Exploring Privatization

According to Kevin Willis of FAA’s airport compliance division, the FAA airport privatization pilot program came about in 1996, when Congress decided it wanted to explore whether it was possible for the private sector to provide an alternative source of capital for airport development, and also to bring in efficiencies from the private sector to help improve airport management.

The program was set up to provide slots for five airports - one slot is reserved for a large hub airport, at least one slot is reserved for a general aviation airport, and the remaining balance from non-large hub and GA airports. As of now, only GA airports can be either sold or leased, and commercial service airports can only be leased.

“Over the years we’ve had a number of applications that have been submitted by a number of sponsors,” relates Willis. “To date, we have only had one that has been through the entire process — Stewart International Airport in Orange County New York [located some 60 miles north of New York City].”

National Express Group operated the airport from 2000 to 2006, but the lease was then bought by the Port Authority of New York and New Jersey due to a changing company business model that no longer focused on airport operation.

A financial tool

Currently there are four occupied slots in the program. Chicago Midway International is the designated large hub airport; Gwinnett County Briscoe Field and Hendry County Airglades Airport make up the program’s general aviation airport applicants; the remaining applicant is the San Juan, Puerto Rico Luis Munoz Marin International Airport.

Comments Robert Poole, director of transportation policy for the Reason Foundation,”There was a whole wave of interest in this in the early ‘90s; one outgrowth of that wave of interest was passage of the airport privatization pilot program legislation.

“Now we have a new wave of interest which started a few years ago … the spotlight was shone on the issue by Chicago’s mayor Richard Daley, and the proposal to lease Midway. That came on the heels of his very successful leasing of the Chicago Skyway toll road.

“That was an event noticed worldwide by the capital markets, and it put the U.S. on the map for the burgeoning infrastructure investment funds that were being created on a global basis.”

Poole says that airports see this these days probably as more as a financial tool rather than something that would be done primarily to improve the quality of airport management and the adequacy of facilities. “I think that’s the more fundamental reason to do airport privatization … the political reality is many cities are in deep financial trouble and they have an asset that they’re not allowed to make any money off of under the terms of the federal Airport Improvement Program’s (AIP) grant assurances.

“The pilot program does provide a way in which airports can basically cash-out their investment, and legally take lease proceeds into their general fund budgets; that’s a big change historically.”

Carrier buy-in

The pilot program allows airports to still receive federal financial assistance, they can still collect passenger facility charges, and can still collect reasonable rates and charges. However, the program requires commercial service airport sponsors to gain at least 65 percent of airline approval.

Says Willis, “One of the problems that the National Express Group had in privatizing Stewart was that the airlines have to approve the amount of money that is used for non-airport purposes. The airlines at that time were not interested in privatization, and in fact philosophically were opposed to it.

“The Port Authority could not reach an agreement with the carriers there and it reached a point where they came to us and said, we still want to do this and if it means all the money from the lease has to stay on the airport, then so be it.

“National Express gave $35 million, and under some of our existing federal statutes, if a sponsor makes an investment or contribution to the airport out of a general fund, they can recover that.