ATLANTA — As airports across the country grow they are increasingly looking toward a new engine to drive the growth: private investment.
Overseas, many airports are run by investor-owned companies, including London Heathrow, Frankfurt, Paris — Charles DeGaulle, Osaka and Sydney.
“There’s certainly a long-term, 30-year global trend that’s continuing,” said Bob Poole, director of transportation policy at the Reason Foundation and an advocate of airport privatization.
Airports are facing expensive expansion projects to add terminals and gates for a growing number of travelers.
This year, Congress as part of a broader Federal Aviation Administration reauthorization bill passed legislation for private investment in all or part of an airport through long-term leases, expanding beyond a federal pilot program for airport privatization. Privatization would still require airline and FAA approval.
In St. Louis, Mo., city officials are studying whether to privatize St. Louis Lambert Airport. Other airports including New York’s John F. Kennedy and LaGuardia, and Los Angeles International, have struck smaller public-private partnerships for terminal upgrades or for a new automated people-mover train.
“One of the trends is to say, ‘Well, maybe I can get the upfront money from a private entity, and I will turn that asset over to them for a period of time, and at the end of that period they will turn that back to me in good condition,’” said Steve Van Beek, head of North American aviation at consulting firm Steer.
At Hartsfield-Jackson International in Atlanta, officials have spent years planning a few smaller public-private partnership projects, including a hotel next to the terminal, a recycling and composting facility, and a cargo facility.
But those projects have taken years longer than expected to complete.
The idea of an airport hotel in Atlanta has been in the works since 2014. By late 2015, a winning team, Majestic Carter Atlanta Mixed Use, was chosen for the contract with plans to build an InterContinental Hotel.
In early February 2016, then-Atlanta Mayor Kasim Reed said the hotel would be completed in about two years. Later that year, Reed, airport officials and the developers held a press conference to lay out plans for the “grand facility.”
Now, 34 months after February 2016, the hotel has not yet begun construction.
Current airport general manager John Selden says the project is awaiting work by the private development team.
“We’re waiting on their due diligence for their financing,” Selden said. “They’re on their third extension.”
Developer Majestic Realty said it has secured financing and is “on track to break ground next year,” according to a statement from senior vice president Barry McCabe.
The composting and recycling facility project, known as Green Acres, has been in the works since at least 2013. At the time, it was expected to take at least until 2015 to complete the composting facility.
It took four attempts to successfully attract proposals from firms for a contract award.
In October 2017, the airport selected Green Energy and Development Inc., to develop the Green Acres facility with a 30-year lease. Construction has not yet begun.
The challenges lie with the “new technology. You’re talking about indoor recycling, composting, creating fertilizer, creating feed with waste from the airport,” Selden said. “It’s a challenge. You’ve got to make sure you have the right business model.”
For the cargo facility development project, the airport plans to prepare the site and soon solicit private firms interested in designing, building, operating and maintaining a cargo facility.
The public-private model allows an airport to foist the cost of development and the risk onto a private company.
But, “you don’t make as much revenue with a P3 (public-private partnership),” Selden said. “My feeling is if you have the capital dollars to do it yourself, I think your return on your investment is greater.” In Atlanta and most airports with federal funding, airport revenue must be used for airport expenditures and cannot be diverted to other uses like schools or city streets. But New York was grandfathered into an exemption from the full federal restrictions prohibiting diversion of airport revenue.
As a result, money generated by the three major airports in New York “may help build the World Trade Center, the bus terminal… but a lot of the money goes to the PATH Train. The PATH Train loses a lot of money,” Selden said. “That’s why you see all the (terminal) P3s there, because they’re capital constrained.”
A terminal is key to an airport’s operations, Selden said. In Atlanta, he said, “Do we really want to let somebody build a concourse here? If you can build the terminal … I think there’s more money to be made.”
Pros and cons
One of the more controversial Georgia examples of an airport public-private partnership is a long-term lease that Paulding County’s airport authority struck with New York developer Propeller Airports to expand and commercialize the county’s airport.
That project stalled, but Propeller is working on a similar project attracting commercial airline flights to a second airport in the Seattle area called Paine Field.
In areas with only one commercial airport, “in a way it invites” private investors who see opportunity to develop a second airport, said Van Beek. “I do see it as a trend.”
But, if the “hub carrier’s a bit of a junkyard dog politically, then that’s going to be more vulnerable to challenges,” he said.
In Atlanta, Delta Air Lines has been a leading opponent to Propeller’s plan to develop a second airport that might compete with its hub at Hartsfield-Jackson. Delta has also come out against an effort by the state Senate to look at creating an authority to take over the Atlanta airport.
State Sen. Burt Jones, who chairs the study committee looking at the state airport takeover idea, said some private investment groups have reached out to him and “they did say there was probably a big opportunity in Hartsfield ….. The concept sounds intriguing,” he said.
In response to a query about privatization and public-private partnerships, Delta said it “effectively works with all varieties of airport governance structures at facilities across the world,” according to a written statement.
One prominent advocate of airport privatization globally is former Hartsfield-Jackson general manager Angela Gittens.
Gittens, who ran the Atlanta airport from 1993 to 1998 and today leads industry group Airports Council International, issued a statement in June saying there is “a global need to finance new airport infrastructure and if government spending cannot be relied upon as it has been in the past then there is ample evidence of the value created by private investment in airports around the world.”
There is private sector participation in 51 of the 100 busiest airports in the world, according to ACI.
But others are more skeptical.
In the U.S., whole airport privatizations are unlikely and “can have more adverse long-term outcomes for the public,” according to Fitch Ratings managing director Cherian George. More likely to happen is increased use of public-private partnerships, according to George.
An airline industry group, the International Air Transport Association, has voiced opposition to airport privatization.
IATA CEO Alexandre de Juniac issued a statement in June saying “it is wrong to assume that the private sector has all the answers. Airlines have not yet experienced an airport privatization that has fully lived up to its promised benefits. over the long term….. Selling airport assets for a short-term cash injection to the treasury is a mistake.”
But in some cases, Poole said officials may be motivated by the opportunity to free up money from an airport by leasing out the airport to a private firm, and using the revenue for other infrastructure or to shore up public pension funds.
“Those are reasons we may see growth in airport privatization,” Poole said.
Smaller public-private partnership projects may be a “a first step” toward airport privatization, he said.
“The whole idea is still foreign to most government officials,” Poole said. With a growing number of airport investment firms expanding globally, “I think we’ll see other examples where other companies get involved. And gradually, familiarity builds, and it won’t seem outlandish at some later date when the subject of the whole airport comes up.”
Tribune News Service