Privatizing Airports: Another DOA Idea

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As sure as winter turns to spring, the ATC privatization idea has resurfaced and just as surely as summer is coming, so too are the alphabets protesting it. We’ve already hashed out ad nauseam why turning over air traffic to a private entity is a bad idea, but this season’s regurgitation has a new twist: privatizing airports.

In a draft legislation summary released by the Trump administration, the concept of “asset recycling” is being suggested. According to a report in the Washington Post, Trump aide Gary Cohn described it this way: “Instead of people in cities and states and municipalities coming to us and saying, ‘Please give us money to build a project,’ and not knowing if it will get maintained, and not knowing if it will get built, we say, ‘Hey, take a project you have right now, sell it off, privatize it, we know it will get maintained, and we’ll reward you for privatizing it. The bigger the thing you privatize, the more money we’ll give you.”

The plan is light on details and lighter yet on budget analysis, but it springs from the ever hopeful conviction that the private sector is simply more efficient at running things like terminals, airports, transportation facilities, air traffic systems and so on than the government ever could be. While this sounds intoxicatingly attractive, the reality has been harsher, especially with regard to airports.

Some 20 years ago, in 1997, the FAA introduced the Airport Privatization Pilot Program, which was specifically intended to grease the regulatory and financial skids for companies interested in buying and running airports for profit. And we’re talking about commercial airports with airline service or maybe some busy munis. There are already lots of privately owned small airports in the U.S., some doing very well I’m sure.

The APPP was supposed to remove barriers to purchasing airports by eliminating restrictions on using AIP funds, allowing businesses to charge passenger facility fees and to raise capital through bond sales. It did not, however, promise buyers direct funding input, as the administration proposal seems to be doing. A 2014 GAO report on APPP concluded that the program found few takers. Ten airports applied, but only one, Marin International Airport in Puerto Rico, appears to have been a real success story. A second is the Branson, Missouri airport, but it was built originally as a private airport, not converted from public ownership.

One of the original arguments for airport privatization was that private entities would be more willing to make necessary capital investments than would cities and states. In at least one case, this proved not to be true. New York’s Stewart Airport was privatized under APPP in 2000, but the company that assumed the lease tried to unload it and, finding no buyers, it ran the airport for short-term profit, but made no investments in it. It reverted back to public ownership in 2007.

One big failure like that doesn’t necessarily tank the idea, but I think the Trump proposal is DOA for two reasons. One, the money to subsidize these purchases will have to come from somewhere and good luck getting it out of the current Congress. Second, investors can find more profitable places to put their money than airports. After all, they aren’t exactly money machines. The GAO report pointed out that privatization is already extensive at many airports, where vendors operate airport concessions and all kinds of services up to and including maintenance and construction. Perhaps the best model for this sort of thing is Fort Worth’s Alliance, an industrial airport built specifically for the purpose that’s owned by the city but operated privately.

There are plenty of small airports in the U.S. that are privately owned. Some are residential airparks, some just little country airports. While those models seem to work, my guess is they don’t throw off pots of cash. In the case of city- or county-owned munis, profit for a private owner may be found in higher occupancy density and greater traffic, if the owning entities can set fees where they like.

But if they can do that, they can also charge $75 ramp fees and $1200 t-hangar rent. Want to find out what the market will bear in an already anemic aviation economy? That’s one way to do it. Leases can be written to give the public sector oversight in setting fees and limits on activity but, ooops, there goes the private business impetus.

While private business is vaunted for its efficiency, that works best when it has competition. But privatized ATC and airports are unlikely to have that, so in a world of diminished activity, they’re likely to generate profitable revenue by charging the survivors to the point of extinction.

In the right markets, I could see a privately owned airport doing more aggressive promotion and sales than a public airport might, but the venues where that would work seem limited to me. That privatization continues to be a hot topic strikes me as just a perennial Reason Foundation whipping boy more than it does sound public policy. I just don’t see the problem that privatization is supposed to solve, other than allowing politicians to continue ducking the responsibility of raising infrastructure capital with bonds and/or taxes.

Speaking of which, the cratered muni bond market came back to life this week as investors seemed less convinced a trillion-dollar infrastructure plan is likely. Said the Financial Times, “Investors are less optimistic that the administration will implement its pro-growth agenda that includes hefty spending on infrastructure at the state and local level and tax reform.” That could flip come fall, if the administration and Congress reach a deal on spending and taxes, but investors may not be willing to wait.

If GA continues its downward spiral, it may reach the point where privately owned airports are the only choice. But we’re not there yet and, in my estimation, privatizing airports and public infrastructure sounds like a sure way to hasten the demise of what’s left.