Airport Ownership and Operation
The airport runway is the most important main street in any town.
Norm Crabtree, 1926–2006, former Deputy Director of
Aviation, Ohio Department of Transportation.
After reading this chapter, you should:
1. be familiar with the arguments in favor of and against privatization of airports;
2. be able to identify the barriers to full privatization in the US;
3. understand what a port authority is, how it is formed, and what its function is;
4. be familiar with the airport certification process;
5. know the distinction between private-use and public-use airports.
DISTINGUISHING BETWEEN NATIONALIZED AND PRIVATIZED AIRPORTS
Nationalization refers to government ownership and control over industry. Conversely, privatization refers to the transfer of assets and industry from government to private markets. In the 1980s, Margaret Thatcher led the effort to privatize British industries, making Britain one of the first industrial nations to begin broad experiments with privatization. Under her stewardship, the British government transferred ownership of its oil production facilities, coal mines, steel mills, and public utilities to the private sector. The British Airports Authority and British Airways were also converted to private control.
Yet, transfer of ownership is not the only method of privatization. In the US, airport privatization is accomplished by a transfer of control rather than a transfer of ownership. This can be accomplished through leases and service contracts. In a typical scenario, a commercial airport may be constructed with public funds and owned by a public entity, but the airport may be operated collaboratively between government and private industry.
Take, for example, Orlando-Sanford International Airport in Florida. The airport was originally built as a military installation using federal funds. The Air Force Base was later decommissioned and sold to the City of Sanford. The City established an airport authority to operate the airport. Today, the City of Sanford owns the land and facilities, but the airport authority manages the airport’s operations. The port authority has contracted out much of the operations to a private company, TBI Airport Management. TBI owns airports in other countries and manages airport operations at various other airports worldwide. At Orlando-Sanford, it is responsible for managing the terminal operations, providing baggage services, and supervising other aspects of the airport.
The role of private industry in airport operations varies from airport to airport. The scope of a private firm’s authority over airport operations and strategic development is defined by the terms of the contract between the firm and the government entity that owns the airport. Among other things, private firms are often responsible for:
• baggage handling;
• restaurants, hotels, and amenities;
• providing ground crew services;
• planning for expansion;
• designing construction projects;
• negotiating contracts with airlines;
• Part 129 inspections.
Collaborative partnerships between government and private industry are made possible in the US because of a highly developed system of contract law. Americans inherited a systematic approach to contracts from their British forebears. For over 200 years, US courts have further refined contract law, making it even more stable and predictable. This strong tradition of contract law has created an environment in which collaboration between government and private industry – defined entirely by individual contracts – is both possible and effective.
THE PUSH TO EXPAND PRIVATIZATION OF US AIRPORTS
There has been a push to privatize government operations in the US since the 1980s. Proponents of privatization argue that the private sector delivers services in a more efficient and user-friendly manner. They also argue that private markets have better access to capital and that this access allows private entities to modernize facilities better than nationalized industry. Opponents of privatization argue that private entities are not accountable or transparent and that corporations are more inclined to value cost-cutting over safety. Opponents also express concern that private entities are more likely to cut services to areas if it is profitable to do so. Both the proponents and opponents of privatization argue that their position would result in lower fees for consumers.
In 1996, Congress established the Airport Privatization Pilot Program. The purpose of this is to determine whether private capital is a viable alternative to public funding of airport improvement and development. The Program authorizes the FAA to exempt up to five airports from certain federal requirements in order to facilitate the sale or lease of the airports to the private sector. To date, only 10 airports have applied to enter the Program. Of those, only one – Stewart International Airport in New York – has been approved for participation.
Stewart International Airport’s brief experiment with privatization demonstrates some of the difficulties that airports face when attempting to denationalize. In March 2000, the New York Department of Transportation signed a 99-year lease with National Express Group. Under the terms of the lease, National Express Group agreed to pay $35 million, plus five percent of the income generated by the airport over the term of the lease. Most of this money was reinvested back into the airport itself, so the New York Department of Transportation realized very little upfront revenue from the deal.
But after just seven years of operation, National Express Group sold its lease back to the Port Authority of New York and New Jersey, effectively transferring Stewart International Airport back to governmental control. Publicly, National Express Group stated that it had sold back the lease because it wanted to wind down its airport operations and focus instead on its significant worldwide rail, bus, and tram services. Yet, newspapers reported that the reason may have actually been tensions between National Express Group and local communities over plans to expand the airport. Don’t feel too bad for National Express Group. During its short period of management of the airport, it earned approximately $24 million, a healthy 7.7 percent return on its initial investment.
FACTORS THAT IMPEDE FULL PRIVATIZATION IN THE US
The Certification Process is Costly and Time-Consuming
The airport certification process is time-consuming and costly. Until an airport is certified under Part 139, it cannot serve commercial airlines and cannot generate revenue. This makes it difficult for private entities to raise the necessary capital to finance an airport construction project, because investors receive no return on their investment until certification is complete. In addition, airports that lack Part 139 certification find themselves unable to compete for FAA grant money that is funded primarily from passenger fees deposited in the FAA’s Aviation Trust Fund.
Regardless of whether an airport is considered publicly or privately owned, it must be certified by the FAA if either of the following two conditions apply: (1) if the airport intends to offer scheduled air carrier operations in aircraft designed to carry 10 or more passengers; or (2) if the airport intends to offer unscheduled air carrier operations in aircraft designed to carry more than 30 passengers. An unscheduled flight is one that is negotiated directly between the air carrier and the customer, such as a charter flight.
The certification process is codified in 14 CFR Part 139. The process begins when the airport operator requests a certification application from the Regional Airports Division Office of the FAA. The regional office will then interview the airport operator to determine what type of flight operations are envisioned for the airport. If the FAA determines that a certificate is indeed required, it will provide the operator with an application for certification and will offer guidance to the operator about how to complete the certification process.
The operator must then submit the completed application and a proposed airport certification manual. These manuals are comprehensive guides to how the airport will conduct its operations in compliance with FAA regulations. There are 22 specific categories of information that a certification manual must contain. Generally speaking, every manual must contain “a description of operating procedures, facilities and equipment, responsibility assignments, and any other information needed by personnel concerned with operating the airport” (14 CFR §139.203).