Aviation interests weigh merits of Trump's private airport plan

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The Trump administration has proposed to privatize Washington Reagan National (above) and Washington Dulles airports.
The Trump administration has proposed to privatize Washington Reagan National (above) and Washington Dulles airports.

A Trump administration proposal to divest of the country's only two federally owned airports, Washington Dulles and Washington Reagan National, turned a few heads when the White House unveiled its $200 billion infrastructure plan last month. 

But the administration's broader strategy, aimed at making it easier for airports to privatize, could potentially reverberate far beyond the D.C. area.

At present, the only commercial U.S. airports under private control are in Branson, Mo., and San Juan, Puerto Rico. But private airports are common in other parts of the world. In Europe, for example, 79 airports, among them London Heathrow, were fully privatized as of 2016, according to an analysis by the trade group Airports Council International Europe (ACI-Europe).

More than 40% of Europe's airports, which among them handle close to 75% of the Continent's passenger traffic, had at least some private ownership.

The Trump plan aims to, at the very least, shift the U.S. in that direction.

One way it would do so is via an expansion of the Airport Privatization Pilot Program, which was passed by Congress in 1997 but to date has found just two takers.

Terminal 2 at London Heathrow, one of 79 airports in Europe that were fully privatized as of 2016.
Terminal 2 at London Heathrow, one of 79 airports in Europe that were fully privatized as of 2016.

The larger of those is San Juan, where in 2013 the government of Puerto Rico gave the operating group Aerostar a 40-year lease. The Bipartisan Policy Center cited that privatization as a success thus far because Aerostar transformed a poorly run airport, renovating terminals and installing a sophisticated baggage-scanning system.

Aerostar paid $615 million up front for the lease and will make annual lease payments that graduate up to 10% of profits by the end of the lease term.

The other airport that has participated in the pilot program is Stewart, about an hour north of New York City. The state of New York leased the facility to private operator National Express Group (NEG) in 2000. But unlike the early results in San Juan, that enterprise was a failure.

According to a 2014 General Accountability Office report, NEG ran the airport for short-term gain and was not interested in investing in Stewart's future. The Port Authority of New York and New Jersey bought out the NEG lease in 2007, placing the airport back under public control.

Under the White House infrastructure plan, the 10-airport cap in the pilot program would be lifted. In addition, airlines would lose much of their veto power to block privatization applications.

At present, 65% of the carriers at an airport must approve of a privatization application. In addition, carriers representing 65% of airport traffic, as measured by landed weight, must approve an application. The White House plan would get rid of that double vote rule and instead require that just 50% of an airport's carriers sign off on privatization.

Other barriers to privatizing airports are also addressed in the Trump infrastructure plan, most notably matters related to financing. Publicly owned airports in the U.S. have access to tax-exempt municipal bonds. The federal government also allows some private entities to issue tax-free private activity bonds. But private airport operators are not eligible to use such bonds to finance an acquisition, an issue that bedeviled San Juan's Aerostar. The Trump plan would eliminate that hurdle.

Underpinning these proposals is the White House's supposition that turning airports over to private operators will lead to quicker development and more efficient operations.

That view has merit, according to Bob Poole, director of transportation policy at the libertarian Reason Foundation.

"We have good empirical data that the quality and passenger friendliness of an airport is better when they are run as businesses," Poole said.

He cited an Oxford University study conducted in 1998, 11 years after Margaret Thatcher privatized the British Airport Authority. The 50-item survey, which was issued to managers of 201 airports worldwide, found that passenger responsiveness at airports that were either fully owned by a private concern or controlled by a private company through a long-term lease with a public agency was markedly higher than responsiveness at publicly run airports.

U.S. airports already have numerous private concerns operating within them. Contractors employ legions of airport workers. Businesses run shops and restaurants. Airlines lease gates and entire terminals. And in airports including New York JFK, Detroit and now New York LaGuardia, airlines have financed terminal construction.

Poole said the Trump proposal to divest of Dulles and Reagan is sound in principle. But he noted that those airports are already under long-term federal lease to the Metropolitan Washington Airports Authority. Such single-purpose entities, he said, are the most effective government instruments for running an airport.

Airports that are run by broader public concerns, including cities or counties, Reason added, often fall victim to politics as well as to favoritism during contract procurement.

Airport privatization also presents pitfalls. For example, private operators might not respond as directly to the public interest as their public counterparts, and the public has less recourse if the facility is poorly managed.

Poole said it is crucial for the government that is doing the divestment to protect itself from such concerns through buy-back clauses and early-termination provisions in lease agreements. Airlines, which often have exclusive gate rights and, in some cases, lease full terminals, also will want protection in the case of a privatization.

Samuel Engel, a senior vice president for the aviation industry consultancy ICF, said airlines are only likely to support such a move if they, like the government entity, benefit from the up-front payment made by the new airport operator. Such benefits would likely come in the form of a reduction in landing fees or facility rental costs.

"If there is going to be a cash-out, the airlines are going to make sure that they participate in it," Engel said.

Underscoring his point, the trade group Airlines for America (A4A) opposes the Trump proposal to ease entry into the pilot program, while IATA secretary general Alexandre de Juniac has recently taken a stand in opposition to airport privatization in general.

"To date, there has been no regulatory formula that effectively balances the interest of private owners to earn a profit with the public interest to have the airport serve as an engine of economic growth," de Juniac said at IATA's Aviation Day event in New York last month.

In an email, A4A also asserted that the rule requiring 65% of an airport's airlines to approve privatization has worked.

"In short," wrote A4A spokeswoman Alison McAfee, "enabling local governments to siphon away revenues from airports to pay for pensions and other budget problems not only undermines infrastructure investment but is bad for consumers, since ultimately they will pay the price in [the form of] any resulting higher costs and less air service, while forcing taxpayers to further pad the coffers of for-profit entities."

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