August 2018
Deal or No Deal:
Prospects for Airport Privatization
in the United States
Deal or No Deal:
Prospects for Airport Privatization
in the United States
Authors
Robert Puentes, President and CEO, Eno Center for Transportation
Paul Lewis, Vice President of Policy and Finance, Eno Center for Transportation Extraordinary
Innovation, LA Metro
Acknowledgments
This work was supported by Eno’s Aviation Working Group, a standing advisory body on all
aviation issues. The report authors would like to thank So Jung Kim for her contributions to the
editing of this paper. The opinions expressed are those of Eno and do not necessarily reect the
views of our supporters.
About the Eno Center for Transportation
The Eno Center for Transportation is an independent, nonpartisan think tank whose vision is
for an American transportation system that fosters economic vitality and improves the quality of
life for all. The mission of Eno is to cultivate a creative and innovative workforce and to impact
emerging issues for the nation’s multi-modal transportation system.
Cover Photo: Dulles International Airport
CONTACT: Alexander Laska, Communications Officer, Eno Center for Transportation
EMAIL: alaska@enotrans.org
www.enotrans.org | 202-879-4707
Table of Contents
1 Abstract
2 1. Introduction
4 2. Background
9 3. Airport Privatization Experience
10 3.1 Stewart International Airport
12 3.2 San Juan Luis Muñoz Marín Airport, Puerto Rico
14 3.3 Midway International Airport
16 3.4 St. Louis Lambert International Airport
17 3.5 Westchester County Airport
18 3.6 International Examples
20 4. Policy and Practice Implications
23 5. Conclusion
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Abstract
Airport infrastructure investments, such as new runways, modern terminals, and improved
ground access, are a top priority for governments and the traveling public. Robust revenues
from parking, concessions, and landing fees pique the interest of private sector investors
looking for long term, stable returns. Airport privatization proposes to bring the two
together: governments give airport investment and management responsibilities to a
private company that keeps excess returns, and then invests to attract more air service
and passengers. While airports are commonly privatized abroad in places like Europe
and Australia, only one airport is privatized in the United States. This report reviews the
policies that govern airport privatization in the United States, recent history in domestic
case studies, and the implications going forward. In the end, circumstances unique to the
United States greatly limit the usefulness of privatization in solving airport problems.
While privatization may be attractive in some circumstances, policymakers rst need to
clearly understand the problem they are trying to solve, and whether privatization is the
best approach.
Deal or No Deal Eno Center for Transportation
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1. Introduction
There are more than 3,330 publicly owned airports as part of the national system in the
United States today.
1
These airports move more than 2.5 million passengers each day safely
and effectively, and they contribute $76 billion in total output to the American economy.
2
There is also substantial evidence that airports play a major role in regional economies.
3
But there are also considerable challenges. In 2013, an Eno report showed the runway
and terminal capacity at the nation’s major airports would be unlikely to accommodate
projected growth in passengers over the next 20 years.
4
The head of an airport trade group
recently argued that airports are “at the breaking point” and need $75 billion of capital
investments in the next few years.
5
President Donald Trump and former Vice President
Joseph Biden, who each referred to airports in metropolitan New York as “third-world”,
famously buoyed this perception of major airport infrastructure deciencies.
6
While there
is evidence many airports in the United States clearly benet from competent public
governance, critics disagree. One prominent analysis from 2008 argued that the reason for
excessive ight delays is partly due to the failure of “publicly owned and managed airports”
to improve their efciency.
7
It is no wonder that the call to privatize U.S. commercial airports has recently gotten
louder. Advocates for increased privatization cite it as a means to raise one-time
government revenues, increase airport investment, and remove politics from airport
decision making.
8
Commercial airports also represent an ideal potential private investment
because of their consistent revenue sources from parking, landing, and concession fees.
Unlike most highways and transit systems, airports regularly cover their costs with
revenues from their facilities. Investment in airport infrastructure makes the facility
more attractive to airlines and passengers, increasing revenues for investment return and
meeting the public-sector goal of increasing airport use.
9
1 U.S. Government Accountability Ofce, “Airport Privatization: Limited Interest Despite FAA’s Pilot Program,”
GAO-15-42, 2014.
2 Federal Aviation Administration, “The Economic Impact of Civil Aviation on the U.S. Economy”, U.S. Depart-
ment of Transportation, 2017
3 Richard Florida and others, “Up in the Air: the Role of Airports for Regional Economic Development,” The
Annals of Regional Science, Vol. 54 (1), 2015.
4 Eno Center for Transportation, “Addressing Future Capacity Needs in the U.S. Aviation System,” 2013.
5 Joe Sharkey, “U.S. Airports Are Better, but Not Best,” New York Times, May 6, 2015.
6 “Biden Says NY Airport Like a ‘Third-World Country’,” CNBC Online, February 6, 2014; Sarah Ferris,
“Trump Compares US Airports to ‘Third-World Country’,” The Hill, September 26, 2016.
7 Steven Morrison, Clifford Winston, “Delayed! U.S. Aviation Infrastructure Policy at a Crossroads,” in Aviation
Infrastructure Performance: A Study in Comparative Political Economy, C. Winston and G. de Rus, eds.,
Brookings Institution, 2008.
8 Robert Poole, “Annual Privatization Report: Air Transportation,” Reason Foundation, 2018.
9 Sheri Ernico and others, “Considering and Evaluating Airport Privatization,” Transportation Research Board,
Airport Cooperative Research Program Report 66, 2012.
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In addition, examples abroad show that airports often opt for mixed or full privatization.
One comprehensive survey found that 41 percent of all European airports have some share
of private ownership, compared with only one airport in the United States.
10
However,
passengers give these airports mixed reviews. According to a “the best in the world”
passenger survey, 32 European airports rank in the top 100. Of those, 20 are public or run
by a nonprot, and 11 are private or mostly private. Meanwhile, all 15 U.S. top-ranked
airports are fully public, but only ve rank in the top 50 globally.
11
While privatization
is still more prevalent abroad, the U.S. context is starkly different because tax-exempt
municipal debt can provide a cheaper alternative to private investment.
In other words, despite its worldwide attention, calls for airport privatization in the United
States and the problems stakeholders are trying to solve are unproductively disconnected.
Therefore, it is important to investigate the complexities of U.S. airport governance and
lessons learned from past privatization experiences. This discussion is especially timely
because of several major policy moves occurring today.
Renewed discussions about the role of the private sector in infrastructure broadly and
transportation specically are not entirely related to airport privatization. Cities, states,
and metropolitan areas across the country are exploring new kinds of partnerships with
private rms on everything from urban mobility, highways, to public transit.
12
Most
notably, the Trump administration recently proposed spinning off the nation’s air trafc
control system from the federal government into a nonprot entity separate from, but
overseen by, the national government.
13
But the circumstances that qualify privatization
of air trafc control or a highway as sound policy are not necessarily universal to other
projects or types of infrastructure. These disparate debates complicate the discussions
about airport privatization.
Related is the push for airport privatization coming from Washington. In its infrastructure
proposal, the administration recommended privatizing several government assets including
two airports in metropolitan Washington owned by the federal government.
14
It also called
for the expansion of a federal pilot program on private ownership of airports. The proposal
was recently taken up by Congress and incorporated by the House of Representatives into a
proposal to reauthorize the Federal Aviation Administration.
10 Olivier Jankovec, “The Ownership of Europe’s Airports,” Airports Council International – Europe, 2016.
11 Skytrax, “World’s Top 100 Airports 2017,” World Airport Awards, 2017. For one other airport—Düsseldorf—
the public and private shares are equally mixed.
12 Patrick Sabol and Robert Puentes, “Private Capital, Public Good: Drivers of Successful Infrastructure Pub-
lic-Private Partnerships,” Brookings Institution, 2014.
13 Proposals to spin-off air trafc control date back to the Clinton Administration. See: Eno Center for Trans-
portation, “Time for Reform: Delivering Modern Air Trafc Control,” 2017.
14 Michael Laris, “Trump Administration Wants to Sell National and Dulles Airports, Other Assets Across
U.S.,” Washington Post, February 13, 2018.
Deal or No Deal Eno Center for Transportation
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The purpose of this report is to analyze the outcomes of airport privatization in the United
States, describe different models for the role of private rms in airports, examine the
federal pilot program and its participating airports, and discuss key implications for both
the public and private sectors.
15
We nd that while airport privatization may be attractive
in some circumstances, policymakers rst need to clearly understand the problem they are
trying to solve and determine whether privatization is the best approach.
2. Background
For the purposes of this paper, “privatization” refers to the long-term lease or sale of an
airport. But private sector involvement at U.S. airports is not binary in that they are wholly
owned and operated either by a government or public authority or a for-prot company. All
publicly owned airports in the United States have a high degree of private involvement for
most airport operations. One expert states that, in some respects, U.S. airports are the most
privatized in the world since almost all of the “nance, planning, and operating activities”
are outsourced to private, for-prot companies.
16
Although not directly employed by the airport, federal public sector employees work at
airports as security ofcers or Federal Aviation Administration (FAA) air trafc controllers,
as required by federal law.
17
But the remaining workers almost always employed by the
airlines or private contractors. Airports’ use of private sector workforce is long established:
a 1996 report by the U.S. Government Accountability Ofce (GAO) estimated 90 percent of
the workforce at major U.S. airports is employed by the private sector.
18
A 2017 Congressional Research Service report highlights four broad types of private sector
involvement in airports (Table 1). Most of the potential benets of privatization, such as
market efciencies, outside expertise, and long-term cost control, are already captured
through developer nancing and typical service and management contracts. U.S. airports
are already commercial enterprises run by professional managers. Even proponents of
privatization admit that “U.S. airports are quite competently run,” and there is no crisis
of competence in management.
19
Despite general admonition of their third-world status,
passenger satisfaction with North American airports overall is at an all-time high,
according to a recent survey.
20
15 This analysis focuses on commercial airports, rather than general aviation since the federal pilot program is
directed primarily at the former.
16 Amedeo Odoni, “The International Institutional and Regulatory Environment,” in The Global Airline Indus-
try, Peter Belobaba, Amedeo Odoni, and Cynthia Barnhart, eds., Wiley, 2009.
17 Morrison and Winston, 2010.
18 United States General Accountability Ofce, “Airport Privatization: Issues Related to the Sale or Lease of US
Commercial Airports,” GAO-RCED-97-3, 1996.
19 Greg Principato, “This is Why No Airport Privatization in the U.S.” NewAirport Insider, December 15, 2017.
20 J.D. Power, “North American Airports Effectively Navigating Construction, Capacity Challenges, J.D. Power
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Table 1: Types of Private Sector Involvement at U.S. Airports
Type of
private
involvement
Service contracts
Management
contracts
Developer
nancing for
capital investment
Long-term lease
or sale
Example:
Janitorial services
Landscaping
Shuttle bus
operations
Concessions
Parking
facilities
Airport-wide
management
Terminal
development
Fuel systems
Cargo
Solar
Airport
privatization
pilot program
Specic case:
Pittsburgh
Boston
Washington, D.C.
Albany
Indianapolis
BOSFuel
La Guardia
Austin rental car
San Juan
Stewart
Source: Tang, 2017.
In addition to handing off airport operation and management, privatization may also be
considered an attractive way to inject new funds into capital assets like airport terminals
and runways. It can also provide a one-time payment to local governments for the
privilege of a long-term lease. The United States has used private capital to fund other
transportation investments such as highway, transit, and seaport expansions, with the
private sector selling bonds to cover some of the upfront costs, repaid by future toll, fee,
and/or tax revenues.
21
Backed by future airport revenues, airports that need new terminals
and runways could use the same private debt to improve and expand. However, several
barriers limit the usefulness of private capital for public airports.
First of all, publicly owned airports can take advantage of tax-exempt public bonds,
which the federal government offers to states, localities, and agencies like transportation
departments and school districts. There is no federal cap on the amount of tax-exempt
municipal debt governments can issue, and municipalities have broad discretion to
sell them to individuals and institutions like banks. The interest received by holders of
municipal bonds is exempt from federal income taxation, a perk that frees the issuing
government to pay a lower premium and remain competitive. This makes the cost of
borrowing for infrastructure improvements extremely cost effective for the public sector.
They are generally backed by either general tax revenues or specically the revenue
generated on the airport property (e.g., airline fees, concessions, parking.)
22
States and localities are also allowed to issue debt for projects that have some private
benet often with the same tax privilege as municipal bonds. These private activity bonds
(PABs) issued for airports are not subject to any kind of volume cap and are widely used.
A recent report from the Congressional Research Service found that more than $7.8 billion
Finds,” September 21, 2017.
21 Eno Center for Transportation, “Partnership Financing: Improving Transportation Infrastructure Through
Public Private Partnerships,” 2014.
22 Cindy Nichol, “Innovative Finance and Alternative Sources of Revenue for Airports,” Transportation Re-
search Board, Airport Cooperative Research Program Synthesis 1, 2007.
Deal or No Deal Eno Center for Transportation
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in PABs was issued for airports in 2015.
23
PABs can only be issued by governmental
authorities and not by the private sector, which must issue debt at taxable market rates
that tend to be much more expensive than public bonding, although in some cases airports
issues PABs in public-private partnerships (P3) for construction or on behalf of airlines for
hangers.
Airports also have robust, diverse revenue streams and usually do not lack the funding or
bonding authority to make improvements to their infrastructure and operations (see Table
2). These sources mean that, on average, airports in North America have net revenues that
exceed their capital and operating expenses.
24
This is naturally attractive to an investor and
also a primary reason why airports are targeted for privatization.
Table 2: Large Hub Airport Revenues, by Source
Revenue Source Percentage
Landing and Arrival Fees 38%
Cargo and Hangar Rentals 2%
Facility Leases 2%
Terminal Concessions 8%
Rental Cars 6%
Parking 14%
Interest 1%
Federal Grants 3%
Passenger Facility Charge 13%
Other 12%
Source: Federal Aviation Administration (FAA) CATS Database, 2016, average over all large hub
airports as dened by FAA.
However, federal law requires all revenues generated by a public airport to be reinvested
back into airport assets.
25
This includes local taxes on aviation fuel, landing fees, parking
revenue, and in-airport concessions. While this does not apply to service, management,
and construction contracts, it makes long-term leases unappealing since a private partner
cannot use that revenue to generate nancial return for its investors.
Finally, a private partner might have to repay federal grants that previously went to the
improvement of an airport, such as from the Airport Improvement Program (AIP), subject
to the discretion of U.S Department of Transportation. They might also have to return
23 Includes both new and reissues. Steven Maguire and Joseph S. Hughes, “Private Activity Bonds: An Intro-
duction,” Congressional Research Service, 2018.
24 Airports Council International, “State of Airport Economics,” Infrastructure Management Programme,
ICAO, 2015.
25 49 U.S. Code § 47107(b)
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any federal property or equipment.
26
These grants have long-term restrictions on use, and
repayment might be costly or burdensome for a hypothetical private entity managing the
airport. Since there is very limited experience with airport privatization and the AIP terms
vary by airport, it is unclear exactly how specic airports would be affected. Nevertheless,
this requirement is clearly not conducive to privatization.
In order to address these regulatory hurdles, Congress created the Airport Privatization
Pilot Program (APPP) in 1996 as a way to provide test exemptions for these restrictions.
27
Under the APPP, the Secretary of Transportation can approve the privatization and waive
the requirements for repayment and/or for the restriction of the use of airport revenues
outside of the property. Initially there were ve slots in the APPP program, which was
increased to 10 in 2012. Only general aviation airports can be actually “sold” under the
program; commercial airports can only be leased out.
But, even though the program was created intentionally to foment privatization, the path
is not easy. For one, to be granted an exemption to the use of revenues, the sponsor of the
transaction needs the concurrent approval of 65 percent of all airlines using the airport.
28
The same super-majority of airlines must also approve all fee increases charged to airlines
at a higher rate than ination, which they are not keen to do. In addition, the FAA is also
allowed to audit the operations and nances of the privatized airport in order to determine
if it is collecting reasonable rents, landing fees, and other charges (though the program does
not dene “reasonable”).
Therefore, while the APPP does allow for privatization, the current rules make it very
difcult to approve and not particularly attractive to private sector bidders. In fact, in more
than two decades since the inception of the program, only two airports have actually been
privatized: Stewart International Airport in New Windsor, New York; and Luis Muñoz
Marin airport in San Juan, Puerto Rico. (These cases are discussed later in this report.)
As part of its major infrastructure package, the Trump administration proposed expanding
the existing APPP.
29
The current cap on the number and restriction on the type of airports
that can participate would be removed, and the double-supermajority requirement for
airline approval of an airport’s entry into the APPP would be changed to a simple majority.
Airports would be allowed to offer incentive payments for early completion of AIP projects,
and oversight of AIP grants would be loosened from advance application approval to post-
26 Bart Elias and Rachel Y. Tang, “Reauthorization of the Federal Aviation Administration (FAA) in the 115th
Congress,” Congressional Research Service, 2017.
27 Sheri Ernico and others, “Considering and Evaluating Airport Privatization,” Transportation Research
Board, Airport Cooperative Research Program Report 66, 2012.
28 The actual provision is 65 percent of all airlines using the airport and airlines representing 65 percent of
the annual landed weight. See: Federal Aviation Administration, “Fact Sheet – Airport Privatization Pilot
Program,” U.S. Department of Transportation, December 20, 2017.
29 Jeff Davis, “Trump Infrastructure Plan Outline,” Eno Transportation Weekly, January 8, 2018.
Deal or No Deal Eno Center for Transportation
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expenditure audits. Various other provisions would further encourage the use of federal
credit assistance like PABs by making them eligible for browneld projects, rather than
only greeneld projects as is the case today. This change would make long-term P3 leases of
existing airports less costly to nance, perhaps stimulating more private sector interest.
The administration’s plan also calls for divestiture of Dulles International and Reagan
National Airports.
30
While this proposal seems consistent with the focus on airport
privatization, it is actually an anomaly as these are the only commercial airports
authorized and established by Congress and owned by the federal government. FAA began
owning and operating Reagan National in 1959 and then Dulles in 1962. In 1985, both
airports were transferred to a newly created regional authority via a long-term lease.
31
The
authority has been running both airports ever since, but they are still owned by the federal
government, and their operations are still a strong interest of Congress.
32
Like much of the administration’s infrastructure plan, the proposal to rid the federal
government of the Washington area airports was met with resistance.
33
However, several
changes to the APPP were incorporated into the FAA Reauthorization Act of 2018 that
passed the U.S. House by a wide margin in April 2018.
34
The bill makes several signicant
changes to the APPP including removing the word “privatization” and renaming it
the Airport Investment Partnership Program. It also removes the participant cap (at
10 airports) and makes no distinction between how many or what type of airport can
participate. Importantly, it streamlines the process for obtaining the exemptions for the
restrictions on how revenue is used and the requirement that federal grants are repaid.
It also allows multiple airports to apply under one sponsor, such as the Metropolitan
Washington Airports Authority which overseas Reagan National and Dulles Airports. As of
this publication, the bill awaits action by the U.S. Senate.
30 American Journal of Transportation, “Fitch: U.S. Infrastructure Plan Could Provide Boost for U.S. Airports,”
February 21, 2018.
31 Susan L. Kurland, “DOT’s Role Regarding Operations at the Two Metropolitan Washington Airports Author-
ity Airports, Ronald Reagan Washington National Airport and Washington Dulles International Airport,”
Statement before the Senate Committee on Commerce, Science, and Transportation, Subcommittee on Avia-
tion Operations, Safety, and Security, September 16, 2010.
32 The Reason Foundation’s Robert Poole also points to the fact that Metropolitan Washington Airport Au-
thority has $4.5 billion in outstanding bonds, making privatizing these airports unlikely. See Robert Poole,
“White House Infrastructure Plan Boosts Airport Privatization,” Airport Policy News #122, Reason Founda-
tion, March 1, 2018.
33 Ben Mutzabaugh, “D.C. Airports Sold to the Highest Bidder? Not So Fast ...” USA Today, February 13, 2018.
34 The nal vote was 393-13. U.S. House of Representatives, “H.R. 4 – FAA Reauthorization Act,” 115th Con-
gress, 2018.
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3. Airport Privatization Experience
While only a very few number of airports have applied to participate in the APPP,
their examples are illustrative and important in order to discern the narrow set of
conditions in which privatization is practical. Overall, the experience in the United
States is decidedly mixed. The ve American case study airports in this section, and
their corresponding trafc levels, can be found in Figure 1.
Figure 1: Enplanements at Select U.S. Airports
Source: Federal Aviation Administration, Passenger Boarding (Enplanement) and All-Cargo Data for
U.S. Airports dataset. “Enplanements” refers to passenger boardings at airports that receive scheduled
passenger service.
Deal or No Deal Eno Center for Transportation
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3.1 Stewart International Airport
The rst airport in the United States to be privatized under the APPP was Stewart
International, an airport located 67 miles north of New York City in Orange County.
35
The
skies around metropolitan New York are famously congested and among the busiest in the
world. Using Stewart to alleviate some passenger pressures from the other major airports
was a public policy ambition for the region since at least the 1950s, but the airport needed
upgrades.
36
According to the GAO, the state sought the sale or lease of Stewart to a private
partner in order to increase service, provide resources to invest in the airport, and boost tax
revenue.
37
Another analysis cited then-Gov. George Pataki’s interest in being a leader in
“privatization alternatives” for infrastructure assets and operations.
38
In 1997, the New York State Department of Transportation (NYSDOT) received ve
responses to its request for proposals from potential operators of the airport. The next
year, the National Express Group (NEG), a major British rail, bus, and coach transit
company, inked a deal with the state, which was sent along to the FAA for nal review
and approval.
39
NEG was awarded the right to operate the airport for 99 years and paid
the state $35 million, which was invested back in to airport operations. The state would
also receive 5 percent of gross income each year beginning in the tenth year of the lease.
New York did not request an exemption on the use of revenues because they knew from
preliminary discussions with the air carriers they would be unable to receive their required
approval. However, the state did request and receive an exemption from the requirement to
repay federal grants and return property.
40
In the application, NEG afrmed that it had “extensive experience in owning, managing
and operating airports” due to its acquisition of East Midlands and Bournemouth
International Airports in the United Kingdom earlier in the decade. NEG also highlighted
its management of Philippines’ Subic Bay International Airport in 1997 “during which time
it became familiar with FAA procedures.”
41
Per the parameters of the APPP, New York
retained the right to inspect the airport operations and the nancial records of NEG at any
time. The lease stipulated that the transaction would have no impact on the fee structure
for air carriers whose rates and charges would be unchanged, unless approved by the
35 The airport was recently renamed New York Stewart International Airport in 2018 to enhance its appeal to
travelers in the region. Jack Howland, “Stewart Airport Renamed New York Stewart International Airport,”
Poughkeepsie Journal, February 21, 2018.
36 Joe Mysak, “PATH’s [sic] New Stewart Lease Calls Airport Privatization into Doubt,” Pittsburgh Tribune
Review, February 5, 2007.
37 U.S. GAO, 1996.
38 Sheri Ernico and others, “Considering and Evaluating Airport Privatization,” Transportation Research
Board, Airport Cooperative Research Program Report 66, 2012.
39 The operator was technically SWF Airport Acquisition, Inc., a wholly-owned subsidiary of National Express
Corporation, which is a wholly-owned subsidiary of NEG.
40 National Express and New York State Department of Transportation, “Stewart International Airport, Final
Application Under the Airport Privatization Pilot Program,” January 8, 1999.
41 Ibid.
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airlines.
Unfortunately, the deal struggled from the outset, and by 2006, NEG sought to sell the
lease to run the airport. The next year, Stewart returned to public hands when the Port
Authority of New York and New Jersey purchased the remaining 91 years of the lease from
NYSDOT in 2007. The Port Authority continues to run Stewart along with other major
airports in the region.
There are several likely reasons why the deal with NEG collapsed. One is related to the
severe downturn in aviation passengers that followed the terrorist attacks of September
11. According to the International Air Transport Association (IATA), from 2000 to 2001
national air passenger trafc fell 5.9 percent and another 1.4 percent the next year.
42
Federal data shows that enplanements at Stewart dropped by 27.8 percent and another
11 percent during the same timeframe.
43
For a private business model built on increasing
revenue from non-aeronautical sources, such as new retail and restaurants in the terminal
and car rental and parking concessions, trafc drops are difcult for any private partner to
handle.
Yet in this case, it is clear that NEG was already reconsidering its strategy to expand from
mostly public transit operations into aviation. Just one year after the state approved it,
NEG asked NYSDOT to terminate the lease, which the state declined to do.
44
That was
right around the time NEG had sold off its three U.K. airport operation interests in order
to concentrate on its bus and rail business.
45
It is clear that NEG was concerned about its
ability to generate a satisfactory long-term nancial return and, according to the GAO, “was
not interested in investing in the airport.”
46
They also may not have been able to invest as
the company nearly went bankrupt during this time when it overbid for a U.K. rail line.
47
Stewart represents a clear policy failure to successfully privatize a U.S. airport through
the APPP process. It may not, however, have been a business failure for NEG. Two
different reports cite the “signicant return on investment” for the rm despite its desire
to terminate the lease.
48
The case of Stewart is useful as an example of the challenges
that can arise when a private operator experiences signicant internal transitions and
the unpredictable role that external events can have on the revenues and operations of an
airport.
49
42 International Air Transport Association, “The Impact of September 11 2001 on Aviation,” 2011.
43 Eno analysis of FAA data “Passenger Boarding (Enplanement) and All-Cargo Data for U.S. Airports.”
44 Ernico and others, 2012.
45 BBC News, “Manchester Airport Spreads its Wings,” February 19, 2001.
46 U.S. GAO, 2014.
47 Richard Bowker, “Rail Crisis: London-to-Edinburgh Route to be Nationalised,” The Guardian, July 1, 2009.
48 Ernico and others, 2012; and Rachel Y. Tang, “Airport Privatization: Issues and Options for Congress,” Con-
gressional Research Service, August 16, 2017.
49 Daniel Reimer, “Airport Privatisation in the USA: Recent Legal Developments and Future Outlook,” Journal
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3.2 San Juan Luis Muñoz Marín Airport, Puerto Rico
Today, the only privatized airport in the United States is Luis Muñoz Marín (LMM) Airport
in San Juan, Puerto Rico. It is currently owned by the Puerto Rico Ports Authority (PRPA)
and leased to Aerostar Airport Holdings (Aerostar), owned by ASUR and PSP Investments,
under a 40-year lease that began in 2013. LMM is currently the 43
rd
-busiest U.S. airport
and, by far, the busiest in the Caribbean and the largest air cargo hub serving as an
international gateway for the Americas.
Puerto Rico is a national leader in its efforts to work with private partners on a range of
infrastructure projects. Through 2009 legislation, it established one of the earliest entities
to regulate and facilitate such partnerships, the Puerto Rico Public-Private Partnerships
Authority (P3A).
50
These initiatives were done partly out of necessity accompanying a very
challenging and well-known economic situation characterized by extremely high public debt
loads, among other nancial threats. Notably, the Commonwealth had been running out of
cash since its economy began to contract in 2006. As a result, it failed to invest in important
infrastructure assets like its airports.
51
The PRPA, in particular, had serious nancial difculties, and LMM needed signicant
investment and modernization. One comprehensive commentary noted the airport’s
crumbling ceilings and oors, poorly maintained instrument landing system, and many
inconveniences like unpleasant corridors, balky air conditioning, long delays at baggage
claim, and insufcient retail and catering options.
52
Perhaps most perniciously, it criticized
the PRPA’s “unwieldy bureaucracy,” political patronage, and general lack of responsible
management and oversight.
53
LMM was further battered when, in response to security threats, the U.S. Department
of Homeland Security suspended two programs in 2003 that allowed travelers to transit
through U.S. airports without a visa. The suspension of these programs severely impacted
LMM as many ights eventually shifted to airports in the Dominican Republic and resulted
in a loss of landing fees, maintenance, and repairs for many airlines.
54
Passenger trafc
declined precipitously: enplanements fell by 21.6 percent from a high of 5.3 million in
of Airport Management, Vol. 3 (1), 2008.
50 Heather Gillers, “For Sale: Puerto Rico,” Wall Street Journal, June 26, 2017.
51 U.S. Department of Treasury, “Addressing Puerto Rico’s Economic and Fiscal Crisis and Creating a Path to
Recovery: Roadmap for Congressional Action,” 2015.
52 John Tierney, “Making New York’s Airports Great Again,” City-Journal, Winter 2017.
53 The PRPA also managed Puerto Rico’s 10 other airports and maritime port facilities. One study found that
the institutional model of airports managed by authorities with jurisdiction of multiple air and maritime
ports is almost always the least efcient. Tae H. Oum and others, “Ownership Forms Matter for Airport
Efciency: A Stochastic Frontier Investigation of Worldwide Airports,” Journal of Urban Economics, Vol. 64
(2), 2008.
54 “Report by the President’s Task Force on Puerto Rico’s Status,” 2011.
Eno Center for Transportation
13
Deal or No Deal
2005 to 4.1 million in 2009.
55
The loss of revenue contributed to the PRPA’s two-third debt
increase from 2004 to 2008, and its BBB-bond rating was just above junk bond status by
2009.
56
By 2012, it was $60 million in debt to the electric utility, which threatened to cut off
power to the airport.
57
Saddled with over $800 million in debt and unable to tap into the municipal bond market
to make necessary investments in the LMM—even for basic upkeep and maintenance—
Puerto Rico’s P3A studied whether a privatization model would address the airport’s
massive challenges.
58
In 2009, the PRPA applied to participate in the APPP, and in 2012,
it eventually agreed to lease the airport to Aerostar for $615 million upfront, plus a share
of revenues over the life of the lease.
59
The airlines servicing the airport approved the
privatization plan.
The FAA granted all necessary exemptions in order to apply $500 million of the upfront
payment to PRTA debt relief. The remainder went to an early retirement program for
PRPA employees, an air travel promotion program, and upgrades at regional airports.
Aerostar also received an exemption from having to pay back federal grants that supported
LMM and from restrictions from earning compensation from use of the airport. Aerostar
held the rates charged xed for ve years, after which only increased at the rate of ination.
At no additional cost to the airlines, the company was also responsible for improving and
modernizing the airport through an accelerated capital program.
60
Unlike with Stewart in
New York State, the airlines serving LMM generally supported the privatization efforts,
given the poor management and substandard condition of the airport.
Importantly, the privatization plan made explicit efforts not to disenfranchise workers
at the airport. Existing workers were promised that they would keep their jobs, and the
then-U.S. Transportation Secretary guaranteed the plan would be rejected if the collective
bargaining agreement were violated.
61
Aerostar asserted that the $200 million in upgrades
to the terminals created 3,000 jobs by 2014.
62
55 Eno analysis of FAA data “Passenger Boarding (Enplanement) and All-Cargo Data for U.S. Airports.”
56 Federal Aviation Administration, “FAA response to comments regarding the participation of Luis Muñoz
Marin International Airport,” 2013.
57 Mary Williams Walsh, “How Free Electricity Helped Dig $9 Billion Hole in Puerto Rico,” New York Times,
February 1, 2016.
58 Puerto Rico Public-Private Partnerships Authority, “Study of Desirability and Convenience for Luis Muñoz
Marín International Airport,” 2010.
59 In addition to the $615 upfront payment, the PRPA received $2.5 million for lease years one through ve,
5 percent of gross revenues for years six through 30, and 10 percent of revenues in years 31 through 40.
Moody’s Investors Service, “Privatization of Puerto Rico’s Main Airport Gets Final Approval, a Credit Posi-
tive,” March 2, 2013.
60 U.S. Department of Transportation, “Record of Decision for the Participation of Luis Muñoz International
Airport, San Juan, Puerto Rico, in the Airport Privatization Pilot Program,” Federal Aviation Administration
Docket 2009-1144.
61 Bipartisan Policy Center, “Infrastructure Case Study: San Juan Airport,” 2016.
62 Danica Coto, “Puerto Rico Airport to Unveil $200M in Upgrades,” USA Today, July 2, 2014.
Deal or No Deal Eno Center for Transportation
14
The privatization of LMM is widely considered to be a success. In addition to the debt relief
brought to the PRPA, the LMM is now better managed, and the $260 million that Aerostar
expected to spend in capital investments was critically needed. The private sector was well
suited to address the mounting challenges that the airport faced, and there was widespread
support from stakeholders, including the airlines. Some have asserted the ultimate deal for
LMM was undervalued because the transaction was not negotiated in the public’s interest
and undercut workers.
63
Nevertheless, from 2013 through 2016, enplanements increased
by nearly 6 percent, and average passenger fares decreased from $324 in 2013 to $290 in
2017.
64
Aerostar ofcials testied that the privatization would ultimately create $2.6 billion
in total economic value for Puerto Rico.
65
The devastating effects of Hurricane Maria in September 2017 could upset the apparent
progress at LMM. Normal management and airport operations did not resume until the
end of the year. The damage to the airport is currently being evaluated, but trafc is down
nearly 20 percent over last year, which could have signicant ramications for the private
partner to repay debt and maintain high quality operations.
66
3.3 Midway International Airport
Chicago Midway International Airport is one of the busiest airports in the Midwest and
was briey the busiest in the world shortly after it was acquired by the city in 1927. It
is considered the “rst great airport” in the United States.
67
After O’Hare International
Airport was built 16 miles to the north in 1955, Midway’s passenger trafc declined
precipitously, but has since recovered thanks in large part to the arrival of Southwest
Airlines in 1985 and internal renovations. In fact, 2016 was its busiest year ever with over
11 million passenger enplanements.
68
With this recent success it may seem odd that twice in the last decade, Chicago applied
to the APPP program to privatize Midway. Yet, similar to the support of privatization in
63 Cathy Kunkel and Tom Sanzillo, “Privatization Bill Will Not Solve Puerto Rico’s Electricity Crisis,” Institute
for Energy Economics and Financial Analysis, 2018.
64 Eno analysis of FAA data “Average Domestic Airline Itinerary Fares.” Figures are for Ination Adjusted
Average Fares. Hurricane Maria made landfall in September 2017 and certainly has had a major impact on
passenger demand and airfares but the gures from 2017 and 2016 are nearly identical. We also recognize
that since 2005 airlines have begun to unbundle charges for things like checked bags, seat selection, meals,
and drinks from the total ticket price. See: Eno Center for Transportation,” Is Air Travel Becoming Pricier
for Travelers?” 2017.
65 U.S. House Transportation and Infrastructure Committee, “Roundtable Policy Discussion on Opportunities
for Aviation and Public Private Partnerships,” May 20, 2014.
66 PRNewswire, “ASUR 1Q18 Passenger Trafc Increased 9.3% YoY in Mexico and Declined 19.2% in San
Juan, Puerto Rico and 5.2% in Colombia,” CISION PR Newswire, April 23, 2018.
67 Casey Andrew Burton, “An Analysis of the Proposed Privatization of Chicago’s Midway Airport,” Journal of
Air Law and Commerce, Vol. 72, 2007.
68 Eno analysis of FAA data “Passenger Boarding (Enplanement) and All-Cargo Data for U.S. Airports.”
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Deal or No Deal
Puerto Rico, Chicago is experiencing its own scal challenges and is considered the “most
aggressive instigator of infrastructure asset leases” in recent years.
69
The rst Midway application, in 2006, was strongly supported by then-Mayor Richard M.
Daley who had already overseen the privatization of a range of city services and several
highly visible transportation asset leases. Examples include the Chicago Skyway, an 8-mile
toll road leased to a consortium in 2005 for $1.8 billion and four downtown parking garages
leased in 2006 for $583 million. Both deals were for 99 years and are generally considered
to be successful.
70
However, another deal leasing the city’s 36,000 street parking meters to a
private rm for 75 years at $1.2 billion is an infamous disaster due its lack of transparency,
analysis, and prioritization of short-term payments over long-term taxpayer protections.
Chicago’s Inspector General found the city received nearly $1 billion less than it would have
earned without the deal.
71
The impetus for Midway was consistent with the Chicago’s assertive efforts to transact
with the private sector on infrastructure.
72
The city received approval from the airlines
operating at the airport, led by Southwest, to select a private operator to lease the airport,
and in 2008, the City agreed to a 99-year, $2.5 billion lease with the Midway Investment
and Development Corporation (MIDCo) consortium.
73
The deal would have lowered airline-
landing fees for six years, with increases at no greater than the rate of ination. The entire
payment would be made up front with a little more than $1 billion going for infrastructure
improvements in the city, about another billion for pension contributions, and the
remainder unrestricted.
74
It appeared as if Midway would be the rst privatized major U.S.
airport. However, largely due to the nancial strain brought on by the Great Recession the
deal was cancelled in 2009 when MIDCo was unable to secure the nancing and had to pay
a $126 million penalty to the city.
Chicago renewed the effort to lease Midway in 2013 under Mayor Rahm Emanuel claiming
the airport no longer provided “any direct nancial benet to the taxpayers.”
75
By this time
the city had the experience of the rst application as well as the high-prole parking meter
asco and took a more conservative approach to the transaction. The city limited the lease
to no more than 40 years and intended to ask the FAA for the revenue and repayment
exemptions. However, the second application was abandoned later in the year when one of
69 Philip Ashton and others, “Reconstituting the State: City Powers and Exposures in Chicago’s Infrastructure
Leases,” Urban Studies, Vol. 53 (7), 2016.
70 However, the city recently had to pay $62 million to settle a dispute with the private partner in the parking
garage deal over a provision that it would not allow new garages to be built. Dan Mihalopoulos, “City Hall’s
$62 Million Blunder,” Chicago Sun-Times, May 23, 2015.
71 City of Chicago Inspector General, “Analysis of the Lease of the City’s Parking Meters,” 2009.
72 The Economist, “The Big Sell,” September 16, 2010.
73 Tang, 2017.
74 Airports Council International - North America, “Fact Sheet: Chicago Midway Airport – Long-Term Conces-
sion and Lease,” undated. The exact splits are vague because the deal was never completed.
75 City of Chicago, “Chicago Midway International Airport: Request for Qualications,” 2013.
Deal or No Deal Eno Center for Transportation
16
the two bidders withdrew their proposal. The city then suspended its efforts to privatize the
airport and pulled out of the APPP altogether.
The bids to privatize Midway are clear failures, but for different reasons. On the
rst attempt, despite support from the airlines, the city, and other stakeholders, the
concessionaire was unable to raise the capital needed for the upfront payment. The parties
could not execute the deal, with added difculty from the effects of the recession, and the
transaction was not completed. The second deal was also not executed, but mostly because
the city did not structure its parameters in a way that was palatable for investors. The
rigidity is at least partially attributable to Chicago’s focus on protecting taxpayers and
avoiding a deal like the one on its parking meters.
76
3.4 St. Louis Lambert International Airport
In the late 1990s, the St. Louis Lambert International Airport was the nation’s 15
th
-largest,
with more trafc than Seattle-Tacoma, New York LaGuardia, or Charlotte Douglas.
Lambert was once the home of Trans World Airlines (TWA), but after a 2001 merger with
American Airlines, many ights were moved to other larger airports in Chicago and Dallas.
Daily operations by air carriers averaged about 1,000 takeoffs and landings per day in
1997, compared with just 350 in 2016. The airport now suffers from excess capacity.
Despite the trafc decline, Lambert is generally considered to be a very well-run airport,
and enplanements have steadily risen since the 2009 nadir.
77
Nevertheless, in 2017, the
city applied to include Lambert in the APPP. (As of this writing, the city is still working
to select a private partner and submit a nal application to the FAA.) According to the
application, the reasons for the change are not unlike other applications to the APPP. The
city believes a private partner would help bring in more revenue from non-aeronautical,
cargo and adjacent land which would boost the regional economy.
78
In addition, the city explicitly wants to secure an upfront payment from a private partner
and then use that revenue for projects elsewhere in the city, a process known as asset
recycling. The city’s application stated that it expected to “free up more than one billion
in capital” for non-airport uses. St. Louis Mayor Francis Slay specically mentioned the
North-South MetroLink light-rail expansion as a project that could be funded with proceeds
from the lease.
79
The city still needs to clear several hurdles, including securing support
76 Rahm Emanuel, “Why I Said ‘No’ to the Midway Deal,” Chicago Tribune, September 9, 2013.
77 Principato, 2017.
78 City of St. Louis, “Preliminary Application for the Federal Aviation Administration’s Airport Privatization
Pilot Program Under 49 U.S.C. §47134,” March 22, 2017.
79 Mayor Slay retired in 2017, and the new Mayor Lyda Krewson continued to pursue privatization and recent-
ly selected an advisory team for the proposal. Jacob Kirn, “City Picks Advisor Team for Lambert Privatiza-
tion Process,” St. Louis Business Journal, January 26, 2018.
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Deal or No Deal
from the city boards and selecting a private sector deal to lease the airport.
Detractors say that recent bond rating upgrades indicate that the airport is already well
operated, and the city could lose control over how the airport is run under a privatized
lease.
80
The city will have to determine whether the one-time infusion of cash is worth
ceding control, and airlines operating in St. Louis have not yet indicated their support.
81
Critics are also concerned about transparency and a conict of interest since a non-prot
organization—Grow Missouri Inc.—put up over $100,000 for the preliminary application to
the FAA, and local leaders were largely unaware of the application.
82
Grow Missouri was
recently selected as an advisor to the city on the privatization initiative, further rankling
local ofcials since the organization will only be paid if the deal is executed.
83
It is unknown if the city will go forward with a nal application to privatize Lambert or if
the airlines serving it would approve (Southwest carries almost 60 percent of Lambert’s
passengers).
84
However, it does appear that the primary impetus for the effort is to extract
airport value for other city infrastructure projects rather than solving any specic airport-
related problem. While asset recycling has proven effective in Virginia, Illinois, Indiana,
and throughout Australia, it is still relatively untested in the United States. That does
not mean St. Louis should not experiment with such new approaches, but it is unclear if
such an arrangement would address the airport’s problems any better than the current
arrangement.
85
3.5 Westchester County Airport
The Westchester County Airport is located about 60 miles, or a one-hour drive, south of
Stewart Airport in New York. The airport is owned by the county and is served by ve
commercial airlines. While categorized as a “small” hub by the FAA, the airport serves ve
times as many passengers as Stewart and more than comparable small hubs in Fresno,
Akron, or Colorado Springs.
86
Only 16 percent of trafc at Westchester is commercial
aviation. The vast majority of trafc is general aviation, making it one of the busiest
80 Moody’s Investors Service, “Moody’s Assigns A3 with Positive Outlook to St. Louis (MO) Airport’s Sr 2017
Airport Revenue Bonds,” May 27, 2017.
81 “Aldermen, Experts Debate Pros and Cons of Lambert Privatization,” CBS St. Louis, January 18, 2018.
82 Leah Thorsen and Koran Addo, “Slay Wants to Look at Putting Lambert Airport Under Private Manage-
ment,” St. Louis Post-Dispatch, March 23, 2017.
83 Celeste Bott, “Top City Ofcials Vote to Begin Exploration of Privatizing Lambert,” St. Louis Post-Dispatch,
June 14, 2018.
84 Bureau of Transportation Statistics, “Airports – St. Louis International,” January-March2018, U.S. Depart-
ment of Transportation, June 23, 2018.
85 For its part, the region has made several attempts to position itself as a hub for air cargo, particularly from
China. One prominent initiative failed in 2013, and ofcials are working to launch another shortly. Leah
Thorsen, “Air-cargo Facility at Lambert Named in Report of Trump-Backed Projects,” St. Louis Post-Dis-
patch, January 24, 2017.
86 Eno analysis of FAA data “Passenger Boarding (Enplanement) and All-Cargo Data for U.S. Airports.”
Deal or No Deal Eno Center for Transportation
18
business aviation hubs in the United States.
87
A private contractor has run Westchester
since the mid-1940s, specically AvPorts since 1977.
In 2016, the county applied to participate in the APPP. The primary motivation was to
balance the county’s 2017 budget by redirecting resources used to operate the airport
to other county services. Soon after, a $130 million, 50-year deal was announced then
subsequently retracted by the county after concerns about the lack of transparency
were voiced.
88
A formal request for proposals was released in 2017, and later that year,
Macquarie Infrastructure Corporation’s $1.1 billion, 40-year bid was chosen. A little less
than half the money would support airport capital improvements with the remainder
coming in as a payment to the county, of which $300 million would be upfront and applied
directly to the county’s general fund. The county board has yet to approve the deal, and
there are indications that the new county executive will reconsider the initiative.
89
Though not as nationally prominent as the others, the proposal to privatize Westchester’s
airport is highly controversial locally. In addition to concerns about transparency, citizen
groups have formed to protest the feared increases in aircraft trafc and concerns about
damage to an adjacent reservoir. The former county executive who championed the
privatization proposal stated publicly that the goal was to monetize it for budgetary
purposes. He said that AvPorts was “doing a good job” operating the airport and that the
airport was in good condition.
90
The drive to privatize the airport appears to be a difcult
proposition in this case.
3.6 International Examples
There is considerable academic literature from experts who maintain that privatization
will create additional competition and lower prices for travelers.
91
The best examples for
this argument largely lie overseas. While the role of the private sector in infrastructure
is very different in the United States, it is useful to understand some of the key lessons
and experiences with airport privatization in other countries. A recent Reason Foundation
privatization report notes that the outright sale of an airport (or part of it) may be common
in Europe, but the model for the rest of the world is a long-term lease or concession, as
allowed under the APPP.
92
Rules and regulations may differ, but the main motivations for
considering different models of privatization persist: improving management, generating
revenue for governments, securing private capital for infrastructure improvements, and
87 “General Aviation,” WestchesterGov.Com, 2018.
88 Curt Epstein, “Major NYC Bizav Hub to Seek Privatization,” AIN Online, November 14, 2016.
89 Joseph De Avila, “Westchester County Rethinks Plan to Privatize Airport,” Wall Street Journal, May 17,
2018
90 Transcript of Rob Astorino’s Telephone Town Hall, September 27, 2017.
91 See e.g.,: Clifford Winston and Gines de Rus, Aviation Infrastructure Performance: A Study in Comparative
Political Economy, Brookings Institution, 2008.
92 Robert Poole, “Annual Privatization Report: Air Transportation,” Reason Foundation, 2017.
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Deal or No Deal
leveraging airport amenities like catering and parking. Other issues like access to capital
markets are less relevant.
For example, as with San Juan and Chicago, some countries—including Japan, Spain, and
Portugal—are intentionally pursuing airport privatization as an effort to manage very
high levels of sovereign debt.
93
Most prominently, Greece privatized more than a dozen
mostly tourist airports for $1.3 billion in 2015, specically intending to curb their national
economic crisis.
94
Financially strained national and state authorities in Brazil embarked on
a large-scale initiative to privatize many public assets, including airports, in order to cover
costs like payroll and pensions.
95
If the key metric for success is government debt relief,
these experiences were certainly successful. But in Brazil, for example, one concessionaire
recently returned its airport to the government, and overall seat capacity is down.
96
Of course, part of the problem is Brazil’s severe economic downturn, but this outcome
reinforces the limitations of what privatization can accomplish.
Other nations continue to lean heavily on private investors to both build out their
infrastructure and operate certain assets. India is a prime example of a rapidly expanding
country that turned to the private sector to bring in new capital for its airports. In
2009 and 2011, the government allowed the private operators of the Mumbai and Delhi
airports to assess a special development fee on passenger tickets to help cover the cost of
modernization.
97
The result was a sharp increase in passenger fares.
98
The United Kingdom has always been on the forefront of infrastructure privatization and
led the global effort on airports with its $2.5 billion sale of the British Airports Authority
and its seven airports in 1987. In doing so, it allowed the airports to impose market
pricing and to charge airlines higher landing fees during peak travel times at the London
airports. While these charges increased operational efciencies, they also increased costs for
passengers.
99
In many cases, the international experience is not unlike that in the United States in
that a myriad of factors beyond governance—such as location, size, market, regulations,
competition—determine the success of an airport’s operations, the cost of passenger tickets,
93 Bernard Chow and Colin Smith, “Airport Transactions: Taking Off Around the Globe,” in The New Normal
for Airport Investment, PwC, 2013.
94 Niki Kitsantonis, “14 Airports in Greece to Be Privatized in $1.3 Billion Deal,” New York Times, December
14, 2015.
95 Marla Dickerson and Luciana Magalhaes, “Strapped Brazilian Governments Embrace Privatization,” Wall
Street Journal, December 24, 2016.
96 CAPA - Centre for Aviation, “Brazil Airport Privatisation: ‘Steak with Bone’ as the Economy Slowly Recov-
ers,” 2017.
97 Moses George, “Development Fee in India Airports - A Case Study,” Journal of Air Law and Commerce, Vol.
80 (17), 2015.
98 P.R. Sanjai, “As Indian Airports Raise Fees, Others Choose to Cut Them,” Mint, February 12, 2009.
99 Bijan Vasigh and Mehdi Haririan, “An Empirical Investigation of Financial and Operational Efciency of
Private Versus Public Airports,” Journal of Air Transportation, Vol. 8 (1), 2003.
Deal or No Deal Eno Center for Transportation
20
and the quality of non-aeronautical services like catering, parking and other amenities.
For this reason, one analysis of major airports in the United States and Europe found no
signicant relationship between airport productivity and the ownership model.
100
Another
study found that fully or partly privatized airports are among the most productive,
while those operated by multi-purpose port authorities are the least.
101
Whether airports
are natural monopolies is hotly debated over the world. Even less clear is whether the
ownership and governance model have any signicant inuence over that debate.
4. Policy and Practice Implications
Despite the prevalence of airport privatization around the world, there is only one
successful example in the United States. While there has been stated interest from time to
time, only eight commercial airports have even applied to participate in the APPP and only
two are large hubs (see Table 3).
102
This analysis demonstrates that there are several likely
reasons for this lack of activity along with key implications for policy and practice.
Table 3: Status of all Commercial Airports APPP Applications
Airport Name
Application
Date
Status Hub Type
St. Louis Lambert
International Airport
2017 Preliminary application accepted Large
Westchester County
Airport
2016 Preliminary application accepted Small
Chicago Midway
International Airport
2006 and
2013
Preliminary application
withdrawn
Large
Luís Muñoz Marín
International Airport
2009 Final application approved Medium
Louis Armstrong New
Orleans International
Airport
2009 Application withdrawn Medium
Stewart International
Airport
2003
Final application approved. No
longer participates.
Nonhub
Rafael Hernández
Airport
2000 Application withdrawn Nonhub
Niagara Falls
International Airport
1999 Application withdrawn Nonhub
Source: FAA, “Airport Privatization Pilot Program,” 2018.
100 Bijan Vasigh and Javad Gorjidooz, “Productivity Analysis of Public and Private Airports: A Causal Investi-
gation,” Journal of Air Transportation, Vol. 11 (3), 2006.
101 Tae Oum, and others, “Ownership Forms Matter for Airport Efciency,” Journal of Urban Economics, 2008.
102 One analysis asserts that private equity rms will be the ones most interested in small airports with one
terminal and less than 5 million passengers that are poised to grow in a short period. Pension funds would
likely seek large, stable assets that produce returns over time. See: Chow and Smith, 2013.
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Regulatory hurdles. As discussed, there are signicant restrictions on the use of airport
revenue and potential concerns about paying back federal money invested in privatizing
airports. The changes to the APPP incorporated in the U.S. House of Representatives’
pending FAA reauthorization may address this somewhat by combining all the possible
exemptions, however the bill’s language does not remove the hurdle completely. The FAA
still has the ultimate authority to approve or deny all applications, and the process is long
and time-consuming. According to the GAO, Midway and LMM airports took 83 and 38
total months, respectively, to navigate the privatization process.
103
While this also includes
time the airports spent negotiating with their airlines, the regulatory path is challenging.
Negotiations with labor. Organized labor monitors many aspects of infrastructure
privatization closely in order to ensure both their public and private sector members
are protected.
104
The potential effects of privatization on airport workers are largely
dependent on the state and local laws for a particular airport. U.S. Code protects any
collective bargaining agreement in place before lease negotiations, and the U.S. House’s
FAA reauthorization proposal does not attempt to change that. But this means private
rms have to navigate different sets of rules for different airports and the political climate
around labor on a case-by-case basis. The GAO references Chicago and San Juan where
airport public ofcials voiced strong support for allowing workers to keep their jobs, or
similar ones, although the APPP does not require it.
105
At the same time, labor has its
hands full monitoring existing private contracts.
106
Financial considerations. Most airports are owned by municipal governments, have robust
revenue streams, and can borrow money at tax-free government rates. Private owners
or concessionaries do not always bring “new” money to the table, would borrow at higher
rates, and would not be able to take advantage of federal grant programs as publicly owned
airports can. Of course, in certain instances where the public authority is saddled by severe
debt loads, private capital is very attractive—especially as an upfront payment that the
government may be able to repurpose through asset recycling. However, asset recycling has
no direct benet for the airport itself, and few cities and states have the expertise to execute
such complex transactions.
Concerns about transparency. Another common element between the United States and
other countries is the call for greater transparency and collaboration in decision-making.
While this is not by itself particularly insightful, it seems to be a particularly acute problem
for airport privatization. In St. Louis and San Juan, local ofcials expressed concern about
103 U.S. GAO, 2014.
104 Ernico and others, 2012.
105 U.S. GAO, 2014.
106 As of last year, many of the workers at Dulles and National airports were making only $7.25/hour. They
received an increase to $11.25, but that does not include a requirement to have health insurance or a labor
peace agreement. Luz Lazo and Lori Aratani, “After a Two Year Fight, Contract Workers at National and
Dulles Airports Win a Pay Increase,” Washington Post, April 19, 2017.
Deal or No Deal Eno Center for Transportation
22
being left out of early deliberations. Chicago was particularly saddled with concerns for how
both the parking meter and rst Midway deals were prearranged. The recommendations
from that city’s Inspector General are a good framework for future deals, including
considering alternatives that solve short-term budget problems.
107
Perceptions of problems. Since most state and local governments in the United States have
access to money and many airports are well run as public assets, it not clear whether the
APPP is relevant to most airports. The biggest problems stem from passenger frustration
with disruptions caused by major construction and expansion projects at large airports such
as Chicago O’Hare, Los Angeles International, and all three major airports in metropolitan
New York City. This suggests that addressing travelers’ concerns is more a question of
working with private partners on aviation infrastructure, rather than operations and
management—the two functions that are often contracted out already. Instead, public-
private partnerships (P3) to build, renovate, and modernize new facilities and operate
terminals are an alternative means for capital investment. New York’s LaGuardia’s $4
billion project is the largest P3 for new transportation infrastructure ever in the United
States and will transform the much-maligned airport.
108
Other P3 projects in Denver,
Austin, and New York’s JFK are also underway.
Limitations on market incentives. Privatization broadly promises to bring greater
competition along with a better product and lower prices for consumers.
109
While this works
in many aspects of transportation, airports are problematic because they are inherent
monopolies in regional markets, limiting the incentives for efciencies.
110
Few cities have
more than one airport, and for those that do, the airports are far apart enough to serve
distinct parts of the region. Studies as to whether international examples of airport
privatization abuse their market power are at best inconclusive and even contradictory in
some cases.
111
107 City of Chicago Inspector General, 2009.
108 Andy Winkler, “Policy Check-In: Status of Airport P3s in the U.S.” Bipartisan Policy Center, 2017.
109 “The Promise and Pitfalls of Privatizing Public Assets,” The Economist, June 22, 2017.
110 Ellis Juan, “Privatizing Airports – Options and Case Studies,” The Word Bank, Note No. 82, June 1996.
111 Steven Morrison, Cliff Winston, “Delayed! U.S. Aviation Infrastructure Policy at a Crossroads,” Brookings,
2016; Stephen King, “A Privatized Monopoly is Still a Monopoly, and Consumers Pay the Price,” The Conversa-
tion, June 23, 2014.
Eno Center for Transportation
23
Deal or No Deal
5. Conclusion
U.S. airports face a host of challenges, yet full privatization and long-term leases are not
likely to solve them. Instead of starting with the question of whether an airport should
be privatized, policymakers and regional leaders need to ascertain the root problem or
problems they are trying to solve and assess all potential solutions. Privatization can make
sense for an airport in dire straits. If an airport has an intractable problem with poor
management or is so heavily debt-laden that it is unable to invest, privatization might
directly address those problems as it did in San Juan.
But if seeking to increase competition, decrease costs, and improve management, airports
already have a host of tools at their disposal that fall short of navigating a complex
regulatory and legal process. Airports regularly engage the private sector through service
and management contracts as well as private nancing and construction of terminals
and runways. Most privatization efforts today are either ideological or are rooted in asset
recycling efforts for one-time government cash infusions for other priorities. The latter
can be a positive net gain, but does not solve any specic airport problem nor does it give
airport owners exibility and control in the long term. Privatization for its own sake is bad
public policy. But airports should have it available as a tool and evaluate it along with all
other options.
Even so, airport privatization in the United States currently faces a number of major
practical, nancial, political, and programmatic hurdles. Even with the recent changes to
the tax code and efforts to make private borrowing for public infrastructure more attractive,
public authorities and governments still have access to tax-exempt revenue bonds. The
restrictions on revenue use repayment may be addressed by amendments to the APPP, but
regulatory barriers inherent in the program remain difcult to overcome. One privatization
expert pointedly referred to the perception that the APPP itself is not so much a pathway,
but is rather an “obstacle course” for privatization due to its limiting and cumbersome
process.
112
Even with Congress’ proposed changes in the FAA reauthorization bill, those
impediments may not be overcome any time soon. In the meantime, the aviation industry
should build on their structural strengths, including robust revenues, access to tax exempt
borrowing, and experience engaging with the private sector, to improve airport conditions
using P3s and other tools.
112 Robert Poole, “Does Airport Privatization Have a Future in the U.S.?” Eno Transportation Weekly, March 6,
2017.
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