Guidelines for Airport Privatization

Executive Summary

Increasingly, airports are being viewed as enterprises, rather than as public services which are expected, at best, to break even. Around the world, governments in both developed and developing countries are turning to the private sector for airport management and development. Municipal and state governments in this country can use the private sector to improve airport operations in several ways.

For existing airports, the simplest form of privatization is contracting out management of the airport on a relatively short-term basis. Larger economic benefits can generally be obtained via a long-term lease or sale of the airport, increasingly common overseas. To create new airport facilities (or entirely new airports), the private sector can be granted either a long-term or perpetual franchise to finance, design, own, and operate those facilities. These techniques can also be used to convert military bases to commercial airports.

Federal airport grant (AIP) funds for capital investment projects can be used at all types of privatized airports, but so-called entitlement grants (based on passenger or cargo volume) are only available if government retains underlying ownership of the airport (which still permits management contracting or long-term leases). Tax-exempt bonds may remain in place when an airport is privatized, and in some cases tax-exempt financing can be used for new airport privatization projects.

The benefits of a more entrepreneurial approach to airport management include increased operating efficiency, increased airport revenues, improved airport amenities, possible new revenue streams for state and local governments, and reduced risk of developing uneconomic (white-elephant) projects. Airlines, passengers, private-plane owners, and taxpayers can all benefit from this new approach to airport management.