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News Article - April 13, 2007

Can the airport be privatized?  
  In making the lease of Philadelphia International Airport a campaign issue, the five major candidates angling for the Democratic nomination for mayor are heading down a runway Chicago has already embarked upon. If Chicago succeeds in leasing the Chicago Midway International Airport, the Philadelphia experiment will be grounded unless an act of Congress relaxes the rules on airport leases. The national Airport Privatization Pilot Program limits the sale or lease of airports to five, including only one large hub. Legislative amendments are in Congress' hands now to expand the program from five to 15 airports and remove the restriction of one large hub airport. Congress will have to act, which is expected to happen before aviation taxes supporting the Federal Aviation Administration expire on Sept. 30, for the Philadelphia mayoral candidates' plans to succeed.

   Candidates Tom Knox, former City Councilman Michael A. Nutter, U.S. Rep. Bob Brady and state Rep. Dwight Evans all said they were open to exploring privatization of the airport in interviews at the Philadelphia Business Journal, though they offered no specific plans for the use of such proceeds. U.S. Rep. Chaka Fattah, also a candidate, has made an airport lease the centerpiece of his plan to tackle poverty -- estimating that a long-term deal would bring in more than $3 billion. Under Fattah's plan, after debt payments, $1.9 billion would be available from the city's lease of its airport. Investing those funds could generate between $150 million and $160 million annually, which would be used to better educate and provide opportunities for the city's poor, Fattah said.

   Chicago plans to issue a request for quotation this year from interested parties to lease its Chicago Midway International Airport and use proceeds for city infrastructure improvements and to strengthen its four pension plans -- both large problems faced by the next mayor of Philadelphia. With the right deal, Chicago's transaction could occur this year, city spokeswoman Lisa Shraeder said.

   "There is no road map out there for a large hub airport to pursue this process, we are sort of putting together our own road map as we go," Shraeder said. "We think Midway Airport is run extremely well. We also believe the [the airlines and passengers] could benefit from a world-class operator who this is their main business." Chicago already has preliminary approval from the FAA to pursue the lease. If all goes as planned, the Midway lease could serve as a blueprint for other cities, driving interest in what to date has been a little-used program, FAA Airport Compliance Officer Kevin Willis said. "I think people are basically watching to see what is going to happen to Chicago, to see if Chicago can do it because it hasn't been done for a large hub airport," Willis said. "If they succeed, that may interest other municipalities."

   The program was launched in 1997 to explore privatization as a means of generating capital for airport improvement and development. To date, just one airport -- Stewart International Airport in Newburgh, N.Y. -- has received final approval, which occurred in 2000. Stewart's leaseholder, National Express Corp., is in the process of transferring its remaining 93 years on the lease to the Port Authority of New York and New Jersey. Cities exploring airport leases face an additional restriction, in that the privatization program bars cities from using proceeds for non-airport uses -- unless 65 percent of airline carriers at an airport give their approval. "When the airlines lobbied to get that in, that was intended to be a deal killer or poison pill, as I call it, and that has worked very well," said Bob Poole, director of transportation at the Reason Foundation, of the 1996 Reauthorization Act, which established the Airport Privatization Pilot Program. The California nonprofit, which was founded in 1968 and espouses free market principles, produces public policy research on a variety of issues.

   Securing funds for other uses has been a major motivator for cities that have looked into leases, but the restriction is a key reason why only one airport in 10 years has gone through with one. Airlines may have their own reasons to support having a private operator take over an airport, even if proceeds go to other uses. "I think the airline environment has changed dramatically since 10 or 12 years ago when the legislation was being debated," Poole said. "These days' airlines have gone through a terrible five or six years and are much more concerned about cost control than they used to be."

   Charles Erhard, manager of FAA's airport compliance division, agreed that cost is a major consideration for airlines. "They would look at a private operator being able to operate the facility with greater efficiency [resulting in] lower fees," Erhard said. Without the majority of air carrier support, cities must dump proceeds from any sale or lease back into the airport or another state-owned airport, which is exactly what Stewart International had to do, Poole said. Cities may have better luck using the proceeds outside of the airport now, he said.

   Even if Chicago doesn't get the airline carrier support to use the proceeds for non-airport uses, the city could benefit by putting proceeds toward the $15 billion expansion under way at its second airport, O'Hare -- making it a win, win situation either way, Poole said. Philadelphia doesn't have the same benefit, but it shouldn't keep it, or other cities, from taking a look at privatization, he said. The benefits of cities privatizing assets is apparent in the 99-year lease of the Chicago Skyway, which netted Chicago $1.83 billion. Within months of assuming the toll road, the new operator instituted electronic tolling and other upgrades have followed, which left in Chicago's hands probably would've taken a lot longer, city spokesman Shraeder said. New Jersey and Pennsylvania are among states following Chicago's lead, by exploring the sale or lease of their own toll roads to generate revenue. Last year, Chicago also closed on a $563 million deal to lease four downtown parking garages underneath Millennium Park and Grant Park for 99 years, escaping $65 million in upgrades needed for the old facilities, Shraeder said. Plans are also under way to lease a municipal refuse and recycling facility.

   Other airports that have sought to privatize have failed for a variety of reasons, the FAA's Willis said. Brown Field Municipal Airport in San Diego, Niagara Falls International Airport in Niagara Falls, N.Y., and Rafael Hernandez Airport in Aguidilla, Puerto Rico, all have withdrawn applications from the privatization pilot program. "One thing about privatization is it has to have a strong political force behind it to carry it through to its completion," Willis said. "The problem with some of the other applicants is they lost their will to continue and election changed some of the players or the principal backers."

Source - Philadelphia Business Journal



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