An Examination of Private Investment and Alternative Funding Structures in U.S. Airports Chicago April 28, 2009

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1 ACI-NA Airport Board Members and Commissioners Conference An Examination of Private Investment and Alternative Funding Structures in U.S. Airports Chicago April 28, 2009

2 Important Disclosure The information contained in this presentation is being provided for informational purposes only. This document is an outline of matters for discussion only and cannot be construed as a recommendation, proposal or offer of any sort. While The Bank of Nova Scotia ( Scotia Capital ) believes this information to be accurate, this presentation is being provided upon the expressed understanding that no representation or warranty, expressed or implied, is made, or responsibility of any kind accepted, by Scotia Capital, their directors, agents or employees with respect to the completeness or accuracy of the information, conclusions and opinions provided herein. This presentation incorporates information which is either non-public, confidential or proprietary in nature, and is being furnished on the expressed basis that this information not be used in a manner inconsistent with its confidential nature or be disclosed to anyone other than as may be required by law or to those who have been informed of the confidential nature of this presentation. This document and its contents are confidential to the person to whom it is delivered and should not be copied or distributed in whole or in part or disclosed by such persons to any other person without the prior written consent of Scotia Capital. 1

3 Challenging Financial Landscape for U.S. Airports

4 Challenging Financial Landscape for U.S. Airports Capital requirements continue to outpace airports financing capacity Historical and projected growth in demand calls for significant investment in capacity and efficiency Construction cost escalation increasing faster than CPI in recent years Higher maintenance and restoration requirements Capital development costs (2008$) from : $76.3 billion FAA Reauthorization Act funding for the AIP: $16.2 billion 2 Airport Capital Requirements 25,000 20,000 15,000 $ 10,000 15,981 16,261 ` 15,035 12,783 Sources 5,000 3,900 4,000 4,100 4,200 1 Airports Council International North America (ACI-NA) Year Capital Needs Study Year Funding Gap AIP Funding FAA Reauthorization Bill approved by the House Transportation and Infrastructure Committee 3

5 Challenging Financial Landscape for U.S. Airports Airports traditional funding sources lack the capacity to meet increasing capital requirements Municipal bond financing has become increasingly challenging Fewer investors who benefit from the tax exempt status of bonds Virtual elimination of monolines Higher cost of debt Increasing reliance on commercial paper programs Dependent on bank liquidity facilities and letters of credit Passenger Facility Charges (PFC) PFC rate ceiling has not been raised since 2000 Real value of PFCs have decreased over time as PFC levels are not linked with inflation $40 billion in future PFC collections already committed to current projects Growth of AIP not keeping pace with demand Grant funding and PFCs are available only for certain types of projects Weakened financial health of air carriers have the limited capacity to issue special facility revenue bonds for airline-specific projects 4

6 Alternative Financing Options: Private Investment

7 Alternative Financing Options: Private Investment Large Availability of Private Capital Since 2006, over $300 billion of incremental leveraged purchasing power has been generated for infrastructure Despite increasingly turbulent capital market environment in , fund raising in the infrastructure sector has remained robust in this difficult environment Investor interest in the sector remains strong, with more investors putting in place dedicated programs with separate infrastructure allocations Significant Growth in Fundraising for Infrastructure In 2006, an estimated $60 billion in equity capital was available for infrastructure investment Number of dedicated infrastructure funds: ~15 funds Available equity capital: ~$60 billion Levered purchasing power: ~$150 billion 1 Presently, an estimated $180 billion in equity capital is available for infrastructure investment Number of dedicated infrastructure funds: >30 funds Available equity capital: ~$180 billion Levered purchasing power: ~$450 billion 1 1 Assumes 60% debt-to-equity 6

8 Alternative Financing Options: Private Investment Current Uses of Private Investment in US Airport Infrastructure Terminals Concession model (design, build, finance, operate and maintain) JFK Terminal 4 Orlando Sanford O Hare Western (in development) Parking Concessions / Leases Management contracts Consolidated Car Rental Facilities Use of CFC revenues (paid by users) as potential bonding source Retail Concessions FBOs Hotels Fuel Farms Land use 7

9 Alternative Financing Options: Private Investment Key Features 1. Ownership / Control Retain asset ownership and regulation Design and build requirements and standards Operating standards Rate set mechanisms Contract termination upon specified default events Asset handback at end of term 2. Risk Allocation Transfer of risk and non-core operations to private partner Allocate risk to parties best able to manage it Decreased risk profile of airport management and stakeholders Construction and operating risk borne by private partner Aligning of incentives between airport management and private partner for the term of the lease/concession 8

10 Alternative Financing Options: Private Investment Key Features 3. Project Delivery Accelerated delivery Alternative source of funding for early delivery Off-balance sheet Price and time certainty Fixed-price, date-certain engineering and construction contracts Transfer cost-overrun and delay risk to the private partner Proven and experienced contractors in this contractual structure 4. Payment Proceeds from the concession/lease Provides new source of funding Revenue sharing mechanisms Upfront, lump-sum payments 9

11 Keys to Success for Private Investment Keys to Success Finding the right partners Procurement process and selection Transparency Knowing what your constraints are Establishing specific goals and objectives Optimizing risk allocation between you and your partner Evaluating all funding options available and selecting the best solution 10

12 Summary and Conclusions Airports are facing increasing challenges due to increasing demand, higher capital requirements, and constraints on traditional sources of funding Private capital is available as an option for funding airport infrastructure needs, even in current financial environment Airports have been historically successful accessing private capital for certain projects to maximize the benefits to the airports stakeholders Private capital can be sourced for project-specific developments while retaining an airport s limited capital resources for core operations Alternative financing structures which utilize private capital can accelerate delivery of key projects Innovative financial structures that leverage infrastructure investment and maximize the benefits of private capital can help airports meet today s financial challenges 11

13 Scotia Capital Contacts Scotia Capital Global Infrastructure Finance Conor C. Kelly Managing Director & International Head Global Infrastructure Finance Ruth McMorrow Managing Director Michael J. Uhouse Managing Director Kevin Healy Associate Director Jeff Mathews Associate