The Journal of LeighFisher

0�_edge The Journal of LeighFisher

Welcome to LeighFisher

Jacobs has launched a new

independent brand and corporate entity, LeighFisher, dedicated exclusively to the management, planning and business consultancy market. At LeighFisher we aim to offer a broader range of strategic management consultancy services than we were able to offer as Jacobs Consultancy, with an emphasis on policy, economic regulation, business strategy and planning, economic and financial modelling, as well as related transaction support.

LeighFisher offers a fresh, innovative approach and deep strategic industry expertise and support in making the decisions that are most important for you and your organisation. We offer access to globally proven best practice and thought leadership, value for money and the benefits of a long-term relationship with, and commitment from, our specialist consultants.

The transition to LeighFisher will provide broad advantages by enabling us to offer complete independence, make additional investments in people and innovation, and broaden our skill base as part of a growing global consultancy, all of which will translate into additional value and enhanced service for our clients in aviation, transportation and other sectors.

This Edition of EdgeThe recent recession has brought into sharp focus the need for all economies, developed or developing, to innovate in an increasingly competitive global market.

This edition of Edge we welcome our guest contributor, Professor Joseph M Giglio PhD, of Boston’s Northeastern University, who provides his view on the challeng-es facing America’s aging transport infrastructure and outlines the policies he believes are required to deliver the changes needed for the 21st century. Joe is a past chair of the US Senate Budget Commission on Innovative Financing of Infrastructure and also a past chairman of the public-private division of the American Road and Transportation Builders Association.

Continuing with the infrastructure theme, with so many American passenger terminals in need of investment, we explore the challenges facing airport sponsors, planners and policy-makers and propose some solutions. The selling or leasing of public assets to the private sector is also considered as a solution to current financial constraints, although highlighting that, depending on the length of the lease, elected represent-atives may take decisions that will bind their successors not just for years, but for generations to come.

However, there are also many positives to come from the current challenging times with innovative new ideas coming forward. We consider the emergence of the airport city concept in India and look at how this

differs from developments in Eastern Asia and Western Europe. We also show that while high-speed rail often competes with air travel, airports around the globe are now embracing rail as a complementary facility rather than a competitor, to the benefit of all.

Finally, we look at two very different examples of man’s ability to respond to challenges. To start, we look at how disadvantaged communities around the world experience reduced access to healthcare facilities, and how this can be dramatically improved with low cost innovations. We also show how such projects have the capacity to develop as social enterprises, bringing added economic benefit to a community. We then look at a very different form of response, that of the US aviation industry faced with the challenge of rising costs, post recession.

Edge provides an essential platform for our economists, planners, financial analysts and other expert authors to share their knowledge, expertise and their ideas. We hope you find Edge stimulating and informative. ❑

EMEAChris WilsonChris.wilson@leighfisher.comTel: +44 (0)7501 480 417

AmericasMark LunsfordMark.lunsford@leighfisher.comTel: +1 650 375 5308

issue#3 winter_10/11

For information about LeighFisher contact Nick Davidson President LeighFisher Inc Nick.davidson@leighfisher.com

edgeThe Journal of LeighFisher

AsiaSatyaki RaghunathSatyaki.raghunath@leighfisher.comTel: +44 (0)7918 692 897

Follow us on Linkedin and Facebook www.linkedin.com/companies/leighfisher www.facebook.com/LeighFisher.Global

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04 Joseph Giglio Guest writer thinks it’s time to get real about US transportation policy

07 Rapid transit Airports embrace high speed train links to move travellers into the city

10 Seating capacity Tighter margins mean fewer seats, so how will carriers respond?

14 Accessibility to healthcare Smart local solutions to problems of access to healthcare

17 Airport city concept India’s new urbanism: smaller cities are growing around expanding airports

21 Capital decision making Factors influencing investment in airport infrastructure

24 Asset sales Lessons for now and the future from public sector asset sales

cont

ents

Published by:© 3Fox International Limited 2011. All material is strictly copyright and all rights are reserved. Reproduction in whole or in part without the written permission of 3Fox International Limited is strictly forbidden. The greatest care has been taken to ensure the accuracy of information in this magazine at time of going to press, but we accept no responsibility for omissions or errors. The views expressed in this magazine are not necessarily those of 3Fox International Limited or LeighFisher Inc.

Images: Gautrain, Jonathan Ford/Corbis, Larry Lee Photography/Corbis, Roderick Chen/All Canada Photos/Corbis, Lacy Atkins/San Francisco Chronicle/Corbis, Karen Kasmauski/Science Fiction/Corbis, Richard Cummins/Corbis, Ann Thomas/Corbis, Matthais Kulka/Corbis, Liam Norris/cultura/Corbis, Paulo Fridman/Corbis, Angela Wyant, Image Source, Roger Harris, India Today Group/Getty Images, Arlanda Express - Niklas Alm, Terry Hawes

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The current recession has not only brought the challenges facing America’s transport infrastructure back up the policy agenda, but has led some to believe that perhaps

the recession will act as a catalyst that delivers the transportation system that the country needs in the 21st century. Professor Joseph M Giglio PhD, of Boston’s Northeastern University, sets out his view, both of the issues and the way forward.

“Let’s Get ReaL about tRanspoRtation poLicy in the usa”

No US transportation policy discussion is worth having if it does not start with three hard facts:

For starters, we do not have a national transportation infrastructure problem; we have a national transportation infrastructure condition.

Problems can be solved, our national infrastructure condition can only be coped with and then only if we act in the future with greater intelligence than we have in the past.

And if you believe that a major policy breakthrough in dealing with this condition is likely at the federal level, I have a bridge to sell you in Brooklyn.

It is now dawning on us that the challenges in transportation (and everything else) in the US represent a “permanent” condition, like Type C diabetes, that will

never go away of its own accord and could be life-threatening if not promptly treated.

Second, it is time to get back to basics. The only two sources of revenue for our network are user fees and taxes. Put differently, our transportation infrastructure network needs net new resources.

By net I mean that it must be more than simply shifting monies from one time period to another, trading on the future.

By new I mean that it is above and beyond funds that are otherwise available from public resources.

Resources are a broader term than money to allow for reduced costs and/or higher quality services from the same level of funds.

Let’s face it, total reliance on public resources and the fuel tax to fund investments in transportation

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What should We Keep Doing?We should continue to provide states with incentives to try market based approaches to financing the transportation network just as we do for other non-discretionary goods and services. so what should we start doing?We should start accelerating the deployment

of smart technologies in the transportation network. We should remember we did not get out of the Stone Age because we ran out of stones.

These new technologies enable you to manage each transportation mode in an integrated fashion to maximize the value of the entire portfolio of transportation assets as well as to improve safety and congestion. But they also expedite the transition to alternative revenue sources through value pricing.

In sum these technologies enable you to generate revenues in ways that encourage better customer service, increase operating efficiencies, and provide an adequate level of net new resources.

Because even I recognize the limits of my chutzpah, let me close by quoting Einstein, a writer who is more widely quoted than read:

“We can’t solve today’s problems by thinking about them in the same way we did when we created them.” ❑

infrastructure is not a realistic long-term option.

Many of us believe that a better future for transportation in America must involve great reliance on modern financing mechanisms based on sensible user charges that ensure adequate funds for asset maintenance, for timely replacement of worn-out plant and equipment, and for investments in new technology and other capacity enhancements to support national economic growth.

Which leads to the third hard fact: our budget deficits and debt constrain the federal government’s ability to deal with transportation infrastructure investment. Indeed, our current and projected fiscal deficits and public debt make Italy look like a fiscally prudent country.

We have the transportation network we deserve but not the one we need in the 21st century, especially in view of our decades long inability to maintain it properly and invest in it wisely. So what are we to do?

We shouLD asK anD ansWeR basic questions such asWhat should We stop Doing?For one thing we should stop politicizing investment decisions at the national level. The last transportation bills had $1 out of every $14 devoted to earmarks. This is not chopped liver.

We have the transportation network we deserve but not the one we need in the 21st century

Unspeakable TruthsIn his fourth book in four years, Professor Joseph M. Giglio unravels the makings of the crisis and argues that our thinking about transforming transportation in America must evolve to reflect these dramatic changes.

JOSEPH M. GIGLIO

UNSPEAKABLE

TRUTHSIS TRANSFORMING

TRANSPORTATION A KEY TO

SOLVING AMERICA'S

ECONOMIC CRISIS?

JOSEPH M. GIGLIOAuthor of Judges of the Secret Court, Driving Questions, Fast Lane, and Mobility

From airport to city, travelers want the smoothest possible transition and operators are keen to deliver. By David Ashmore

Rapid tRansit

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At a time when high-speed rail is increasingly seen as a competitor to aviation, and particularly in Europe and the United States, it could be

argued that a sign of a more forward thinking airport is the way in which it embraces the positive, synergistic, attributes of rail as an extension to its own offering as a feeder mode, not a threat.

Many governments see their cities’ airports as the interface between their country and the rest of the world. First impressions gleaned by travelers arriving at a nation’s airport are not only lasting but pivotal in terms of how foreigners perceive a nation’s sophistication and innovation.

It is not just airport infrastructure that impresses new arrivals; there is little point in the buildings projecting a futuristic image if customs officers are slovenly, the wait for baggage excessive, and, perhaps most

importantly, if the journey from the airport to the city centre hotel is characterised by below par standards. In effect the transition from airport to the city proper takes place in the arrivals hall and tired travelers do not wish to be confronted with poor onward travel information, disorganised taxis or even in some cases, armies of touts harassing them for business.

Recognising that the trip from airport to city centre is an extension of the airport experience, in recent years, the number of dedicated airport rail links has increased internationally. Paris, Stockholm, Sydney, London and Brussels aim to offer passengers a seamless experience. The procurement models by which these schemes are delivered vary, ranging from full infrastructure concessions to state owned and operated, but the basic offering is the same: a fast trip into town unencumbered by congestion.

The context within which airport rail links are being developed depends on where a country sits along the industrialization and development continuum. In Europe and the US, markets are mature. In countries exhibiting rapid growth, such as India and China, infrastructure struggles to keep pace

Paris, Stockholm, Sydney, London and Brussels aim to offer passengers a seamless experience

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with demand, so an efficient airport rail link is not simply an improvement to existing travel modes but a real imperative in terms of coping with future demand.

The new Bangalore International Airport in India opened in 2008 and is located about 40km (25 miles) from the city centre. It was developed because the existing Hindustan Aeronautics Ltd (HAL) airport was constrained in its capacity and growth in air passengers to the city was predicted to be extremely high. While the new facility is widely acknowledged to be a significant improvement over the HAL airport, one obvious potential weakness is its perceived “remoteness” from the city centre. A new high-speed rail line to the airport was approved as a part of the wider “Metro” plan for Bangalore.

At present, the main connection between the airport and the city is the NH-7 highway and when the Peripheral Ring Road is

completed, finishing 16km short of the airport, this will widen approach opportu-nities to the airport, although traffic will still ultimately need to use the last stretch of the NH-7 to get to the airport access road. Present journey times are around one hour to the city from the airport by road. A cab fare ranges between 600 and 900 Rupees ($13-$20 USD) while air-conditioned Airport Volvo Buses operate a half-hourly shuttle service to several locations in the city from 100 to 200 Rupees ($2-$4 USD). The high-speed rail link, when built, will reduce the journey to around half that time, and the fare is expected to be significantly less.

In addition to a city centre terminal with remote bag drop and check-in desk, two intermediate stations will further widen the catchment for the rail service, offering easily accessible remote parking and check-in facilities for some passengers not traveling directly from the city centre.

A special purpose entity called Bangalore Airport Rail Link Ltd has been set up by the Karnataka State Industrial Investment and Development Corporation to manage the construction of the high-speed link. It is expected that five consortia will bid for the construction contracts.

The Bangalore system aims to build upon the success of Gautrain, a $3 billion, 80km (50 miles), privately financed, built and operated link between Johannesburg, Pretoria and Johannesburg’s OR Tambo International Airport, on behalf of the Gauteng Provincial Department of Transport and Public Works. The link connects central and suburban stations in the two cities, together with intermediate stations and Johannesburg International Airport.

Since opening for the 2010 World Cup, it has been a resounding success, largely due to its service quality and fare policy, ensuring the mode is priced between the cost of a private car trip and journeys by mini-bus taxis, Metrobuses and the Metrorail. Operating at a speed of 160 kilometres per hour, journey times from airport to city are a previously unheard of 30 minutes for a competitive SAR 100 ($15 USD). The market has responded well and Gautrain now carries over 8,000 passengers per day, serving both commuter park and ride traffic as well as airport users.

In Europe, Bologna is demonstrating that new technologies can also be showcased as part of the airport rail link experience. The People Mover is an automated monorail, which will connect the G Marconi International Airport to the Central Rail Station of Bologna in less than 10 minutes.

The project consists of a 5km (3.1 miles) elevated single track with an intermediate bypass (double track) at Lazzaretto, close to the new residential university complex of Bertalia-Lazzaretto. It adopts the innovative “steel box” INTAMIN P30/50 technology.

The link is privately financed: in 2009 the Bologna Municipality opted for a privately financed concession and now, following the competitive process, a consortium is completing the final design.

The People Mover will cost around 100 million euros, and is due to be inaugurated in 2013. It will have a system capacity of around 800 passengers per hour per direction.

Airport rail links are giving us a peep into how more of us will be discovering new cities in the future. No longer will the trip to the city centre be an ordeal but an extension of our in-flight experience. ❑

Dave Ashmore specialises in the procurement and regulation of public transport services.David.ashmore@leighfisher.com

n airport rail links

Trains, planes ...Bangalore: high speed rail to cut journey time by 50%

Johannesburg: airport now linked to city, suburbs and pretoria

Bologna: people Mover monorail connects airport to rail station in less than 10 minutes

paris, stockholm, sydney, london and Brussels: all have dedicated airport rail links

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AircrAft SeAtS:the New ScArce reSource

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As airlines shift capacity between airports to keep costs down, airport operators are likely to face a scarcity of seats. By Linda Perry

The recession, the hike in fuel prices and ongoing restructuring of the airline industry over the past few years mean that traffic growth, at least in the near term,

will be modest. This has forced airport sponsors to reduce their future financial and planning ambitions, and to operate on the margin. This new world of scarce aircraft seats is one of the most difficult challenges facing operators today, as demand and capacity are uncertain and influenced by external factors.

A gAme of muSicAl SeAtS Airline capacity reductions have left passengers racing to find the last seat. Until recently, with the supply of seats exceeding demand, passengers have had significant influence on the price of air travel. If a ticket costs more than passengers are willing to pay, they look to alternative airlines or airports, different times of day, alternative travel dates or even different destinations. In a world of scarce seats, there may not be a seat for every passenger, particularly at a price they are willing to pay.

During the first quarter of 2010, 28% more passengers were “bumped” involun-tarily from a flight because it was oversold compared with the same period in 2009. Similarly, the number of passengers who

voluntarily gave up their seats on an oversold flight in exchange for compensation increased 17% during the first quarter of 2010. Reductions in seating capacity have also increased the average domestic airfare in the first quarter of 2010 by 6% compared with the same period in 2009, excluding other fees. However, the average domestic airfare during the first quarter of 2010 was relatively unchanged from the average in the first quarter of 2008, when the economic recession began.

How passengers react to the choices of seats and airfares will affect the number of passengers traveling through airports and, as a result, revenues for airport operators.

BridgiNg the cASm Why the scarcity of seats? Basically, because of airlines’ desire to control unit costs and reduce capacity.

Unit costs, measured in total operating costs per available seat mile (CASM), were affected by the spike in fuel prices during the third quarter of 2008 and prompted airlines to focus on reducing non-fuel costs, such as labour and maintenance.

The challenge for airlines is that unit costs are directly affected by reductions in seating capacity and available seat miles (another measure of capacity). For example, if total airline costs remain unchanged,

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It seems to be working, with financial results for the second quarter of 2010 showing that mainline and low-cost carrier unit revenue – measured as the total operating revenue per available seat mile (RASM) – increased by nearly 13% and 23%, during the second quarter of 2010 compared with the same period in 2009.

These decisions by airlines to control capacity, load factors, and airfares will affect the number of passengers traveling through

airports and, as a result, the revenues for airport operators. Your Airport or miNe?The reallocation of seating capacity within airline networks has contributed to growth at selected large-hub airports, at the expense of many medium-hub airports.

This is because in a world of scarce aircraft seats, airlines shift capacity from one airport to another to compete with other airlines, to restructure their networks, and to change the pricing dynamics of a market.

Since the first quarter of 2007, mainline airlines and their regional affiliates have reduced seating capacity at medium-hub airports, in percentage terms, more than at large- and small-hub airports. One factor contributing to this shift is the difference in airline yields. Since the first quarter of 2007, mainline airline average yields have been 3% to 10% lower at medium-hub airports than at large- and small-hub airports, with little difference in the average trip length.

In contrast, low-cost carriers have reduced seating capacity at small-hub airports more than at than large- and medium-hub airports. Despite these capacity reductions, the shares of low-cost carrier seats by hub size have not changed signifi-cantly since 2007, with small-hub airports continuing to account for about 9% of low-

but the number of available seat miles decreases, the cost per available seat mile increases. Therefore, to limit increases in unit costs, airlines have combined reductions in seating capacity with decreases in total operating expenses, including the retirement of fuel-inefficient aircraft and reductions in the number of employees. According to the Bureau of Transportation Statistics, total passenger airline employment decreased nearly 7% between 2007 and 2009.

-15

-10

-5

0

5

10

15%

2007 2008 2009

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010

.08

.09

.10

.11

.12

.13

.14

.15

.16

.17

$.18

Non-fuel CASM

RASM CASM

Note: Mainline airlines include American, Continental, Delta (including Northwest),

Mainline airlines maintain nonfuel unit costs with seating capacity reductionsRevenues and costs per available seat mile (cents) and scheduled departing seats, year-on-year percentage change

Source: Official Airline Guides, Inc. online database, accessed July 2010.U.S. Department of Transportation, Form 41. online database, accessed July 2010. Individual airline SEC filings for Q2 2010.

SEATS

ADVANCE SCHEDULES

United, and US Airways, including their regional affiliates.

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5

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Low cost carrier percent reductions in seating capacitylargest at small-hub airportsScheduled departing seats, year-over-year percent change

Note: Low cost carriers include AirTran, Allegiant, America West, ATA, Frontier, JetBlue, Southwest, Spirit and Virgin America.

Source: Official Airline Guides, Inc. online database, accessed July 2010

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010200920082007

MEDIUM HUBS

LARGE HUBS

SMALL HUBS

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cost carrier seating capacity. (In comparison, mainline airlines’ share of seats serving medium-hub airports has decreased from 16% in 2007 to 13% in 2010.) Unlike the changes in mainline airline capacity, the shift in low-cost carrier seats from small hubs to medium and large hubs was not driven by differences in yield. Since the first quarter of 2007, low-cost carrier average yields have been 8% to 13% higher at small-hub airports than at large-hub airports, and 5% to 10% lower at small-hub airports than at medium-hub airports, for different length journeys. The higher yields at small hubs suggest that the decreases in low-cost carrier seating capacity there may have been driven by network optimisation objectives, particularly given limited overall seating capacity growth.

the New NormAlThe new normal is that airlines are determined to limit domestic seating capacity. As a result, capacity at an airport is likely to grow as it is shifted from another airport or the existing aircraft use is optimized.

In the past, reductions in seating capacity in response to recessions have been followed by a return to pre-recession capacity by the existing airlines and new startup airlines. However, the new “normal” includes limited access to capital – with

financial results suggesting that airlines will keep exercising cost discipline well into 2011 – and, therefore, limited opportunity for existing and startup airlines to secure financing for new aircraft. In addition, consumers have less disposable income for airline travel. However, there are variables that may affect the new normal:n Denied boardings. Although the number

of passengers denied boarding due to over-booking decreased in the second quarter of 2010 compared with the same period of 2009, continued denials in the future are likely to increase airline

costs and passenger dissatisfaction and dampen demand. Airlines may respond by adding or shifting capacity to airports with high rates of denied boarding, particularly if government agencies and the US Congress institute penalties for high numbers of passengers denied boarding.

n Fees. Increases in ancillary fees, while enhancing airline financial results, increase the cost of travel and may dampen demand. Airlines have already responded to passenger dissatisfaction by waiving fees for frequent flyers and airline credit card holders, and could make further changes to lessen the effect of increases in carry-on baggage on aircraft boarding times. Congress may respond to increasing fees by requiring transparent reporting to accurately reflect the true cost of airline travel.  

n Viability of small airports. Between 2008 and 2009, operating revenue for small- and non-hub airports decreased by 21% and 17%, respectively. This may prompt changes in federal legislation, such as the Essential Air Service Program, to support service to small- and non-hub airports.

n Airline consolidation. Further airline consolidation may change the dynamics of the industry and responses to seating capacity and product differentiation.

n Fuel prices. Volatility in fuel prices can affect seating capacity decisions.

n Economic recovery. A faster than expected recovery in economic growth may facilitate increases in seating capacity. ❑

Linda Perry is an economist and business analyst working out of San Francisco.Linda.perry@leighfisher.com

n seating capacity

Low-cost carriers have reduced seating capacity at small-hub airports more than at large- and medium-hub airports ...

IMPLICATIONS OF SCArCe SeATINg

Peak period pressure on gates, concessions, staff & financial capacity

Off-peak service reduced and reallocated to peak times or other airports

More competition for airline service from nearby airports through subsidies

greater need for airports/airlines to share information on net benefits

of airport facilities

h h

Drop-in Centre

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i

i

Walk-in Centre

Eazy-Trainmainline

bCycle route

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bCycle route

HealtH Centre

vBoard-A-Busroute way #1 vBoard-A-Bus

route way #3

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Communities in the world’s rural areas are denied access to healthcare due to poor infrastructure and lack of transport. But smart ideas can make a big impact for little cost. By Antonia Colin-Jones

rOaD tO HealtH

n accessibility to healthcare

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was considered by the government’s Social Exclusion Unit (SEU) in its 2003 report ‘Making the Connections’, which estimated that during the course of a year, at least 1.4 million people miss, turn down or do not seek hospital appointments because of problems with transport.

However bad the situation might be in countries like the UK, in developing countries it is much more acute. Millions of people around the developing world are deprived of, and isolated from, basic healthcare due to distance, terrain, poverty and the lack of any suitable form of transport.

The impact is demonstrated in infant and maternal mortality. Figures for infant mortality from the UN (2008) are: for the UK, 5 in 1,000 live births; in Romania, 12; India, 52; Sierra Leone, 123; and Angola, 130. UN figures for maternal mortality (2003-08) are: for the UK, 7 in 100,000 live births; India, 254; Central African Republic, 540; and Zambia, 590. However, local initiatives are improving access to healthcare.

aCCess tO Primary HealtHCareIn the Moldavian region of Romania, many small village communities are spread across the foothills of the Carpathian Mountains, where they experience chronic poverty and

have high health needs. Infant mortality is approximately three to five times higher in Romania than the UK, more so in rural areas – and this is at least twice the Romanian national average.

The task was to provide primary healthcare services to these remote populations, which become difficult to reach during periods of heavy rain, or completely isolated because of ice and snow in winter. Most local travel is on foot or with animal-drawn transport. A pharmacy in each local centre would be expensive and could not provide for satellite villages.

There is a fundamental dichotomy at the heart of modern healthcare provision. The greater the concentration of healthcare skills and resources, the better the

healthcare service provided. Yet, almost by definition, those most in need of such healthcare services are also those least likely to be able to travel. Add to this fundamental problem the issues of personal wealth and mobility being closely correlated, the fact that the world is coming out of the worst recession in living memory, and the fact that in many parts of the world, access to “centralized” services is a challenge even for the healthy, and you can see why what is needed is some innovative thinking.

The link between accessibility and social exclusion is most acutely demonstrated with reference to transport. Such a basic right as freedom of movement is either a luxury, or simply impractical for many people. Those who are socially excluded are often denied the right to make lifestyle choices such as where to work or go to school, which doctor to see or hospital to attend. For many people, their local environment is simply inaccessible to them.

This is not just an issue in the developing world. The scale of the problem in the UK

However bad the situation might be in the UK, in developing countries it is much more acute

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Neither would improvement of the road network deliver immediate help to communities.

The solution, managed by a Romanian non-governmental organization (NGO), was a mobile medical centre, a four-wheel drive vehicle equipped as a functioning pharmacy and operated by a doctor and a nurse. It traverses difficult terrain, even during the winter months. It tours villages, local people bring their prescriptions and receive medical treatment and advice.

HealtH eDuCatiOn anD meDiCine Heaven’s Angels, Kenya’s Sustainable Healthcare Foundation, and Virgin Unite’s Rural Transport Network, support an initiative to improve access to healthcare in Kisumu. Community clinics are provided with motorbikes so health workers can deliver essential medicines, health supplies and water purification products, and provide health education to people in rural areas. The health workers are able to use their bikes to earn additional income, which also enables them to maintain their motorbikes.

A year after the project began partici-pating clinics reported a 15-30% increase in patients reached and a dramatic increase in sales of water purification products. This suggests improved health education on disease prevention and a potential reduction in cholera cases.

Disease DeteCtiOn Testing to detect disease is a major challenge in managing the spread of disease across Africa. HIV/AIDS testing remains low, due to limited access to clinics. Results

can take up to four months, as rural health centres often lack transport to get samples to laboratories.

Quick detection of disease is vital. Riders for Health run a pilot programme in the Chadiza District of Eastern Zambia. They developed a specialist sample transport system, using motorcycles to collect samples, employing and training riders for specialized sample delivery and collection. Expansion of this project will extend testing services to people in Zambia’s more remote communities.

maternal mOrtalityIn Nigeria women run a one in 18 risk of maternal mortality; in the UK it is one in 14,286. Nigeria’s yellow flag initiative uses the truck drivers’ union to provide emergency transport for women during labour. If a woman in labour needs assistance, a flag is placed on the main road. The truck driver is obliged to go to the

village to pick up the woman and take her to the nearest healthcare facility. This reduces maternal mortality because it uses existing resources at very little cost.

Pulling it all tOgetHerSuccessful local interventions need to be integrated into the wider health system. Best practice guidance was developed through Integrated Rural Accessibility Planning (IRAP) by the International Labour Organization (ILO). IRAP advocates the use of GIS tools or techniques, including UK-developed HSTAT, looking at access to healthcare, which is relevant to institutions and planners in developing countries.

Wherever people live they need access to a doctor and timely medical intervention. ❑

Antonia Colin-Jones is a development economist based in London.Antonia.colin-jones@leighfisher.com

Minor solutions to Major probleMsKenya: community clinics’ motorbikes reach 15-30% more patients, sales of water purification kit mean potentially fewer cholera cases

nigeria: truck drivers pick up women in labour, driving to healthcare facilities, reducing maternal mortality at little cost

romania: 4WD medical centre with doctor and nurse takes primary healthcare to remote villages, previously lacking any facilities

Riders for Health ... [are] using motorcycles to collect samples, employing and training riders for specialised sample delivery and collection

CITIes of The PLANe

Indian urbanism sees airports expanding to shape some smaller cities, becoming an airport city or Aerotropolis. By Satyaki Raghunath and Rawley Vaughan

continued overleaf ➸

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Over the past decade, India has modernized and upgraded many of its major airports, either through greenfield development (Kochi, Bangalore, and Hyderabad airports) or through brownfield modernizations (Mumbai and New Delhi). Other Indian airports are either being modernized or new ones are being planned. The objective is to build airside, terminal, and landside capacity to accommodate the growth aspirations of a potential economic superpower. The industry is starting to focus on real estate and related infrastructure developments, particularly at greenfield airports and perhaps to build the first generation of “airport cities” in India.

These greenfield airports are not planned solely for aeronautical activity. Many of them will be located in areas where available land, in conjunction with regional economic drivers and political will, could spur large-scale commercial real estate development. Most of these developments would be aviation-oriented, clustered around the airport and its transportation links. If planned in the right way and integrated with the airports to which they are linked, these developments could be optimal, flexible, and profitable, and eventually produce a new urban form – the airport city – or, as coined by Dr John Kasarda, the “aerotropolis.” Often used interchangeably, these terms are distinct. An Aerotropolis encompasses the periphery beyond the airport, the uses involved are not necessarily aeronautical, and it entails lower density development. Airport city refers to land on or adjacent to the airport, firms are predominantly aeronautical, and it resembles a small downtown.

Yet this template as conceived elsewhere is unlikely to work for India. The Indian Airport City’s characteristics and challenges will be unique to the politics, geography, and culture of the subcontinent. Airport cities in India may differ from East Asia and Western Europe, where the concept is more fully realized. India should establish a new airport city model, given the role of the state and central governments, the nature of real estate development, and the state of local and regional airline industries.

In the airport city framework land development should leverage transportation infrastructure, which increases the value of the use of adjacent land. The roles of the private and public sectors have changed. In Europe, airport cities exploit publicly funded systems, such as motorways and high-speed rail. Typically, airport city land is private, yet the infrastructure is public. Contrast this to India, where privately funded roads are built to unlock the value of contiguous land, inverting the European model: public land, private infrastructure. The Indian Airport City may be the domain of a non-airport developer rather than an airport operator.

Often land-rich, Indian greenfield developments offer the opportunity for return on investment through non-aeronautical development. First, more land available allows for more opportunities – a larger area with a greater number, magnitude, or diversity of non-aeronautical projects. Second, a very large parcel could attract an anchor tenant that would employ thousands and possibly attract numerous firms in its supply chain. Finally, more land allows for more flexibility to strategically plan multiple future phases to account for future technology and community development.

The GrowTh of seCoNdAry CITIes Land use planning is an exercise in efficient use of a scarce resource. Exploiting near-airport land, land-use optimization would produce a densely settled, near-urban form – an “edge city,” as coined by author and urban planner Joel Garreau. Possible developments are largely the same around the world. Aeronautical developments could feature cargo and logistics facilities, free trade zones (FTZs) or special economic zones (SEZs), freight forwarders, and just-in-time shippers. Large-scale non-aeronautical developments could include hotels, convention centers, shopping malls, office parks, and recreation facilities. More ambitious projects could include hospitals or residential areas. The feasibility of such options is being ➸

In Europe, airport cities exploit publicly funded systems ... Contrast this to India, where privately funded roads are built to unlock the value of contiguous land

winter 10/11_19

n airport city concept

explored by the operators of India’s four major public-private airports. What would attract developers to an Indian Airport City? Why would a foreign (or local) firm choose to locate its regional facility near a particular airport? Perhaps the development and branding of a specialized corporate campus, or proximity to skilled labour or manufacturing facilities. Such a campus could be attractive as a small-scale version of a Silicon Valley, with the advantage of excellent motorway, rail and air access.

India’s secondary (or Tier II) cities show huge potential for development. Home to between two and four million people each, these are local and regional centres for manufacturing, trading, and logistics. Airlines are looking at these cities to expand their route networks. Private developers have looked to develop airports in secondary cities such as Durgapur, Hassan, Jaipur and Gulbarga. Local developers have attempted to team with a global airport operator to bring brand value and insight to the market, in return for a stake in the project. It remains to be seen whether this approach will be

successful in the long term. Development of New Delhi Indira Gandhi

International Airport includes plans for a Delhi Metro link to the city centre (due to be operational at time of Edge going to press). Greenfield development of Bangalore

and Hyderabad airports saw about 4,000 to 5,000 acres provided to the promoters. Also, Bengal Aerotropolis Projects Limited is looking at the potential to develop an airport at Durgapur in West Bengal.

Over the past ten years, infrastructure opportunities have multiplied, unlocking the potential of a development’s associated land bank. Land acquisition solely to develop real estate would take too long but within a major infrastructure project, government land is available at a lower price.

For multiple airport cities to succeed, each development needs a unique brand and strategy. Without this, airport projects run the risk of diminished returns. A long-term vision based on local conditions within the global logistics and supply chain economy, offers potential for multiple commercial areas on or in proximity to airports in India. ❑

Satyaki Raghunath is working on several major master planning projects in India.Satyaki.raghunath@leighfisher.com

20_edge The Journal of LeighFisher

Source: World Bank database on private sector inward investment

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Land on or adjacent to the airport

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Lower density development

aerotropolis

airport City

In a slow growth economy, capital investment decisions in US airport infrastructure are a tough call. By Eric Bernhardt

is doing nothing an option?

continued overleaf ➸

22_edge The journal of LeighFisher

The ability to implement capital improvements at airports will be constrained during slow growth periods, unless traditional industry approaches to funding

aging infrastructure are reconsidered.Many American passenger terminals

were constructed in the early 1960s in anticipation of the jet age. Although some modernization has occurred, the average age of terminal facilities in the United States is about 25 years; facilities that have not been substantially overhauled will soon begin to reach the end of their useful lives. The American Society of Civil Engineers’ 2009 Infrastructure Report Card assigned the nation’s overall transportation infrastructure a grade D, as it did for aviation infrastructure, although some transport categories received better grades. It is becoming increasingly apparent that a substantial portion of US aviation infrastructure is aging and in serious need of rehabilitation or replacement but in the current economy, which of these options should it be directed towards?

In a slow growth environment, justification for capital improvements needs to be based on a project’s benefits other than traditional capacity enhancement alone.

A slow growth environment poses three challenges for airport sponsors considering facility improvements. First, the ability to implement capital investments is complicated by economic conditions, airlines’ financial state, and increased pressures to maintain low costs and do more with less.

Second, there are often pressures to postpone capital improvements to address short-term budget deficiencies. Postponement can diminish the financial health of the airport sponsor: aging facilities inevitably increase operating and maintenance (O&M) costs; trigger unforeseen rehabilitation projects and complicate budgeting and financial forecasting. Such costs and inefficiencies are ultimately passed to tenants and users.

Third, planning issues in the US aviation industry are different from those of an

emerging market characterized by robust growth. Funding projects to rehabilitate or replace facilities – rather than adding new capacity – requires recognition of a changed environment, where traditional approaches to project approvals and funding may no longer apply.

planning approaches should Be updatedApproaches to identifying, evaluating, and funding capital expenditures need to account for the benefits provided by facility rehabilitation or replacement. The industry approach to planning capital improvements is to develop activity forecasts and then conduct thorough demand-capacity analyses. “Future demand” is compared to “existing capacity” and improvements are identified for implementation over the course of the planning period. This approach is inadequate in a slow growth environment because its primary focus is on providing capacity, while the financial and other benefits of newer, efficient, and more

winter 10/11_23

new facilities versus maintaining aging infrastructure. This means the true costs of “doing nothing”: unforeseen maintenance costs; diminished service levels; increasing O&M costs; alternative funding to finance rehabilitation or replacement projects when tenants are unwilling to provide financial support, or when the triggers for traditional funding mechanisms are based on capacity enhancements.

To garner support for rehabilitation or replacement, airport sponsors and planners need to incorporate new tools and method-ologies into the planning process, such as Life Cycle Costing – a financial assessment of the relative cost-effectiveness of continued operations with an existing versus a renovated facility.

Traditional capital planning focused on justifying capacity enhancement and the business case for investment was essentially self-justifying. In a slow growth environment, new analysis tools and methodologies are needed. Airport planners and sponsors generally understand the scope of the analysis, but it is especially challenging to conduct and to communicate. How can sponsors convince stakeholders to mitigate the risk of aging facilities and consider the potential for new facility requirements in the future? Grappling with these issues is the challenge ahead.

changes in perspective and policyAll stakeholders have a role in meeting the investment challenges posed by a slow growth environment.

There are three fundamental changes in the planning environment: many US passenger terminal facilities are nearing the end of their useful lives; slow growth will be the baseline in a mature aviation market; and capacity enhancement can not continue to drive the need for infrastructure investment. Aviation industry stakeholders need to shift perspectives and policies to embrace rehabilitation or replacement as vigorously as they have supported capacity expansion.

Policymakers should enact regulatory and procedural changes, so that capacity enhancement projects do not trump all others and funding programs acknowledge that some projects are necessary, even when no additional capacity is provided. Improvements to aging terminals are often considered “maintenance” projects and, therefore, ineligible for passenger facility charge (PFC) funding. Without this, airport sponsors may be forced to borrow, passing the resulting costs to tenants and users.

It is in airlines’ best interests to support

projects that modernize, rehabilitate, or replace facilities as a means of maintaining reasonable rates and charges. Prior to 2000, airlines were willing partners in funding new terminal projects, but in the last 10 years there are fewer examples of such airline-airport partnerships. Airport sponsors must proceed with projects absent of airline support, or allow their infrastructure to fail and capacity to diminish.

Airport sponsors need to optimize funding sources: prioritizing major capital projects (airfield, terminal, and otherwise); identifying all eligible funding sources for each project; and developing comprehensive financing strategies to ensure that the most restrictive and least restrictive funding mechanisms are correctly aligned with priority projects.

Finally, airport sponsors should use a transparent planning process to educate local officials on the merits of specific projects and the challenges associated with obtaining financing. Increased awareness within the community and among policy-makers can foster essential consensus, resulting in the political support required to implement major capital projects. ❑

Eric Bernhardt is an environmental planning expert based in the US.Eric.bernhardt@leighfisher.com

Aviation industry stakeholders need to shift perspectives and policies to embrace rehabilitation ...

n capital decision making

small change

Justify project benefits, not capacity enhancement

Investment postponement can diminish sponsor’s

financial position

Broaden the planning and decision-making process

Use new analysis tools and methodologies

airport sponsors need to optimise funding sources

sustainable facilities are not considered. Airport sponsors, planners and policy-

makers are challenged to broaden the planning and decision-making process to consider: the age of the overall facility relative to its useful life, and the age/condition of infrastructure systems (eg mechanical, electrical, plumbing) and whether they can accommodate improvements; metrics that can be used to compare costs and benefits of rehabilitating existing or providing

24_edge The Journal of LeighFisher

winter 10/11_25

Infrastructure asset sales: DecIsIons toDay,flexIbIlIty for tomorrow?

n asset sales

➸

In the leasing of infrastructure assets, the risk is not entirely with the private sector, as can be illustrated by some recent case studies. By Philip Bates

Governments around the world today are asking whether their existing portfolio of public sector infrastructure assets, especially in transport, can

be leveraged to raise much needed public sector revenue. In the UK the Government signaled, in its Comprehensive Spending Review (CSR) of autumn 2010, its belief in investing in transport infrastructure as one of the ways out of the current recession. While the CSR resulted in significant reductions in government spending, transport infrastructure received specific emphasis (and funding) in the CSR as one of the key drivers for future economic growth.

At around the same time, the UK government also completed the sale of the High Speed 1 (HS1) rail line, which runs between London and the Channel Tunnel. A consortium of Canadian pension funds has been selected for the 30-year concession, paying £2.1 billion upfront, an amount which exceeded expectations.

While the private sector has undoubtedly taken on risk, it should be remembered that the domestic revenue stream was underpinned by the government through their long-term commitment to an ongoing use of the line by domestic high-speed services.

While major infrastructure projects inevitably rely on the current generation

making assumptions about the needs and values of future generations, many feel the problem with such agreements is they leave little or no flexibility for a response to changing circumstances.

The government’s commitment to underwrite domestic rail services may appear a safe bet but one only has to look back at the speed with which the original railways in the UK decimated the canal infrastructure business to see that things can move quickly. Some even think that we can see the smoking gun for the demise (or at least the decline) of physical transport infrastructure in the UK today – and it is called the internet.

So, if 30 years is ok, what about 75 or 100 years? To look at such long agreements we need to turn to the examples of the Chicago Skyway and the Pennsylvania Turnpike in the US.

The Chicago Skyway reached financial close in October 2004 and was the first long-term lease (99 year) of an existing toll road in the US. The City of Chicago used $1.8 billion received from the transaction to:

n Pay off the existing debt;n Fund a medium to long term $875m

reserve for the city;n Fund a $100m short-term

neighborhood and business infrastructure plan.

An attractive side effect was that the

26_edge The Journal of LeighFisher

Indiana Toll Road. This deal closed in 2006 and was a 75-year lease that raised an upfront payment of $3.8 billion for the State of Indiana. It looked, back in late 2006, as if the toll road lease bandwagon was rolling and could not be stopped. Which brings us to the Pennsylvania Turnpike, the deal where the wheels fell off. If one is to understand what happened one needs to look at the chronology of events.

In late 2006 the Pennsylvania Governor proposed the idea of a long-term lease of the Turnpike as a means of raising funds, and approached interested parties. However, while there was general consensus that there was a major funding deficit, the idea of leasing the Turnpike was not universally accepted. Concerns seem to have included the length of the concession, the application of P3 (a public private partnership) to a brownfield rather than a greenfield scheme, plus the prospect that the lease could go to a foreign company.

As a consequence, the situation in 2007 quickly became complicated.

To start, the existing Turnpike Commission proposed to increase tolls on the Turnpike and to introduce a toll on the I-80, turning over the extra funds to the Department of Transportation. [Interstate 80 (I-80), is the second-longest US highway, crossing the country to connect San Francisco with Teaneck, New Jersey.] Known as Act 44, the proposal was projected to raise an extra $116 billion over 50 years. However, these projections relied heavily on obtaining agreement to introduce a toll to I-80.

At around the same time the Governor released estimates of $12 billion - $16 billion to lease the Turnpike and asked the state legislature for permission to seek bids. Given the vast difference in funds expected from the two plans, it is not surprising that Act 44 was passed in July 2007 and plans for the Turnpike lease were put on hold.

The problem was that tolling I-80 was both philosophically unpopular with some. Further, as the toll would not apply consistently across Pennsylvania, it also raised certain geographical tensions between those in the areas of the state where roads were tolled and areas where they were not. Many started to realize tolling I-80 would be problematic. So, in Autumn 2007 the Governor relaunched the Turnpike lease plan and in early 2008 announced his support for a bill that would repeal tolls on the I-80 and instead, lease the Turnpike. In May 2008, after a competitive process, Abertis and Citi submitted a $12.8 billion

city’s credit rating was upgraded, reducing the cost of future borrowing. The winning bid was also about two and half times more than the next nearest bid. The concession outlines best practice specifications to be followed. However, their delivery comes at a price to users. Toll increases well above inflation are defined to 2017, with an agreement thereafter to annual increases capped at the higher of 2%, the consumer price index (CPI), or the increase in nominal gross domestic product (GDP) per capita. In contrast, under the previous 50 years of city control toll changes were infrequent and, on occasion, even decreased in real terms.

Some commentators have contended that the requirement for the concessionaire to maintain the Skyway to a certain standard is inherently inflexible. This is because, at any point during the term of the concession, this standard may be considered unnecessary or unaffordable. Further, there is now no flexibility available to the city in the future to boost its attractiveness to visitors or business by reducing the toll. This issue has come into particularly sharp focus during the current recession.

Also, while the risk related to inherent uncertainties over future revenues is transferred, the deal does include a non-compete clause. This is something that could be costly for future generations to buy back, should there be a future need for a new parallel facility.

The next long-term toll road lease, following the Skyway agreement, was the

“Everything that can be invented has been invented” Charles H. Duell, commissioner, U.S. Office of Patents, 1899

“I think there is a world market for maybe five computers” Thomas Watson, chairman of IBM, 1943

Asset sAlesPros And cons

transfer risk, stable environment to maintain infrastructure

current generation makes decisions for future ones to stand by

Pay off debt, build reserves, fund infrastructure, improve credit rating

Inflexible maintenance standards may not match future conditions, contracts

are expensive to buy back

Political consensus is essential in carrying decisions on long leases

winter 10/11_27

proposal to lease the Turnpike. A significant sum of money but still at the lower end of the values which had been initially indicated by the Governor in 2007.

To add to the uncertainty over the lease plan, the Turnpike continued making payments under Act 44, although many may not have realized that these relied on debt in the near term, with the as yet unapproved toll increases and tolling on the I-80 required to meet the long term commitments required under Act 44.

So, it is perhaps not surprising that when the Governor asked the legislature to

approve the $12.8 billion lease offer there followed months of heated debate. The legislature then failed to vote on the offer in September 2008 and the private sector bidder let its $12.8 billion offer expire.

To make matters worse, not long afterwards, the Federal Highway Administration (FHWA) rejected the proposals to introduce a toll on the I-80. As a result, the expected $900 million a year in funding from Act 44 was suddenly reduced to half that value.

Although Pennsylvania had adopted a similar approach to the Chicago Skyway and the Indiana Toll Road, it is clear that ultimately, there was a fundamental difference which produced the outcome for each of the projects. While the starting point had been a commonly held understanding that there was a problem with funding transportation in the state, but there was no consensus on the way forward, with major decisions to be taken along the way.

While it is easy with hindsight to look back at the events and say that it reflects a failure of the political process, it should be remembered that the legislature was being asked to reach a significant decision with long-term impacts. After all, with a 30-year deal it is at least possible to argue that we are putting in place the opportunity for the next generation to review the decision. With a 75- (or even a 99-) year deal, one is making a decision that will not be reviewed for several generations.

Indeed, this ultimately comes back to the fundamental dilemma that is the nature of long-term asset sales or leases. Long-term agreements do transfer risk and deliver a stable financial environment in which to address the maintenance requirements of economically critical infrastructure. It is also true that the longer the lease, the more revenue that is raised up front.

However, the inherent inflexibility of such long-term agreements means that a commitment is being entered into to maintain the asset to a certain standard. This is regardless of whether such a standard may be considered unnecessary or unaffordable in the future.

At what point then, do we acknowledge that some of the current problems that we face need to be solved by today’s generation, dealing with the consequences in our time, and that some decisions should be left to future generations? ❑

Philip Bates advises private sector investors in infrastructure projects around the world. Philip.bates@leighfisher.com

n asset sales

“Heavier-than-air flying machines are impossible” Lord Kelvin, president, Royal Society, 1895

“Computers in the future may weigh no more than 1.5 tons” Popular Mechanics, forecasting the relentless march of science, 1949