Flight Capital

How SFO officials used city employees and money -- in apparent violation of state and federal law -- in a very odd attempt to privatize the airports of Honduras

Zehr's term lasted a couple of months, and Gerardo Fries, another airport official, was apparently sent down briefly as manager. "They'd send somebody for a couple of weeks, and then they'd disappear," says Tania Pagoada, an official with the Superintendencia de Concesiones y Licencia, Honduras' version of a public utilities commission. "Managers would come and go. It was hard to tell what was going on."

Earlier this year, consortium partners finally managed to hire Johnny Morales, who had previously directed operations at the airport in Santiago, Chile, which had been privatized by a consortium led by the Vancouver International Airport.

Despite the malfunctioning terminal clock, the security guard's gun to the head of a customs official, and a just-resolved cargo-fee dispute between Honduran business leaders and InterAirports SA, Morales seems to be performing competently. InterAirports SA has complied with requirements to submit detailed plans for airport improvements to be built during the next two years -- the terminal will be remodeled; the parking lot will be widened; a flight information screen will be installed. Work is on schedule to complete new training manuals, safety manuals and procedures, security procedures, and the like, Morales says, and his claims are backed up by Public Utilities Commission Director José Gilberto Aquino.

Pedro Emilio Banegas, an account executive for infrastructure finance with the Central American Bank for Economic Integration, tells me that his organization -- a regional nonprofit financing institution similar in structure to the World Bank -- may loan InterAirports SA half of the $60 million it has committed to investing in Honduras during the coming years. The rest may come from the International Finance Corp., a division of the World Bank, and the Inter American Development Bank, another regional nonprofit lending institution.

So if the SFO consortium's implied promise to invest $120 million in Honduras over 20 years may have been an exaggeration, airport improvements are likely to go ahead just the same.

Oddly, San Francisco is almost nowhere to be seen in the Honduran operation. The contract between SFO Enterprises' subsidiary, SFO Honduras, and the InterAirports consortium stipulates that San Francisco would be responsible for developing airport operational standards and procedures, drafting plans, conducting environmental assessments, and creating safety, security, and management manuals. But according to Morales and Public Utilities Commission officials who regularly meet with consortium members, SFO Honduras is not doing any of these things. Private consultants are. Morales says SFO officials are "reviewing" finished work done by the consultants, but Morales hires the consultants and supervises their work.

These days, San Francisco International Airport officials rarely book rooms at the luxurious Princess Hotel in Tegucigalpa, traverse the city streets in a new car, or hold meetings at the InterAirports SA office at Aeropuerto Toncontín. San Francisco airport officials have essentially vacated Honduras, leaving the task of running the privatization of Honduran airports to their other consortium partners. The director hired by the consortium says the project is on track, but there are compelling reasons to seek a full accounting of why Martin, Costas, and Fermin were allowed to divert city government money into a private corporation, under the noses of the city treasurer and employees of the city attorney and city controller.

In convincing supervisors to approve the creation of SFO Enterprises four years ago, airport officials warned the city of the clear legal strictures against mingling airport funds with the soon-to-be-created for-profit corporation. In retrospect, Airport Director John Martin's insistence that the city provide the corporation's $10,000 start-up stake seems prescient. Federal law indeed prohibits the diversion of airport funds for non-airport uses. Now it must be seen whether the federal government will penalize SFO for the use of hundreds of thousands of airport dollars on an international privatization program.

I asked Airport Director John Martin to account for airport money that had been diverted into SFO Enterprises, the private corporation. In response, he gave me computer printouts describing an "agreement" under which SFO Enterprises would repay the airport $565,088.92 over seven years at 5.464 percent interest, for the private corporation's expenses paid for by the city during fiscal year 1999-2000.

The document gave every appearance of having been ginned up specifically in response to my public records request: It was a photocopied computer printout dated March 12, weeks after I had begun inquiring about SFO's activities in Honduras. Martin did not provide me with any initial "agreement" to borrow the money in the first place. He provided no "agreement" about how SFO Enterprises would repay the city money diverted into the service of this private company during fiscal years 1997-1998, 1998-1999, or 2000-2001. When I requested accounting related to this supposed "loan," Martin gave me printouts, dated April 18, which had been check-marked with a pencil before being photocopied, listing travel and other expenses that had benefited SFO Enterprises. Like the first one, this documentation was dated after I began inquiring about SFO Enterprises and more than three years after the airport began diverting money into the private corporation.

Rosales rejects the idea that the fund transfers' unusually scant, late, and informal documentation might have been prepared specifically for purposes of satisfying a public information request.

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