"Are San Francisco International Airport managers running Honduras' airports? If so, why?"

Wednesday, March 28, 2001

Flying Blind
Are San Francisco International Airport managers running Honduras' airports?
If so, why?
By Matt Smith
San Francisco Weekly


Shipping bra and panty material to Honduras used to be a simple matter.
You'd land one of your ABX Air DC8-63F cargo craft on the tarmac of the
Aeropuerto Internacional Ramon Villeda Morales outside of Tegucigalpa, cart
a few 450-cubic-inch containers to your nearby red-and-white warehouse, wait
for a customs agent, then ship the material over to the Maidenform factory.
Once the bras and panties were manufactured, you'd follow the same simple
procedure with the finished product, only in reverse.

No more. Ever since an outfit called SFO Honduras LLC won the right to
privatize the airport, everything seems to have run amok. For one,
facilities fees have gone sky high. And the delays? Don't even ask about the
delays.

"Everything takes forever," says Mercedes, a clerk at the Tegucigalpa
offices of Antillas Air, a cargo company that does most of its work with
Caribbean maquiladora textile manufacturers. "Now we've got to haul cargo
from the old customs facility, near where we land, to a new one. It's a
narrow dirt road, and it's dangerous; one runs the risk of having cargo
hijacked, and it definitely slows down the operation."

By now you're probably asking yourself, "Why in the hell is a San Francisco
newspaper columnist writing about potential panty hijackings in Honduras?"
If you are, I share your pain. I felt that exact same "what in the hell are
we doing here?" sensation when I learned recently that an outfit describing
itself as a division of the San Francisco International Airport had just won
the right to privatize the airports of Honduras. It was similar to the
"you've got to be kidding" feeling I had when I learned that this very same
outfit -- which appears to be run out of the offices of San Francisco
International Airport -- is bidding on airport privatization contracts in
the Sultanate of Oman, a traditional monarchy bordering Saudi Arabia; in
Panama, a banking capital just north of Colombia; and in Jamaica, a place
where, I'm told, people smoke a lot of marijuana, which may be for the good.
Readers may need a few tokes by the time I'm done explaining why the good
name of San Francisco's airport is being used to delay lingerie deliveries
in Honduras.

It's a tale that involves possible misuse of the name of San Francisco
International Airport, a trademark potentially worth millions. It's a tale
of Third World business deals set up in a way so convoluted and with such a
high degree of secrecy that they create at least the appearance, or the
possibility, of profiteering by public-payroll airport employees. It's a
tale of a mysterious private corporation, supposedly set up to enrich the
city of San Francisco's General Fund, but with no clear indication that it
has given, or will ever give, the city a dime. It's the tale of perhaps the
most unusual business arrangement you've ever heard of, one that begs, no,
implores the question: ¿Qué chingados hacemos en Tegucigalpa?¹

As with any Latin American surrealist work, to understand the present of SFO
Honduras LLC, it's necessary to travel to the past, in this case, the past
back to July 1997. Then, the San Francisco Board of Supervisors approved
legislation, carried by Barbara Kaufman, creating an untoward, private,
for-profit California corporation, to be called SFO International Services,
that would supposedly generate money for the city government's General Fund
by doing consulting work for foreign airports.

The fact that our city's airport might do international consulting work
wasn't in and of itself unheard-of. An airport-privatization fervor had
gripped the Third World during the late 1990s, much in the manner that a
craze for privatizing banks, roadways, and telecommunications, electrical,
and sewage utilities had enveloped developing nations during the prior
half-decade. The airport privatizations were being handled in most cases by
consortia involving publicly owned airports in cities such as London,
Vancouver, and Madrid.

The boys at SFO wanted in on the action, so in 1996 they tried their hand,
bidding as a governmental entity on an airport privatization program in
Peru. They lost, but didn't merely chalk the loss up to experience. Instead
they did a truly cagey thing, and blamed their failure on the airport's
status as a city agency. They told the Board of Supervisors that they could
never compete against public agencies such as Heathrow Airport and VCR
airport in Vancouver unless they were allowed to keep their business
completely secret, something a public agency is legally prohibited from
doing. (That other public airports seemed to be winning these contracts
handily despite their governmental status went unmentioned.)

So the board, remarkably, approved the creation of a private corporation
with no guarantee that the new entity would provide a dime of profit to the
city. According to bylaws approved by the Board of Supervisors, SFO
International Services Inc. would be structured in such a way that neither
the Board of Supervisors nor anybody else outside the firm could gain access
to information about the firm's activities or management. The only outside
entity with formal access to such information would be the Office of the
Mayor.

SFO International Services was presumably set up to earn money for the
city's General Fund -- at least that's what supervisors were told. But
according to the new corporation's bylaws, the city would get money only "if
the [firm's] Board of Directors declares a dividend for shareholders." In
short, the supes set up a secretive corporation with a board of directors
who would give money to the city if and when they met -- in secret -- and
decided to do so.

The resolution was approved by Supervisors Kaufman, Amos Brown, Leslie Katz,
Susan Leal, Jose Medina, Gavin Newsom, Mabel Teng, Michael Yaki, and Leland
Yee, with only Tom Ammiano and Sue Bierman opposed. And that, apparently, is
the last the city would ever hear of SFO International Services Inc. --
until last October, when unusual notices began appearing in the Honduran
press. They described how a consortium "led by San Francisco International
Airport" had placed an astoundingly high bid to win a 20-year privatization
contract for Honduras' four international airports. The bidding (shown on
national television to counter Honduras' reputation for corruption) resulted
in a contract in which a consortium called SFO Honduras LLC/(Interairports)
would invest $120 million to improve airport facilities during the next 20
years. The consortium also includes Servicio Littoral Pacifico SA, a
Peruvian warehousing and shipping company known as Serlipsa; Swissport SA,
an international firm that provides airport ramp services; Pacific
Architects and Engineers, an L.A.-based contractor that, among other things,
provides grounds and facilities maintenance at U.S. military air bases;
Calmaquip Engineering Inc., a Miami-based contractor that, according to the
Broward Daily Business Review, has been supplying Latin American airports
with technology since the late 1950s; and Honduran partners CIC and
Interoceanica.

While an airport privatization industry insider tells me that San
Francisco's airport has assumed no financial risk as part of the Honduras
deal, and is part of the consortium strictly on a fee basis, Serapio
Umanzor, editor for investigative projects at the Tegucigalpa daily
newspaper La Prensa, tells me consortium partners encouraged the widely held
impression that it is really San Francisco's airport that now owns the right
to run Honduras' airports. La Prensa itself said, "The winning
concessionaire is affiliated with San Francisco International Airport, the
seventh largest in the world."

Which is odd, because the corporation was set up specifically to have
absolutely no formal relationship with San Francisco International Airport.²

Which oddness got me to wondering -- which wondering in turn got me to
checking -- and as it happens, I could find no corporation in the files of
the California Secretary of State with the name SFO International Services
Inc., or anything similar. Was SFO International Services set up in the
Cayman Islands? Or Panama? Or some other country with strict banking secrecy
laws and airports that need First World help? Who knew?

Even though SFO International Services did not show up in searches of the
California Secretary of State's corporation records and the Nexis database
of corporate information, the business newsletter Caribbean Update, in a
brief article announcing "investment opportunities" in Honduras' airport
privatization, lists the contact for the Honduras airport project as Alex L.
Seid, manager, International Services, San Francisco International Airport.
Seid's address is listed as a San Francisco International Airport post
office box; his phone number, an SFO switchboard number.

I called Ron Wilson, SFO's public information officer, who did nothing to
suggest that Honduras' privatization work isn't being run out of the
airport's offices.

So I then asked Mr. Wilson some basic questions -- such as where SFO
International Services is registered as a corporation; who its board members
are; and whether it has so far produced any revenues for the city's General
Fund -- the kind of basic information that a flack for any normal
corporation could answer without hesitation. I asked whether airport
employees doing work for SFO International Services are required to take
time off from their regular SFO jobs. I asked why SFO managers have
participated in the privatization of Honduras' airports, and on what basis
the decision would be made to repatriate profits from the Honduras
privatization to the city's General Fund. I asked why SFO International
Services is bidding on airports in Jamaica, Panama, and Oman.

Mr. Wilson told me to submit my questions in writing. I did this Thursday,
explaining that I had a Monday deadline. He said he had to refer my
questions to a Mr. John Costas, who is in charge of the Honduras "program"
and who couldn't get back to me until the next day. Friday Wilson sent me an
e-mail.

"Unfortunately John Costas has gone home sick again this afternoon. He has
apparently completed his response, and it is being reviewed by appropriate
staff. We will not be able to convey the response to you before Monday March
26th," the e-mail said.

And on Monday, Mr. Wilson said there would be no answers until Tuesday.

I put the same set of written questions to Mayor Willie Brown's press
officer. Brown's office, which had, after all, been named as a shareholder
of SFO International Services Inc., would presumably know what the company
was up to. But Brown's press office likewise failed to answer my questions
by the end of Monday.

Perhaps Mr. Costas will someday explain why activities presumably done on
behalf of a private corporation are being carried out from the offices of a
city agency. Perhaps he will tell me where SFO International Services is
registered, who its officers and directors are, and who will receive the
$120 million in contracts SFO Honduras LLC will be handing out over the next
two decades.

Perhaps this Honduran airport deal is all perfectly on the up and up, and
completely in line with the interests of the people of San Francisco. Maybe
SFO International Services isn't a profiteering vehicle that channels money
to airport and city government insiders. Or is it that the airport itself
won the contract in Honduras, rather than the private corporation set up
specifically to pursue such opportunities?

Until the elusive Mr. Costas decides to speak up, I guess we simply won't
know.

There's a reason why ordinary companies -- that's to say, companies that
aren't strange, secret, quasi-private entities like SFO International
Services -- take great pains to avoid having their good names associated
with business deals they do not control. If a valuable corporate name is
sullied, millions, even billions, of dollars of public goodwill can be lost,
resulting in the massive diminishment of future sales. In the modern
business world, a good corporate name can be the most valuable thing any
entity owns.

That's why it would be too bad if SFO's Third World privatization deals were
to go sour, and San Francisco were to become known as the city that screws
over developing countries, just to make a buck.

In the case of Honduras, that may be precisely what is happening.

SFO Honduras LLC placed a bid for the right to privatize the country's
airports that was so high -- 39.7 percent of gross revenues, or twice the
rate economists predicted the airport sale would generate -- that this
entity has been forced to charge increased fees for the use of customs
warehousing and processing facilities. And these high fees may end up
hurting the local economy.

Serapio Umanzor, the La Prensa editor, tells me there's been an outcry in
the local business community over high customs fees the new airport has been
charging. Indeed, according to Connie Gorospe, president of Antillas
Air-Worldwide, which handles much of the country's maquiladora cargo, the
rates the airport charges to allow merchandise to pass its customs bays have
been raised thirteenfold. Worse, shippers such as Antillas are no longer
allowed to use their own warehouses; they must pay steep SFO Honduras LLC
fees to warehouse their cargo for the few minutes between unloading and
inspection. The new warehouse that shippers must use is, as it happens, in a
most inconvenient location, about a mile away from the airport's main
landing strip, and connected by a poorly maintained road that's not even
passable by truck.

"We have to use a tractor hauling little carts," says Gorospe, who adds that
the increased shipping costs and delays have so far driven 20 percent of his
maquiladora manufacturers to other countries. "They can't afford this
surcharge -- a lot of them have moved out of the country. The big guys have
production going on in different countries. They've taken a lot of
production out of Honduras and taken it to their other facilities."

Whether or not one likes the international textile business, the fact is
that Central American countries such as Honduras have staked their economic
futures on it. So the SFO Honduras LLC maquiladora purge "has affected the
finances of a lot of Hondurans," says Mercedes, the Tegucigalpa cargo clerk.

Do the people of San Francisco really, really want to be in the business of
torching Third World economies for a few General Fund bucks we may never,
ever see?

And do we really want the boys at the airport to continue running their
public-private, developing-country, airport-privatization shop with
absolutely zero public oversight, as has been the case so far?

Isn't it, perchance, time we pulled SFO International Services Inc.'s
britches down, to see what we might find?

1 "What the hell are we doing in Tegucigalpa?"

2 Quoting from a memorandum by City Attorney Louise Renne: "To the extent
that international consulting services are provided by a division of the San
Francisco International Airport, the City itself could be potentially liable
for successful claims arising from international services activities.
Therefore, one purpose of the corporate form is to protect the city from
such liability."

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