On the Subject of Privatization …

Concept probably won’t fly at Long Beach, says Chris Kunze, but it has potential

So, at least for years to come, there won’t be any growth in that sector, and that’s where the potential to make money is. Any private entity that would come in and want to lease an airport for 99 years, the way they’ll make money — if they’re giving any substantial amount of money to a municipality — wouldn’t be through growth in airline activity.

Another reason why it wouldn’t make sense here is, one of our most important missions from the standpoint of the city is to protect local control and make sure that ordinance stays in place so that we don’t destroy our neighborhoods.

Another issue is, if we had hundreds of acres of undeveloped property, it might make sense if they could redevelop that property. But we’re totally developed here.

So, what other sources of revenue would entice a private operator? Well rates and charges; they could significantly increase fees. But under the [FAA] pilot program, 65 percent of the airlines have to approve any increases in rates and charges, other than CPI. That would be a non-starter.

The only other way to generate revenues would be to reduce costs. Well, we run a very lean operation. Roughly 30 percent of our operating costs are for police and fire, which we contract. The rest of it is demonstrated in our airline rates and charges; we’re fairly below the median in the industry. There isn’t a lot of fat to cut out there.

AB: The City of Chicago recently signed a deal privatizing Midway Airport, following similar deals for a local toll road and the city’s parking garages. Philosophically, what is your opinion of such moves?

Kunze: Some of those might work. The operating entity is giving up a long-term cash flow to get a discounted net present value now. In terms of long-term investment for a public entity giving that stuff up, maybe it’s not good as a long-term thing. But it’s solving a major deficit up front; hopefully, they’ll be smart about it and take those few years of super revenue and make structural changes so they can live within their budget by the end of the time they use up that billion dollars, or whatever.

AB: But what about the concept iself?

Kunze: I would think it’s not a cure-all, and not something that’s really going to change our industry. However, it’s worth looking at on a case by case basis. If you find something with a lot of developable property and you’re able to get somebody who is willing to lose money for some years to get a longer term return, it might be a good way to go.

If you have contiguous property that has a potential for good commercial and industrial development with an adjacent airport that they have direct transportation access to, it might make sense.

AB: In the U.S., the basic characterization of privatization is they’re just taking money out of the airport, and will raise rates and charges. Do you see that as the prevailing thought?

Kunze: I think so. If you look at the FAA program, I think the intent of that was to bring private capital to the table to increase capacity. There is a forecast capacity problem in the United States.

AB: What’s been the community’s reaction to the proposal?

Kunze: They’re not knocking on our doors yet, but we’re getting letters to the editor and stuff like that. One of them said that you should recall any council person who votes ‘yes’ on selling our airport.

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