Cabinet approved Government’s policy directive issued for developing and improving all three airport facilities on 23 October 2013.

Titled Strategic Outline Case for Owen Roberts International Airport, Charles Kirkconnell International Airport, and Little Cayman Airport Development the directive is being released today on the Government website and to all Media houses.

Deputy Premier and Minister of District Administration, Tourism, and Transport, the Hon. Moses Kirkconnell, JP, explained: “The policy supports Government’s goal of contributing the best possible product for the People of the Cayman Islands and the Islands’ tourism industry. Specifically, it addresses the sustainability of air transport to and within the Cayman Islands, while developing more tourism opportunities for our people.”

He continued, “A number of benefits will accrue from the projects. The construction and development phases, followed by fully operational facilities will generate additional jobs. More importantly, it will deliver significant economic benefits to the Islands, notably improving public revenue and raising the Gross Domestic Product (GDP) from increased visitor arrivals.”

The Minister noted additional benefits include increased opportunity for the continued sustainability and profitability for the Cayman Islands Airports Authority.

Ministry of District Administration, Tourism, and Transport Chief Officer, Mr. Stran Bodden, JP, explained that the procurement process will follow an open, transparent and competitive process in keeping with international best practice and the Public Management and Finance Law. The exact scope and size of each project will be developed in the business case, he said.

A competitive procurement process will identify who will be responsible for designing, and building the facilities. “Operational responsibility for all airports facilities will remain with the Airports Authority for strategic reasons,” Mr. Bodden noted.

In view of Government’s inability to seek further borrowings, funding for the projects will be determined in the business case.  Options identified to date include a phased programme of enhancement and expansion of existing facilities.

A strategic policy document also notes that there are potential environmental impacts and the mitigation against these impacts will be confirmed in the business case documents for each airport.

The following are excerpts only from the 49 page document “Strategic Outline Case for Owen Roberts International Airport, Charles Kirkconnell International Airport, and Little Cayman Airport Development”

INTRODUCTION

The Cayman Islands  are  served  by  three  airports  Owen  Robert  International  Airport  (ORIA), Charles Kirkconnell International Airport (CKIA) and Little Cayman Airport (LCA). These airports support various levels of airport development that provided a satisfactory level of service at the time initial development took place. Within the past ten years, commercial, business and tourist usage has increased, putting additional stress on the airport systems and their infrastructure.

In October 2013, the Cayman Islands Government (CIG) issued a policy directive to further enhance the existing facilities at all three airports for passenger (international and domestic) arrivals to improve the travel experience. This policy is intended to support the Government’s Broad Outcome Goal of “Setting the Stage for Success in the Tourism Industry” and developing further tourism opportunities in the Cayman Islands through increased air service development.

The exact scope of development for all three airports will be determined as part of a substantive Outline Business Case (OBC) process and is beyond the scope of this document. The prioritization and phasing of the works will be of key importance.

The plans for all three airports should consider energy efficient design and make use of all available natural energy sources to reduce overall operational costs over the long term.

Due to the CIG’s inability to undertake conventional borrowing, the OBC will have to explore several financing options ranging from self – finance through revenue generated by the passenger facility charge (PFC) to private public partnership (PPP). This will be defined in the OBC process.

The Cayman Islands Airports Authority (CIAA) will follow the proper open, transparent and competitive procurement processes ensuring value for money for all phases of the project including design, building and potentially financing of the facility.  Operational responsibility will remain with the CIAA.

The project is expected to deliver significant economic benefits to the Cayman Islands. These benefits include increased stay‐over visitor spending, increased revenues for CIG, job opportunities, increased opportunities for additional airlift into Grand Cayman as well as greater overall profitability for the CIAA.

OWEN ROBERTS INTERNATIONAL AIRPORT (ORIA)

ORIA has long surpassed its maximum capacity for passenger and aircraft movements.  The airport was originally built to accommodate 500,000 passengers however it now handles double the capacity.   Overcrowding is experienced throughout all areas of the airport and results in an uncomfortable and inefficient travel experience for the customers.  Additionally, with the increase in flight activity over the years, congestion occurs on the apron during peak hours. Overall all facilities have deteriorated over the years including the General Aviation Terminal (GAT).

In order to determine the scope of project required to address the deficiencies of the airport to accommodate projected passenger growth and aircraft equipment, it is necessary to consolidate and update the airport master plans. A new plan should provide long term solutions for all the shortcomings of the airport.

Due to the CIG’s inability to undertake conventional borrowing, the OBC will have to explore several financing options ranging from self ‐finance through revenue generated by the passenger facility charge (PFC) to private public partnership (PPP). This will be defined in the OBC process.

The Cayman Islands Airports Authority (CIAA) will follow open, transparent and competitive procurement processes ensuring value for money for all phases of the project including design, building and potentially financing of the facility.  Operational responsibility will for the facility shall remain with the CIAA.

The project is expected to deliver significant economic benefits to the Cayman Islands. These benefits include increased stay‐over visitor spending, increased revenues for CIG, job opportunities, increased opportunities for additional airlift into Grand Cayman as well as greater overall profitability for the CIAA.

SECTION 2: AIMS, NEEDS, OBJECTIVES & CONSTRAINTS

The total percentage of annual visitors to the islands by air is 20%.  The stay over visitors’ average spend contributes 77% of the total annual tourism revenue.  This percentage amounts to CI$287M (source: CI Compendium of Statistics 2012.)  Congestion in the ORIA terminal building, primarily in the departure lounge, has resulted from passenger traffic growth and the fact that the terminal building capacity has not kept pace with the demand since it was built in 1985.

Competing regional countries such as Jamaica, Bahamas, Aruba and Turks & Caicos Islands, having recognized the need for airport terminal expansion, made the relevant investments to position themselves for future growth.  Unfortunately the Cayman Islands are not maintaining  its competitive edge in this regard.

The airport is a major economic driver for the country and in order to continue to grow and develop at a sustainable rate and keep up with its competitors, it has now become critical for the airport terminal to be developed to comfortably and safely accommodate the current passenger loads as well as to provide reserve capacity for future growth.

Increased growth in the Growth Domestic Product (GDP) and stable revenue streams are important components of the Government’s three year fiscal plan. The development of the airport terminal facilities will accommodate additional airlift in future which consequently equates to increased revenue for local businesses and will positively impact the GDP of the Cayman Islands while providing much needed Government revenue.

In February 2011 an Airport Visitor Experience Assessment was carried out by Deloitte and the Cayman Islands Department of Tourism (CIDOT).  This report confirmed that the current airport infrastructure has a negative impact on our visitors’ experience.   Additionally, recommendations were made to expand and upgrade the current airport terminal to provide immediate positive impacts on the visitors’ experience as this is their first and last impression of the islands.

Project Need and Objectives

The Project seeks to provide the relevant infrastructure to meet the existing and future growth of passenger, aircraft and cargo operations while meeting international standards and regulations.

The airport master plans should be consolidated and updated to provide flexible options for service and infrastructure to address current needs and long term development plans and objectives.

Need:  Provide infrastructure to meet current and projected demand for aircraft, passenger and cargo movements

Objectives

Terminal Building Expansion

The objective is to address the deficiencies with the current terminal building in order to comfortably accommodate existing and future passenger demand.

The current ORIA commercial airline terminal building was opened in 1984 and designed with space to handle a maximum of 500,000 passengers by the year 2000. Today ORIA handles approximately one million passengers per year, a 100% capacity increase over design intent.

Since the terminal building was first established it has undergone minor renovations and additions to accommodate our islands’ growing population and expanding economy. However, it has not kept pace with the level of service and convenience expected by the passengers.  The airport terminal reflects a combination of aged and cramped facilities and a severely congested and uncomfortable environment,  providing  a  poor   level  of   service   to  travellers  passing  through  the  airport. Additionally, there is no space to develop in‐transit facilities and employees are forced to work under confined conditions.

Apron Expansion

The objective is to relieve current congestion on the apron and accommodate present and future aircraft demand.

Currently the apron provides a maximum of eight aircraft parking stands.   This contributes to congestion on the apron during the peak periods and limits our potential to accommodate added air service at peak times.

General Aviation Terminal (GAT)

The objective is to address the current deficiencies with the GAT. The GAT provides facilities for general aviation users.   The current facility is inadequate and restricted in size and cannot accommodate the number passengers and aircraft using the GA facilities. There has been private sector interest in partnering with CIAA to develop the GAT.

Airport Pavements –Apron, Runway, Taxiways

The objective is to assess the state of the pavements and the requirement for surveys and or improvements.

Runway Extension and Taxiways

The objective is to evaluate the need to extend the runway to accommodate long‐haul flights.

Parallel Taxiway

The objective is to evaluate the need to develop a parallel taxiway from end of runway to main apron.

Currently no parallel taxiway exists. This would allow for traffic to be handled more expeditiously on landing and take‐off.

Cargo Facilities

The objective is to evaluate the need to improve and enhance current cargo processes and facilities. With the expectation of increased air traffic it is anticipated that cargo throughput will also be increased.

Fuel Facility

The objective is to evaluate the current location of the fuel facility as its location will impact on both the terminal and the apron development. The CIAA is also in discussions with the two existing fuel providers to consolidate the facility; the fuel operators have indicated interest in partnering with the CIAA to develop the facility.

Fire Service

The objective is to evaluate the current infrastructure of the Fire Service to ensure it meets existing and future demand while complying with international regulations.

Transportation Network

The   objective   is   to   evaluate   and   address   the   development   of   the   ground   transportation infrastructure in the airport vicinity.

Need: Enhance airport safety

Objectives

Runway End Safety Area (RESA)

The objective is to provide a RESA as required by local and international regulations and to respond to the findings of a recent CAACI audit.

Currently there is no RESA on the eastern end of Runway 08.  The purpose of this is to enhance the safety of airport operations by providing an International Civil Aviation Organization (ICAO) specified safety buffer in the event an aircraft overruns on landing.  This scenario is currently deemed one of the two most serious safety concerns by ICAO.

Secondary Surveillance Radar

The objective is to evaluate the implementation of secondary surveillance radar to enhance the safe and expeditious movement of flight operation.

Need: Enhance airport security

Objectives

Runway Perimeter Road and Perimeter Fence

The objective is to provide a runway perimeter road as recommended by international regulations.

The perimeter fence is inspected regularly on a daily basis.  To ensure ease of access to carry out these inspections, it is recommended to provide a runway perimeter road.   The current path is inadequate and needs to be upgraded to a proper road. This is causing excessive wear on patrol vehicles which creates high maintenance costs.

Need: Enhance passenger convenience/experience

Objectives

Boarding Bridges

The objective is to evaluate the need and feasibility to install boarding bridges. The impact of other projects such as Health City should be considered due to the projected number of patients and passengers with reduced mobility expected to visit the facility.

US Border Control Pre‐Clearance

The objective is to conduct an analysis, including key agencies such as United Kingdom Department for Transport UKDFT and US Transport Security Administration (TSA), to determine if US border control  pre‐clearance facilities  can  be  provided  at  the  airport.  The  overall  objective  being  to enhance the passenger experience, allowing them to fly into domestic terminals in the USA, and avoiding the long waiting times regularly experienced at US Border controls.

Common Use Passenger Processing Systems (CUPPS)

The objective is to provide common use facilities and systems such as common use airline check‐in counters, baggage information displays and flight information displays, throughout the airport to enhance the passengers’ travel experience and convenience.

Concessions

The objective is to increase the diversity of products and services available to passengers through improved concession spaces.

Need: Enhance Revenue Streams

Objectives

Concessions

The objective is to enhance concession spaces to generate additional revenue

Office Space Rental

The objective is to enhance office space rental to generate additional revenue

Advertising Space

The objective is to enhance advertising space to generate additional revenue

Energy Efficient Facilities

The objective is to provide sustainable and energy efficient facilities to minimize carbon footprint and recurrent costs

Vehicle Parking Facilities

The objective is to enhance vehicle parking facilities and generate additional revenue

Project Constraints

Financing: The CIG is currently constrained by numerous economic factors.   Due to restrictions under the Public Management and Finance Law 2012 (PMFL), the CIG is unable to finance the development of the airport through conventional borrowing methods. The CIAA is also dependent on existing revenue streams stemming from the airline industry as a means of funding its on‐going operations. The following is a brief resume of CIAA revenue streams.

.      Passenger Taxes/Revenue‐

Currently Cayman Islands Government receives revenues from the Cayman Islands Airports Authority as follows‐ Fees, Passenger Facility Charge (PFC), Departure Tax Security Tax, Terminal Fee. The total fee per passenger is currently CI$42.00, and this fee is anticipated to rise to CI$52.00 per passenger with a revision to the Travel Law (Departure Tax and Environmental Protection Law), expected December 2013.

In addition CIAA receives rental income of approximately CI$1.4 million per annum.

.      Passenger Facility Charge (PFC)‐

The passenger facility charge (PFC) is CI$13.00 per head, and is levied on “every eligible departing passenger” to an international destination. Revenue from the PFC is currently the only charge that can be utilized for airport capital developments and these funds cannot be utilized for operations and maintenance. The current development fund contains a sum of CI$9.67m which is placed on deposit. Currently CI$3.0million of the fund (not included in sum of CI$ 9.67) is being utilized for potential future works ‐

•Brac Terminal Expansion

•ORIA Emergency Works

•Emergency Generator for ORIA

•ORIA Revenue Parking System

CIAA has confirmed the total PFC for 2012‐2013 amounted to CI$6.07m, but only CI$4.0 million was actually collected due to non ‐payment by certain airlines.

.      Revenue Enhancement Study‐

CIAA is currently undertaking an in house revenue enhancement study including ‐

i)         Tenancy Rate Review 2013 ‐currently underway:

ii)        Airport Fees Review March 2008‐ undergoing refreshing for implementation

2014/2015:

.      Repayment of Delinquent PFC Fees‐

CIAA and delinquent airlines are in negotiations to agree arrangements for payment of  the outstanding PFC and other passenger related taxes, to be repaid over a set period of  time. This agreement is due to be finalized in December 2013, and will involve a series of staged payments commencing in 2014.

Ownership & Operations: Due to the importance of the Airport as a strategic national asset, the CIAA will retain the legal ownership and operations. Any financial model chosen for procurement will include consideration of that requirement against the need to provide assurance and security to a private sector investment partner.

The Framework for Fiscal Responsibility and PFML:  The Framework for Fiscal Responsibility (FFR) Guidelines came in to effect in 2012.  Government is required to follow these guidelines to ensure a fair and transparent procurement procedure.

Phasing:  The PMFL (2012 revision) sets out the five key stages that will be undertaken by the CIG in the planning, development, and execution of a project. Those include (1) Strategic Outline Case (SOC) and OBC; (2) procurement (3) contract management; (4) delivery; and (5) evaluation.

The specific phasing of construction and timing for airport terminal expansion is beyond the scope of this document. The CIG’s policy is that this facility be developed as early as possible giving due consideration for the relevant processes and procedures.

The financial restrictions of developing all three airports, at one time, must also be considered.

Outdated Airport Master Plan: Master Plans for long term development of ORIA were produced in

2002, 2004 and 2007.   These  master plans provide options for  services  and infrastructure to address terminal building congestion, capacity demand, and the wider airport facilities including apron/runway extension and regulatory requirements such as the RESA’s.

During the preparation of the OBC, the consultant will review the existing master plans and will prepare a new master plan that will provide the basis and direction for any future development of the airport facilities.

Transportation network:  The consolidation and update of the master plan should also address the development of the ground transportation infrastructure in the vicinity of the airport.

Available land:   The consolidation and update of the master plan should also address the availability of land in the surrounding area of the current airport site for future development.

Impact to Daily Operations:   The nature of this project will likely require construction to take place in areas where daily operations are expected to continue.  The Project Management team will have to work closely with Airport Operations to ensure there is minimal impact to normal operations and that measures are put in place to mitigate any safety or security risks.  Additionally, it is critical to maintain a positive traveller experience during the various phases of development.

It may be necessary for some airport tenants and concessions to be temporarily relocated during the various phases of development.  This could impact their operations and revenue streams.  The CIAA will have to establish a communication and phasing plan with the tenants to ensure a smooth relocation while striving to minimize loss of revenue to the tenants and the CIAA.

Natural Environment: The development of certain facilities at the airport, including for example the RESA, any potential runway extensions, and any development of the fuel facility will have an impact on the natural environment. The conservation of the natural environment is of significance to the Cayman Islands including during and after any construction activities, and the Department of the  Environment  (DOE),  and  Environmental  Assessment  Board  (EAB),  require  to  be  closely involved. The OBC will include advice on the impact of any developments on the environment and will identify the assessments that will be required to be undertaken to identify the key issues, together with mitigation measures.

The role of the Department of Environment (DOE), the Environmental Assessment Board (EAB), and the local community as key stakeholders in this aspect is recognized and appropriate consultation and input will be undertaken throughout key phases of the project.

Airline Non‐payment of Passenger Facility Charge:  The Airlines collect the PFC on behalf of the CIAA, however certain airlines have been delinquent in making payments.   These outstanding payments account for 33% of the total collectibles, and negatively impact the financial position of the Authority.

Regulations:  In  order  to  ensure  that  the  facilitation  standards  of  international  airports  are complied with, the requirements of ICAO Annex 9, as well as other security specifications must be agreed with the UKDFT and subsequently implemented.

Building Codes:  Facility upgrades will need to take into consideration the age of the buildings and the requirement to comply with current building code. Additionally, the airport is considered to be a key facility, and the design is required to comply with the CIG, PWD Public Shelter Standard for hurricane resistance.

Lack of Traffic Projections: There is a lack of projections for future passenger, aircraft and cargo movements to assist with determining the scope of project needed.

Proposed project management structure and key personnel

General: The choice of Procurement Method will affect the level of project management required. The base requirement is for project management personnel with general procurement expertise and major project management experience.  For some time CI Government has been considering setting up a central project management team. Towards this aim, it is now the intention to manage the Cruise  Berthing Facility Project and Airports Redevelopment Projects under the aegis of  a Public Works Department (PWD) Project Team. This centralization of project management staff will provide a base for the development of a future centralized CIG project office, and facilitate the training and mentoring of junior staff who will be able to enjoy a career path in the project office.

Reporting Structure:   The CIAA board has appointed a Steering Group to guide the project through‐out its development. It has been agreed that a senior project manager will be employed by CIAA to provide the management and represent CIAA/CIG interests during the project. This senior project manager will be seconded to the PWD Project Team for the duration of the project, will manage the CIAA project staff, and will report to the PWD Chief Project Manager, (see attached organization chart).

The proposed Key Personnel anticipated for each project stage is as follows‐

1)   Pre Procurement Stage:

.           Preparation of Strategic Outline Case (SOC), and Outline Business Case

.          Key Personnel: Chief Project Manager, Senior Project Manager, Project Manager.

.           OBC Consultant Support ‐Financial, Technical, and Environmental.

2)   Tendering Process:

.           Preparation of Prequalification, Tendering and Contract Documents.

.           Key Personnel, Chief Project Manager, Senior Project Manager, Project Manager, Document Manager/Administration Assistant).

.           Consultant Support‐ Technical and Environmental.

3)   Contract & Performance Management‐ Construction Phase Project Delivery:

.           Key Personnel: Chief Project Manager, Senior Project Manager, Project Manager, Document

Manager/Administration Assistant

.           Consultant Support‐ Financial, Legal, Technical, Environmental

4)   Contract & Performance Management‐ Operations Stage:

.           Monitoring and Assessment by CIAA/CIG

.           Key Personnel: Chief Project Manager, Senior Project Manager, Project Manager.

Necessity of consultancy support: Consultancy support will be required during the Pre‐ Procurement Stage, for Financial, Technical and Environmental issues. For the successive stages the consultant support would be mainly technical and environmental, but the OBC will require to be revised at successive stages by the Financial Consultant to ensure the project goals are attained.

Legal, contractual or procurement issues: Adherence to the Cayman Islands legal framework is required at every stage of this project. The PMFL (2012 revision) clearly sets out the key stages for projects of this nature and the various procurement requirements to ensure value for money.

FUNDING & AFFORDABILITY

Due to the CIG’s inability to undertake conventional borrowing, the OBC will have to explore several financing options ranging from self ‐finance through revenue generated by the PFC to private public partnership. This will be defined in the OBC process.

Independent professional advice will be required to prepare and develop the Outline Business Case, and the consultant services, both financial and technical, will be competitively tendered. CIG/CIAA will seek to utilize in‐ house expertise, for example for project management resources, to minimize consultant costs.

The current and prospective revenue streams of the CIAA will have to be reviewed to ensure adequate funding for the increased operational costs resulting from airport development.

Draft Cabinet Policy Guidance

The purpose of this document is to outline the broad policy direction that is to be followed by the Steering Group that is charged with the open, transparent and competitive procurement process for the Proposed Airports Redevelopment Project.

1.   It is the Government’s policy to further enhance the existing facilities for visitors arriving by air in order to improve the visitor experience upon arrival and departure, mitigate against a threat of losing existing visitors, and increase overall visitor numbers to the Cayman Islands.

2.   The Proposed Airports Redevelopment project will involve the two regulated airports being Owen Roberts International Airport and Charles Kirkconnell International Airport, and a new airport site on Little Cayman. The projects will be funded mainly from existing Airports Authority revenue streams.

3.   The Cayman Islands Government/Cayman Islands Airports Authority must retain full ownership of the Re‐developed Airports.

4.   The Proposed Airports Redevelopment project is to include consideration of commercial and general aviation on all three islands. Master plans for each of the 3 airport sites, which will detail medium to long term needs based on projected growth in passenger arrivals and commercial traffic, are to be agreed.

5.   There is to be no cap on the maximum number of visitors arriving by air, at this time. The current transportation infrastructure capacity for all three islands should be considered and a recommendation made based on the anticipated impact of the airports redevelopment project.

6.   Pursuant to a transparent and accountable procurement process, the target operational date for the three redeveloped airports is as soon as possible. It is, however, recognized that available funding  will  not  allow  all  projects  to  proceed  simultaneously.  Phasing  of  projects  should therefore be addressed to suit project priorities and available funding.