Public-Private Partnership Policy Casebook/LAX

Summary

The Los Angeles International Airport, known less formally by the airport abbreviation as “LAX,” is the second most used airport in the nation and fifth in the world in terms of use. Passenger traffic in 2015 set a record for the airport of close to seventy-five million passengers, which is six percent more than 2014 traffic. It is estimated, by LAX representatives, that the next twenty-years will demand up to ninety-five million passengers a year.

Built in the early twentieth century, LAX has not been upgraded since 1984 and is need of an overhaul. The last LAX upgrade was spurred by Los Angeles hosting the 1984 Olympics, and Los Angeles has once again been chosen to host the 2024 Olympics for the summer. The new LAX infrastructure upgrade, called Landside Access Modernization Program (LAMP), is proposed to be completed by 2023 and cost $5 billion in US currency. The goal of the project is to ease congestion of traffic to and from the airport. This is to be accomplished by directly connecting public rail transit and one consolidated car-rental center to the airport with a pedestrian “people mover” corridor reaching two-miles long to the airport.

Annotated List of Actors

The actors of the project include the Federal Agencies, the California State Agencies, the Regional and Local Agencies, and stakeholders, some of which are identified by the LAWA. Among them, the following entities have played the main roles in LAMP.

• Los Angeles World Airports (LAWA): LAWA is a department of the Los Angeles County that is in charge of the operation of LAX. LAWA is one of the main public sector actors in the LAMP project.

• Los Angeles Country Metropolitan Transportation Authority (Metro): Metro operates all bus and rail service in the Los Angeles County. Metro is the other main public sector player in the LAMP project.

• Citizens of Los Angeles County: They have the power to approve the sales tax increase, which is considered as a source of funding for part of the LAMP project. They are also possible passengers on the new trains made by the LAMP projects.

• Passengers of the new trains: The number of passengers will affect the revenue that the concessionaires of the LAMP will receive.

• Bidders: They will bid the concessions of the projects in the LAMP; there will be at least two projects will be conducted through PPP: APM and CONRAC.

Timeline of Events

• October 1, 1928: Los Angeles Municipal Airport begins operation.
• June 1929: The first structure, Hangar No. 1, is built.
• December 5, 1946: Commercial airline service begins.
• November 10, 1983: Second-level roadway and ticketing connector buildings are completed.
• January 23, 1984: Terminal 1 is completed.
• June 11, 1984: Tom Bradley International Terminal is dedicated.
• 1995: Los Angeles World Airports (LAWA) began the LAX Master Plan Program.
• 2004: LAX Master Plan adopted.
• April 2, 2007: Newly relocated Runway 25 Left/7 Right on the south side of the airport reopens to air traffic. Completion was a major milestone in an overall $333-million South Airfield Improvement Project.
• June 24, 2008: New center taxiway opens on the airport’s south runway complex, providing enhanced airfield safety.
• June 11, 2009: Runway Status Lights prototype installed to increase overall safety of aircraft operations at LAX by reducing likelihood of a runway collision. The pilot program is a partnership between LAWA and the Federal Aviation Administration.
• February 22, 2010: Construction begins on New Tom Bradley International Terminal Project.
• May 24, 2010: Taxiway R, which connects LAX’s north and south airfields, opens.
• June 2010: $12.3-million renovation of the exterior of the Theme Building.
• November 2010: The $13.5-million LAX LAFD Aircraft Rescue and Firefighting (ARFF) station No. 80 completed, improving airfield safety by doubling the size of the original facility.
• January 24, 2011: New $13.9 million Airport Response Coordination Center opens.
• Summer 2012: Terminal 6 renovation completed for $238 million.
• June 20, 2013: Thousands celebrate during historic preview of the New Tom Bradley International Terminal.
• 2014: Runway Status Lights project completed.
• February 5, 2015: Notice of Preparation (NOP) and Initial Study (IS) for Landside Access Modernization Program (LAMP).
• March 2015: A $424-million project replaced the dated, 50-year-old existing Central Utility Plant (CUP) with a modern, energy-efficient facility with state-of-the art computerized management systems.
• 2015: Phase 2 construction on Terminal 1 completed.
• Q4 2016: Terminal 5 renovation expected completed.
• Q4 2016: The $118-million Curbside Appeal and Roadway Improvement Project.
• Q4 2016: Terminal 4 Connector project completed, for $148.5-million.
• Q4 2016: Completion of the $270-million Elevator, Escalator, and moving walkway modernization.
• Q4 2016: Scheduled completion of Terminal 2 Improvement Program.
• Q4 2016: LAMP Certification of Environmental Impact Report/Project Approval.
• Q3 2017: LAMP Estimated Construction Start.
• Q4 2017: A $573-million renovation of Terminals 7 & 8.
• Q4 2019: Midfield Satellite Concourse (North Gates) set for completion.
• 2023: LAMP Estimated Completion of Phase 1 (including APM & CONRAC).

Maps of Locations

The Los Angeles International Airport (LAX) is located at the Western Edge of the City of Los Angeles. The location of the LAMP projects is in an area bounded by the Tom Bradley International Terminal (TBIT) in the Central Terminal Area (CTA) of LAX on the west, Interstate 105 freeway on the south, Interstate 405 freeway on the east, and Westchester Parkway/West Arbor Vitae Street on the north. The website of the Los Angeles World Airports (LAWA) provides a map of the project location.

LAMP also includes the construction of a new station of the Metro Green Line and the “Crenshaw/LAX Line”, which is an under-construction light-rail line. The map of locations of the each line are provided on the website of the Metro.

Policy Issues

Like other PPP projects, the PPP procurements in LAMP have the following policy issues or questions that should be considered:

• Should the projects be delivered by PPP procurements?
  • Value for Money
  • Qualitative comparison
• Are the delivery methods of the PPP procurements in LAMP appropriate?
• Can the PPP procurements attract bankers and/or investors?
  • Bankability
• Can the LAMP projects bring public interest and/or benefit?
  • Expected outcomes

Additionally, since the Project is a part of the modernization of the Los Angeles International Airport, the outcomes of the project should contribute to the goal of the modernization of the airport: to gain the competitiveness in the international aviation market.

Narrative of the Case

LAX Modernization

With LAX having been founded in 1928 and the last time it was upgraded was construction of Terminal 1 for the 1984 Olympics, this airport was seriously outdated prior to the 9/11 terrorist attacks which caused heightened security issues and concerns across the industry. The LAX Modernization Program started with the LAX Master Plan Program in 1995 and resulted in four different scenarios "(Alternatives A, B and C) depending on the future capacity of the facilities of the airport, and a "no action/no project" alternative". The 9/11 attacks caused further review and resulted in an "Option D" with heightened security considerations and focus. The LAX Master Plan was approved by the city council in 2004, with the USDOT filing its Record of Decision on May 20th, 2005. This paved the way for the largest public works program in Los Angeles's history. The $14 billion effort to modernize the airport, paid for entirely by LAX operating revenues, capital improvement funds, fees from passenger facility charges, and airport revenue bonds (zero taxpayer dollars), started in earnest in 2009 and the project is scheduled to last through 2023, creating 121,000 annual construction jobs. The LAMP projects, although part of the LAX Modernization, include various aspects of public and private funding, including PPPs.

Among the projects already completed for The LAX Modernization Program are:

• The Runway Status Lights Project
• Tom Bradley International Terminal (Terminal 1) Modernization
• The Central Utility Plant Replacement Project
• Terminal 5 Renovation
• Terminal 6 Renovation
• The Central Airfield Taxi Lane Project, connecting North and South Airfields
• The LAX Airport Response Coordination Center (ARCC)
• The LAX Aircraft Rescue and Firefighting (ARFF) Station No. 80
• Renovation of the iconic Theme Building
• South Airfield Improvement Project
• Terminal 4 Connector

The LAX Modernization Program ongoing projects include:

• Midfield satellite concourse (North Gates)
• Terminal 1 Renovation
• Terminals 7 & 8 Renovation
• Elevator, Escalator and Moving Walkway Modernization
• In-line Baggage Handling and Screening System Program
• Curbside Appeal Project
• LAX Runway Construction
• Terminal 2 Improvement Program
• Land Access Modernization Program (LAMP)

Landside Access to LAX

Since there is currently no direct connection from the metro stations to LAX airport, all passengers have to utilize vehicle transportation to arrive at and depart from LAX, with an estimated 50% driving there by car. Today, over six thousand vehicles an hour enter LAX during peak periods. Due to the major traffic congestion caused by this crush of vehicles arriving hourly, passengers arriving to or departing from LAX face commuting delays coming and going. In addition to the uncertainty added to the travel times of passengers, there are other challenges facing LAX, which include following:

• Buses, shuttles, and cars competing for limited space to transport passengers.
• Passengers stuck in crowded and uncomfortable conditions.

There are even more factors causing the heavy traffic congestion around the airport in addition to the lack of a direct connection to the metro station; lack of the consolidated car rental facility, and concentration of pick-up and drop-off around the Central Terminal Area (CTA).

As for the lack of a consolidated rental facility, twelve rental car agencies operate independent shuttles from CTA to their rental car facilities. According to LAWA, in 2015, there were 1.1 million rental car shuttle trips on the upper and lower levels of roadways for the CTA. Regarding the concentration of pick-up and drop-off, there are private cars, rental car shuttles, and other transportation modes. For example, limousine buses and rideshare vans also transport passengers in the limited space around CTA.

LAWA estimates that if there are no changes to the accessibility of the airport in the future, there will be an almost 20% increase in the volume of traffic around the CTA during peak hours. Since the ground access to the airport can affect the passengers’ choice of airport, the current version of the regional transportation plan, which was issued by the Southern California Association of Governors, identifies the issues of traffic congestion around the LAX CTA as a policy issue of transportation to be solved.

Landside Access Modernization Program (LAMP)

LAWA was designated to address the problem of the ground access to LAX by proposing new facilities in the 2004 LAX Masterplan and the LAX Specific Plan. Some of those proposals are included in the scope of the LAX modernization plan . The improvement of the access to LAX was not only the issue of LAWA itself, but also a policy issue at the inter-county level. Some of the projects had already been identified in the 2012-2035 Regional Transportation Plan/Sustainable Community Strategies, which was approved by the Southern California Association of Governments in 2012.

After some adjustments and re-evaluations of the projects in those plans, in order to meet other policy plans of the counties, the Land Access Modernization Program (LAMP) was approved by the Board of Airport Commissionaires in December 2014.

LAMP projects consist of the following five main components: the Automated People Mover (APM), a Consolidated-Rental Car Center (CONRAC), a Metro 96th Street Transit Station, Intermodal Transportation Facilities (ITF), and improvements of roadways around the airport. Among them, the construction projects of the Metro 96th Transit Station and connection to the APM are the sole responsibility of Metro. The procurements for the projects are expected to be completed by 2023. The project is undergoing an Environmental Impact Review (EIR); the draft EIR for LAMP was published on September 2016.

Automated People Mover (APM)

The Automated People Mover (APM), which is called the LAX train, is the train system that will connect the CTA with new facilities, including the new Metro station. The features of the APM are as follows:

• A total of six stations connecting new rental car, airport parking and Metro facilities to the airline terminals.
• Three stations in the CTA, providing fast and easy connections to the airline terminals with a convenient pedestrian walkway system.
• Fare-free transport, 24 hours a day.
• The guideway will be approximately 2-1/4 miles long, 50 to 70 feet above ground with a width of 35-75 feet and columns every 100 feet (typical).
• Simultaneous operation of up to 9 trains with a 2- minute wait time.

The project of the APM will be conducted through Public Private Partnership (PPP).

Consolidated Rental Car Facilities (CONRAC)

The existing rental car companies will be relocated into one facility at a convenient location. The CONRAC will be adjacent to the Interstate 405 freeway with direct access to the airport via the LAX train and direct access to major freeways for rental car customers. With the relocation of rental-car companies, the existing shuttles operated by those rental-car companies will no longer be needed and therefore will be removed from service and remove approximately 17% of current traffic congestion. The project of the CONRAC will also be conducted through PPP.

Intermodal Transportation Facility (ITF)

The Intermodal Transportation Facilities (ITFs) will allow airport users to conveniently commute to the terminal area. There will be two ITFs (EAST ITF and WEST ITF) to be constructed, both of which will give airport users direct access to the CTA through the APM. The other features of the ITFs are as follows:

• Airport parking for private vehicles.
• Amenities such as waiting areas, concessions, and ticketing/information kiosk.

Roadway Improvements

In order to ensure the seamless access to the facilities mentioned above, improvements of the existing roadway network, as well as constructions of new roadway segments is included in the scope of LAMP (the roadway to be improved or constructed are listed in some documents of LAWA, for example the program brief of LAMP)

96th Street Metro Transit Station Project

As a part of LAMP, the construction of a new station in the Metro Green Line and the “Crenshaw/LAX Line”, which is an under-construction light-rail line, has been agreed between LAWA and Metro. The new station, which is called the 96th Street Transit Station, is planned to connect APM with the Green Line and the “Crenshaw/LAX Line”. The construction of the station is expected to be completed in 2019.

As of October 7, this construction project is at the conceptual design stage. The project also needs to undergo certification through the Environmental Impact Statement (EIS) and Environmental Impact Review (EIR) under The National Environmental Policy Act (NEPA) and The California Environmental Quality Act (CEQA). The draft EIR, which was released on June 2016, states there will be no impact or less-than-significant impacts caused by the projects on the environment, public services, traffic and transportation in the nearby area. The final EIR is to be released later fall in 2016.

The Metro identifies that the cost of the project will be about $330 million, including the construction cost of about $200 million. As a funding source for the project, the California State Transport Agency (CalSTA) awards $40 million to the project for the 2016 Transit and Intercity Capital Program (TIRCP) grants. Increase of the sales tax for Los Angeles County is being considered as a source of funding for the project. The vote for the approval of a tax increase for transportation projects in Los Angeles County, which includes the construction project of 96th Street Transit Station, is scheduled for November 2016.

Metro forecasts that boarding traffic of the Metro/Municipal bus will be 5,400 passengers per day soon after the opening of the station. This number is projected to increase to 16,400 passengers per day in 2035. That is considering that the procurements of this program, especially that of the APM, will be successfully completed on time.

Public Private Partnerships in LAMP

The type of public-private partnership to fund these two major parts of the LAMP project is delivery method of Design-Build-Finance-Operate-Maintain (DBFOM). The decision to choose the DBFOM delivery method was to promote a “drive in innovation and quality.” This delivery method pushes initial financial risks and capital requirements to the private sector, but will also give a return on investment by granting the private sector rights to operate the APM and CONRAC facilities. The maintenance of these facilities will also be assumed by the private sector.

The owner, Los Angeles World Airports (LAWA), made the statement for choosing DBFOM as “In comparison to the design-bid-delivery method, DBFOM can result in cost saving, greater cost control/cost certainty, schedule acceleration, increased access to private-sector innovation, an ability to transfer appropriate risks to the private sector, life-cycle efficiencies, fixed operations and maintenance payments for the life of the project and reduced administrative costs.”.

The CONRAC and APM systems will each be procured through separate DBFOM public-private partnerships. The APM system will be procured first in the middle of 2016 and the CONRAC public-private partnership will be procured after. Construction will not begin until 2017 in the third quarter. A draft Environmental Impact Report (EIR) for the entire LAMP project was posted on September 15, 2016 and is currently under review until October 31, 2016. As far as construction financing is concerned, the developer team is expected to burden the entire cost of construction financing for both the APM and ConRac Packages.

APM

The Automated People Mover (APM) joins the terminals through a 2.25-mile long corridor and will be free to its users. The LAMP project is still in the early stages of procurement, and the first public-private partnership of this project to be decided upon is the Automated People Mover. On June 9, 2016, a Request for Qualifications (RFQ) was issued for the APM project with a deadline of August 11, 2016. One day after the deadline the owner, Los Angeles World Airports (LAWA), announced that it had received five Statements of Qualifications (SOQ), each from different teams, to pursue the APM section of the project. The five teams competing for the APM project are listed on the LAWA website as: GatewayConnectors, LA ConnextPartners, LAX ConnectingAlliance, LINXS, and PWA. The Statements of Qualifications are currently being reviewed.

The estimated cost of the Automated People Mover is $2.2 billion USD with a lease term expected to be 30 to 35 years. Although the APM will be free to its users, the consumers will be paying for the APM services indirectly through use of the airport in general. The return on investment payments to the developers will be provided through "Milestone" payments and "Availability payments." The Milestone payments will be sourced from Airport Revenue Bonds, facility charge bonds, and general revenue from the airport. The Availability payments will also be sourced from the airport revenue and facility revenues. The airport revenues in general will be from parking, concessions, airline rental payments, and other miscellaneous income.

CONRAC

The Consolidated Rent-A-Car facility (CONRAC) will consolidate all of LAX’s existing car rental lots into one facility next to Interstate 405. There are currently twenty car rental properties to the east and north of the airport. The CONRAC plans to reduce that area by 46 percent to 68 acres. After a public-private partnership is procured for the Automated People mover, the selection process for a private partner in the Consolidated Rent-A-Car facility is to follow.

From what is known currently, the DBFOM lease term for the CONRAC system is predicted to be from 20-35 years with a cost of capital estimated to be around $1 billion USD. As with the APM package, the ConRac package will also financed entirely by the development team for construction, and will also see a return on investment from Milestone and Availability payments. In addition to indirect funding sources, the Consolidated Rent-A-Car facility will generate revenue directly from rental car revenue. Unlike the Automated People Mover, in which the consumers will not directly pay to use, the Consolidated Rent-A-Car facility will directly generate revenue. The availability payments are setup to change based on performance, and both the APM and ConRac facilities will be expected to ease congestion and increase the efficiency of traffic through the airport.

Discussion Questions

• Can the DBFOM procurements deliver the expected result?
• Can the LAMP relieve the traffic congestion around the LAX?
• Can the LAMP improve the travelers’ comfortability to use the LAX?

Since the PPP projects in LAMP are at the early stages, it is difficult to evaluate those projects for now. However, following two questions could be discussed in the future as the key takeaways from the case:

• Was it appropriate to divide the program into five projects which depend on each other?

The program is divided into five parts mentioned above. And the operations of each part depend on each other; for example, if the constructions of the CONRAC and the ITFs are delayed, it may affect the number of passengers of APM and Metro trains, which would lead to the fewer revenue than that of expected.

Additionally, the metro expects the increase of the number of passengers of Metro trains by the opening of the “Crenshaw/LAX Line” and the APM. However, according to another forecast, if the APM is not operational then the number of passengers of the Metro/Municipal Bus will not be changed dramatically when it opens in 2019. This means the number of passengers may be driven by the other projects in LAMP.

• Should PPPs be done for the program in which different agencies do their own projects?

The projects in the program was being done by two major entities: LAWA and Metro. If the construction to be accomplished by Metro fails or delays for any reason, it would affect the progress of the constructions in LAWA projects. Especially since the budget for the Metro projects would rely on the Sales tax increase. If the tax increase is not approved by the citizens of the Los Angeles County in the vote on November 2016, the Metro will have to seek other financial sources, which may cause a negative knock-on reaction from the possible bidders of the LAWA’s APM PPP project. On the other hand, the failure or the delay of the opening of the APM can affect the expected number of passengers in the future, which will affect the future revenues of the Metro.

Recommended Readings

• “Draft Environmental Impact Report for Los Angeles International Airport (LAX) Landside Access Modernization Program” (Los Angeles World Airports, September 2016), http://www.connectinglax.com/files/LAMP_DEIR_REPORT_092016v3.pdf.
• “2016-2040 Regional Transportation Plan/ Sustainable Community Strategies” (Southern California Association of Governments, April 2016), http://scagrtpscs.net/Documents/2016/final/f2016RTPSCS.pdf.
• Los Angeles World Airports, “2004 LAX Masterplan,” accessed October 11, 2016, http://www.lawa.org/ourLAX/PastProjects.aspx?id=8844.