Considering and Evaluating Airport Privatization (2012) / Chapter Skim
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Pages 42-59
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From page 42... ...
42 6.1 Specific Strategies Under the full privatization models, the airport owner enters into a long-term lease/concession or sale of an airport with a private operator, which can be accomplished inside the APPP or outside of the program (Table 6.1)
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43 a brief description of examples inside and outside the APPP. For more background, please see Chapter 9 and Appendix H where two examples inside the APPP (Stewart International Airport and Chicago Midway Airport)
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44 approvals to use the payment for general state purposes (discussed in detail below) , it used the lease payments for airport purposes and to recoup past subsidies for Stewart Airport and its other state-owned airports (from the prior six years)
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45 The city of New Orleans withdrew its application for Louis Armstrong New Orleans International Airport in November 2010 citing the following reasons: After analyzing the conditions required to effectively privatize public infrastructure and the current state of capital markets, it has been concluded that New Orleans is not well positioned at this point in time to solicit bids for privatizing the Louis Armstrong International Airport. Rather, the airport is better served by focusing on its recently announced initiatives to improve operations and become a more effective asset for the City of New Orleans and the State of Louisiana.
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46 Specifically, public-use airports operated by a private entity that are designated as relievers or that have at least 2,500 annual passenger boardings are eligible for funding for airport development projects, airport master planning, noise compatibility planning, and noise program implementation projects. This financing structure historically dis-incentivized full privatization because it encouraged public entities to retain the role of sponsor, and thus eligibility for funding under the AIP.
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47 permitting U.S.DOT to grant exemptions from certain federal obligations that historically impeded full privatization.38 However, Congress required that airports and private operators satisfy demanding conditions in exchange for the exemptions and approvals, including conditions specifically designed to protect its interests and those of the airport users. The FAA thereafter prescribed detailed procedures for seeking these exemptions and approvals.
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48 12. The federal share of financial assistance in grants issued from the Discretionary Fund issued to a private operator is 70% of project costs.52 In September 1997, the FAA published detailed procedures for the submission and review of applications to sell or lease an airport in accordance with Section 47134.53 The application procedures have the key features shown in Figure 6.1.
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49 Figure 6.1. APPP application procedures.
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50 independent airport authorities in North America, or airports elsewhere operated by 100% government corporations have lower operating efficiency than airports with a private majority ownership; • Airports with a private majority ownership achieve significantly higher operating profit margins than other airports; • Whereas airports with government majority ownership or multi-level government ownership have the lowest operating profit margin; and • Airports with private majority ownership derive a much higher proportion of their total revenue from non-aviation services than any other category of airports with significantly Table 6.3. Key features of full privatization under the APPP and outside the APPP.
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51 lower aeronautical charges than airports in other ownership categories excluding U.S. airports.56 6.4.1 Opportunities Some of the opportunities cited for full privatization include: • Creates potential to promote increase in service, commerce, and economic development.
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52 expressed frustration with the lack of speed when undertaking public projects and the inherent problems associated with the many local requirements to accept the lowest bid. With a PPP, the government can avoid the low bid, move faster, get better quality control, and still meet disadvantaged business enterprise (DBE)
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53 • Tempts elected officials to want to cash-out value ("borrow against the future") without necessarily appreciating and understanding the long-term implications to the airport enterprise.
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54 standards in the lease, which can be fixed for the duration of the long-term contract. • Affords limited opportunities because many of the largest U.S.
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55 • Labor (in particular collective bargaining agreements) • Airlines (if revenue is to be used for non-airport purposes)
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56 • The APPP permits U.S.DOT to grant an exemption from the prohibition on revenue diversion "to the extent necessary to permit the purchaser or lessee to earn compensation from the operations of the airport." FAA guidance indicates that a private operator acting outside of the APPP would be subject to all of the grant assurances, presumably including the prohibition on revenue diversion. However, the FAA has acknowledged that a private operator may have a limited right to recover its initial investment and earn some measure of compensation for managing the airport.
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57 Maybe. Section 47134 explicitly permits U.S.DOT to excuse any reinvestment or repayment obligation.
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58 While there is a significant body of information to be learned from these experiences (as can be found in Appendices C and D) , not much of it is transferable to the U.S.
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59 re organization efforts for Terminal A at Boston Logan Airport to avoid the potential for costly litigation. This is a new form of cooperation in response to market failures of previous toll roads and other privatized assets.
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