Privatization Issues

Airports for Sale

Countries around the world -- from Mexico to Russia to Argentina -- are selling their airports to private entrepreneurs. Governments are happy to take a profit and dispense with operation, maintenance and sorely needed expansion costs. The new owners find they can make money by expanding and refurbishing the often noisy, dirty and crowded facilities. Travelers are delighted with new amenities such as dry cleaning establishments, barber shops and beauty salons, as well as classy, duty-free boutiques. Amsterdam boasts the world's biggest airport casino.

  • Experts say that over the next few years, hundreds of airports are likely to be sold.

  • With the number of airline passengers expected to quadruple in the next decade to five billion a year, it is estimated that up to $350 billion will be needed for airport improvements.

  • With local and national budgets stretched, governments see privatization as an alternative to huge public expenditures.

One of the first and most successful privatizations was the British Airport Authority which owned Heathrow and Gatwick airports near London. Privatized by Margaret Thatcher, BAA is bidding to run airports in Europe, Australia and South Africa and the U.S.

BAA now operates, but does not own, airports in Indianapolis and Pittsburgh and is talking with at least a half-dozen other U.S. airports about taking over at least some operations.

  • On its first day at Indianapolis, BAA dropped the price of a pack of gum to 26 cents from 69 cents.

  • In Pittsburgh, coffee prices were slashed from $1.05 to 49 cents.

  • As a result of price cutting per person spending at both airports has more than tripled since BAA took over.

It is illegal under federal law for a U.S. airport to make a profit. BAA gets around that because its arrangements are management contracts and do not involve outright ownership of the airports.

The U.S. House and Senate recently passed and sent to conference committee a bill that would lift the no-profit rule on six U.S. airports under a pilot program. So far, President Clinton has given no signal whether he will sign the legislation.

Other countries, however, are not dragging their feet.

  • Mexico has put up for sale as many as 75 airports -- at an estimated asking price of $20 billion.

  • Argentina will lease out all its airports in a 25-year concession.

  • Russia is privatizing one-third of its airports.

And in Europe, Amsterdam's airport is part owner of Vienna's newly privatized airport.

Source: Kyle Pope, "Airport Privatization Begins to Take Off, Led by Britain's BAA," Wall Street Journal, September 24, 1996.

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