Project FAQ

The findings of the 2008 Airport Master Plan commissioned by the then Government concluded that the old facility, parts of which date back to the 1940’s and 50’s, had reached the end of its useful life. Given its age and stage of disrepair, it was concluded that the facility might not be able to withstand extreme weather events, thus posing an existential threat to Bermuda’s economy and lifeline to the world. It was estimated at the time that the old terminal would require a minimum investment of $167 million in urgent infrastructure repairs and basic modifications.

The findings of the 2008 Airport Master Plan commissioned by the then Government concluded that the continuing costs associated with carrying out ‘band-aid’ repairs to maintain the infrastructure’s functionality, would outpace the cost of inflation by 5 percent. A total rebuild of the old terminal would be required to meet industry standards, guard against extreme weather events and comply with the latest facility requirements for U.S. Pre-clearance. Incurring the cost of continuous repairs to then later incur the full cost of a complete replacement – estimated in the Government’s 2008 Airport Master Plan to be approximately $500 million – would have been ill-advised, unaffordable and would have jeopardized Bermuda’s sovereign credit rating.

The CCC/Aecon proposal is a guaranteed, all-inclusive one that offers to design, build, finance, operate and maintain the new terminal on a fixed price basis. To complete the proposal, CCC/Aecon had to prepare a design along with the accompanying traffic forecasts, environmental and geo-technical testing, financial modeling and other necessary feasibility reports and analysis, all at its expense. A traditional procurement process, which may or may not have identified a more competitive proposal, would have required Government to incur such costs, estimated at over $20 million, in order to develop the same level of due diligence as CCC/Aecon did and to compile a comprehensive Request for Proposal package. In light of Bermuda’s existing debt obligations and expected minimal interest amongst private lenders for airport projects the size of Bermuda’s (i.e. less than 1 million passengers) given that according to industry statistics*, 80 percent of small airports lose money; the Government opted to sole source with the Government of Canada, whose ‘AAA’ credit rating helped to secure an affordable investment grade rating for the project. In turn, that credit rating enabled Aecon/Skyport to raise affordable financing for the project, which in turn, helped to ensure that the Bermuda Government’s debt burden and sovereign credit rating would not be impacted in any way. Notwithstanding the absence of a public tender process, a broad panel of independent international experts determined that (i) the terms agreed with CCC/Aecon were fair, balanced and in line with comparable transactions in the market**; (iii) achieved all of the public policy objectives of the Government***; and (iii) delivered better value for money than a public procurement would have***.

*Source: Airports Council International
**Source: LeighFisher Project Agreement Review, February 11, 2018
***, Source: SteerDaviesGleave Value for Money Assessment, November 17, 2016

The Agreement includes the design, financing and construction of the new terminal as well as the operation and maintenance of the airport for 30 years, all at Skyport’s expense. Government first entered into an agreement with CCC to develop and construct a new terminal on time, on budget and according to modern, international specifications. CCC in turn, engaged its chosen prime contractor, Aecon, who in turn hired several Bermudian sub-contractors, to carry out the construction work. Aecon also set up a special purpose Bermudian company, Skyport, to operate and maintain the airport and to finance and oversee the construction, while the Government established an Airport Authority to provide operational and contractual oversight of Skyport. Once construction is completed and certain obligations are met a few years after the new terminal is opened, the contractual relationship between the Government and CCC ends. However, Government’s contractual obligation with Aecon/Skyport (the concessionaire) to lease, operate and maintain the airport remains for the duration of the 30-year term.

No. CCC, and by extension Aecon, assumed the full risk and costs, however the project was completed  on time, on budget and according to specifications.

The concessionaire, Skyport, raised the funding necessary to redevelop the airport and will incur the majority of the costs associated with operating and maintaining it. To ensure that it has the ability to pay off that debt and to operate and maintain the airport, as well as realize a reasonable return on its investment, the concessionaire must have access to the airport’s revenues, which prior to the commencement of the Airport Redevelopment Project, were insufficient and only enough for Bermuda’s airport to breakeven. As such, new industry-normal fees had to be introduced to help increase the airport’s annual revenue total. Skyport will use the revenue to carry out capital improvement projects (e.g. runway resurfacing, terminal expansion, renovations, etc.) during the 30-year concession term. Bermuda being a small airport with a large capital program, its entire revenue base, together with substantial investments by Aecon, would be required to support the costs of the project. Government retaining revenues would no longer be viable. This model exists today at many airports including Heathrow, Gatwick, Lisbon, Montego Bay and Kingston.

No. This is mythical and not factual. As part of its 2018 review of the Airport Redevelopment Project deal, Government appointed renowned industry experts, LeighFisher, to look into concerns about revenues being transferred off-island. LeighFisher concluded in its report, that “revenues are being used to fund the design, construction and financing of the new airport terminal building, as well as operating and maintaining the airport, including the existing terminal, and once complete, the new terminal.” All airport revenue, which prior to the commencement of the Airport Redevelopment Project, was insufficient and only enough for Bermuda’s airport to breakeven, is set aside and placed into bank accounts secured by project lenders. Funds are applied first towards the cost of airport operations and maintenance, then to repayment of debt (interest and principal) that was raised to help build the new terminal, then, any monies left over would go towards recouping investments and realizing a return. Should revenue then exceed an agreed-upon target, the Government will have the right to receive 50 percent of that excess amount.

The Agreement stipulates that the Government will enter into a 30-year concession and property lease with the concessionaire, Skyport – which is a newly established, Bermuda-based subsidiary company of Aecon. The Agreement outlines the requirements for the operation and maintenance of the airport over the 30-year term, except for operations that Bermuda shall retain, namely: Air Traffic Control, weather services, Aircraft Rescue & Fire Fighting, and airfield ground electronics (collectively referred to as ‘the Retained Government Services’).

30 years is consistent with airport concession deals as well as private public partnerships in Canada and around the world. As Skyport was responsible for raising the capital necessary to fund the airport redevelopment, the company requires a reasonable amount of time to pay off the debt, much like a homeowner would a mortgage; and realize a reasonable return on its investment. Additionally, the Government is relieved of the financial burden of airport operations, maintenance and refurbishment during that 30-year period.

Skyport was responsible for operating and maintaining the old terminal at its expense while it remained in use, until the new terminal opened. Skyport set funding aside to immediately carry out a refurbishment of the old terminal once the project agreement was entered into, in order to ensure that it remained safe, functional and presentable whilst still in operation.

Government established a Bermudian-run quango, the Bermuda Airport Authority, to oversee all aspects of the Project including new terminal construction and airport operations. The Airport Authority approves airport charges and supervises key performance and quality standards. It has the right to impose penalties on Skyport should the company not adhere to those standards. The Authority is also responsible for providing the Retained Government Services – including air traffic control, fire and rescue services and meteorological services – and will have the right to charge a user fee to help recover some of its costs.

In addition to operating the airport and delivering the new passenger terminal facility, Skyport will fund required maintenance and capital expenditures relating to the terminal building, cargo facility, parking lots, runways, taxiways and aprons during the life of the concession. Overall, Skyport is expected to invest over $630 million in the airport.

Skyport and the Government agreed to set a target internal rate of return of 15.9 percent. According to Government’s independent assessment in 2018, carried out by industry advisors, LeighFisher, “Skyport’s target IRR is considered modest but reflective of risk exposure and is within market range, typically between 15% – 20%.”

80 percent of airports the size of Bermuda’s (i.e. 1 million combined arriving and departing passengers per year or less) lose money* and as a result, largely do not appeal to private investors.  In fact, Bermuda’s airport was at best, a breakeven enterprise.  In order to attract private investment, fees and charges to airport users had to be increased and airport expenditures optimized.  To achieve that, the Government provides the following allowances that combined, help to ensure that the project is as affordable as possible:

1. Introduce New Charges – normal industry practice allows for airports to introduce fees to help fund major capital projects.  Such fees are added to the cost of an airline ticket and as such, are payable only by passengers who use the airport facilities.  In this case, an Airport Improvement Fee (AIF) of $31 and an Airport Infrastructure Charge (AIC) of $20 was introduced.
2. Retain the Cost of Providing Certain Airport Services – the Government is responsible for providing the Retained Government Services which include, Air Traffic Control and Meteorological services, and will have the right to charge a user fee to help recover some of its costs.  Aircraft Rescue and Fire Fighting services at the Airport will continue to be provided for by the Bermuda Fire and Rescue Service.
3. Subsidize Energy Costs – Government will provide an annual subsidy for airport electricity consumption over the first 26 years of the concession term, after which energy costs will be fully borne by Skyport.  Anticipated airport revenue was not sufficient to cover energy costs which currently total approximately $2.6M per year.
4. Establish a Minimum Revenue Guarantee – the success of airport development deals is largely dependent on the ability to maintain and grow passenger revenue. For Bermuda, passenger numbers have been in an overall downward trend for 30 years. For debt investors (i.e. lenders) to invest in the airport project, they require some protection against the risk of a continued decline in passenger revenue and economic shock events that could threaten Skyport’s ability to pay off its debt. Thus, it was agreed that the Government would guarantee only the minimum revenue necessary based on conservative annual passenger numbers, for Skyport to repay the lenders, not to realize profits. This lender protection also ensured that the financing needed for the Project could be raised at a lower rate of interest, thereby ensuring that the overall cost of the Project was more affordable. Recognizing the need to minimize the risk to passenger growth and associated revenues, the Government’s independent industry advisors, LeighFisher, concluded in its 2018 commissioned report, that the MRG provision was fair and balanced. Though debt payments will now be protected, Skyport meanwhile, must continue to meet all of its operating expenses including salaries, building and airfield maintenance, airport security and passenger screening services, capital expenditures, and all other costs including any construction-related cost overruns associated with the new terminal. Once the debt has been paid off, the Revenue Guarantee is terminated.

*Source: Airport Council International

The MRG was necessary to enable Skyport to raise all of the capital required to finance the airport redevelopment from private sources, and spare the Government of Bermuda from having to borrow further to pay for the project, or in any way impact its sovereign credit rating.  As the only source for repayment of private investments would be the airport’s future revenues, principally from passengers and airlines, the 30 year downward trend in traffic at the airport did not present a viable business case for financing.  Furthermore, industry data* for small airports like Bermuda’s show that 80% of them lose money.  Around the time the project was being contemplated, the airport was, at best, a breakeven business, incapable of funding necessary maintenance, adequate staffing levels and any type of capital program.   In order to achieve a project that was “investment grade,” some protection against the risk of a continued decline in passenger revenues was necessary.  A revenue “floor” was set at an extremely conservative level, below which the airport would be unable to operate and service its debt.  This revenue protection does not apply to Aecon’s profits or investment returns.  Similarly, it does not in any way subsidize the construction cost of the project, all of which is financed by Aecon.  The minimum revenue guarantee simply ensures that in the event of continued decline or economic shock (e.g. the Covid 19 pandemic), the project remains above water and is able to service its debt.  So long as revenues meet or exceed the minimum target, there is no requirement for Government to make any payments for the lenders.  Once debt has been paid off, the Minimum Revenue Guarantee feature in the Project Agreement falls away completely.

*Source: Airports Council International analysis of airports having 1 million combined arriving and departing passengers per year or less

The Government will have the right to share in excess airport revenues over an agreed revenue threshold. Specifically, should annual revenue exceed the agreed-upon target, the Government shall receive 50 percent of that excess amount.

The Government provided no upfront funding to the Project. The bulk of the financial burden held by the former Government Department of Airport Operations was transferred to Skyport. However, to make the Project financially viable, the Government will be responsible for costs associated with the Retained Government Services, the energy subsidy and overhead costs associated with the Bermuda Airport Authority. These costs do not take into account any potential revenues that the Government could generate to offset those costs, nor the revenue share that Government might earn under the 50/50 participation formula. For context, if Government had to raise the required debt itself to fund the Airport, which prior to the commencement of the project, was a breakeven endeavor, the anticipated minimum interest costs would have been approximately $20 million per year, together with approximately $40m per year of principal payments, and the substantial costs of operations and maintenance.

Yes. The new Airport Terminal Building and the entire L.F. Wade International Airport complex will remain under the ownership of the Bermuda Government.

The Project Agreement does in fact contain a standard Amendments clause, providing for the possibility for making changes by mutual agreement. This clause formed part of the Government’s 2018 review of the agreement, conducted by industry experts, LeighFisher, and its conclusion that the agreement was fair and balanced and consistent with market norms. Mutuality is crucial in that, it would be unlikely for a private party to raise in excess of $350 million in financing, and bond investors to lend at a fixed rate over 25 years, as was the case with the Airport Redevelopment Project, if the Government counter-party were able to make unilateral changes to the agreement after it was signed.

The Bermuda Government has commissioned several reports from a broad panel of independent international experts to assess the fairness of the Airport Redevelopment Project Agreement. In 2018, the Government commissioned respectable industry experts, LeighFisher, to conduct an assessment of the deal. In its findings, LeighFisher concluded that the terms and conditions of the Project Agreement are broadly consistent with similar contracts, proportionate with the underlying risk involved; and reflect a return of investment and an interest rate on debt that is within market range. Additionally, it concluded that the balance of risk and reward is consistent with similar projects. Leading US architectural firm HNTB, the authors of the Government’s 2008 Airport Master Plan, concluded, based on a line by line pricing review, that Aecon’s costs for construction were below market benchmarks, while the Canadian Imperial Bank of Commercial, Canada’s leading infrastructure and P3 advisory firm, concluded that Skyport’s financial model and financial plan were sound and that all costs and assumptions were reasonable and in line with international benchmarks. Another advisor commissioned by the Government, Steer Davies Gleave, a global leader in infrastructure and transportation, concluded that notwithstanding the absence of a public tender process, (i) the Project Agreement achieved all of the public policy objectives of the Government; and (ii) delivered better value for money than a public procurement would have. Finally, the United Kingdom Government concluded that the process and structure of the Project Agreement with CCC (acting on behalf of the Canadian Government) and Aecon satisfied the terms and conditions it required of Bermuda for a deal that involved a foreign Government.

At the end of the 30-year concession term, the agreement terminates; the Government takes over airport operations and assumes all revenues, expenditures and profits; the airport lease expires; and the terminal and all accompanying assets are transferred back to the Government in good working condition and in accordance with stringent hand-back specifications outlined in the Project Agreement. There will be no payment by the Government to Skyport at handover.

The new Airport terminal facility was built on the vacant, or ‘brownfield’ site located directly north of the old terminal. This site was chosen because it enabled the building to be elevated and protected from extreme storm surge; clear of the aircraft runway approach zones; and completed without interruption to operations at the existing terminal.

The new terminal design featured in the 2008 Airport Master Plan had an estimated cost of $550 million. In order to make the redevelopment project more affordable, a more practical design with an estimated cost of $267 million was required. Construction was expected to take 40-months; however, notwithstanding 96 percent of the base build construction having been completed when the Covid-19 Shelter in Place Order took effect at the end of March 2020, temporarily suspending all works on the site, the remaining works schedule was adversely impacted by the pandemic and the new terminal opened on December 9.

The new, purpose-built facility provides for improved passenger processing; increased passenger capacity; greater resilience to extreme weather conditions; modern amenities and infrastructure; greater energy efficiencies; enhanced security; better retail and food & beverage outlets; and covered, passenger jet bridges. The new terminal also enables Bermuda to comply with the latest, most-advanced U.S. facility requirements for Pre-Clearance. Pre-Clearance allows for U.S. bound passengers to clear U.S. Customs and Immigration in Bermuda, instead of on arrival in the U.S. where longer lines often exist. This service is extremely beneficial to passengers and provides Bermuda with a competitive advantage when seeking new air services to and from the United States.

The new Airport Terminal Facility is approximately 288,000 square feet (26,770 square metres), while the old terminal is approximately 254,000 square feet (23,641 square metres).