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U.S. Airport Privatization Slowly Takes Off

September 1, 1999
By Robert Poole and Adrian Moore

On January 25, New York State submitted to the FAA its final application to privatize Stewart Airport. The application details the terms of the 99-year lease with National Express Group, the U.K.

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On January 25, New York State submitted to the FAA its final application to privatize Stewart Airport. The application details the terms of the 99-year lease with National Express Group, the U.K. airport, rail, and bus operator that won the bidding for Stewart last spring.

Under the agreement, the initial $35 million payment and future lease payments will be used partly for improvements at Stewart, an airport in the Hudson Valley; partly for similar improvements at state-owned Republic Airport, on Long Island; and partly to reimburse the state for previous expenditures at Stewart.

Joseph Boardman, commissioner of the New York Department of Transportation, announced the benefits: "Privatizing Stewart Airport will allow the airport to realize its full potential by utilizing private sector expertise and capital as a means of improving the airport's performance as well as improving the state's transportation infrastructure."

The same could be said of many airports across the nation. Worldwide, more than 60 airports have been privatized in the 1990s, but the pace has been slow here in the United States. At a recent hearing of the House Aviation Subcommittee, Congressman John Duncan (R-Tennessee) noted that despite extensive airport privatization overseas, only two applicants have thus far appeared for the Airport Privatization Pilot Program since its inception in 1996.

David Sumoi of BAA USA, a major airport operator, told legislators that the principal obstacle has been resistance by incumbent airlines, who use their veto power to stop the use of lease proceeds to expand airports. The Reason Public Policy Institute has urged that this approval requirement be removed.

John Buttarazzi, head of New York State's privatization agency, urged that the program be changed to permit outright sale (as opposed to leasing) of airline-service airports.

Adding more heat to the discussion of airport privatization is a policy study from The Heritage Foundation. Analyst Ronald Utt made use of sales data from the nearly 100 foreign airports that have been sold or long-term leased over the past decade to estimate the possible market value of the top 70 U.S. airports. Using three different rules of thumb, Utt produced estimates ranging from $41 billion to $95 billion for these 70 airports. As an example, Phoenix Sky Harbor was estimated to be worth $1.1 billion under the most conservative procedure, and as much as $2.5 billion under the most liberal approach.

San Diego, West Hartford Next

The second airport in the pilot program, after Stewart, will be San Diego's Brown Field. Developer Joseph Piscitell of Diversified Asset Management Group told the subcommittee that entrepreneurial developers can add significant value to overlooked airports such as Brown Field, which his consortium plans to turn into a major air-cargo airport. Entrepreneurs seeking profit are able and willing to take risks that airport authorities cannot take, he said.

The only other state-run airport being considered for privatization under the pilot program is Connecticut's Bradley Field in West Hartford. A feasibility study completed last fall concluded that privatization could improve the airport's performance. Last December, consultant Doreen Frasca of Frasca Associates concluded that private management could make Bradley more competitive with T. F. Green Airport in Providence, Logan Airport in Boston, and La Guardia Airport in New York City. In March, the state issued a request for proposals (RFP) asking commercial airport management companies to identify possible improvements to Bradley.

Niagara Falls International Airport, a locally run facility, has issued an RFP for a 99-year lease under the pilot program. New Orleans and Kansas City are considering some form of privatization of existing facilities; Orange County is considering privatization to build facilities on a former military base.

So far, efforts to privatize have been most successful at smaller airports. In June, COMARCO Airport Services took over the operations of Altoona-Blair County Airport in Pennsylvania on a five-year basis. The airport has scheduled service by USAir Express as well as charter and general aviation operations. Altoona is COMARCO's twelfth airport, making it the largest U.S. operator of general aviation airports.

Robert Poole is director of transportation policy and Adrian Moore is director of economic studies for the Reason Public Policy Institute.

For more information ...

Passenger-Friendly Airports. Privatized airports not only save taxpayer money, they provide better service. (Reason Public Policy Institute, March 1999, 30pp.).

Request two PolicyBot documents: #8104411 (part 1, 15pp.) and #8104412 (part 2, 15pp.)