Airports Make Hay from Their Open Land

The Houston hay venture typifies a growing trend in airport management: looking beyond traditional aviation-related sources to bolster finances.

The financial troubles at American Airlines and US Airways also led to lowered ratings for Miami and Pittsburgh, respectively.

Airlines are generally supportive of airports diversifying their revenues because such efforts help lower fees for the airline industry, says Bob Montgomery, an executive at Southwest Airlines.

But Montgomery says airlines draw the line at projects that can transfer some of the costs of airports' entrepreneurship to passengers.

Airports' increasing participation in entrepreneurial activities has raised some questions about how much risk a government should undertake. A failed enterprise by an airport has the potential to backfire on local government. Losses could lead to a lower bond rating or even a bailout.

How much risk is too much?

Houston now has an indirect ownership stake in an airport in Ecuador that came about from its foray into selling consulting services to foreign airports. But officials there took steps to insulate the city from risks associated with the venture.

In 2001, Houston formed an affiliate company, HAS Development, to market the airport's consulting and training services to foreign airports. It brings in about $1 million annually for the Houston Airport System.

The company trains airport managers from developing countries on a wide range of issues, including safety standards, running a fire department and management practices.

One of its early projects was consulting Ecuador's Quito Mariscal Sucre International for its concessions program.

After the government's privatization of the airport, HAS and its financial partners now manage the airport. HAS owns a 25% stake in Mariscal Sucre.

The government is building an airport to replace Mariscal Sucre, to be open in four years. HAS and its partners will continue to operate the new airport. HAS is also looking to buy stakes in other foreign airport complexes.

Houston's Vacar says he doesn't believe the city airport system is taking undue risk by venturing into airports in developing countries.

As a separate non-profit corporate entity, HAS Development shields the airport system and the city from liabilities, he says.

Paula Hochstetler, president of trade group Airport Consultants Council, says assessing risk will be increasingly important as airports begin to broaden their businesses beyond the traditional functions.

As public agencies, airports should stick to businesses that pose little risk to the local governments that own them, she says.

"They have to be deliberate and have good business sense that it doesn't place the airport in jeopardy."

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