US Airport Privatization 2016

A snapshot of the state of privatization efforts in the USPaul Brown, Principal, Paul Brown Consulting, Inc.

(pbrownconsulting.com)Airport Revenue News Annual Conference and Exposition

March 7, 2016

What is Airport Privatization?

• Airport Privatization is the transfer of ownership or management (or both) of an airport (in whole or in part) to the private sector.

The Importance of Learning About Privatization

• Responding to RFP’s takes BIG Capital & Alliances

• Successful Privatizers from Abroad are Investing in the US in the following areas:– Concessionaires– Airport Developers– Airport Management Companies

Airport Privatization Origins• Privatization began in 1982 with the sale of 51%

of British Telecom to individual investors.• BAA (UK), was the 1st major airport privatization

(1987).• Other Examples (at least 12 majors): – CPH (DENMARK) – VIE (AUSTRIA)– SYD, (AUSTRALIA)– EZE, (ARGENTINA)

Why Privatize in the US?• Port Authorities & Municipalities want to:

• complete major projects more quickly• avoid their own politics & red-tape• cause less disruption to airlines• transfer certain risks of cost overruns to the

private sector.

• FAA Airport Privatization Pilot Program (1996)

US Privatization Challenges

• Higher-than-Government Rate Cost of Capital, which can lead to higher rents and higher prices

• US Airports typically want debts paid initially• Needs support of at least 65% of the active airlines at

an airport as well as airlines that make up at least 65% of the annual landed weight

• Weak dollar invites foreign investment – for now!

Successful US Privatizations• Luís Muñoz Marín International

Airport, San Juan, Puerto Rico (2013, $615 million paid upfront)

• Stewart International Airport, Newburgh, NY (2000; reverted to Government Control, 2007)

Not-so-Successful US Privatizations

• Chicago Midway Airport • New Orleans International Airport – (FAA Application withdrawn 2001)

• Brown Field Municipal Airport, San Diego, CA– (FAA Application withdrawn 2001)

• Niagara Falls International Airport, Niagara Falls, NY– (FAA Application withdrawn 2001)

Ongoing US Privatization activity• New York LaGuardia Airport

• $3.6 Billion, 30-year deal

•Chicago Midway Airport (Third attempt)• $248 million project

•Denver International Airport• Great Hall renovation

•Austin Bergstrom Int’l Airport• 30 Acres leased, incl S. Terminal

Future Outlook on US Privatization

• US Airports may seek to privatize parts or trades, not the whole thing (smaller bites)

• More Alliances amongst Concessionaires and Money

• Long-term leases instead of ownership• Continued interest from Foreign Investors

expected, but undervalued bargains are not likely.

Thank You!

AppendixSources of Information, Lists, Etc.

Sources of Information• Government Technology Magazine, “The P3 Opportunity for Airports

Gains Momentum ,” by Andrew Deye, 02/17/2016.• Forbes Magazine, “Cuomo Reveals New LaGuardia Airport Master

Plan,” by Jason Rabinowitz, 07/27/2015.• UK Essays, “The Pros and Cons of Airport Privatization Economics

Essay,” March 23, 2015 (no author cited)• AirportImprovement.com article, “Denver Int’l Expands into Airport

City, with Hotel, Conference Center, and Transit Link,” by Jennifer Bradley January-February, 2016.

• Crain’s Chicago Business, “Who wants the chance to revamp the food at Midway?” by Micah Maidenberg, 02/18/2016.

Sources of Information (con’t)• IATA Economics Briefing: AIRPORT PRIVATISATION by Brian

PearceChief Economist, IATA 07/04/2005

• FAA Airport Compliance Document on Airport Privatization Program, November, 2014

• Economics and Labour Relations Review, “Why Privatise Airports,” by Peter Kriesler,June, 1996 Source Volume: 7 Source Issue: 1

• Southern Illinois University Carbondale, “Airport Privatization Movement in the 21st Century,” by Luis M. Camargo, May, 2013.

Federal Aviation Authority (FAA)

• FAA Airport Privatization Pilot Program– Established in 1996 – 20th Year Anniversary!– designed to allow US airports to access private

capital and boost their competitiveness against foreign operators

– Originally included 5 airports– Expanded in 2005 to 10 airports– Only 1 major hub allowed to participate

Some Major International Airport Privatizations

Sales of Assets

• BRITISH AIRPORTS AUTHORITY (BAA), UK

• COPENHAGEN AIRPORT (CPH), DENMARK

• VIENNA AIRPORT (VIE), AUSTRIA• ZURICH AIRPORT (ZRH),

SWITZERLAND• BRUSSELS AIRPORT (BRU), BELGIUM• AUCKLAND INTERNATIONAL

AIRPORT (AIA), NEW ZEALAND

Leases of Assets

• SYDNEY INTERNATIONAL AIRPORT (SYD), AUSTRALIA

• PERTH AIRPORT (PER), AUSTRALIA• EZEIZA INTERNATIONAL AIRPORT

(EZE), ARGENTINA• JUAN SANTAMARIA INTERNATIONAL

AIRPORT (SJO), COSTA RICA• JORGE CHAVEZ INTERNATIONAL

AIRPORT (LIM), PERU• ATHENS INTERNATIONAL AIRPORT

(AIA), GREECE

European Privatizers

Privatizers in the Rest of the World

Unresolved US Privatization activity

• New York LaGuardia Airport– Central Terminal Building new

construction– RFP awarded to LaGuardia Gateway

Partners – $3.6 Billion, 30-year deal

Unresolved US Privatization activity

• Chicago Midway Airport (Third attempt):– transforming food, drink and shopping

options – parking garage– upgrading its security checkpoint– $248 million project

Unresolved US Privatization activity

• Denver International Airport– Great Hall renovation– Relocation of Security Checkpoints– New Retail and Food and Beverage