FAA airport privatization program grounded by financing concerns

Source: Jim Watts, Bond Buyer, August 24, 2017 (subscription required)
 
A 20-year-old federal pilot program of airport privatization has found few takers because of restrictions on how the Federal Aviation Administration allows private operators to fund related infrastructure projects, the Congressional Research Service said. A CRS report, released earlier this month, points to challenges that may lie ahead for the Trump administration, which says it is preparing a 10-year, $1 trillion plan that will focus on leveraging private investments in infrastructure through public-private partnerships.  The CRS focused on the FAA’s Airport Privatization Pilot Program (APPP), created by Congress in 1996 to increase airports’ access to private capital for infrastructure projects. Only two airports have been privatized since the law was enacted, and one of them, Stewart International Airport in Newburgh, N.Y., reverted back to public ownership after seven years in private hands. …

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Related:

Airport Privatization: Limited Interest despite FAA’s Pilot Program
Source: U.S. Government Accountability Office (GAO), GAO-15-42, Published: November 19, 2014

From the summary:
Since the FAA started to accept applications to the Airport Privatization Pilot Program (APPP) in 1997, 10 airports have applied to the pilot program (see figure). Of these 10, 2 were privatized, 7 did not complete the program, and one application is currently under FAA review. Public-sector airport owners’ objectives for full privatization varied, but the overriding reason cited was financial benefit. The 7 applicants that withdrew did so for varied reasons, such as changes in market conditions that reduced expected privatization benefits.

Several factors reduce both public and private sector interest in airport privatization in the U.S.—such as higher financing costs for privatized airports and the possible lack of state and local property tax exemptions. Also, while the APPP reduces some of the challenges to privatization that we identified in 1996, privatization still requires considerable time and cost to navigate. Furthermore, public sector airport owners have found ways to gain some of the potential benefits of privatization without ceding control under full privatization, such as entering airport management contracts and joint development agreements for managing and building an airport terminal.

The potential effects of airport privatization on airport efficiency, the federal aviation trust fund, federal tax revenues, and airport employees and concessionaires are difficult to determine. Privatization’s impact on these areas depends on many different factors such as how each airport privatization is structured, making it difficult to estimate the overall impact.

Different airport ownership and financing structures and motivations have driven more extensive overseas privatization efforts, as at least 450 airports around the world have been privatized to some degree. Stakeholders mentioned a variety of lessons learned from the U.S. and international experience, including ensuring public-sector due diligence, involving all stakeholders and creating a transparent privatization process. Stakeholders also provided a range of suggestions for modifying the APPP, from increasing the clarity of the program’s rules to reducing the federal role in airport privatizations.