BVI News

Private investors to control airport for 20 years

Premier Dr D Orlando Smith

By Davion Smith, BVI News Journalist

Government has said it anticipates to give up control of the Terrence B Lettsome International Airport for roughly 20 years.

Premier Dr D Orlando Smith made the statement yesterday while confirming that his administration is hunting for a private investor to take on the controversial airport expansion project.

“Someone would design, build, and operate the airport for a certain time and then hand it back over to government after they (investors) recoup their investment. So, that is the model we are expecting,” Dr Smith said.

Premier Smith described 20 years as the ‘standard time’ for an investor to run an airport in a public-private partnership.

“That’s the way many airports around the world operate – London, New York. Many [others] operate in that way,” he added.

Why airport expansion increased by over $95 million

China Communications Construction Company (CCCC) was selected to extend the airport’s runway from 4,645 feet to about 7,100 feet at a cost of $153 million.

Premier Smith said the expansion project is now expected to cost $250 million because the terminal at the airport will also be developed.

He further said the government has terminated its original deal with CCCC.

“They did not provide the opportunity for public-private partnership at that time and so we thought as a government that that’s the direction we needed to be going in because we still think there are companies, organisations, and people out there who would be interested in providing that kind of facility for us,” Premier Smith said.

He, however, noted that a new deal with the Chinese company is possible.

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51 Comments

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  1. Reply says:

    Giving the financial concerns of this potential project, IMO, such a joint venture would be a prudent way to proceed. Such a move will hopefully silence some critics who have rightfully queried about its affordability, timing, and where the money would have come from.

    IMO, increase airlift access to the BVI is vital to its future economic outlook. This is even more imperative as the country has a tall rebuilding task ahead. We have to position ourselves to compete in an ever increasing tourism marketplace.

    We cannot do so with the current status quo. Other Caribbean islands such as St. Vincent has realized this. Despite similar public concerns they ultimately proceded.

    One of the arguments missing from this airport expansion discussion are the changes occurring in the airline industrty whereby carriers are using more fuel economical planes in an environment of increased fuel cost to get passengers from point A to point B.

    Smaller non-profitable gas gussling planes are becoming obsolete. We have to adapt to this new environment in order to survive.

    • HMPH says:

      Good luck finding a partner to invest in an airport in a country that won’t let foreign investors buy land to build hotels! Who is going to buy the seats on plane to the new airport? Much better idea would be to buy some land at the STT airport and build a BVI Terminal, with a dock for ferries.

      • @HMPH says:

        Well if we do find one then we will know for sure that the expansion was a good idea after all. If nobody comes forward then we know otherwise, let’s wait and see how this cookie crumbles.

      • Reply says:

        You’re kidding…right? You are not seeing the forest from the trees. I don’t see that happening or being practical for a host of reasons. The BVI’s should not continue to have a major part of its economy dependent on what tourist transits thru St.Thomas.

        What needs to be done imo is exactly what is being proposed here in addition to developing our sea ports to accommodate all passengers who may travel thru the USVI enroute to the BVI. In this way, every avenue visitors may choose to travel to the BVI is covered. Not every traveler wants to take a ferry ride.

        Continuously placing so many of our economic eggs in the same basket is unwise. The USVI is competing for much of the very same tourism dollars we seek. What makes you think they will accommodate or make it easier for us?

        It’s clear to me that no matter what this government says relative to this airport expansion, there will always be naysayers. It’s our nature. It will never be able to convince or satisfy everyone of the benefits of this expansion and they should not try. To do is a mistake.

        They should listen to all sides of this argument but at the end of the day, do what they think is in the best interest of the country and the economy. If it costs them politically, at least they stood for their conviction.

        Let me say in partying, regardless of the political party running the government, imo, the reality of the necessity of this airport expansion will become apparent because as I said earlier the future economic growth of this country depends on it considering:

        A) Changes in the airline industry, and
        B) Our regional competitors who are making strides to attract more visitors.

        To borrow a phrase: it’s the economy stupid.

        • Albion says:

          That argument makes no sense. You say ” BVI’s should not continue to have a major part of its economy dependent on what tourist transits thru St.Thomas”

          But it is OK to be dependent on tourist transit through San Juan? Nobody is flying here directly, not unless you believe those liars at BVI Airways.

          • Reply says:

            @Albion: There is a difference between STT and SJU. We all know Puerto Rico is a major Caribbean international hub. I do not see that changing any time soon. On the other hand, St.Thomas is not. I am not suggesting that we rely on San Juan traffic as oppose to St.Thomas.

            What I am suggesting is a composite approach whereby visitors have options to travel thru to BVI.

            There may be visitors who would probably prefer a more direct route if possible that may avoid both SJU and STT, and then there may be visitors who would prefer the scenic and arguably less expensive scenic route via STT and the ferry. All is good in my mind.

            However, I don’t think its a strong positon for our country to be in whereby we rely solely on indirect tourist traffic from St. Thomas, a competitor.

            The more flexibility there is in getting here, the better off we will be in my judgment. If people wish to travel here indirectly via SJU or STT, that’s all well and good. If they wish to do so more directly avoiding those airports that should likewise be an option. All travelers are not the same, and yes, despite you see otherwise, many would prefer a more direct route if the option presents itself as oppose to a day long journey thru STT or less so thru SJU.

            More avenues of travel can translate to more visitors and a stronger tourist market, imo.

            As for BVI Airways being liars, I have no knowledge of the veracity of their representations, and cannot objectively comment either way.

            Just out of curiosity Albion, do you have any interest in the ferry business personal or otherwise? I ask because when I read folks, I like to consider the source so that I can better understand where people may be coming from.

            Full disclosure: I have no airline interest or ferry interest personal or otherwise, nor am I in bed with the NDP government on this issue for personal gain. Just discussing the issue from my view point.

          • Bruce says:

            I have to disagee with you, this will be our 5th year in a
            Row vacationing in BVI, we always try to fly in.

      • Poison. says:

        What buy land in someon else country????

    • Albion says:

      I completely agree. If private industry can pick up the heavy costs of development, then I have no problem with them taking out profits to recover their investment plus a little extra.

      I also think that if we have a private enterprise running the airport which has a financial incentive to increase flights in and out of TBL then that is worth more than a thousand politician’s promises about increasing flights.

      • Velour Track Pants says:

        Mega projects = Mega risks!! Given the economic temperatures in the wider Caribbean, Europe and AmeriKKKa; who in their right mind would venture into a potentially underperforming/loss making business in the BVI? It would be interesting to see the business case for profit vs loss and bearing in mind it is all projections/forecasts. Where are the airlines that would service the profitable routes and thus provide landing/parking fees etc. (passenger tax) based on filled seats? Shelve this idea, focus on investing in prot crying and nurturing our fragile environment. Better infrastructure and promote more SME’s – grow from inward out and then revisit this airport in say 10-15 years. Invest in recycling and alternative energy for Government buildings and schools. Fix the damn roads with adequate drainage and lighting. Develop more parks and green spaces (national parks are a disgrace!). Stop pandering to the people and grasping at straws. The jig is up and the die is all but cast – stay tuned for the fallout.

    • White Elephant says:

      The airport and piers have been our minister’s folly. Let’s put this issue aside until our roads are rebuilt, affordable reliable and sustsinable electricity established, fresh water made available to everyone, and high speed Internet finally introduced. Let’s commit ourselves to the proper priorities!

      Let us also not forget the urgent need to rebuild our schools and in fact our whole education system.

    • Ralph says:

      @Reply:

      Has the BVI Government held talks with the Government of St.Vincent viz-a-viz how it financed its recently completed airport.

      Has the BVI Government considered assistance from Cuba with regards to its airport development?

      What level of financial contribution/advice/expertise would the UK Government provide?

      I am leery of handing over development of the airport and its subsequent operation to any foreign private entity whose financial interests would supersede local needs.

      The recent loss of $7million to an ineffectual airline which failed to provide passenger service ought to have been warning sufficient.

      • Reply says:

        First let me state categorically, I do not speak for the NDP government. As such, I have no idea who they may have contacted or spoken to on this issue.

        I understand your reservation, but in this current political climate, I believe as I have stated above that the government’s proposal strikes me as the right way to proceed.

        This will be a contractual relationship between the government and whatever investor(s) they may piece together. That contract will outline the relationship(s) and what is expected of all parties.

        I have a feeling that should this project get going, it will be a mixture of some investor, local business interest, and government footing the bill.

        Don’t be surprised if the Social Security Board does not become one of those investors. From my observation, the SSB has been the defacto private investor for the BVI for some time regardless of political party.

        Finally, nothing is free in this life. If an investor forks up the couple hundred million needed to expand/modify the airport, one can expect them to get something in return.

  2. Laura says:

    Due to the current economic climate Private capital is necessary and a good idea to supplement the lack of public funding being available to Government at the time. But while larger airports are attractive to investors, airports in lesser developed areas may have difficulty attracting private investments because of their lack of scale and profitability (unless there was something lucrative attached to it, per se a mega hotel of sorts). This reflects the fact that larger airports are more suitable for private investment, whereas smaller airports tend to be subject to a more limited range of private operation models due to their susceptibility to be structurally unprofitable. It is therefore necessary to identify and appeal to the right type of investors who have the risk appetite for smaller airports which have substantial development needs.

    Airports provide a very diverse range of income streams, which presents a good risk profile for investors but the key problem is that to make money, an airport must first spend huge sums to satisfy the increasing demand for its product (i.e. increasing costs to the consumer).

    At the end of the day the question still remains, what is in the public’s best interest?

  3. Good says:

    I hope they dont give a free reins with its environmental effects and that when handed over twenty years from now it wont be a monkey around the peoples neck.

    But even if it is a cost differed for twenty years its better than the peoples money been spent on it right now. Let the investors build it.

    • Yup! Yup! says:

      All well and good but we have learned that they are never satisfied always more, more. You give hotel aid for ten years when ten years up they want ten more plus. Airport today what tomorrow? Future bright for some but not for all.

  4. Sam the man says:

    Sell out – we all knew something was happening in the background . The focus should be on restoration and recovery not on this stupid runway expansion we don’t
    Want to be like St Thomas!

  5. Yup! Yup! says:

    Isn’t this where we started? 20 years is a joke. Minimum 50 and I wouldn’t put a bet on that.

  6. what yours says:

    with this what is your cut under the table

  7. Eagle and Buffalo says:

    Build-Operate-Transfer (BOT) another BI-Water type deal. By the way, BI-Water has healed itself, did it? Guess Seven Seas made it a worthwhile project? Ok, I digress from the TBLIA outsourcing topic.

    Yes, outsourcing is a means of delivering services. Yes, many airport landside business operations/services are outsourced. Some are successful but others tank. TBLIA is an interesting scenario. BVI, a small territory (59 square mile, 30,000 population), is looking for an investor( s) to plop down $250M big ones to improve both the landside and airside of TBLIA. The successful company will operate the airport for 20 years to recoup its investment plus profit.

    It is in investors’ DNA to invest in projects that yield at least a minimum return on investment (ROI), ie,, 10, 15, 20, 25…..etc %. They mine for opportunities that can meet their investment expectations How will the $250M + profit be paid back in 20 years? Let’s see there are parking fees, departure tax, security fees, landing fees, space rental, shops……..etc. Is 20 years long enough?

    Moreover, another issue is if you build it will the airlines dash to start flying? Will the passenger loading be there to sustain flights? If they do fly, will it be daily or once a week? These must be concerns for both the BVI and any investor. Not trying to rain on the parade. Just asking a few????? (sorry Socrates lol). By the way, will Sir Richard and others (including local group) leap at the investment opportunity?

    Let’s lead like eagles, not careen off the cliff like buffaloes.

    • Sense says:

      Investors won’t be investing without some sort of guarantee from airlines and vice versa.

      • Eagle and Buffalo says:

        @Sense, if airlines can get guarantees from investors that they can meet the minimum passenger loading, they will fly. This may be a major challenge for investors. An option is for investors to subsidize the delta between the minimum passenger load factor and the actual. However, this may not be a good option. As such it will require demand for passsngers to consistently into the BVI and the airlines will supply the available seat miles. Let’s face it there is a major hurdle ahead.

        Let’s lead like eagles, not careen off the cliff like eagles.

      • Depressed local says:

        Or a vested interest (at an extortionate rate cf Biwater, Greenhouses etc). PPP will only work if we know who exactly the middle P is

    • New Name says:

      Should we really bother on how the Investor intend to recoup? They’ve done this in other countries. Definitely, they could do necessary due diligence to be sure of the viability of their investment.n All we need to do is to set the terms right including labor hire and environmental protection

  8. Launaish says:

    Airport audit necessary now.

  9. Good says:

    This is the best way to do it, govt can’t manage anything properly.

  10. Well.. says:

    The good thing is we will know for sure now if the stats support the expansion of TBL because no investor will spend $250 mil without having strong evidence supporting the return on investment. I guess we should now wait and see what happens, but I think this is the way to go rather than govt borrowing all that money and messing it up.

    • Concerned says:

      And they are not going to invest that kind of money in a country that has no infrastucture and a government that is so full of stupidity and fraud that nothing goes right. UK will never allow it!

  11. Guest says:

    So let me get this straight a company is going to invest $250 million in a project and going to somehow recoup their investment plus interest on this over 20 years?? They would have to earn at least 13 million a year to break even. I must be missing something because the airport is not exactly a cash cow in the BVI, something tells me there is an added component hidden in this deal. Is it that they will be allowed to set up company(ies) in the BVI with limited tax or allowed to set up companies over that time frame and bring in their own nationals???

  12. Concern says:

    Sounds like yet another shady deal like BVI Airways, we the people deserve more transparency before moving forward with such a deal or I see another disaster financially.

    I truly believe all financial audits should be completed before any deal this big is made

  13. Disinterested says:

    Government has demonstrated dismal performance in negotiating airport/aviation agreements/deals. For example, the $7M give away to BVI Airways, a broke a..s and brankrupt airline, supposedly to start direct flights between MIA and EIS. BVI Airways has received the $7M but not a single flight has landed at EIS as yet. Government appears clueless as to the location of the planes or when they will be flying. In fact, since the $7M of taxpayer money was so easy to get, it came back for more.

    Through shame and pressure from the caucus and public at large, government declined at least for now. The tap for taxpayers money turned off, BVI Airways abruptly laid off all or most of its employees. Taxpayers still do not know who owns BVI Airways; it is a mystery. Further, it does know why the relentless push to extend the airport ahead of more critical needs. The airport extension project should not be part of the recovery plan; it needs to be a stand alone project.

    Thus, how confident are Virgin Islanders confidence in government’s ability to effectively negotiate this long-term (20 years) airport operations outsourcing project?

    • sam the man says:

      well said I have zero confidence in this Government in negotiating anything, they have been found out big time and it’s now desperate damage limitation….

  14. The Visitor says:

    Might consider that it will take about $30,000 a DAY just to pay off the debt not including paying employees, maintenance or make a profit. Even trippling the volume of passengers landing fees and other charges will have to be almost prohibitive.

  15. ??? says:

    Ok, the comments aren’t as bad as I thought. Finally, a few open minds.

    • Truth says:

      The comments won’t be bad because despite the notion that people were against the airport they’re not! People are against GOVERNMENT being the ones leading the charge and responsible for that huge sum of monies given their past track-record.

  16. E. Leonard says:

    Outsourcing is a means for resource-starved countries, cities, territories………..etc to deliver services to its customers. Outsourcing has some benefits but it is not without risks. This proposal seems like a public private venture (PPV). The BVI will provide operational control of land and air side facilities to the investor for 20 years; PPV agree to invest approx $250M to extend the runway and improve the air side facilities.

    This sounds like a win-win for both residents and investor with the investor recouping its investment and making a profit and BVI residents getting improve air transportation services. But not so fast. The challenge will be finding an investor to invest $250M on a small airport in a small territory with a small population.

    Investors normally shop around for relatively safe investment opportunities. Typically, they gravitate towards investment that are generally relatively safe and that can hurdle its minimum hurdle rate, minimum rate of return on investment, ie, 15%, 20%, 25%………..etc. $250M is large sum of money and any investor must have a high level of confidence that it is an investment opportunity that satisfies and meet its investment goal. Given the VI small size, and limited revenue streams this could be a challenge.

    Potential revenue streams include departure taxes, space rental to airlines, parking fees, landing fees, retail shops, fuel sales…….etc. Proceeds from these revenue streams must be sufficient to interest an investor. The primary revenue stream may come from putting paying butts in seats.

    Moreover, an extended runway and an improve terminal is no guarantee that airlines will fly into TBLIA. A key airline economics metric is the the passenger load factor, ratio of passenger to seat capacity. For example, if an airline has 160 seats and a 120 passengers on board, this equivates to a 75% load factor; passenger load factor will be different for each airline.

    Further, the airline business is a labour and capital intensive, and razor thin profit margin business. There is a fix cost with every take off and landing. Airlines have to at least break even but breaking even is not good enough, for the airline business is a service business and needs to make a profit.

    Consequently, no airline will start or continue a route if it cannot consistently meet its minimum passenger load factor. Finally, the PPV is a build-operate-turnover agreement. As such, the agreement should specify that at the end of the term that both the land and air sides are turned over in a certain/specific condition. Further, during the period f investor control of airport operations, taxpayers should be held harmless from any liabilities.

  17. Brad says:

    BVI Airways now this. Hmm. I do not believe a darn thing this man and his gang says.

    • Wow says:

      The difference here is the Airport is ours nobody can go with it!

      • Concerned says:

        And they are not going to invest that kind of money in a country that has no infrastucture and a government that is so full of stupidity and fraud that nothing goes right. UK will never allow it!
        They can’t go with the Pier & Pier Park, but both are dead! Went to pier park today, what a rundown mess and less than two years old.

  18. Captain Tolerant says:

    How could there be any corruption in a government that “gives away” one of the largest operations in the country, with the expectation that the guys they give it to will give it back once they think they’ve made enough money from it.

    What could possibly go wrong?

  19. vg resident says:

    Ok, someone “invests” in the airport project for 25oM. Just to break even will require $34,000 of income each and every day. How is that going to happen at EIS unless you charge $300 in fees for every seat. No investor will go for that unless they are hiding money and then all bets are off.

  20. Devils advocate says:

    Can we honestly think being handed back a 20 year old outdated airport is acceptable.
    We are giving away our major industries.
    Sure we may find an investor for the first 20 years, who will strip out all the profits, but please think. What will the condition of this infrastructure be in 20 years after all profits have been stripped. What we we be handed back…outdated liability, that is all.
    Then it will be another investor to upgrade airport for another 20 years??

  21. Visitor says:

    Agree with earlier Velor Track Pants: focus on the key issues for the islands. ‘Build up’ and there will be no draw to the BVI… Just stay where there are already big developments. Let the Chinese develop your airport and say good bye to the region as you have known it. Pier Park… Went there once – never again. Be careful what you wish for.

  22. agree says:

    The airport is a mess. Trust me it needs to be privatized or we in trouble.

  23. Prophet says:

    We’ll never get out of debt with China so we’ll never get it back. The move only sounds good on the surface because it meets their agenda. Rethink your agenda. China is engaged in espionage against USA in prep for a war they’re planning. That is the strategic reason for their invasion of the Caribbean which the dirty politicians think is a blessing and can’t see it’s an invasion. They also don’t like black ppl much and were are black afrikan ppl. China isn’t a good option for the this move.

  24. BVI For Life says:

    One of the most vital part of the tourism product is rooms. Having a new airport is all good where visitors could come here direct.But if we don’t have accommodations for the visitors the airport will be a waste.
    I think that any co-operations who would be willing to invest in an airport will have to survey that avenue of accommodations first before making a commitment. I think that our government needs to pay some more keen attention on our tourism product.
    Firstly the budget for the development of our product (tourism)is a drop in the bucket compare to other countries small like us. Both political parties NDP & VIP does not care about this industry, more so, most their focus is on Financial Services.
    Secondly, the mind set of our populist is not educated enough in the service industry. There are too much leaks where the visitors experience is not WOW. This wow factor should start in the school. Every country on this planet is competing for the same tourist dollar, its not just Caribbean, and our neighbors are working diligently. There are a lot more I can say,lets look deep within ourselves and take the right course of action,20 years away is just tomorrow the future is infinity.
    Think Future.Think infinity.

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