Airport Privatization Pilot Program

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Airport Privatization Pilot Program
49 USC 47134
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• Authorizes FAA to permit up to 5 public airports
  to participate
• Exempts the airports from certain Federal
  requirements
• 65 of the total number of air carriers serving
  the airport and their associated landed weight of
  the air carrier aircraft serving the airport must
  approve the dollar amount of the lease payment or
  sale price

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Privatization Considerations

• Local governments are reluctant to lose control
  of airport
• Airlines have traditionally opposed airport
  privatization because of the perception that the
  loss of governmental control may produce higher
  costs
• Public sector has access to tax-exempt financing
  and other low cost financing options that may not
  always be available to the private sector

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Common Characteristics of the 5 Participating
Airports

• Management of the airport was either secondary to
  the public sponsors primary responsibility or
  one of many services the public sponsor was
  required to provide
• Airports were underutilized and received a
  subsidy from their parent agency
• Process of transferring an airport from public to
  private control was long and time consuming
• All of the private entities submitting proposals
  employed a newly formed limited liability
  corporation to manage the airport
• A strong political commitment to complete the
  privatization was essential to its success

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Exemptions

• The Secretary of Transportation and the FAA
• Administrator may exempt a sponsor of a public-
• use airport that has received Federal assistance
• from certain Federal requirements in connection
• with the privatization of the airport by sale or
• lease to a private party

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The sponsor may be exempt from all or part of the
requirements to

• Use airport revenues for airport-related
  purposes
• Pay back a portion of Federal grants upon the
  sale of an airport
• Return airport property deeded by the Federal
  Government upon transfer of the airport

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Limitations

• Not more than 5 airports may participate
• Applications are accepted on a first-come
  first-served basis
• If there are 5 airports in contention, another
  airport will not be considered until one of the
  day applications is withdrawn or rejected
• Only 1 large hub commercial service airport
  permitted
• May only be leased
• At least 1 airport must be general aviation
• Only the general aviation airport may be sold

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Application Process

• Preliminary Application
• Final Application
• Filed after the public sponsor has selected a
  private operator and reached substantial
  agreement on the terms of the privatization
  transaction
• After acceptance of final application
• FAA publishes a notice of receipt of the final
  application in the Federal Register
• Establishes a public docket
• Accepts public comments for a period of 60 days
• 3. Review Process Requirements

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Preliminary Application

• Consists of
• Summary narrative of the objectives of
  privatization
• Description of the process and a timetable to be
  employed in selecting a private operator
• Description of airport property to be sold or
  leased, including a history of the property
• Airport financial statements (balance and income
  statements for last two reporting cycles) and a
  copy of the request for proposals that the
  sponsor will use in seeking a private operator

• Initial Review takes 30 days
• If the application is accepted for review, the
  FAA issues a notice in the Federal Register

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Final Application

• Part V Specific exemptions requested by the
  public sponsor and private operator (prohibition
  on the use of airport revenue for general
  purposes or requirement to repay Federal grants
  or return property)
• Part VI Public sponsors certification and
  evidence that 65 of the air carriers have
  approved the exemption from the prohibition on
  the use of airport revenue for general purposes
  (allows sponsor to recover the sale or lease
  proceeds for airport property)
• Part VII How private operator, public sponsor,
  or both will operate, maintain, and develop
  airport in accordance with the statutory
  requirements
• Part VIII Applicants express agreement to
  allow FAA to conduct periodic audits of financial
  records and operations of airport after transfer

• Part I Parties to transaction
• Part II Airport property to be leased or sold,
  the history of the land, and the Airport Layout
  Plan
• Part III Terms of transfer, proposed lease
  agreement, and other documents that are part of
  application
• Part IV Qualifications of private operator,
  description of airport management and operations
  experience, financial resources available to fund
  the capital and operating expenses of airport,
  and a description of the private operators
  ability to comply with Federal grant assurances
  and security requirements

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Operation, Maintenance Development 47134

• Airport will continue to be available for public
  use on reasonable terms and conditions and
  without unjust discrimination
• Operation of the airport will not be interrupted
  in the event that the purchaser or lessee becomes
  insolvent or seeks or becomes subject to any
  State or Federal bankruptcy petition
• Purchasers or lessees will maintain, improve, and
  modernize the facilities of the airport through
  capital investment and will submit to the FAA a
  plan for carrying out such maintenance,
  improvements, and modernization
• Every fee of the airport imposed on the air
  carrier will not increase faster than the rate of
  inflation unless a higher fee is approved by 65
  of the air carriers serving the airport

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Operation, Maintenance Development 47134

• Percentage increase in fees imposed on general
  aviation aircraft at the airport will not exceed
  the percentage increase in fees imposed on air
  carriers at the airport
• Safety and security at the airport will be
  maintained at the highest possible levels
• Adverse effects of noise from operations at the
  airport will be mitigated to the same extent as
  at a public airport
• Any adverse effects on the environment from
  airport operations will be mitigated to the same
  extent as at a public airport
• Any collective bargaining agreement that covers
  employees of the airport and is in effect on the
  date of the sale or lease of the airport will not
  be abrogated by the sale or lease

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Vision 100 Century of Aviation Reauthorization
Act

• Adds 3 new provisions to the Privatization Act
• User approval of the privatization initiative is
  redefined according to the type of airport
• Primary Airports User approval is based upon
  65 of the scheduled air carriers and 65 of the
  total landed weight of scheduled and nonscheduled
  air carriers serving the airport in the preceding
  year
• General Aviation Airports 65 of airports
  based aircraft owners must be consulted
• Increases the incentive for sponsors of smaller
  airports to enter the pilot program while
  preserving existing checks on substantial
  diversion of airport funds at major airports

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Vision 100 Century of Aviation Reauthorization
Act

• 2. Air carriers have 60 days to either approve
  the airport owners application for the pilot
  program or file a written objection
• Allows large-and medium-hub airports to be
  granted exemptions unless airlines vote to veto
  the proposed exemption and prevent carriers from
  blocking a privatization plan indefinitely by
  inaction
• Bill increases the Federal participation in
  airport improvement projects from 40 to 70
• Increases airports access to AIP discretionary
  funds

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Why U.S. Airports are Being Considered for
Privatization

• General constraints in public budgets
• Capacity bottlenecks on the ground and in the air
• Changes in airport markets, such as
  commercialization and globalization
• Escalating investment requirements
• Interest in airports as catalysts for regional
  economic development
• A growing need, in the economic downturn, for
  airports to do more with less

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Results of Privatization

• Proceeds from sale of or lease of airport
  generate significant funds
• New management can review and change operations
  and realign airport staffing without government
  constraints
• Easily upgrade facilities to avoid congestion by
  tapping into the equity market

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Privatization Strategies

• Build-operate-transfer (BOT)
• Form of lease
• Different from a traditional concessions
  agreement does not include operations of the
  entire airports, only part being developed or
  enhanced (except for green-field enterprises)
• Employed for the development, renovation or
  improvement of airport facility
• Concessions (long-term leases)
• One Airport
• System of Airport
• Gives investor the authority to operate the
  entire airport an element of the airport
  enterprise, a system or an airport line of
  business
• Sale
• Complete Privatization
• Phased or Partial Privatization
• Acquisition of strategic investor generally
  followed by sale of remaining shares in the open
  market and/or to selected national groups

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Domestic Privatization

• New Orleans Lakefront Airport, the only remaining
  applicant, was damaged in Hurricane Katrina and
  its application is in a holding pattern
• Chicagos Midway Airport may be leased and become
  a privatization candidate
• Since Chicago Skyways successful 99-year lease,
  Mayor Daley is considering privatization of
  Midway
• Lease would be allowed since there are still 4
  slots available
• Only obstacle is getting the support of airlines
  that represent 60 of the annual landed weight at
  the airport
• Chicago is developing a new airport as a
  public-private partnership Lincoln National
  Airport
• Private companies have pledged 200 million in
  funding which would begin with a single, 10,000
  ft. runway and a 12-gate terminal

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Global Privatization

• Over 100 large and medium-size airports are
  either investor-owned or operating under a
  long-term lease or concession contract
• Foreign Airports
• Heathrow, Gatwick, Auckland, Frankfurt,
  Cartagena, Santiago de Chile, etc.
• Public equity holders, commercial and transport
  firms, bondholders, etc. invest in airport
  privatization

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General Mitchell International Airport

• Medium-hub airport owned and operated by
  Milwaukee County
• It is the largest airport in Wisconsin, open 24
  hours a day
• 252 daily departures and arrivals
• Approximately 90 cities served nonstop or direct
• Domestic
• AirTran Airways, America West, American Eagle,
  Comair (The Delta Connection), Continental
  Express, Delta, Frontier, Funjet, Midwest
  Airlines, Midwest Connect, Northwest, United
  Express, US Airways Express, USA3000
• International
• Air Canada, America West, Funjet International,
  United
• Air Charter Services
• Freight and Air Charter Express, Sterling
  Aviation
• Cargo Charter Services
• Air Cargo Carriers, Airborne Express
• Burlington Global.
• Emery Worldwide Evergreen Eagle
• Federal Express, United Parcel, United States
  Postal Service

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• Report to Congress on the Status of the Airport
  Privatization Pilot Program, 49 U.S.C. 47134,
  U.S. Department of Transportation, Federal
  Aviation Administration, August 2004
• Annual Privatization Report 2006, Air
  Transportation, Reason Foundation, Reason.org
• Airport Privatization Trends and Opportunities,
  Charles Sander, Unisys Global Transportation