Privatization Of Us Airports: Exploring Ownership And Control

Airport privatization has been a topic of interest in the United States for many years, with some arguing that it could bring benefits such as improved infrastructure and a better passenger experience. Despite this, the country's airports remain publicly owned and operated, with only a handful of exceptions. While there have been attempts to privatize certain airports, such as St. Louis Lambert International Airport, these efforts have largely been unsuccessful due to various factors, including the complex eligibility criteria for privatization and the long time durations involved. As a result, the United States has lagged behind other countries, such as the United Kingdom, which privatized its airports in 1987.

U.S. Airports Privatization

The Federal Aviation Administration's (FAA) Airport Privatization Pilot Program (APPP)

The FAA's role in the APPP was to review and accept final applications and lease agreements from airport sponsors interested in participating in the program. The FAA would then publish a notice in the Federal Register for public review and comment. During this period, the FAA, Department of Transportation, and Transportation Security Administration (TSA) might conduct a public meeting to solicit comments. After completing its review and preparing its findings, the FAA would publish its decision. If the FAA approved the privatization application, it would monitor the legal settlement and transfer of the airport from the public owner to the new private operator.

Over the 20 years of the APPP's existence, only two airports successfully navigated the privatization process: Luis Munez International Airport (LMM) in Puerto Rico and Stewart Airport in Newburgh, New York. Stewart Airport reverted to a publicly-owned airport in 2003 when it was purchased by the Port Authority of New York/New Jersey. There were also several failed attempts at privatization at Chicago Midway Airport and elsewhere in the US.

In 2012, the Reauthorization Act increased the number of airports that could participate in the program from five to ten. The 2018 Reauthorization Act further expanded the program by removing the restriction on the number and type of public airports that could participate. It also allowed public sponsors and private operators to manage an airport jointly and permitted sponsors to privatize multiple airports under their ownership. The program was renamed the Airport Investment Partnership Program (AIPP) to reflect these changes.

The challenges of shifting from a public to a private ownership model

Another challenge is the involvement of multiple stakeholders, particularly airlines, in the privatization process. The conditions set by the Airport Investment Partnership Program (formerly the Airport Privatization Pilot Program) are perceived to favor airlines, which can make the process less appealing to other stakeholders. Additionally, the program's restrictions on the use of airport earnings solely for airport purposes limit the flexibility of state governments in allocating resources. While state governments can seek waivers from these restrictions, obtaining the consent of airlines that bring a significant proportion of traffic to the airport can be challenging.

Furthermore, the program's focus on generating access to private capital for airport improvement and development may not align with the interests of all stakeholders. The private sector might be hesitant to take on the significant financial commitments associated with the airport business, especially considering the potential risks and uncertainties. This challenge is exacerbated by the perception that traditional airport funding programs are outdated and inadequate, leading to a lack of attractive investment opportunities for private capital.

Despite these challenges, it is worth noting that partial privatizations and public-private partnerships are becoming more common in the US airport sector. Terminal privatization, gate privatization, operating contracts, and commercial concession operations are expected to become the norm, allowing for infrastructure upgrades and improved passenger experiences. However, full-fledged privatization, including the ownership and operation of airports, remains a topic of discussion rather than a widely implemented reality in the United States.

The role of private companies in owning, managing, leasing, and developing airports

In the United States, while airports are typically owned by government entities, there has been a growing trend of privatization, where private companies play a significant role in owning, managing, leasing, and developing airport facilities. This involvement of private companies in airport operations can bring about several benefits and challenges.

One of the primary roles of private companies in this sector is managing and operating airports. While the airports themselves may be owned by local or state governments, the management and operational responsibilities are often outsourced to private companies through public-private partnerships (PPPs). These companies bring expertise in efficient management, cost-cutting, and revenue generation. They are responsible for the day-to-day operations, including maintaining infrastructure, managing security, overseeing ground handling, and providing passenger services. The efficient management by private companies can lead to improved airport performance, enhanced customer satisfaction, and increased non-aeronautical revenue through better retail and advertising strategies.

In some cases, private companies also own and develop airports. This ownership structure is more common with smaller airports or those serving specific purposes, such as catering to private jets or cargo operations. For example, the Van Nuys Airport in Los Angeles is owned and operated by a private company, Airport Property Ventures, which has a long-term lease agreement with the city. This arrangement allows the company to develop and manage the airport while paying rent to the city. Private ownership can lead to faster decision-making and more flexibility in adapting to market demands and new technologies.

Leasing arrangements are another way private companies participate in airport operations. Under these agreements, a private company leases a specific portion of the airport, such as a terminal or a concourse, and is responsible for its management and development. This model provides an opportunity for specialized management and can attract additional investment to improve facilities. A notable example is the lease of Terminal 4 at Fort Lauderdale-Hollywood International Airport to a private consortium, which resulted in significant upgrades to the terminal's facilities and improved passenger experiences.

Private companies also play a crucial role in financing airport development and infrastructure projects. Through PPPs, private investors provide capital for expansion, renovation, or construction of new airport facilities. In return, they may obtain long-term concession rights or receive a share of the airport's revenue. This model has been particularly useful for cash-strapped governments looking to develop or modernize airports without incurring additional public debt. However, it is important to carefully structure these agreements to ensure that the interests of all stakeholders, including passengers, airlines, and local communities, are adequately addressed.

The impact of privatization on airport funding and improvement

Airport privatisation is a controversial yet growing global trend. In the US, it is referred to as "public-private partnerships" or "P3s". While there has been widespread scepticism about the possibility of airport privatisation in the US, recent privatisation activity has opened the door for new ways of delivering airport projects in the country.

The Federal Aviation Administration's (FAA) Airport Investment Partnership Program (formerly Airport Privatization Pilot Program) was established by Congress in 1997 to explore privatisation as a means of generating access to various sources of private capital for airport improvement and development. The Act authorised the FAA to permit up to five public airport sponsors to sell or lease an airport, with certain restrictions and exemptions from federal requirements that could otherwise make privatisation impractical. The 2012 Reauthorization Act increased the number of airports that could participate from 5 to 10, and the 2018 Reauthorization Act removed all restrictions on the number and type of public airports that may participate in the program. As of June 2020, there were two airports in the program: Luis Munez International Airport (LMM) in Puerto Rico and Stewart Airport in Newburgh, New York (which reverted to public ownership in 2003).

Privatisation has been shown to have a positive impact on airport funding and improvement. When private equity funds buy airports from governments, the number of airlines and routes served increases, operating income rises, and the customer experience improves. The fees that airports charge to airlines also rise after privatisation, and there is a push to deregulate government limits on those fees. The net effect of a PE acquisition is a rough doubling of an airport's operating income, due mostly to higher revenues from airlines and retailers in the terminal. This increased income can be reinvested into airport improvement and development.

However, the impact of privatisation on airport efficiency is less clear. Some studies have found that privatisation leads to greater operational efficiency, while others have found no significant impact or have even suggested that commercialisation, rather than privatisation, is the key driving force behind improvements. It is also important to consider that airports that have been privatised may have had significantly different financial or operational characteristics which were the actual reason for their privatisation, and therefore improved performance may not be solely due to privatisation.

The potential benefits of privatization, including reduced charges for airlines and increased capital investment

The privatization of airports in the United States has been a topic of discussion and exploration for several years, with the Federal Aviation Administration's (FAA) Airport Privatization Pilot Program (APPP), now known as the Airport Investment Partnership Program, established in 1997. Despite the interest and ongoing efforts, full-scale privatization of major US airports has not been achieved. However, there are potential benefits that privatization could bring to the aviation industry and passengers.

One of the key potential advantages of airport privatization is reduced charges for airlines. In the case of Heathrow Airport in the UK, privatization resulted in a significant reduction of over 20% in charges to airlines. This reduction in costs can have a positive impact on the overall aviation industry, as it may encourage more airlines to operate at privatized airports, increasing competition and potentially leading to lower airfares for passengers. Additionally, privatization can drive increased capital investment in airport infrastructure. At Heathrow, privatization led to a more than 400% increase in capital investment, enabling improvements in facilities, technology, and overall passenger experience.

Privatization can also bring in new sources of private capital for airport improvement and development. Private companies have the financial resources and incentives to invest in modernizing and expanding airport infrastructure, which can enhance an airport's efficiency, safety, and capacity. This increased investment can lead to improved airport facilities, including better terminals, more efficient baggage handling systems, and enhanced security measures, ultimately benefiting passengers and boosting the local economy.

Furthermore, privatization can introduce innovative approaches to airport management and operations. Private companies often bring a profit-driven mindset, encouraging efficient operations and cost-effective strategies. This can result in improved services for airlines and passengers, such as streamlined check-in processes, faster security checks, and enhanced customer service. Additionally, privatization can foster a more responsive and dynamic decision-making process, allowing airports to adapt quickly to changing market demands and technological advancements.

While the potential benefits of privatization are significant, it is important to acknowledge that the process also comes with certain challenges and risks. These include ensuring a balance between private interests and the public good, addressing concerns about increased costs for passengers, and navigating complex regulatory and political environments. Nevertheless, with careful planning and oversight, the potential advantages of reduced charges for airlines, increased capital investment, improved infrastructure, and enhanced operational efficiency can be realized, ultimately benefiting the aviation industry and passengers alike.

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