1. Trends
Increasingly, airports are being viewed as enterprises, rather than as public services that are expected, at best, to break even. Around the world, governments in both developed and developing countries are turning to the private sector for airport management and development.
In contrast to the rest of the world, U.S. airport privatization has been limited mostly to contract management. A 1994 study of combined U.S. cities and counties found that between 1982 and 1992, the use of private contractors for airport operation increased by 16 percent.
In 1995, Indianapolis contracted out its management. The winning bidder, BAA, USA, committed to achieve cost reductions and revenue gains that should reduce landing fees by 25 percent over the 10-year contract, while providing better service. Riverside County contracted out operations of its airports in February 1997.
Several small air-carrier and large general-aviation airports in the United States are currently leased to private firms. A number of other airports have been leased by municipal governments to independent public authorities; a principal example is the lease by the cities of New York and Newark of Kennedy, LaGuardia, and Newark airports to the Port Authority of New York and New Jersey.
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2. Cost Savings Potential
Cost savings from outsourcing management and operations of airports typically range from 15 to 40 percent.
The sale or long-term lease of California airports could generate significant revenues for local governments. In a Reason Foundation study that estimated the market value of the 50 largest airports in the United States, LAX was estimated to be worth more than $1 billion; San Francisco to be worth $888 million; San Diego to be worth more than $308 million; and Ontario’s market value was estimated at $138 million.
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3. Best Practices/Case Studies
| Table
1: U.S. Airports Managed by Private Contractors |
Airport |
Contractor |
Air-Carrier Airports
Atlantic City, NJ
Albany, NY
Indianapolis,
IN
New Haven, CT
Rochester, MN
White
Plains/Westchester Co., NY
|
Johnson Controls
World Svcs
Airport Group Int'l (AGI)
BAA, USA
Johnson
Controls World Svcs
Rochester Airport Company
Johnson Controls
World Svcs
|
General Aviation
(GA) Airports
Alliance Airport, Fort Worth, TX
Brackett Field, LaVerne, CA
Capital City Airport,
Fairview, PA
Compton Airport, Compton, CA
Danielson Airport, Killingly, CT
El Monte Airport, El Monte,
CA
Peru Municipal Airport, Peru, IN
Fox Airfield,
Lancaster, CA
Republic Airport, E. Farmingdale, NY
Whiteman Airport, Pacoima, CA
Windhem Airport, CT
|
Alliance Air Services
COMARCO, Inc.
Johnson Controls World Svcs
COMARCO,
Inc.
Northwest Air Service
COMARCO, Inc.
Miami
County Air Services
COMARCO, Inc.
Johnson Controls World
Srvs
COMARCO, Inc.
Windhem Aerobim, Inc.
|
- Stewart Airport, NY--Long-Term Lease. In April, 1998 New York State selected the U.K. firm National Express to lease Stewart Airport for 99 years. Stewart thus became the first U.S. airport to be fully privatized and the first participant in the FAA’s airport privatization pilot program to complete the process.
National Express Group PLC offered $35 million in cash up-front, plus a percentage of airport revenues. Its bid was judged superior to those of the other four finalist teams: American Port Services (Baltimore), D.M. Airport Developers (Morristown, N.J.), Airport Group International (Glendale, Calif.), and LCOR / Schiphol Airport (New York City).
National Express is itself a privatized company, the former British government intercity bus operator. It was privatized in 1988 by the Thatcher government and went public on the London Stock Exchange in 1992. It has acquired bus operations in Europe and New Zealand and was a successful bidder for five of the 25 passenger rail franchises offered last year during the privatization of British Rail (including the Gatwick Express linking London to Gatwick Airport). It purchased two of the United Kingdom’s regional airports - Bournemouth and East Midlands - when they were privatized, and it recently was awarded a management contract to run the Subic Bay Airport in the Philippines.
Under the terms of the pilot program, the principal airlines operating at Stewart (American, Delta, United, and USAir) must agree to the lease payment formula (as well as to any landing-fee increases in excess of the rate of inflation).
National Express hopes to duplicate at Stewart its success with the East Midlands
airport. Since the company acquired it in 1993, passenger counts have grown from
1.4 million to 2 million and cargo tonnage has grown from 40,000 to 140,000. Stewart
is located 60 miles north of New York City, near Newburgh, New York, at the intersection
of two interstate highways.
- Los Angeles County — Long-Term Contract Lease Management. Between 1958 and 1970, Los Angeles County acquired five general-aviation airports which their developers were unable or unwilling to maintain. Due to concerns about high operating costs and low net revenues, the county decided in 1990 to contract out these airports as a group. What evolved was a hybrid between contract management and a long-term lease. The 20-year agreement (with two five-year extension options) does not grant the firm a leasehold interest, but it operates financially like a long-term lease rather than a management contract. In other words, users and tenants pay fees to the contractor, out of which the contractor must pay all operating expenses and turn over a guaranteed minimum annual amount to the county.
Before the award of the contract to COMARCO, there was strong opposition from GA pilots, airport employees and some airport tenants. By the contract’s second anniversary, privatization had "gained acceptance by most pilots and proved worth celebrating for some," according to a local newspaper account. Then Board of Supervisors Chairman Ed Edelman, who had voted against the contract in January 1991, wrote a letter of endorsement in January 1993, praising the success of the arrangement.
During the first two years, COMARCO paid the county $2.7 million per year, compared to the county’s net income of $2.2 million when it operated the airports itself. The increase was made possible by improved marketing of airport facilities, reduced operating costs, and a computerized revenue control system.
All fee increases must be approved by the county. COMARCO splits the airports’ net income with the county according to a pre-arranged formula; the county puts all these revenues in its Aviation Division budget and uses them for capital improvements at the airports.
- Westchester, New York — Contract Management. The White Plains/Westchester County Airport is an 800-acre facility surrounded by affluent suburbs and office parks. Turned over to Westchester County by the federal government after World War II, the airport was operated by the airport’s fuel supplier for 30 years. In 1977, faced with large operating losses (up to $250,000/year) at the airport, the county government decided to bid out airport management on a five-year contract basis. Pan Am World Services won the initial contract, and it and its successor company, Johnson Controls World Services, have won renewals every five years since then.
Under contract management, the airport has become solidly profitable, with net income of up to $3 million per year. The company has achieved these gains by reducing operating expenses (e.g., by cross-training personnel so that fewer people are required), increasing revenues (e.g., by renegotiating ground leases to market levels and instituting paid parking in 1981), and fostering real estate development. For example, there now are five fixed-base operators (FBOs) compared with three in 1977, as well as additional hangars and related facilities. Despite community-imposed growth limits, major airlines have been attracted to Westchester, compared with the mostly commuter airlines that provided service before 1977.
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