The Tribune

• Gov’t targets winning GB airport bidder by August

• Setting investment at $150m-$200m on high-end

• Hotelier: Hawksbill Creek ‘not working any more’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama International Airport suffered an $8.129m operating loss in the two-and-a-half years leading up to its 2021 purchase by the Government, which is aiming to select the preferred bidder to redevelop this asset by August 2022.

Documents released on Monday to potential bidders, and which have been seen by Tribune Business, provide further insight into why the airport’s previous owners - Hutchison Whampoa and the Grand Bahama Port Authority (GBPA) - were seemingly so eager to offload the loss-making asset on to the Government and Bahamian taxpayers after the devastating damage inflicted by Hurricane Dorian’s storm surge.

The brief financial details provided in the pre-qualification round, which mandates that all initial offers be submitted within 30 days on April 29, 2022, reveal that Grand Bahama International Airport was plunged into consistent losses, with operating expenses exceeding revenue income, immediately following the Category Five storm.

For 2019, Grand Bahama’s major aviation gateway suffered a $1.826m operational loss, with total revenues of $9.608m exceeded by $11.435m worth of expenses. This contrasted with both 2018 and 2017, when the airport earned operating income of $2.61m and $1.208m, respectively.

COVID-19, though, took Grand Bahama International Airport’s operational losses to a new low. That was achieved in 2020 with a $5.451m operating loss based on total expenses worth $8.497m far exceeding revenues of $3.036m, with the latter depressed by the lack of air traffic and passenger volumes due to the double blow inflicted by the pandemic’s travel restrictions and Dorian’s impact on the tourism and hotel plant.

The operating losses continued into the first four months of 2021, hitting $851,000 for the period between January and April 2021, with $945,000 in revenues once more exceeded by some $1.796m in operating expenses. That further ‘red ink’ was incurred just before the Government acquired the airport from Hutchison-controlled Freeport Harbour Company, its immediate parent, in May/June 2021.

Many observers viewed the deal as enabling the GBPA and the Hong Kong conglomerate to walk away from their developmental and governance obligations under the Hawksbill Creek Agreement. It was also seen as allowing Hutchison to dump another loss-making asset on the Bahamian taxpayer following so swiftly behind the Grand Lucayan’s $65m sale to the Government’s special purpose vehicle (SPV), Lucayan Renewal Holdings.

And the figures provided in the Request for Proposal (RFP) document only measure the loss incurred in Grand Bahama International Airport’s operations. They do not include items such as depreciation, provisions for doubtful accounts, impairment charges, fuel write-offs, bad debts and losses on the disposal of property, plant and equipment, meaning that the airport’s net loss is far greater than the figures contained in the bid documents.

The Government, which paid $1 to acquire the airport, also paid-out around $1m as its 50 percent share of the redundancy pay and associated benefits received by Grand Bahama International Airport staff. And Hutchison was also allowed to walk away with the multi-million dollar insurance payout received over the airport’s Dorian-related claim, essentially meaning that not a cent was invested into storm repairs.

The RFP document, which otherwise was little changed from that issued under the former Minnis administration last summer, reiterated that the Government is seeking a private sector partner to invest $150m-$200m at the high-end on Grand Bahama International Airport’s transformation given that it will be a key supporting infrastructure asset for the Grand Lucayan’s owner, plus the Royal Caribbean project in Freeport Harbour and the Carnival cruise port.

“The airport suffered extensive damage during Hurricane Dorian in 2019. A fixed based operator (FBO) building was repurposed as a temporary terminal. A comprehensive site-wide redevelopment solution (capital expenditure approximately $150m - $200m) is required to replace damaged facilities, unlock commercial potential and operate the airport as a profit centre,” the RFP document said.

“For greater clarity, the approximate capital expenditure value identified above is a high-level order of magnitude estimate and no formal capital expenditure costing has been undertaken to date.” Freeport-based private sector sources, speaking on condition of anonymity, yesterday argued that it was unlikely any bidder will be prepared to invest $150m-$200m at this stage given that the city’s tourism market - and hence passenger volumes - are non-existent.

“That ain’t going to happen,” one said. “No one is going to go for that when you have no passengers. I’m not saying don’t pursue that project, but it is the wrong way to go. You are in a dead market. It just doesn’t have the bodies. Nassau has people, Nassau has a market. We have no people and no market here, and it will take us five years to develop. Whoever buys that hotel [the Grand Lucayan] will have to push them on the airport.”

However, just launching the Grand Bahama International Airport bidding process has fostered renewed optimism among some in the island’s tourism industry. Branding the RFP unveiling as “fantastic news”, Magnus Alnebeck, the Pelican Bay resort’s general manager, told Tribune Business: “It seems like the Government of The Bahamas is moving quicker than the two biggest owners of Freeport....

“Hutchison and the GBPA seem to be competing to show very little interest in the future in Grand Bahama. It’s just the Government showing interest. That should definitely increase investor confidence and appetite.” Mr Alnebeck suggested it was also time that Freeport stakeholders and the wider Bahamas review the Hawksbill Creek Agreement, Freeport’s founding treaty, given that it has not delivered for the past three decades.

“I’m one of those people who believes in, yes, the Hawksbill Creek Agreement that set up Freeport was probably a good thing when it happened, but it has not worked for the last 25-30 years,” he said. “That’s the reality. How much you can blame on the hurricanes and other stuff is a question, but the fact is it’s not working any more. 

“Let’s start by sorting out what we have, and hopefully that turns around and there will be an interest from investors. How the administration of Freeport works, that’s something for the Government and people of The Bahamas to decide. There needs to be more partnership between people who live, work and invest, including the Government.”

Speaking to the airport bid process, Mr Alnebeck voiced hope that its launch could persuade the US government to bring Freeport’s pre-clearance facility back and provide a further boost to investor confidence. “It shows to everyone, not just those only interested in the Grand Lucayan, that the Government is putting their foot forward and leading the way,” he added.

“The positive thing is they are showing they are committed to Grand Bahama, and there is no more ‘rolling the thumbs’ attitude. That is very important. I think that if they are to reverse the downward spiral in Grand Bahama, they have to show they are doing something about it. I don’t consider myself an expert in big infrastructure investments like this, but showing they believe in Grand Bahama and want to restore it. It’s the first real serious government investment in the last 16 years.”

As for Grand Bahama International Airport’s consistent losses prior to the Government’s takeover, Mr Alnebeck said bidders would need to adopt a long-term view when seeking to extract returns. “I remember when I first came to Grand Bahama 20 years ago and was told that there were three airports in the world that made a profit: London Heathrow, Hong Kong and Grand Bahama,” he added.

“In those days we had ridiculous landing fees. That’s been one of the problems in Grand Bahama. It’s been so expensive to use the airport that it’s basically driven the airlines away from here.”

Monday’s bidding launch represents the start of the pre-qualification phase, which is designed to separate the serious, well-capitalised groups with a strong track record in airport redevelopment from those that lack the experience and wherewithal to meet what the Government is looking for.

Once that stage closes, successful applicants will move on to the formal Request for Proposal (RFP) round with final bids due by end-June 2022. The Government is hoping to conclude negotiations with the preferred bidder, and close commercial and financial terms, by August 2022.

The winning bidder will be responsible for the design, financing, construction, operation and maintenance of Grand Bahama International Airport under the same private-public partnership (PPP) model currently employed at Lynden Pindling International Airport (LPIA) with the Nassau Airport Development Company (NAD).

Grand Bahama International Airport, its real estate and other assets will be transferred to a new company, Freeport Airport Development Company. That entity will be owned 100 percent by the Government through the Ministry of Tourism and Aviation, which will retain ownership of the airport facilities and the real estate, while the winning bidder will operate it under a long-term lease concession of likely 30 years or more.