Denver International Airport has settled on a complex, $1.8 billion contract with a partner that would perform a four-year terminal renovation and oversee new concession spaces for the following three decades.
DIA officials this week disclosed the bottom-line value of the public-private partnership, which is much higher than estimates that were given when negotiations were in flux. The publicly known value was characterized by DIA’s top brass in early June as “more than $1 billion” and then later by the airport’s major airlines as $1.3 billion. The final figure landed $500 million higher.
The airport has begun delivering what a spokeswoman said could reach 15,000 pages of contract documents to Denver City Council members.
According to those documents, the cost of the actual renovation would be $650 million, with the rest of the costs coming in the three decades to follow.
Airport officials have worked for years to cement the deal for the terminal, and the prospect has stirred up controversy. They have faced recent public pushback from DIA’s major airlines over costs and other issues, and now they will be at the mercy of council members who have voiced a heavy share of skepticism toward the deal.
In short: Should an upgrade of the 22-year-old Jeppesen Terminal be coupled with such a complex, decades-long operating arrangement that gives a private partner the power to ink contracts with restaurants and shops and control part of the terminal?
“The issue that I have with this is that through this contract, we are — the council is — surrendering for 34 years our charter responsibility to do contracts for (terminal) concessions and possibly some other matters at the airport,” Councilman Kevin Flynn said. “And so this is a one-shot deal. I’m not necessarily opposed to doing that, but I need to know the parameters that we set in this contract are the right ones.”
The main objectives of the Great Hall terminal project are to increase capacity as airport traffic nears 60 million passengers a year and to modernize and speed up security screening. The project would relocate the two main screening checkpoints upstairs to the north ends of the ticketing level, in part to address security vulnerabilities, while consolidating ticketing counters on the south ends.
On the main floor, space now used for the north screening area would be used to create more money-generating food and retail outlets, which passengers would encounter after passing through security and on their way down to the trains to the concourses.
The deal details 30 years of payments from DIA to a team led by Madrid-based Ferrovial Airports for financing and operating costs — starting at $24 million a year — as well as profit-sharing from the new concessions spaces that Ferrovial would oversee. DIA would receive 80 percent of that revenue (estimated at $8 million in 2022 and $10 million in 2023), while maintaining control over other terminal concessions outside the main-floor area that’s ceded to Ferrovial.
Ferrovial has operations contracts at four airports in the United Kingdom, including London’s Heathrow, but the DIA deal would be its first airport venture in the United States.
Overall, airport officials say the $1.8 billion in costs to DIA over more than three decades would break down this way:
- $479 million in “progress payments” that DIA would make to Ferrovial during the four-year design and construction phase. That makes up 74 percent of the $650 million renovation cost, with Ferrovial’s team providing $171 million.
- Up to $120 million in “owner’s contingency” that DIA would cover in case of unforeseen issues and changing industry standards in the next four years, according to a contract summary.
- $430 million in operations and maintenance payments to Ferrovial for 30 years after the renovation is complete, to pay expenses for the concession spaces Ferrovial controls.
- $750 million to $770 million in installments over those 30 years to cover Ferrovial’s debt repayment, financing costs and returns for its investors. Together, the annual capital and operational payments to Ferrovial — totaling about $1.2 billion — make up “supplemental payments” the contract requires from DIA.
Airport CEO Kim Day last month portrayed the partnership as a chance to combine several needed renovation projects into one, streamlining the construction work “in an integrated way” for an upfront price that protects DIA from cost overruns.
Contract value has been a moving target
The cost for DIA under the proposed deal is more specific than the “more than $1 billion” estimate that Day conveyed in early June, when the contract was still under negotiation, and much more than the $1.3 billion that the airport’s major airlines cited in a June 21 letter objecting to the project. An airport spokesman did not dispute the latter figure at the time.
DIA officials now say that components of the complex deal were in flux throughout June, but airport and Ferrovial team representatives largely have pinned down the figures now that that negotiations are complete.
Not included in the Great Hall project are dozens of new airline-requested gates that the airport plans to add to the concourses soon. DIA could ask the council to approve a more traditional contract for that project next month.
In coming weeks, council members will be charged with scrutinizing the voluminous Great Hall deal with Ferrovial’s team. The lineup also includes Centennial-based Saunders Construction and equity partner JLC Infrastructure, an investment fund started by former NBA star Earvin “Magic” Johnson and Loop Capital.
The agreement leaves a lot for council members to digest and consider.
The nearly 15,000-page document will include a main 157-page “development agreement” that details the backbone of the public-private partnership, said airport spokeswoman Stacey Stegman. It’s also accompanied by more than two dozen appendices so far, with others still being finalized Wednesday and not yet released.
Flynn began looking at the contract Tuesday night, and he credited DIA contacts for working to iron out some technical issues he faced initially.
“We’re proceeding on schedule,” Stegman said. “This will go to the council’s business development committee next Wednesday, and we’re hoping for approval and for it to make its way through the council process and then to proceed to the mayor.”
Advancement by the committee next week would put the contract on track for approval on the council floor Aug. 7, but it’s likely at least one member will ask for an additional week or more before the vote.
One member on the 13-seat council already is sidelined from voting — Stacie Gilmore, whose District 11 includes the airport, has recused herself from any votes concerning the project because her brother-in-law’s company, Gilmore Construction, is part of Ferrovial’s expansive team. She also is the chairwoman of the committee hearing the contract; in the past she has stepped aside when the project came up.
Short timeline to approve a big project
Facing a contractual deadline of Sept. 1 to strike a deal, Day and other officials are hoping for a favorable vote in the next six weeks. Without approval, the airport would pay a $9 million termination fee to Ferrovial.
Officials are sure to field a flurry of questions that already have been intensifying since the airlines spoke out collectively June 21, sparking a public battle with DIA officials over the merits of the project. Those probably will focus on the terms of the deal, the initial project designs — some council members have questioned if a post-security concession area makes sense — as well as the larger question of whether DIA’s public-private partnership deal is the right approach.
Meanwhile, the airlines have expressed worry about likely fee increases they would shoulder for years to help pay for the work. DIA says the airlines’ average cost per passenger would rise $1 by the time this project is done in 2022, but the airlines maintain that cost would increase much more.
“We remain very concerned with the various operational issues involving the security checkpoint and ticket counter space,” says a July 10 follow-up letter from the Denver Airlines Airport Affairs Committee, signed by representatives of United, Southwest, Frontier and five other airlines, plus the United Parcel Service.
The letter suggests that DIA undertake a smaller, more focused project sooner to address security vulnerabilities, including a lack of barriers between the screening areas and balconies above.
“Let’s not wait until the Great Hall project is delivered in 2021 or 2022 to address security needs,” the letter says.
But airport officials are holding firm in favor of the larger project and say discussions with the airlines about their concerns will continue. In the meantime, the airlines have hired high-powered Denver lobbyists to press their concerns.
“We’re at 30 percent design,” Stegman said. “We’ll continue to work with the airlines to make sure this project meets with their needs in expanding and redeveloping the terminal.”
Here is the 157-page development agreement (the main part of the contract) as submitted to the council, followed by a summary:
