Roberta Aguirre
Airports have historically been owned and operated by governments, with some still remaining under government control. However, the 1980s marked a shift towards privatization, with airports becoming viewed more as business enterprises than public services. This transition was influenced by factors such as the recognition of airports as a mature industry capable of economic self-sufficiency, the potential for generating significant non-aeronautical and commercial revenues, and the challenges faced by governments in financing airport infrastructure. Today, the management of airports varies, with some still owned and operated by government departments or agencies, while others have transitioned to private sector involvement through models such as management contracts, public-private partnerships, and equity sales.
| Characteristics | Values |
|---|---|
| Airports run by the government | Ronald Reagan Washington Airport and Washington Dulles International Airport were operated by the Federal Aviation Administration (FAA) before 7 June 1987. |
| The FAA also indirectly managed the usage of these airports by the airlines. | |
| The FAA also owns and operates virtually all commercial airports in the United States. | |
| Dubai International Airport is another example of an airport operated by the government. | |
| Airports with government involvement | National Air Traffic Services is jointly owned by the government and other entities. |
| The Airports Authority, which operates the Ronald Reagan Washington Airport and Washington Dulles International Airport, is not taxpayer-funded but is self-supporting. | |
| The Airports Authority manages the Dulles Toll Road, and the tolls collected are used for operation, maintenance, and improvements. | |
| Airports with private-sector involvement | Corporatization could be better suited to strategic global hubs. |
| Changi Airport in Singapore is corporatized, where an independent entity is responsible for planning and operating the airport. | |
| Management contracts allow the public sector to retain ownership of the airport while appointing contractors to perform specific functions or operate the entire airport. | |
| Public-Private Partnership (PPP)/Concession transfers the most risk to the private sector, which could be responsible for planning, financing, executing, and operating the airport. | |
| The Australia Airport Privatization Program is an example of a majority equity sale/divestiture, which transfers control from the government to the private sector. | |
| Many US airports lease part or all of their facilities to outside firms, which operate functions such as retail management and parking. |
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What You'll Learn
Airports as business enterprises
Airports are major hubs for tourism and transit, serving as gateways to cities and countries. They are also major employers and have a significant impact on the local environment. Airports have become increasingly important for nations, with aviation playing a crucial role in a country's economy, business travel, tourism, and trade.
In the US, airports are considered public enterprises, often owned and operated by municipal entities such as a city, county, state, or an independent authority. Despite being public entities, they function as private enterprises, with the financial burden shifted from airlines to airport operators. Airports in the US have to be self-sufficient, managing their assets and setting their own prices and charges for their facilities.
Airports have various revenue sources, including aeronautical, non-aeronautical, and non-operating revenue. Aeronautical revenue, which includes airline rents, landing fees, and passenger service fees, made up 50% of total airport revenue in 2021. Non-aeronautical revenue, gained through things other than aircraft operations, includes lease revenue, retail sales, car rental operations, and parking fees. Non-operating revenue made up 16% of total revenue in 2021. Airports can also access government grants and other federal funding sources for large capital projects, such as runway expansions or new terminals.
While US airports are largely owned by the government, airports around the world are increasingly being viewed as business enterprises, with governments turning to the private sector for airport management and development. This shift towards privatisation has already occurred in many European cities, including London, Amsterdam, and Frankfurt. The benefits of private management include increased operating efficiency, improved amenities, and rapid expansion to reduce congestion.
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Management contracts
While airports in the US are mostly owned by state and local governments, management contracts are often handed over to private companies. This has been the case for many airports in foreign cities, including Amsterdam, Athens, Auckland, Brussels, Copenhagen, Frankfurt, London, Melbourne, Naples, Rome, Sydney, and Vienna.
The simplest form of privatisation is to contract out the management of the airport on a short-term basis. However, long-term leases can shift greater responsibility and entrepreneurial incentive to the airport company. To create new airport facilities, the private sector can be brought in as a partner and granted either a long-term or perpetual franchise to finance, design, own, and operate the new facility.
The FAA encourages public airport owners to execute separate agreements for airport management functions and aeronautical activities to reflect these different requirements. The FAA recommends that a management agreement includes particular terms requiring that the private entity conduct its activities consistently with the grant assurances and other federal obligations imposed on the public airport operator. Management contracts must also follow standard local, state, and federal procurement rules.
There are many other types of contracts that airports enter into with various companies. These include fuel contracts, which allow automatic on-demand fuel deliveries to the airport; contractor contracts, which are necessary for any sort of construction; airline contracts, which are necessary to start accepting flights from airline companies; franchise contracts, which allow franchises to operate in stores and restaurants; and catering contracts, which allow the airport to make food for passengers that can then be put on planes. Other contracts include de-icing fluid contracts, which are necessary for de-icing planes, and parking contracts, which allow airports to generate revenue from car parking.
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Public-private partnerships
Since the early 1980s, airports have been moving away from direct government ownership towards private sector involvement. This shift has sparked a debate about privatisation, but there are many models in between full government and private ownership to explore, such as public-private partnerships (PPPs).
PPPs transfer significant risk to the private sector, as they are often responsible for planning, financing, executing, and operating the airport. These partnerships usually involve long-term contracts of more than 20 years. An example of a PPP is the Queen Alia International Airport, which accounts for approximately 97% of Jordan's air traffic. The Jordanian government sought advice from the IFC, and in 2007, a consortium led by Aéroports de Paris won the bid.
Another example of a PPP is the National Air Traffic Services (NATS), a jointly owned company in which British airlines own 42%, airport company BAA owns 4%, employees own 5%, and the government owns the remaining minority stake. NATS is operated on a not-for-profit basis.
PPPs can be useful for mature markets when the government has a financial incentive to "monetise" its investment. This model can result in increased operating efficiency, improved amenities, and more rapid and efficient expansion in capacity to reduce congestion.
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Government ownership
In the United States, for example, the federal government has played a significant role in the development and operation of airports. Since the early days of aviation, the government has recognised the importance of aviation to the nation. In 1934, the Department of Commerce renamed the Aeronautics Branch the Bureau of Air Commerce, reflecting this growing significance. The Bureau encouraged the establishment of the first air traffic control centres, taking over their operations in 1936. While en route air traffic control became a federal responsibility, local government authorities continued to operate airport towers.
The lead-up to World War II saw further government involvement in airport operations. For defence purposes, the Civil Aeronautics Administration (CAA) extended its ATC system to include the operation of airport towers. In the postwar era, ATC became a permanent federal responsibility at most airports, and the introduction of commercial jets transformed the aviation industry.
Despite the federal government's role, many US airports lease part or all of their facilities to outside firms, which operate functions such as retail management and parking. Additionally, virtually all commercial airports in the United States are owned by state and local governments. However, since the 1950s, there has been a global trend towards privatisation and increased private sector involvement in airport management. This shift aims to improve efficiency, amenities, and capacity to reduce congestion, benefiting airlines, passengers, private plane owners, and taxpayers.
The specific models of privatisation vary, including long-term leases, public-private partnerships, and majority equity sales. Full private ownership and management of airports are becoming more common in Europe, with examples in Amsterdam, Athens, Auckland, Brussels, Copenhagen, Frankfurt, London, Melbourne, Naples, Rome, Sydney, and Vienna.
In summary, while government ownership and operation of airports have been prevalent, particularly in the early days of aviation, there has been a recent trend towards privatisation and private sector involvement. The benefits of entrepreneurial management are driving these changes, with airports increasingly viewed as business enterprises rather than monopoly public services.
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Funding and maintenance
Airports are extremely complex operations, with a complicated system of aircraft support services, passenger services, and aircraft control services. They are also major employers and important hubs for tourism and other types of transit. Funding and maintaining these large-scale operations is a challenging task.
Funding Sources
Funding sources for airports can vary depending on the ownership structure. Airports that are owned and operated by the government are often funded through taxes, such as passenger tickets, fuel, and cargo taxes. These taxes are used to finance various accounts of the Federal Aviation Administration (FAA), such as the Airport Improvement Program (AIP), Facilities and Equipment (F&E), and Research, Engineering, and Development (RE&D). Additionally, airports may generate revenue through aeronautical and non-aeronautical sources. Aeronautical revenue includes airline rents, landing fees, passenger service fees, parking fees, and hangar fees. Non-aeronautical revenue includes lease revenue from compatible land-use development, non-aeronautical building leases, retail and concession sales, car rental operations, parking fees, and advertising.
Ownership Models
There are several ownership models for airports, each with its own funding and maintenance approaches. One model is where the government owns and operates the airport, usually through a ministry such as transport or infrastructure. This model allows the government to maintain control of a strategic asset. However, investments in these airports may be influenced more by political cycles than technical or financial considerations. Another model is corporatization, where an independent entity is responsible for planning and operating the airport. Changi Airport in Singapore is a successful example of this model. A third model is management contracts, where ownership remains with the public sector but contractors are appointed to perform specific functions or operate the entire airport. A fourth model is Public-Private Partnerships (PPPs) or Concessions, where the private sector takes on the most risk and is responsible for planning, financing, executing, and operating the airport. This model typically involves long-term contracts of more than 20 years.
Privatization
In recent years, there has been a trend towards privatization of airports, with governments turning to the private sector for airport management and development. This entrepreneurial approach is expected to bring increased operating efficiency, improved amenities, and more rapid expansion to reduce congestion. However, progress towards privatization has been slow, with only a few airports, such as Stewart International Airport north of New York City, being privatized under the 1996 Pilot Program.
Case Studies
One notable example of airport funding and maintenance is the Metropolitan Washington Airports Authority (MWAA), which operates Ronald Reagan Washington Airport and Washington Dulles International Airport. MWAA is self-supporting and funds its operating expenses through aircraft landing fees, rents, and concession revenues. For larger capital improvements, MWAA issues bonds, utilizes Federal and State Airport Improvement Program funds, and collects Passenger Facility Charges. Additionally, MWAA has funded construction projects such as the Silver Line extension and the Dulles Development program, which improved facilities and expanded capacity at Dulles Airport.
In summary, funding and maintaining airports is a complex task that varies depending on the ownership structure and specific circumstances. Airports utilize a variety of funding sources, including taxes, aeronautical and non-aeronautical revenues, bonds, and passenger charges. Different ownership models, such as government ownership, corporatization, management contracts, and PPPs, also influence the funding and maintenance approaches taken by airports.
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Frequently asked questions
Airports were government-operated as early as the 1980s. However, the privatization of airports began in the UK in 1986, with the British Airports Authority (BAA) being the first to shift from government control.
Airports were operated as public utilities before privatization, and hence there was a perception that they were local monopolies.
One benefit of government-operated airports is that the government retains control of a strategic asset.
Investments in government-operated airports tend to respond to political cycles more than technical or financial rationales.
Some models for private airport ownership include management contracts, public-private partnerships (PPP)/Concessions, and majority equity sales/divestitures.
