National Academies Press: OpenBook
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2012. Considering and Evaluating Airport Privatization. Washington, DC: The National Academies Press. doi: 10.17226/22786.
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Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

A I R P O R T C O O P E R A T I V E R E S E A R C H P R O G R A M ACRP REPORT 66 TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2012 www.TRB.org Research sponsored by the Federal Aviation Administration Subscriber Categories Aviation  •  Administration and Management  •  Finance Considering and Evaluating Airport Privatization Sheri Ernico Bruce Boudreau LeighFisher Burlingame, CA Dan Reimer KapLan Kirsch & rocKweLL LLp Denver, CO Steve Van Beek LeighFisher/eno TransporTaTion FoundaTion Reston, VA

AIRPORT COOPERATIVE RESEARCH PROGRAM Airports are vital national resources. They serve a key role in trans­ portation of people and goods and in regional, national, and inter­ national commerce. They are where the nation’s aviation system connects with other modes of transportation and where federal respon­ sibility for managing and regulating air traffic operations intersects with the role of state and local governments that own and operate most airports. Research is necessary to solve common operating problems, to adapt appropriate new technologies from other industries, and to introduce innovations into the airport industry. The Airport Coopera­ tive Research Program (ACRP) serves as one of the principal means by which the airport industry can develop innovative near­term solutions to meet demands placed on it. The need for ACRP was identified in TRB Special Report 272: Airport Research Needs: Cooperative Solutions in 2003, based on a study spon­ sored by the Federal Aviation Administration (FAA). The ACRP carries out applied research on problems that are shared by airport operating agencies and are not being adequately addressed by existing federal research programs. It is modeled after the successful National Coopera­ tive Highway Research Program and Transit Cooperative Research Pro­ gram. The ACRP undertakes research and other technical activities in a variety of airport subject areas, including design, construction, main­ tenance, operations, safety, security, policy, planning, human resources, and administration. The ACRP provides a forum where airport operators can cooperatively address common operational problems. The ACRP was authorized in December 2003 as part of the Vision 100­Century of Aviation Reauthorization Act. The primary participants in the ACRP are (1) an independent governing board, the ACRP Oversight Committee (AOC), appointed by the Secretary of the U.S. Department of Transportation with representation from airport operating agencies, other stakeholders, and relevant industry organizations such as the Airports Council International­North America (ACI­NA), the American Associa­ tion of Airport Executives (AAAE), the National Association of State Aviation Officials (NASAO), Airlines for America (A4A), and the Airport Consultants Council (ACC) as vital links to the airport community; (2) the TRB as program manager and secretariat for the governing board; and (3) the FAA as program sponsor. In October 2005, the FAA executed a contract with the National Academies formally initiating the program. The ACRP benefits from the cooperation and participation of airport professionals, air carriers, shippers, state and local government officials, equipment and service suppliers, other airport users, and research orga­ nizations. Each of these participants has different interests and respon­ sibilities, and each is an integral part of this cooperative research effort. Research problem statements for the ACRP are solicited periodically but may be submitted to the TRB by anyone at any time. It is the responsibility of the AOC to formulate the research program by iden­ tifying the highest priority projects and defining funding levels and expected products. Once selected, each ACRP project is assigned to an expert panel, appointed by the TRB. Panels include experienced practitioners and research specialists; heavy emphasis is placed on including airport pro­ fessionals, the intended users of the research products. The panels pre­ pare project statements (requests for proposals), select contractors, and provide technical guidance and counsel throughout the life of the project. The process for developing research problem statements and selecting research agencies has been used by TRB in managing cooper­ ative research programs since 1962. As in other TRB activities, ACRP project panels serve voluntarily without compensation. Primary emphasis is placed on disseminating ACRP results to the intended end­users of the research: airport operating agencies, service providers, and suppliers. The ACRP produces a series of research reports for use by airport operators, local agencies, the FAA, and other inter­ ested parties, and industry associations may arrange for workshops, training aids, field visits, and other activities to ensure that results are implemented by airport­industry practitioners. ACRP REPORT 66 Project 01­14 ISSN 1935­9802 ISBN 978­0­309­21405­6 Library of Congress Control Number 2012936874 © 2012 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not­for­profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB or FAA endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not­for­profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The project that is the subject of this report was a part of the Airport Cooperative Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the Airport Cooperative Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report. Published reports of the AIRPORT COOPERATIVE RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at http://www.national­academies.org/trb/bookstore Printed in the United States of America

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transporta- tion Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individu- als interested in the development of transportation. www.TRB.org www.national-academies.org

C O O P E R A T I V E R E S E A R C H P R O G R A M S AUTHOR ACKNOWLEDGMENTS This guidebook (the “Guidebook”) was prepared as part of ACRP Project 01­14 by a research team of recognized experts in airport business, finance, governance, law, and privatization. LeighFisher was the pri­ mary research consultant. Sheri Ernico, Director at LeighFisher, was the Principal Investigator. The other authors were Steve Van Beek of LeighFisher/Eno Transportation Foundation for the emerging domestic issues and policy matters; Dan Reimer of Kaplan Kirsch & Rockwell LLP on the regulatory and policy framework; Simon Morris, Richard Sharp, and Jessica Dahlstrom of LeighFisher on international airport privatization; Phil Bates of LeighFisher on the non­airport privatization in the U.S. transport sector; Bruce Boudreau of LeighFisher who contributed to conceptual content; Matt Townsend of LeighFisher who assisted in the JFKIAT and Indianapolis case studies; Dave Vondle of Vondle & Associates who assisted on the Stewart International Airport case study; and Ann Graham of the University of Westminster who assisted with the literature search and reviewed the international airport privatization chapter. The research team would like to express its gratitude to the members of the project panel for their sup­ port and insightful comments throughout this research project. The research team would also like to thank the airport staff, staff at the FAA and U.S.DOT, airlines, private airport operators and developers, rating analysts, international regulators, investors, lenders, labor leaders, and others who took the time to share their insights, experience, and opinions with the research team. CRP STAFF FOR ACRP REPORT 66 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Michael R. Salamone, ACRP Manager Theresia H. Schatz, Senior Program Officer Eileen P. Delaney, Director of Publications Margaret B. Hagood, Editor ACRP PROJECT 01-14 PANEL Field of Administration Shirley J. Ybarra, Reason Foundation, Washington, DC (Chair) Mark Earle, Colorado Springs Airport, Colorado Springs, CO Timothy Karaskiewicz, General Mitchell International Airport, Milwaukee, WI Dana R. Levenson, Massachusetts Department of Transportation, Boston, MA Charles T. “Skip” Miller, Louisville Regional Airport Authority, Louisville, KY Maria Sheridan, DM AIRPORTS, LTD., Morristown, NJ Timothy K. Skipworth, American Airlines, Inc., Fort Worth, TX Kevin C. Willis, FAA Liaison Liying Gu, Airports Council International—North America Liaison Nancy Kessler, US Department of Transportation Liaison Martine A. Micozzi, TRB Liaison

F O R E W O R D ACRP Report 66: Considering and Evaluating Airport Privatization is a guidebook that assists airport operators, policy makers, and other relevant stakeholders as they consider and analyze the potential advantages and disadvantages of implementing various approaches to airport privatization. The guidebook covers a range of potential privatization options, from service contracts to private airport ownership or development. In addition, the guidebook includes case studies conducted at a variety of airports both within the United States and internationally. Interest in airport privatization is increasing, especially as local and regional governments look for ways to make their airports as efficient, competitive, and financially viable as possible. Consideration by communities, governing boards, airport officials, and other stakeholders on whether to privatize all or part of an airport is a significant decision with long­term impacts. As such, the decision­making process must ensure that a thorough and complete review is undertaken, so financial and other implications of privatization are fully understood and, hence, an informed, transparent decision can be made. Private­sector participation in airports—through ownership, operation, management, or new investment programs—can take many forms, including outsourcing certain functions; management contracts; public­private partnership (P3) agreements; design­build­finance­operate devel­ opments; outright sale or long­term lease of assets; and other private finance initiatives. Full airport privatization has been adopted or considered in various forms at many foreign air­ ports but only at a limited number of U.S. airports while a wide range of partial airport privatization has existed at U.S. airports for many years. The Airport Privatization Pilot Program, under 49 U.S.C. Section 47134, provides a limited number of airports in the United States with a special vehicle for full airport privatization, including certain exceptions from existing legal disincentives, and continues to generate discussion among airport operators and owners, governing boards, and airport officials. Although there have been a number of applications for the program since it was created in 1996, only one applicant completed the process as of this publication (Stewart International Airport), which subsequently reverted back to public operation. As the dis­ cussion of these issues continues, U.S. airport stakeholders can benefit from an objec­ tive presentation of the international experience with airport privatization and the relative advantages and disadvantages of privatization for U.S. airports. This report was developed under ACRP Project 01­14. Also contained in the guidebook are Appendices A and B; Appendices C through H, which provide additional background information as part of the research conducted in preparing the guidebook, are on the CD. By Theresia H. Schatz Staff Officer Transportation Research Board

It is understood that the research was concluded as of December 2011 and there are currently some federal regulatory changes being contemplated. For example, the FAA is currently revisiting its policy on the issue of waiving the repayment of federal grants for airports privatized outside the Airport Privatization Pilot Program. Please keep in mind, there are several references in the guidebook with respect to this one issue for full privatiza­ tion outside the APPP that could be impacted by the FAA’s contemplated change in Order 5190.6B. It is recommended that the user of the guidebook reference the most current legislation and policy in place at the time.

C O N T E N T S 1 Chapter 1  Summary 1 1.1 Purpose and Objectives of Guidebook 1 1.2 Privatization Motivations and Drivers 1 1.3 Generic Privatization Models 2 1.4 Examples of Specific Strategies 4 1.5 Evaluation of Privatization Strategies 7 1.6 How to Decide Which Strategy Is Best 8 1.7 What Makes the U.S. Airport Model Different? 9 1.8 Guidebook Organization 10 Chapter 2  The U.S. Context and Generic Privatization Models 10 2.1 Privatization Continuum and Generic Models 11 2.2 Extensive Privatization Exists Today at U.S. Airports 11 2.3 Evolution of Airport Ownership and Governance in the United States 12 2.4 Forms of Airport Governance 13 2.5 What Makes the U.S. Airport Model Different? 16 2.6 Focus of Research 18 Chapter 3  Service Contracts 18 3.1 Specific Strategies 18 3.2 Examples of Service Contracts 19 3.3 Legal and Regulatory Considerations 19 3.4 Evaluation of Service Contracts 21 Chapter 4  Management Contracts 21 4.1 Specific Strategies 21 4.2 Examples of Management Contracts 25 4.3 Legal and Regulatory Considerations 26 4.4 Evaluation of Management Contracts 28 Chapter 5  Developer Financing and Operation 28 5.1 Specific Strategies 31 5.2 Examples of Developer Financing and Operation 36 5.3 Legal and Regulatory Considerations 38 5.4 Evaluation of Developer Financing and Operation 42 Chapter 6  Full Privatization 42 6.1 Specific Strategies 42 6.2 Examples of Full Privatization 45 6.3 Legal and Regulatory Considerations 48 6.4 Evaluation of Full Privatization 56 6.5 Frequently Asked Questions About Full Privatization 57 6.6 Relevance and Lessons Learned From International Airport Privatization and Non­Airport Privatization in the U.S. Transport Sector

60 Chapter 7  Other Examples 60 7.1 Green­Field Private Airport Development 61 7.2 Examples of ‘Reverse’ Privatization 63 Chapter 8   Decision Tree Matrix, Evaluation Checklist, and Process 63 8.1 Decision Tree Filter and Matrix 63 8.2 Owner’s Goals and Objectives 65 8.3 Stakeholder Views 66 8.4 Complexity, Risk, and Other Implementation Issues 68 8.5 Valuation and Valuation Drivers 70 8.6 Financial Metrics 72 8.7 Risks and Mitigants 80 8.8 Evaluation Checklist 83 Chapter 9  Case Studies 83 Summary of Case Studies 87 9.1 Indianapolis Airport Authority 90 9.2 JFKIAT Terminal 4 93 9.3 Boston Terminal A 95 9.4 Stewart International Airport 97 9.5 Chicago Midway International Airport 100 9.6 Morristown Municipal Airport  104  References A-1 Appendix A  Abbreviations and Acronyms B-1 Appendix B  Glossary of Privatization Terms C-1 Appendices C Through H Note: Many of the photographs, figures, and tables in this report have been converted from color to grayscale for printing. The electronic version of the report (posted on the Web at www.trb.org) retains the color versions.

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