The Future of DIA: $1.8 billion, long-term Denver airport pact would overhaul security, concessions
Author: Adam McCoy - August 13, 2017 - Updated: August 18, 2017
As the 22-year-old Denver International Airport outgrows its dated design, it must undergo a modernization of sorts, principally to address security vulnerabilities like long lines at security checkpoints.
That’s airport officials’ contention in touting a stout, complex $1.8 billion, 34-year public-private partnership with a consortium of companies led by Spanish transportation infrastructure behemoth Ferrovial.
The Great Hall Project will help one of Colorado’s major transportation hubs adapt to the evolving nature of air travel, airport executives say.
“You do not use terminals today like you did in 1995,” DIA CEO Kim Day said during a Denver committee meeting last month.
It would chiefly address security issues at screening points through $650 million in renovations. The proposed four-year overhaul would move security screening from level 5 to the sixth floor alongside ticketing; resolve the awkward flow of passenger traffic; triple the space for new concessions on level 5; and add new technology improving efficiency at security checkpoints and check-in areas among other additions, airport executives say.
And with DIA passenger traffic swelling to 58.3 million last year and the airport on pace to set a new passenger record by year’s end, the renovations would address perpetual growth at the airport, boosting capacity in the Jeppesen terminal to 80 million passengers per year.
“We are exceeding the design capacity of the terminal and we will not be able to accommodate the growth that our airlines are projecting,” Day said of not moving forward with the renovations.
Much of the Denver City Council appears poised to OK the partnership, and local construction leaders are giddy over the potential for new work in the city, but the 15,000-page pact has drawn the critical eye of airlines, labor unions, community members and City Council members including Deborah Ortega and Rafael Espinoza.
Both have said they’re uneasy about the lose of oversight detailed in the contract regarding concessions, with the consortium taking over management control of new concessions for three decades under the agreement, and wary of what they characterize as inadequate time to weigh the agreement before a vote. Ortega and Espinoza co-authored a letter requesting a vote postponement of 120 days to afford more time to study the pact.
But the clock is ticking on the City Council. Though the city would retain all the design and other work done to this point, it would be on the hook for a $9 million penalty paid to the partners if the agreement isn’t approved by Sept. 1.
Nonetheless, the City Council could vote on the deal as early as Aug. 14.
“If DIA wants my vote (on Aug. 14), I’ll need more time,” Espinoza told Colorado Politics. “DIA likely feels comfortable it has the requisite number of votes. But I’m making it clear. I am not comfortable moving forward. I need more time with the contract.”
Under the agreement, DIA will be on the hook for as much as $1.8 billion. DIA CFO Gisela Shanahan said the airport will contribute $480 million toward the renovations via progress payments over the four years of construction, and allocate an additional $120 million in contingency funds.
Over the remaining 30 years of the agreement, DIA could pay up to $1.2 billion in reimbursement payments to the Ferrovial partners for concessions operations and maintenance costs and financing costs.
Meanwhile, the consortium partners — Ferrovial, Saunders Concessions and MJE/Loop Capital — will invest $378 million over the life of the deal through cash, debt and other means. The partners do expect a return on their investment of 10.8 percent.
Ferrovial will design and construct the renovations and assume the risk for any cost overruns or delays on the project. While Ferrovial will operate new concessions, Denver will split revenues taking 80 percent to 20 percent and retain control of concessions on DIA’s three concourses.
Officials say the airport could go it alone in financing the project for a lower price tag, but the partnership shields DIA from some of the risks associated with the project.
‘Paying a premium’
While he acknowledges the built-in protections in the public-private partnership, Espinoza said DIA is paying a premium for those benefits. He’d rather take the work already done, have the airport go it alone and finance the project at a lower cost. Considering the length of the agreement and the Ferrovial consortium taking management control of new concessions, he said it appears the deal is designed to circumvent the Council.
Other City Council members like Christopher Herndon have expressed support for the agreement, but Espinoza said he needs more time to see what other Council members see in the pact.
“This is a lot for me to digest in a very limited amount of time,” he said during a July 26 committee meeting on the project.
Councilwoman Deborah Ortega has also been outspoken on the project arguing she isn’t comfortable with the City Council’s loss of oversight for concession contracts. In a letter advocating for an 120-extension, she said there are unanswered questions.
“Mayor Hancock and DIA should pursue a 120-day extension to provide Council time to fully review a contract it took three years to develop,” Ortega and Espinoza wrote. “It would also provide time for the DIA team to work with our partner airlines that will incur a 28 percent increase in fees to provide concession space in the main hall.”
Local labor union leaders have expressed anxiety over protections for airport workers and airlines like United, Frontier and Southwest say they back renovating the airport, but are concerned about the operational and financial feasibility of the project.
United Airlines President Scott Kirby said level 6 is already crowded and the renovations would leave little room for travelers. And estimates place DIA wait times on an average day at 82 minutes Kirby said.
“That’s the root of our concern,” he said. “If you’re going to do something like that, people won’t come to Denver. We are really concerned that we harm the airport and the local economy by doing this.”
If approved, DIA construction could start next summer in “discrete phases” as to avoid disrupting travel through the Mile High City.