Is Privatization of an Airport an Alternative to Closure For Cash-Strapped Airport Proprietors?

Back in May, 2010,the FAA notified  Gwinett County, Georgia, that it would be considered for the FAA’s  airport privatization pilot program. Based on that finding, Gwinnett County issued a Request For Qualifications on Thursday, July 8, 2010, for privatizing its airport, Briscoe Field.  Although Briscoe Field is an active “general aviation reliever” airport, with 83,458 aircraft operations and 236-based aircraft for the most recent 12-month reporting period ending March 2009, it is the first General Aviation airport to apply for privatization under the FAA’s airport privatization pilot program.  And, it should be pointed out, that one of the attractions of Briscoe Field to a private owner is the fact that the airport could be expanded to accommodate 10 gates for scheduled service from regional carriers.

However, the question cash-strapped proprietors of general aviation airports should be asking is whether privatization will resolve some of their financial problems, even if the airport cannot be developed into a 10-gate regional carrier airport.  Many municipalities who own airports are looking for ways to either unload their airports or monetize them in such a way that they do not suck tax-revenue from other more important services, like police and fire protection.  Lorain County, Ohio, and St. Clair, Missouri, for example, have seen that the FAA does not favor closing airports, even if the entity owning the airport cannot afford to keep the airport operational or there are better, higher uses of the property that would produce much more revenue than an airport.  Indeed, the FAA seems to effectively bar closure for federally-obligated airports by stating in FAA Order 5190.6B that “[t]he nonaviation interest of the sponsor or the local community – such as making land available for economic development – does not constitute an airport benefit that can be considered in justifying a release [from the airport’s grant obligations] and disposal [of the airport].” FAA Order 5190.6B, p. 22-18.  Although potentially not as lucrative as closing the airport down and pursuing other forms of economic development, privatization may offer a real choice for municipalities trying to figure out what to do with their underperforming airports.

This is not to say that the path to privatization is easy, but at least it is a path that has known steps and is sanctioned by the FAA.  Established in 1996, as part of the Federal Aviation Administration Authorization Act of 1996, the FAA was authorized by Congress to establish a pilot program for the privatization of airports.  The Privatization Pilot Program, which applies only to sale or lease of a publically owned airport to a private investor:

  1. Gave the U.S. Secretary of Transportation the discretion to waive the revenue diversion restriction, permitting a necessary “reasonable rate of return” as an incentive for private investors.  49 U.S.C. § 47134(b)(1)(A);
  2. Authorized participation in the pilot program by up to five airports, limiting participation to one large-hub airport, and requiring participation by at least one general aviation airport.  49 U.S.C. § 47134(b);
  3. Limited the form of privatization for commercial service airports to a long-term lease, although a General Aviation airport could be sold. 49 U.S.C. § 47134(a);
  4. Gave the Secretary the discretion to exempt a local airport operator or buyer from assurances that would have otherwise required the repayment of past federal grants and/or reimbursement to the government for the value of federal land acquired by the airport sponsor.49 U.S.C. § 47134(b)(2); and,
  5. Required that such exemptions had to be approved by 65% of the airlines serving the airport and by airlines representing 65% of landed weight or, at nonprimary airports 65% of the based aircraft owners. 49 U.S.C. § 47134(b)(1)(B).

See, generally, 49 U.S.C. § 47134.  Airport sponsors interested in participation in the Privatization Pilot Program must undergo an extensive application process that begins with the filing of a preliminary application.  The preliminary application consists of:

  1. A description of the parties to the transaction, at least as much as is known at the time of the filing of the preliminary application;
  2. A summary narrative of the objectives of the privatization initiative;
  3. A description of the process and a reasonable, realistic timetable to be employed in selecting an operator and completing transfer of the airport;
  4. A description of the airport property that will be subject to the lease;
  5. Financial statements including balance, income and cash flow statements for the last two reporting periods; and
  6. A distribution ready copy of the request for proposals for the management and operation of the airport.

62 Fed.Reg 48693, 48706 (Sept. 16, 1997).   The FAA reviews the preliminary application, aiming to inform the airport sponsor within 30 days if the information is sufficient.  If it is, the airport is deemed to have encumbered one of the available slots, and the airport sponsor may issue a Request for Proposals, select a private operator, negotiate an agreement, and submit the final application to the FAA for approval.

To obtain FAA approval, applicants for privatization must demonstrate how they expect to meet a number of goals designed to protect the public investment and interest in airports and to equitably treat the airlines serving them.  Under 49 U.S.C. § 47134(c), the private airport operator is mandated to:

  1. Continue to make the airport available on reasonable terms without unjust discrimination;
  2. Submit a plan that shows how the airport will be maintained, improved, and modernized;
  3. Keep rate increases under the rate of inflation unless a higher fee is approved by 65% of the airlines serving the airport;
  4. Mitigate the adverse effects of noise and other adverse environmental effects of aircraft and airport operations to the same extent as required of publicly owned airports; and,
  5. Retain any collective bargaining agreement with airport employees.

49 U.S.C. § 47134(c).  The Final Application is filed after the public sponsor has selected a private operator and reached sufficient agreement with the operator on the terms of the transaction to represent those terms in an application.  Although the terms of the agreement need not be finalized prior to submitting the Final Application, they should be provided to the FAA as soon as they are available.  The Final Application, as one would expect, is much more comprehensive than the Preliminary Application.  It consists of eight parts:  (1) a description of the parties to the transaction; (2) a description of the airport property, including a history of the acquisition of the existing airport property; (3) terms of the transfer, which includes a detailed description of the non-financial terms, the financial terms; copies of all documents executed as part of the transfer; (4) qualifications of the Private Operator; (5) actual requests for exemption; (6) certification of air carrier approval; (7) airport operation and development; and (8) assent to periodic audits by the FAA.  62 Fed.Reg. 48706-46708 (Sept. 16, 1997).

Unfortunately, the statute only makes allowance for 5 airports, and, as of June 1, 2010, there are four active applications in the program:

  • Chicago Midway International Airport
  • Gwinnett County Briscoe Field
  • Louis Armstrong New Orleans International Airport
  • Luís Muñoz Marín International Airport

Thus, only one position remains available for a non-large hub or general aviation airport.  However, that should not deter General Aviation airports from pursuing their options by privatizing.  There are other ways to successfully privatize an airport separate and apart from the pilot program.  The pilot program provides a roadmap as to what it is the FAA is looking for when a privatization program is presented to the FAA.  However, if an airport proprietor is thinking about privatizing, then it should move forward quickly to obtain the last spot in the pilot program.

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One Response to Is Privatization of an Airport an Alternative to Closure For Cash-Strapped Airport Proprietors?

  1. Pingback: Trains Planes & Autos » US Airport Privatization

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