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St. Louis moving ahead with Lambert privatization despite objections, criticisms

Terminal 1 [St. Louis Lambert International Airport photo]

The year 2020 will mark the 100th anniversary of the founding of what today is St. Louis Lambert International Airport. It also could be the year when major steps are taken leading to what could be a dramatic change in the airport’s history.

If developments continue as they have in recent months, Lambert could well be on its way to becoming the largest U.S. airport under total management by private business interests.

The airport, whose name commemorates Maj. Albert Bond Lambert, dates its fabled history to 1920. It was then the aviation pioneer, who had learned to fly with the Wright Brothers and served in World War I, joined with the Missouri Aeronautical Society to lease 170 acres of St. Louis County farmland to serve as an airfield for St. Louis.

Lambert also was the key mover in bringing the 1923 International Air Races to St. Louis, an event that attracted the attendance of a 21-year-old pilot whose name later became legendary in aviation history. The pilot, Charles Lindbergh, decided to remain in St. Louis as an instructor and later as an airmail pilot at what then was named Lambert St. Louis Flying Field. 

When the original lease expired in 1925, Lambert bought the airport property. 

In 1927, Lindbergh’s historic trans-Atlantic flight from New York to Paris in the single-engine plane Spirit of St. Louis sparked worldwide interest in aviation. One result of that epic event was that St. Louis voters in 1928 approved a $2 million bond issue to buy the airport property from Lambert and launch an expansion and improvements program. The upgrades included paved runways, taxiways and apron areas, hangars and other support facilities. Those improvements, many more that followed and the growth of the aviation industry and commercial air travel have made the airport the highly valuable asset the city now is looking at monetizing. The process would involve leasing the facility to a private business, although the city would retain ownership.

What such a lease is worth in the marketplace isn’t yet known but estimates have put the amount in the hundreds of millions of dollars, perhaps as high as a billion or more. How the city will use that money remains to be seen – one of many aspects of the privatization process drawing questions and criticism.

Terminal 2 at St. Louis Lambert International Airport [Jim Erickson photo]

The search for transparency

“I’ve been left in the dark on that issue even though I’m on the board of aldermen and am very much interested in what’s happening,” said City Alderwoman Cara Spencer, who represents the 20th Ward in south St. Louis. 

Paul Payne, St. Louis budget director and a voting member of the group of city officials working with the large stable of hired advisers on privatization, sees the issue differently. 

“We have identified several possible projects but we haven’t yet gotten into the details because that would be getting ahead of ourselves at this point,” Payne observed. “We’ll get a lot more focused as the process moves forward and we have more information about what we will have to work with.” 

Spencer also is troubled by what she views as limited public input and a lack of transparency. “The [privatization] process that we’ve seen thus far isn’t one that the city should be proud of,” she asserted. She isn’t alone in her opinion.

St. Louis County Council member Ernie Trakas [R-District 6] spearheaded the 6-0 council passage of a lengthy resolution last month blasting the privatization process and those behind it.

Among other things, the resolution charged “… the current policy of the city of St. Louis to pursue only its own interest regarding such a critical regional asset in complete disregard of all interests outside of the [city’s] borders represents a reversal of a long-standing policy as well as an abandonment of the regional cooperation and support …”

The Airport Working Group, charged with investigating privatization, claims the  www.fly314.com website provides transparency by serving as a repository of numerous documents, meeting minutes and related items; however, Trakas disputes that claim.

The website only creates the illusion of transparency because no minutes of closed sessions are posted and business is conducted with consultants in those meetings with no way for the public to know what’s being discussed and what decisions are made, Trakas has argued. 

Another group feeling left out of what’s happening is the St. Louis Airport Commission, which has oversight responsibilities for the facility and meets regularly with Lambert’s administrative team. At the commission’s November meeting, more than one member commented on not being able to respond to questions about privatization from people who expected them to have answers. 

Payne counters criticism about transparency by saying, “We are as open as possible.” 

“When you are dealing with negotiations, much of that has to be in closed sessions because if you open up everything, you undermine your ability to negotiate,” he stated.

LeJuan Strickland of Metropolitan Strategies and Solutions and spokesman for the Working Group predicted many items not made public earlier will be available eventually as the process continues and the need for confidentiality in certain areas disappears.  

The right to decide

St. Charles County Executive Steve Ehlmann said he is not opposed to privatization if the process is open and conducted well.

“I think the decision [on privatization] should be based on what’s best for you, me and other airport users,” he affirmed. “The reality is that airport users from the city account for about 12% of the passenger traffic. But it has been the total number of passengers and other users, and that includes the airlines operating there, along with Federal Aviation Administration [FAA] grants, that have provided most of the revenue for airport operating expenses and capital improvements over the years.”

Federal procedures call for input and endorsement of any privatization plan from a majority of the airlines serving the airport involved as well as final approval of the deal by the FAA. “But what about all those who pay the passenger facility charges and other costs that support the airport? What means do they have to inject their views?” Ehlmann asked.

Another potential question is how long a current governing body, such as the St. Louis Board of Aldermen, can obligate the city to provisions in any approved lease, Ehlmann mused.

The county executive predicted that if a privatization contract ever is approved, reversing course will be difficult and potentially costly. 

A case in point involves Stewart International Airport north of New York City that received $35 million in 1999 from a British firm for a 99-year lease. After operating the airport for seven years and investing $10 million in capital improvements, the company sold back the lease to the Port Authority of New York and New Jersey for $78.5 million. The transaction enabled the British firm to recoup its investments and make a substantial capital gain. 

Thus far, Stewart is the only U.S. commercial airport that has completed the lengthy privatization process, even though the private operation was short-lived. It’s what Spencer cites as an example of what can go wrong and why a detailed, unbiased risk assessment should be part of any privatization decision. She has called for a vote as a way to get citizen input on any proposed deal to privatize Lambert. 

“A vote would necessitate more discourse on the issue,” she believes.

Julian Bush, the city’s legal counsel, has said giving voters the authority to approve or disapprove a privatization plan will not work because it’s an inappropriate delegation of powers that the city’s charter gives to the board of aldermen. However, a non-binding vote to measure public sentiment on such a proposal is workable, he noted.

Getting input from areas outside the city is more problematic, especially in light of a recent 4-3 vote by the St. Louis County Port Authority to table a measure calling for a separate study on whether privatizing Lambert is in the region’s best interest. Board member Mike Hejna moved to table the separate study idea because he said airport privatization wasn’t the Port Authority’s business. A majority of the board supported his measure.

The money game

Questions and criticisms also surround how the privatization effort is being financed and how firms providing various services will gain bonuses if a final lease deal is reached. 

Grow Missouri Inc., the nonprofit organization funded by retired billionaire Rex Sinquefield, is one of three firms the city of St. Louis selected to head up the privatization process. The other two are Moelis & Co. LLC, and McKenna & Associates LLC.

The lead firms, along with the city, have approved the hiring of six other companies to be “core service providers,” three to be “additional service providers” and an unspecified number designated as “elective service providers.”

Three more firms have been separately retained by the city and a fourth has been hired to serve as independent transaction counsel for the board of aldermen, at the direction of its president Lewis Reed.

Budget director Payne estimates the monthly cost of the service providers’ fees and expenses is about $800,000, an amount paid by Grow Missouri with Sinquefield’s funding. 

All of the consultant firms will be paid amounts agreed to when they were hired, regardless of whether a lease deal is reached, a total expenditure Payne estimates will be in the $20 million range. The potential lessee’s offer will pay for reimbursing those outlays and closing costs. However, if there is no lease agreement, the city isn’t responsible for any of the upfront expenses.

Moelis, McKenna and the service providers also stand to reap a bonus if an agreement is made. The Grow Missouri website says such an arrangement is common in the financial services sector.  

Responding on the website to a question about whether taxpayers can trust advice given by the advisor team, Grow Missouri declares its advisors are “highly-regarded firms, each staking their reputations on the quality of service they provide to the city.

While the advisors do have a financial incentive should the city enter into a lease, the process is set up to ensure that advisors don’t make the financial decision,” Grow Missouri maintains. 

“The city’s board of estimate and apportionment, the board of aldermen, the Federal Aviation Administration and a majority of the airlines operating out of [Lambert] have to approve any deal before it becomes final,” the response points out.  

However, others hold a different view. Indeed, a number of the firms considered as lead consultants for the Lambert project reportedly critiqued the bonus arrangement. One called it “a significant conflict of interest.” Another said it created “perverse incentives for advisors, as well as potential challenges related to ethics and professional obligations.”

Spencer described the plan to pay bonuses to Moelis, McKenna and the service providers only if a lease deal is reached as “completely suspect.”

Meanwhile, the city’s Working Group already has sought proposals from interested parties stating their qualifications for running Lambert and now is evaluating who among the 18 respondents is the best qualified to submit bids for the lease. Many of the initial respondents to the request for qualifications [RFQ] are firms involved in airports and related facilities overseas where private operations are much more common.

While what happens next remains to be seen, one thing is certain: the fate of Lambert International Airport will affect more than just St. Louis City. 

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