What Happened?
The privatization of airports is helping many municipalities combat budget crunches while boosting economic growth. With cash flow at a minimum, localities are struggling to see the down side to selling off airport property and leverage private dollars to help revamp the community with more efficient travel options and job growth.
The Goal
Worldwide, airport privatization has been booming since the late 1980s. In the United States, however, the trend has just started picking up steam the last few years and the market is still ripe for the picking. Investors locally and abroad are interested in good infrastructure deals that could equate to long-term sustainability while enhancing a community.
At a recent industry conference, aviation experts provided data illustrating the value of airport transactions overseas in the past, and how the revenues have increased significantly as a result. In the United States, airport financing is different from strategies leveraged in other countries.
The FAA has launched a privatization pilot program to develop best practices for airport transactions from the public to the private sectors. The program responds to the effects of tight federal, state and local budgets on airport operations and how private sector capital can combat the money crunch. Both commercial and general use airports qualify for the improvement grants. General use airports that are owned by public or private entities may apply for the funding, paving the way for privatization projects to flourish without disrupting local economies.
While the federal government offers airport improvement program grants, there is limited response from municipalities to take full advantage of the capital in the U.S.
Going Private
The Reason Foundation created a template of best practices for the privatization of airports based on successes abroad and the current fiscal environment surrounding the industry. Because of the economic downturn and budgetary crises in many municipalities, it may be in the best interest of many communities to utilize the private sector to improve airport functionality and revenue generation.
- Contracting Out Many localities are reaching agreements with airport management associations for the short term. A long-term lease or total sale of the airport will provide sustainability and helps rebuild lost economic activity in the community. Many contracts allow private investors to revamp or build infrastructure to support growth or new businesses.
- Federal airport grant funds Federal airport grant funds for capital investment projects can be used to improve local facilities and infrastructure, even when ownership no longer lies with the federal government. Entitlement grants are also available when a management company is contracted or long-term leases have been signed. Many local governments are interested in offering tax-exempt financing for private sector investors interested in the airport.
According to the foundation, when airports are treated more like a business the facilities increase in efficiency and revenue generation. Local governments can enjoy a new source of revenue, job creation is enhanced and the airport resources are greatly improved upon.
Keeping It Private
Gov1 has tracked the progress of privatization projects at the local level that typically result in significant savings for local governments.