This is Why No Airport Privatization in the U.S.

US Airport Privatization

US Airport Privatization

I was President and CEO of Airports Council International – North America (ACI-NA) for eight years, from July 1, 2005 through June 30, 2013. During those eight years, I had more conversations than I could possibly count with people who wondered why airport privatization has not taken off in the United States. Many of these conversations were with people heavily involved in running or financing privatized airports around the world. Many were held with U.S. colleagues who thought privatization would provide benefits. In the world’s largest economy, and primary bastion of capitalism, airport privatization has remained the rarest of infrastructure animals. Why?

Would Have Bet My House

When I took over at ACI-NA, a couple of things became clear. One was that managers of airports that were owned and operated by municipal or state governments envied those managing airports run by independent authorities. But another was that interest in privatization was on the rise, and that it seemed inevitable that the United States would soon join the global move toward privatized airport operation.

I started telling people that I thought by the end of the decade we are currently in I believed we would have a dozen or more U.S. airports being run under one sort of privatization scheme or another. In fact, I was so sure I even joked that I’d bet my house on it. It’s a good thing I didn’t! And I still live in the same house!

What led me to think this way? A few things. There was a growing feeling that traditional airport funding programs and tools were outdated and inadequate. The federal Airport Improvement Program (AIP) had been increased but was well short of what was required. And besides that, those funds were not available for any project that could generate revenue (exceptions are made for the smallest airports). Local airport charges are not allowed with the exception of the Passenger Facility Charge, or PFC, which is limited by federal law. And there was a growing fear that, while airports had good access to capital markets and had excellent bond/credit ratings, growing debt loads would soon prove unsustainable.

There was also a growing belief in the airport industry that airports were being controlled by too great an extent by airline interests and that privatization of airport operations could overcome that, allowing greater local control and allowing for more competition.

Finally, many state and local governments were under increased fiscal strain. Perhaps the worst reason to privatize airports (or anything else) is simply because a government needs some cash. In the end, you can only do that one time and privatizing just to get the cash may lead you to make a less than optimal deal. But the fact was that many cities and states were beginning to feel a real pinch (that pinch has only increased by the way, and will be into the future assuming certain federal tax changes under consideration are enacted) and were looking to privatization.

The factors all seemed in alignment. And then….nothing.

Day I Recommended Ending the Airport Privatization Program

Well not exactly nothing. The city of Chicago moved forward with trying to privatize Midway Airport. The “program” under which airports can be privatized has certain slots depending on airport size. Midway took the spot designated for the largest group of airports. There was a great deal of focus on this, and I remain convinced to this day that if the Midway Airport privatization (see related articles below) had gone through in 2009 my prediction would have come through because by that time most American cities were struggling greatly financially and all those city mayors would have put pressure on their members of Congress to change the law to expand the privatization program.

In the end, the financing for the deal fell through; a casualty of the financial crisis. Chicago took another run at it in 2013, but it seemed from a distance that the energy had gone out of both the city’s interest in seeing the deal through and, more importantly the money was not as good as the 2009 offer.

Some may ask, but what about the Puerto Rico privatization(also see related article below), which did go through and, pre-hurricane, had seemed to be doing well? But the fact is that in the United States Puerto Rico (a U.S. territory but not a state) is seen very differently. Almost like a foreign country (in fact there is a current congressional proposal to levy a 20% tax on “imports” from Puerto Rico according to San Juan’s mayor). The fact that the San Juan Airport was privatized has had no real impact on thinking about privatization in the broader airport community.

There was another, smaller, U.S. airport that went through the program called Stewart Airport north of New York City. But the arrangement did not work out, and the airport reverted back to the Port Authority of New York and New Jersey.

But in the end, there was no real activity, and interest seemed to have waned, and maybe even evaporated. In 2014 while I was working as a consultant, I recommended to one client thinking about getting into airport privatization in the U.S. that they should show up at events and conferences to remain visible, but there was not likely going to be any activity any time soon.

In fact, at about that time, I received a call from some folks at a government agency who were doing some research on the program and how it could be tweaked going forward. My answer surprised them.

I told them to recommend very publicly that the program be killed. Ended. Shut down. They were stunned. Why, they asked?

I said because at that moment there seemed little, if any, interest in privatization and I wasn’t sure the program was worth existing or even talking about. I recommended the FAA propose shutting it down and closing off any avenue for privatization of airports in this country. Then see what reaction results. If the reaction is muted, then you know it is time to move on. But perhaps the prospect of getting rid of the option of privatization will spur some interest and activity. In essence, use a proposal to end the program as a way to gauge whether any real interest exists.

Keep in mind that this proposal was not made because of some antipathy toward privatization. My view has always been that all options should remain open and viable. This comment was made by me back then because there just seemed no real interest at that point on the part of any airport or community in moving in such a direction. I thought this would be a good way to smoke out any interest.

Airport Privatization US

Airport Privatization US

So What’s The Issue?

At this point it is good to talk about why airport privatization in America has been so slow to take hold.

First is money. It’s always the money! In many places in the world, airports (and other infrastructure for that matter, or government-owned companies etc.) have been privatized because there wasn’t any money and this was a way of attracting money into the sector. Canada (see relevant articles below) pursued their own spin-off of government-owned airports in the 1990s for this reason (what they did is not privatization, however).

In the United States, till now, lack of access to money is much less of any issue. For most airports, the availability of government funds, fee income, income from concessions, etc. has been enough especially when combined with access to the capital markets, some of which is tax advantaged. Thus, there has been no need to move in this direction to open up a tap of funds. That is not to say the U.S. airport sector has access to all the funds it needs. That’s an on-going discussion. But the same hunger for basic funding that impels many to privatize around the world has not been present in the U.S. This is amplified by the fact that airport managers in the U.S. have become excellent at using whatever it is they have access to in terms of funding. Thus, no one ever throws up his or her hands and says they are out of money.

Second is the fact that U.S. airports are quite competently run. Like any sector, one can point to an exception or two, but overall the sector is quite well run. In some parts of the world, it was felt that privatizing the airport would result in more competent management. This is much less of an issue in the U.S. There does remain the fact that in many cases outmoded public procurement and personnel practices make decisions harder for airport managers, and this is a reason some express interest in privatization. But there is no crisis of competence in U.S. airport management.

Third is a simple general sense, especially among  many current airport leaders, that airports are a public good and should be run for the public benefit. Local media and taxpayers tend to think of airports the same way. Airports are NOT seen as businesses by a large majority of the population, the press and political leaders in the United States.

Fourth, the system of public ownership is supported by airlines and by other airport users. You would be surprised at how often airlines and other users complain to airport boards, or city councils or mayors or state legislators or governors about airport matters. You might be even more surprised at how effective they are in doing so. Whether for better or for worse, this is a fact and this makes airlines much less interested in new business models, even if the new model might lead to greater efficiency. (Sometimes such greater efficiency, for example in the use of gates, might not be seen by a particular airline as something to be desired. A business-like approach might be less likely to sign exclusive use agreements, for example, as pointed out by Bob Poole of the Reason Foundation). In most communities, people equate airlines with aviation; they see the airport simply as a facility to be managed. So airline arguments hold a great deal of weight in the current system (and that is why in the pilot program, airlines are given a great deal of say).

Finally, the FAA privatization pilot program does not make it attractive for airports to enter, especially given the great weight airline views are given (in the Midway case of a decade ago, the proposal was put together with a very close collaboration between the airport and the major airline there, Southwest Airlines).

Is Pendulum Swinging Back Again?

Recently, the mayor of St. Louis, Missouri announced his interest in having the St. Louis Lambert Airport join the program. A couple of things jumped out at me about this: the airport in St. Louis has VERY competent management, and iswell navigating the many changes in airline service that have forced a change in the way they must operate (their passenger count increased 10 percent in 2016). Also, the mayor who initiated this is the brother of a former deputy airport director. Nothing at all inferred, just simply interesting given the fact the mayor would have been well-informed about airport operations. This was not a jump in the dark. There has been discussion in the local press out there about funding challenges in municipal government, so perhaps this was partially done to generate cash to meet other needs.

The mayor who proposed this left office soon after he did so, and his successor is considering the plan. It is possible that if they move forward and St. Louis gets a good deal, that other municipalities might try to convince their members of Congress to support expanding the program so they can join and generate cash.

In the end, I think the immediate future of airport privatization in the United States depends on the deal St. Louis can get, if it can get one at all. If it is good enough, other mayors may pressure Congress (and a likely receptive President Trump) to expand and loosen the program. Any loosening will be fought by anti-privatization forces such as labor, and probably by airlines who will be reluctant to give up the role and the say they get under the current program.

If St. Louis cannot get a good deal, or cannot get one at all, or drops the idea, I think the idea of airport privatization will fade once again. America needs a good old fashioned debate and decision on whether the current ownership and operation model of its airports works for the 21st century. There are plenty of arguments to be made on all sides. We will continue to have private involvement in airport concessions such as food and beverage and retail, as well as in airport development projects such as that in New York at LaGuardia. But full fledged privatization (including privatizing the operation of airports as opposed to ownership) will remain a topic that will arise from time to time but never really be fully implemented.

My money is on a return to the status quo: airport privatization remains a topic of interest and a theoretical possibility, but never really matures into a regular feature of airport ownership and operations in the United States. But as I’ve said before, I was once almost willing to bet my house on a different outcome. They say there is a lot of money around the world ready to invest in U.S. airports if we move toward a privatization model. I really think that money will end up staying right where it is, or being used for other purposes.

What do you think? Leave your comment below.

Photos: Header by Tim Gouw. Other photo by Damian Hutter. Both via Unsplash