Privatization Issues Dr. Richard de Neufville Professor of Engineering Systems and Civil and Environmental Engineering Massachusetts Institute of Technology Issues Many governments are privatizing their airports... What does this mean? What are the choices? What is desirable?
Context Privatization occurs in many ways... Total sale of asset -- e.g., BAA, others own UK airports Shares of capital -- Rome airport and South African Airports Long term leases -- BAA, Amsterdam, others in Australia; TBI at Orlando/Sanford Government establishes Airport Corporations -- Canada BOT arrangements with Contractors -- Hochtief in Athens Limited BOTs -- Amsterdam for Building at NY/Kennedy Airport Management Contracts -- BAA at Indianapolis Facility Contracts -- BAA in Pittsburgh What does it mean? Concept of Privatization General Idea is transfer of ownership from Government to private interests However most airport privatizations don t transfer deed! They are leases! We need to understand concept of ownership carefully...
What does ownership imply? It implies 2 categories of rights: Rights to residual income, what s left over after expenses ~ profits, in effect Management control, which covers short-range management and long-range development Note: these rights not necessarily associated with holding the deed Example: when airlines have majority in interest deals with airport, any extra money the airport raises through concessions, etc, reduce the airline payments. In these cases, the airlines have the right to the residual income and, in effect, have ownership of the airport! Privatization thus involves... Transfer of some of the ownership rights from the government to private investors. Situations differ See following slides illustrating what privatization has meant in the UK, Australia and Canada, the countries that had led the way in airport privatization
UK Experience Major airports (except Manchester) held by private companies and strictly regulated by Government SHARED REGULATED CONTROL GOVERNMENT CONTROL CONTROL OWNERSHIP B PLANNING B P DESIGN B P FINANCE B P OPERATION B P PRICING B P ACCESS B P Australian Experience Government keeps deed to property, leased for 50 years (renewable) SHARED REGULATED CONTROL GOVERNMENT CONTROL CONTROL OWNERSHIP B P PLANNING B P DESIGN B P FINANCE B P OPERATION B P PRICING B P ACCESS B P
Canadian Experience Local Public Companies hold longterm leases and operate airports in best interest of community SHARED REGULATED CONTROL GOVERNMENT CONTROL CONTROL OWNERSHIP B P PLANNING B P DESIGN B P FINANCE B P OPERATION B P PRICING B P ACCESS B P United States Experience Airport Authorities etc. own airports; private companies do most design, finance, operations -- Among the most privatized in world CONTROL OWNERSHIP PLANNING DESIGN FINANCE OPERATION PRICING ACCESS GOVERNMENT SHARED REGULATED CONTROL CONTROL
Ways to Share Ownership RIGHTS TO RESIDUAL REVENUES, PRIT GOVERNMENT Y GOVERNMENT: REGULATED CONTROL MANAGE- GOVERN- Complete Control by Civil Government control of MENT MENT Service and Politics rates and access CONTROL PARTNERSHIP CONTROL Y : Government sets policy, Complete Control by private parties implement Private Interests Which ways impractical? Full Government inefficient for large commercial airports What about Full Private? Is this a realistic alternative? No: Major airports are monopolies, Public needs to control prices, access, long-term development
Which ways practical? Regulated Control -- as in UK Increasingly detailed regulation of prices Also of quality of service: detailed indicators and micromanagement of operations ~ CAB regulation in US before 1978 Partnership Control -- as in US Government owns airport, regulates its prices, ensures fair access, is responsible for long-term development Private companies plan, design, finance, manage the facility under government policies Which would you prefer?