variables into a coherent whole is challenging. The process of deliberation and negotiation goes back and forth through a range of topics; to garner joint sensibilities, and to eventually distil a final conclusion. Throughout the balancing process, it is important that protagonists steadfastly believe that their goals remain firmly valid and worthwhile.
Through this process, key constituents resolve to forge the business case that validates both operational and investment demands.
The reality of moving forward is therefore fraught with obstacles and conflicting interests. Bringing together such disparate interests invariably gives rise to complex negotiations. Leadership, judgement, coordination and structured guidance are essential ingredients to overcome conflicts and close trust deficits.
Converging Towards a Business Case for Airport Investment
To reach a business case, a number of conditions need to be variously met. They include:
Charting clear and targeted trajectories to navigate
Defining timeframes for tasks and for reaching targeted milestones
Nature of information sharing and methods for dealing with confidentiality and other sensitivities
Information/data requirement for staging forward planning and for anticipating problems
Delegation of tasks and responsibilities
Criteria confirming robustness and validation of analytics
Structured, transparent and objective documentation, reporting and communication of relevant issues
It is important that all information be well articulated and consolidated. They need to be brought into a common framework; a shared information dashboard to help structure information and merge ideas; to provide objective guidance and achieve convergence. These are attributes required to reach consensus - a single point where the trust deficit can be equitably closed.
The weight of tasks embedded in these processes can be easily misjudged and under-resourced.
In simplistic terms, the above is the likely scenario that pans out in an airport Public Private Partnership (PPP) type transaction.
Tools and Methods
As with all trades, a master craftsman uses appropriate tools. And with a measure of competence, s/he knows how to use such tools to extract value from them.
From my standpoint, the fundamental tool to navigate public private partnership type airport endeavours towards transaction close is the airport master plan.
The Role of an Airport Master Plan
If properly constituted, the airport master plan framework and analytics represents an invaluable instrument that fosters collaborative decision-making. The process provides a structure for articulating and consolidating a broad range of information, formatted in accordance with accepted conventions that is understood by, and carries relevant significance to key constituents; sector specialists, bureaucrats, policy makers, lawyers and bankers alike. It facilitates buy-in and consensus building. A well articulated airport master plan is a comprehensive tool that transaction protagonists can use to:
Analyse and interpret airport data
Rationalise capital and operational expenditures
Establish compliance to required industry and governance standards
Calibrate equitable charging regime for accruing aeronautical revenues
Optimise non-aeronautical commercial potential
In deliberations and negotiations leading towards transaction close, the possession of well articulated and credible information lends commonality to disparate parties; it presents a structured path to demonstrate an airport’s bankability as a business proposition.
The airport master plan is certainly not a magic potion to cure all ills. It requires setting-up and be well managed. Its misuse however can prove damaging (3). The airport master plan working framework can be substantial. Its scope and interpretation can vary. Harnessing its logic and structure to advantage however requires insight, leadership and knowledge.
References & Suggested Reading(1) For general sector updates, refer to: Connectivity and Growth - Issues and Challenges for Airport Investment (2) Source: PwC and Oxford Economics. Note: USD million, current prices, constant 2014 exchange rates(3) If proper Airport Master Planning principles, procedures and sensibilities are disregarded, the consequence can be costly and have damaging outcomes. Examples of such consequential damage arising can be referenced in: Investors Win Auction for Bankrupt Spanish Airport and India's Ghost Airports Highlight Investment Risks
More Related ArticlesThe Ownership of Europe's Airports 2016, report by ACI Europe EU Airports Increasingly Turn to Private Investment to Compete With Global Counterparts, Skift Japan Boosts Osaka Airports With Biggest Ever Project Finance Deal, Global Construction Review National Council for Public-Private PartnershipsGuidebook to Promoting Good Governance in Public-Private Partnerships, U.N. Economic Commission for Europe, Geneva, Switzerland: United Nations Publications, 2008
Image credits: Header is by Vitor Azevedo who created almost all of the beautiful photos you see on our website. Figure 1 is an adaptation from Sonia Sulzmaier's Consumer-Oriented Business Design: The Case for Airport Management (2000), ISBN no. 3-7908-1366-4Figures 2 through 6 are by the author