Thursday, December 14, 2017

Cleared for Takeoff?

By on September 2, 2017

Editor’s note: The following article originally appeared in the August 31 print edition of Caribbean Business.

SAN JUAN — In times when initiatives to increase economic output in Puerto Rico are desperately needed, the commonwealth seeks clearance from the federal government to take off as a major regional air hub for both cargo and passengers.

It will take a three-way effort to do so, including exemption from air cargo regulations, several permits and certifications from the U.S. Department of Transportation (DOT), and bringing back the in-transit lounge for international passengers, Puerto Rico’s resident commissioner, Jenniffer González, told Caribbean Business during a recent interview.

Resident Commissioner Jenniffer González (Jaime Rivera/CB)

“This is a unique opportunity for economic development that Puerto Rico hasn’t had before,” she said. What’s more, Noel Zamot, the island’s revitalization coordinator, is already on board with the plans, according to González. He recently participated in a meeting attended by the resident commissioner, Rosselló administration officials, the destination marketing organization chairman, Jon Borschow, and Agustín Arellano, CEO of Aerostar, which manages the Luis Muñoz Marín International Airport.

“[Zamot] supported the three initiatives: the air transportation exemptions, the in-transit lounge—he presented some ideas that could be used strategically—and [the federal] HR 3472 [the Stevens amendment]. Obviously, I expect it won’t stay there and will lead to execution, which is what the people of Puerto Rico want,” González stressed.

The resident commissioner went on to say that the island’s financial control board must “be proactive” and engage in lobbying efforts so economic development initiatives, such as those related to air transportation, can be approved and fostered.

While the efforts need action from the federal government on all fronts, Jerónimo Lectora, an expert on the matter, feels confident it is possible. A member of the P.R. District Export Council, a local trade organization, he warned that time is of the essence to step forward.

“The three [initiatives] are achievable,” Lectora told Caribbean Business. “The economic impact for Puerto Rico would be billions, not to mention tourism. If you improve air connectivity, it results in economic development.”

He noted there is a need for such a hub among international and U.S. airlines, while market studies show related business opportunities will only increase in the coming years.

“This opportunity won’t be there forever. Within the next six to 12 months, the window will be tighter. There are people in other places already doing things and investing. They won’t see [Puerto Rico] as an alternative if we don’t present ourselves as one,” Lectora added.

Stevens amendment

By just adding the word “Puerto Rico” in an amendment introduced by the late-Sen. Ted Stevens (R-Alaska) back in 2003, the commonwealth would enjoy the same air cargo exemptions available to the 49th state of the Union. The so-called Stevens amendment helped Alaska become one of the top-10 air cargo hubs in the world.

On July 27, González filed a one-page bill to this end: HR 3472. The goal is to have the amendment approved as part of the Federal Aviation Administration reauthorization bill that Congress would consider in September.

“If we can include that amendment as part of that bill, I’m sure we could be successful,” the resident commissioner said. “It will be beneficial for our economy and the U.S., as it could have in Puerto Rico an enclave in the Caribbean to bring new cargo.”

Lectora explained that with the air-cabotage exemptions under the Stevens amendment, international air carriers can stop in Alaska and continue to other U.S. airports, which is not allowed for any other domestic airport. “It is like if you never stopped there,” he said, adding that when Congress exempted Alaska from these regulations, the state suffered similar problems to those Puerto Rico is currently facing.

For instance, he mentioned that international air carriers are “overlooking” Puerto Rico, which also does not produce enough cargo to be attractive to these companies, vis-à-vis other airports such as Miami International.

Exemptions from DOT

Achieving the exemption granted by the Stevens amendment was not enough to turn Alaska into the major hub it is today. “You need to combine it with international cargo transfers, which require permits from the DOT,” Lectora warned, in reference to what is known as expanded air-cargo transfer options.

Earlier this year, González asked the federal agency to exempt Puerto Rico from some of these air cargo regulations, to which the DOT agreed to work on the requisites that must be met to receive the exemption. To date, jurisdictions like Alaska, the Mariana Islands and Guam enjoy these benefits.

Achieving these permits would allow such operations as refueling for international carriers, as well as the combination of cargo, both domestic and international, among other options.

“It is up to [Rosselló administration officials] to work on these applications to the DOT,” the resident commissioner said. Lectora added that the commonwealth government must explain why it needs these exemptions, particularly over the need for economic development tools.

If these exemptions from the DOT are combined with the Stevens amendment, “you have yourself a hub,” the expert noted.

In-transit lounge

For years, Puerto Rico had an in-transit lounge, whereby international passengers did not need a visa to stop on the island and hop on another flight to other destinations. But after the 9/11 attacks, these were eliminated throughout the U.S., including the commonwealth, for security reasons.

“There is a claim so Puerto Rico once again enjoys being a hub, mostly from Latin America to Europe.[…] We lost that investment from passengers, who would stay sometimes for a night or would spend money at the airport,” González said, adding it could result in an additional million passengers a year.

She said discussions are underway with different federal agencies to reinstate the in-transit lounge, although she recognized “it is more complicated due to security elements.”

Lectora downplayed some of these concerns, noting, for instance, that Puerto Rico is not located on the U.S. mainland and international passengers can always be accounted for as they must stay within a designated area of the airport.

The expert believes it is possible to reinstate the in-transit lounge if the commonwealth demonstrates to Homeland Security that there would be a significant economic impact in favor of the island and that the risk of having it is equal or less to that of “preclearance” offshore bases established by the Transportation Security Administration in certain international airports outside the U.S.

Lectora further emphasized that to truly become a regional air hub, the in-transit lounge is key since modern aircraft are now being made to transport both passengers and cargo.

“It benefits U.S. and international airlines, as well as Puerto Rico. It becomes a neutral hub for cargo. You don’t need treaties. The sky opens for Puerto Rico and the only thing the federal government would do is provide a legal framework to facilitate this investment. It is not a bailout,” he concluded.

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  • tommariner

    Puerto Rico used to be the gateway to the Caribbean and in many cases South America. There was a Title 936 tax exemption that brought US businesses flocking in to train and employ the smart, motivated Puertorriqueños. South American interface to major firms were headquartered in San Juan (OK Santurce).

    But too much spending and too cheap bonds got Wall Street to literally throw money at the Island. With the assistance of Washington, the “Hedge Funds” are demanding immediate payment in full, as is their legal right.

    But how about throwing a bone to a most beautiful part of the United States, with the Stevens Amendment? Hey bondholders, how about throwing your weight behind this? Guessing a reinstatement of Title 936 is a lot to ask.

    Or we could all just wait for Puerto Rico to become a “territory” of another country. A proposed $200 million China-themed center in Arecibo, designed to attract industry and tourism money is just the tip of the iceberg. We have been warned.

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