A 1996 law Congress approved to encourage conversion of the nation’s 3,300 publicly held airports to private ownership has succeeded in converting only one, according to a government watchdog.
The Airport Privatization Pilot Program lifted some restrictions that challenged private operation for qualifying airports in order to incentivize conversion, the Government Accountability Office said.
“Privatization has the potential to provide additional investments to airports, to ease constrained local budgets and to share with the private sector the financial and operational risks of running an airport …,” GAO said.
Through the program, public owners could lease or sell their airports, allowing governments to use the proceeds for non-airport purposes.
Chicago at one time had planned to lease Midway International Airport to help pay for its $9 billion unfunded public employee pension plan.
Also, New York planned to use the private sector to “develop the underutilized airport and surrounding real estate” to increase economic development for the region surrounding Stewart International, the GAO said.
But the law didn’t go far enough because it left in place too many restrictions that deterred municipal owners from relinquishing control and private operators from investing. For example, some federal grants had specific requirements that restricted money use unless the airport met specific qualifications.
“[T]he current structure and financing of airports … reduce the incentives and value of privatization …” the GAO said.
Other program barriers include specific challenges to the private sector and a lengthy and expensive application process.
Independent operators get different tax breaks from public owners, burdening finance, development and maintenance. Also, the application process can take more than three years and cost more than $16 million, without guaranteeing success.
As a result, only two of the 10 applicant airports completed the process, and one of the two reverted to public ownership. Seven withdrew their applications, including Midway in Chicago. One application is still pending.
Louis Munoz Marin Airport in Puerto Rico reached a 40-year lease agreement with a private operator in 2013.
Stewart was privatized in 2000 with a 99-year lease agreement. However, in 2007, the private contractor sold its lease back to the public after being unable to gain exemptions from certain grant requirements.
Another applicant withdrew from the program due to its strict requirements. Four others reversed their application after the private parties developed concerns about their financing.
Because of the barriers, both sectors found mutually beneficial alternatives. For example, some private industries would build and manage terminals at airports under public contract, according to the report.
Only Branson Airport in Branson, Mo., was privately developed and operated without using the privatization program. It cost $60 million in private investments and $114 million in tax-exempt bonds, with construction beginning in 2007.
The airport since entered into a forbearance agreement in 2011 due to decreased passenger traffic.
