PATH's New Stewart Lease Calls Airport Privatization into Doubt

Well, so much for selling all the airports.

The Port Authority of New York and New Jersey is going to buy the lease of the first, and so far only, U.S. airport approved by the Federal Aviation Administration for its Airport Privatization Pilot Program.

Stewart International Airport, near Newburgh, N.Y., about 60 miles north of New York City, was supposed to be a model of how airport privatization could work. Now the airport is on its way back to the public sector.

It turns out that Stewart is going to be the Port Authority's fourth airport, joining LaGuardia, JFK and Newark International airports, in the authority's collection.

The desire for another fourth airport, or "Fourth Jetport," as it was known, dates back to the mid-1950s, when Austin J. Tobin, the authority's executive director, started looking around for a way to relieve congestion at the New York metropolitan airports.

In December 1959, Tobin announced that the authority had found the perfect, the only logical and indeed the "inevitable" location, as he put it, for the new jetport -- 25 miles west of Manhattan in New Jersey's Great Swamp. It would be open for business by 1970, he said.

The authority had looked at locations as far away as the Lakehurst, N.J., Naval Air Station, site of the 1937 Hindenburg crash, almost 75 miles to the south.

Not so fast, said the residents of tony Morris County, site of the proposed jetport. A coalition of environmentalists and the horsy set declared war on the authority's proposal and won. By 1969, the somewhat chastened authority, which was used to winning all of its battles, said it was giving up on the fourth jetport idea and would instead concentrate on expanding the other airports, to the extent that they could be expanded.

The fourth airport was only revived in June 2005, when the authority said it would launch a study "to examine the possibility of activating a new aviation facility to handle surging passenger demand."

And now we find out that the fourth airport isn't going to be a new airport after all, but Stewart, a former U.S. Air Force base deactivated in 1970. The authority is going to buy the lease from British National Express Group Plc for almost $80 million. National Express bought the lease for $35 million in 2000.

The larger question here, though, is what this means for airport privatization in the U.S. In general, the FAA is against it, primarily because it wants all the money made at an airport to stay at the airport.

"FAA is concerned that in selling or leasing an airport, the legal obligations that the airport has made to obtain a federal grant may not be satisfied," explains the primary document on the subject, "Airport Privatization: Issues Related to the Sale or Lease of U.S. Commercial Airports," prepared by the General Accountability Office in 1996. The legal obligation isn't extinguished, says the FAA, even if any grants are repaid.

This, predictably, has driven proponents of privatization mad.

"The agency interprets any federal investment in an airport as a de facto property right that allows the FAA to impose restrictions that make privatization nearly impossible," observed The Heritage Foundation, a conservative policy research organization.

Congress established the Airport Privatization Pilot Program in 1997, under which the FAA is granting five exemptions from some of those legal obligations. Stewart's application for the program was approved in 2000.

Three applications have been withdrawn; one -- New Orleans' Lakefront Airport -- is facing final review. Chicago's Midway Airport has submitted a preliminary application.

Such is the decidedly sketchy record of airport privatization in the U.S., at least so far.

The Midway application has perhaps been the most widely ballyhooed, primarily because Chicago has been successful in the field of privatization, having leased its Skyway toll road for $1.8 billion in 2005.

Leasing the airport may prove more difficult. Last weekend, Crain's Chicago Business reported that congressional Democrats, who now run the House Subcommittee on Aviation, may want to reconsider this whole airport privatization thing.

The reason: security concerns should the successful bidders not hail from the U.S. This is the same concern that scuttled the plan to let Dubai Ports World run several U.S. seaports.

This raises the bar to the future privatization of airports significantly. It happens that most of the companies involved in the field are foreign-owned. All of the three asset sales that have closed successfully -- the Chicago Skyway, the Indiana Toll Road and the Pocahontas Parkway in Virginia -- were won by non-U.S. companies, the first two by an Australian-Spanish group, Pocahontas by an Australian firm.

Privatization has been successful in Europe. Americans are proving far more reluctant to back sales of public assets. The people who want to get these deals done are going to have to work a little harder to convince the public that it's really in their best interests to part with toll roads, airports, lotteries and the rest of it.

Joe Mysak is a Bloomberg News columnist.

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