Sample Document for Search: Aerospace Industry News

Text:
Airport Group International has been quick to catch on to new business areas in the private sector.

As governments around the world look to private industry to develop and manage their airports, the two pioneer companies in the sector - Airport Group International (AGI) and BAA - are increasing their efforts to win clients for their services. At the same time, dozens of other companies - some created in response to prime opportunities like those on offer in Australia - are scrambling to get in on the action.

AGI - successor to Lockheed Air Terminal - is by far the senior company in the field. For decades Lockheed was the only private company operating a major US airport, at Burbank, California. In October 1995 BAA USA became another major player in the US when it began a 10-year contract to manage Indianapolis International Airport and five other Indianapolis facilities. AGI still operates Burbank-Glendale-Pasadena under contract to the local airport authority, which bought the airport from Lockheed in 1978. Lockheed Air Terminal had bought the facility from United Airports Company in 1940.

AGI also provides management services to the state of New York at Stewart International Airport and to Columbus, Ohio, where it operates the municipal airport. Since 1980 it has managed the 14-gate international wing at Atlanta International, where it runs the flight and baggage information display systems, and provides passenger and ground handling for the airlines using the facility.

AGI's wholly owned subsidiary, LAH, is part of a limited partnership that designed, financed, and built the Trillium Terminal 3 at Toronto Pearson International in Canada. The terminal is operated by AGI under a long-term agreement with the partnership, handling about 250 flights a day by 10 airlines.

At Los Angeles International, AGI arranged financing and installation of specialised systems for the international terminal, including baggage handling, loading bridges, aircraft guide-in and centralised pneumatic air and ground power.

AGI provides passenger and aircraft handling for airlines at several other airports. It supplies aircraft fuelling services at Chicago O'Hare, Honolulu, Charlotte, San Jose and Guam; and sells consulting services through its Thompson Consultants International subsidiary.

AGI is an affiliate of Lockheed Martin Corporation and Soros Capital, LP, which each own 42.5 per cent of the company. Five per cent shares are held by DFS, United Infrastructure Company and SunAmerica. DFS is the world's largest duty-free operator, SunAmerica is a major Los Angeles-based financial services company, and United Infrastructure is a joint venture partnership between Bechtel Enterprises and Peter Kiewit & Sons. Other companies are involved in AGI through the major shareholders.

"The difference between Lockheed Air Terminal and AGI is the new strategic investors and the new direction of these investors," according to AGI president and chief executive officer Patrick Cowell. Lockheed provided management services for a fee, but AGI is taking an equity interest in projects and forming public/ private partnerships, he said. "We have partners who are looking for investments, such as Bechtel, which has an investment arm.... This is outsourcing the airport management through privatisation."

The new company is interested in both management and development, says Cowell, who joined the organisation in July. For example, he said, Bechtel will invest in land in and around the three major Bolivian airports, which AGI will operate under a 25-year contract awarded in November. General Electric, another partner in AGI, may invest in a hotel or golf course near the Toronto airport. AGI may go into retail or service industries around airports, he explains.

"We are looking to take over ground handling and other services for various airlines worldwide. We may acquire companies that do that," said Frank Clark, AGI's vice president for airline services. As airlines look for ways to reduce their own staffs new opportunities are created for service companies, he notes. "Governments want to improve their airports and upgrade the operations skills of their personnel, as well as get income from the sale or lease of assets," Clark added. In Bolivia, he said, "We will bring in state-of-the-art technology to help them upgrade their airports and work on designs for new facilities." The airports at La Paz, Santa Cruz and Cochabamba carry more than 80 per cent of the country's air traffic. The contract calls for AGI to pay the government 20.8 per cent of the fees it collects at these airports. AGI will look for opportunities to sell airlines services in Bolivia, Clark added. "Anything on an airport, we're capable of doing."

AGI is very interested in South America, and has established an office in Buenos Aires headed by Executive Vice President Robert Aaronson. Argentina is planning to privatise more than 50 airports. "Argentina and Australia are the two major players now in the world" in airport privatisation, Clark says.

In China, AGI and Haikou Meilan International Airport General Company have entered into a co-operative agreement to finance, build and operate a new international airport, a US$275 million project scheduled for completion late next year. It is also a major participant in a consortium, called China Blue Sky, which has a 25-year contract to provide aviation fuel systems and fuelling services at six airports in south and central China. Fifty-one per cent of China Blue Sky is owned by the Civil Aviation Administration of China (CAAC) and the remainder by AGI and two oil companies, Vitol of the UK and Fortune of Hong Kong.

On Guam, where AGI provides passenger and freight handling, aircraft maintenance and fuelling, the airport authority in December selected the company for a two-year contract, renewable for another five years, to supply all maintenance and operations support for equipment in the new international terminal.

Cowell says that AGI is concentrating its efforts in North and South America, Asia and the Far East and Europe. "There are no areas of the world we're not interested in, but we can't randomly chase all over the world."

Retail success

BAA is the successor company to the British Airports Authority, which was privatised by the UK government 10 years ago and now owns the London airports and five others in Great Britain.

The company developed retail shopping into a major revenue earner at its British airports, and built on its reputation as a marketing wizard with its success in Pittsburgh's new terminal. The retail and food service mall there, designed and operated by the company's international division under a 15-year contract, produces average per- passenger spending of US$6.68, compared with US$2.40 before the new terminal opened in 1992. Sales per square foot in the Pittsburgh airport are triple the amount of a typical retail mall in the US.

However, David Suomi, vice president for business development of BAA's US interests, says retail is just one of the company's core businesses. Others are airport operations, property development and airport project development and management. "BAA is a relatively conservative company," he said. "We want projects that fit in with the BAA culture, where we can add value and not expose ourselves to undue risk."

In the Indianapolis contract, BAA pledged to lower airline costs by a total of at least US$25 million over the 10 years of the contract, while improving airport operations. If it does not produce these savings it will earn no fees. Results so far have been good, according to all reports.

In Australia, BAA joined with local partners to form a new company, Australia Pacific Airports Corporation. This is one of six teams shortlisted in the first round of Australia's airport privatisation programme.

In late February the company was close to concluding a contract that will give it an equity stake in the Naples airport, where it plans additional development. It "has an ongoing relationship" with airports in South America, Suomi said, and is "pursuing opportunities in Asia and the Pacific" through its Hong Kong office. In the most recent of these, BAA hopes to secure a contract to operate and manage Bali airport in Indonesia. BAA's international office in London deals with European and South African projects.

In the US, BAA is a strong contender for major contracts at Boston Logan International and Newark International. The Boston project involves the complete redevelopment of Terminal A on the site of the former Eastern Airlines building. In a decision process now under way, the Massachusetts Port Authority will select a developer to take over the existing operations in the terminal and manage demolition of the old building and design, construction and financing of a replacement facility, then operate it under a long-term lease. The contract is expected to be awarded by the end of this year.

The Port Authority of New York and New Jersey also expects to select a company this year to develop retail and food malls in Terminals A and B at Newark. The curved, relatively shallow design of these buildings makes this a particular challenge, says Suomi. The project is among half a dozen in the US where BAA is looking to make use of its airport management experience, and expand its core business interests.

Photograph: Fuelling at Honolulu International is managed by AGI

Jane's Defense & Aerospace News/Analysis
© 1997 Jane`s Information Group. All rights reserved.
Dialog® File Number 587 Accession Number 10855323

Top