Private Sector Participation in Airports

Private Sector Participation in Airports

Governments see airports as potentially monopolistic enterprises, and therefore see the need for some form of regulation, and if need be, control. In the developed world, as well as strongly in areas with growing traffic, this argument may be countered by the fact that airports seek airlines to serve them – the World Routes Forum, held every year, for example, is an event in which airports create booths and exhibits to woo airlines into their facilities. It is airports that seek airlines, and not the reverse. Thinner traveled countries, such as many of those in Sub-Saharan Africa, however, usually have only one point of entry, and though this point of entry is barely sustainable, it by nature has a monopoly.

Globally, there has been occasional full privatization of airports. This may only work at airports with very high passenger figures – some estimates are that airports only become financially sustainable at above 1 million passengers a year, and that only the largest are suitable for privatization. And even in those systems, it must not be forgotten that profitable airports are used to subsidize unprofitable ones that are yet seen to fulfill important social needs within a country. One example of full privatization commonly mentioned is the British Airports Authority. Yet even here there are its discontents, arguing that prices have soared while service has declined, all due to the monopolistic nature of airport infrastructure. And a familiar story is emerging – there are complaints about not enough being reinvested in the basic airport infrastructure.¹⁸

In Africa, the largest scale attempt to follow this model is ACSA – the company that holds 10 of South Africa’s airports. Of the US$ 136.5 million privatization package, 20 percent was purchased by Aeroporti di Roma, which again sold its stake in 2005. ACSA, however, is not fully privatized - control of the company still rests with the South African Government, which has stated the company would not be listed on the exchange until 2004. By now, in 2008, it still has not.

The question at hand is if full privatization really is the model to follow. In the United States airports are clearly not in the private sector. In China, which presents its own unique environment, some assessments have come to the conclusion that partial privatization has in fact decreased airport performance as compared to those fully under government control, though this argument is raised in favor of full privatization rather than of full or partial government control.¹⁹ Globally, however, airport privatization overall is being judged as running out of steam, with noticeably fewer transaction occurring in 2007.²⁰

The successful concessioning of all aspect of airport management, including infrastructure needs and operations, is dependent on the quality of the initial transaction. Experience has shown in several instances that lack of choosing the right partners, or creating agreements with no effective enforcement mechanism, can result in having an operator control the essential services, and receiving the related revenues, while later not providing for the prior agreed-upon capital investment needs. For example, in one case an airport was handed to a group of investors (which also included the originating government) under the agreement that the purchasing partnership be allowed to operate every aspect of the facility and collect its revenues, with the caveat that required infrastructure investments and maintenance also be completed by the group, such as resurfacing the apron and taxiways. The airport operations themselves, with an estimated number of passenger seats in excess 600,000 in 2007, has generally been hailed as the best run airport in the country’s system – yet none of the required infrastructure investment and upkeep has been seen in over 10 years, with conditions deteriorating.

Figure 2.5 Countries with private sector participation in airport. The grey countries are the only countries with recorded deals in the PPIAF database, and span all market sizes.

Source: PPIAF database

Overall, there are very few recorded public-private partnership (PPP) transactions with airports in Africa. Table 2.8 shows currently documented partnerships. A topological view of these transactions are found in figure 2.5, which shows that attempts at private sector participation has happened in all market sizes – from Cameroun, a thin market with below one million seats a year, to Tanzania, with more than one million seats, and of course South Africa, the largest market in Sub-Saharan Africa.

An extensive discussion of PSP models in airports can be found in Privatization and Regulation of Transport Infrastructure – Guidelines for Policymakers and Regulators²¹. In a very short summary, there are generally four types of ownership and operations schemes listed: (1) Public Ownership and Public Operations with Commercial Orientation, (2) Regional Ownership and Operations (“regional” referring to regional within a country), Public Ownership with Private Operations (with many different sub-types), and (4) private operations.

The third model, public ownership and private operations, can be split into several sub-types, including joint ventures, partial/majority divestitures, management contracts, and various variants of concession contracts.