Congress proposes doubling of airport privatisation programme

A provision buried inside a 306-page aviation bill passed by the House of Representatives would dramatically re-shape the landscape for airport privatisation in the US, doubling the number of public airports that could be leased or sold and making it easier than ever to accomplish such a deal.

The provision, inserted in to the House version of a multi-year budget for the Federal Aviation Administration, would expand the FAA’s airport privatisation programme to ten slots from five, according to the bill, which passed the chamber Friday by a 223-196 vote.

The expansion means a public airport owner looking to privatise would be “more likely to take advantage” of the programme, said DJ Gribbin, a managing director at Macquarie Capital in New York, because they’d have more certainty of landing an open slot. Currently, four of the five slots are claimed.

Equally significantly, the airports that could be privatised under the provisions could be larger: current regulations allow only for the privatisation of one large hub, or airport serving more than 1 percent of the country’s daily boardings. Under the new rules, all of the slots could go to large hubs or smaller airports.

“There is no question that these provisions are a significant liberalisation,” said John Schmidt, a partner at law firm Mayer Brown, which represented the City of Chicago on its ultimately unsuccessful bid to privatise Midway Airport in 2008.

And no longer would a public airport owner looking to privatise an airport need to get 65 percent of the airlines serving the airport to agree to a privatisation. Under the new rules, the owner would simply have to “consult” with the airlines on a privatisation scheme – not win over the current 65 percent super-majority.

“I don’t think the elimination of the airline approval is in any sense going to completely free up airports or public entities that own airports from dealing with airlines,” Schmidt said. “But it will certainly make it easier.”

Getting to the 65 percent threshold has taken significant time in the past. When Chicago sought to privatise its Midway Airport under the FAA’s pilot privatisation programme, it took nearly two years to build the consensus necessary to move ahead with the process.

In 2007, Department of Transportation officials pushed to liberalise the programme and increase it in size to fifteen slots from five, but their effort didn’t pan out. Former Democratic Representative James Oberstar, who chaired the House Transportation and Infrastructure Committee until this January when Republicans took over, opposed such a move.

The committee’s new Republican Chairman, John Mica has taken a less skeptical stance toward private investment in infrastructure than Oberstar. Mica served as the chief sponsor of the FAA bill in the House, a position that gave him great leverage in deciding what goes into it.

However, the pro-private investment provisions could still get eliminated from any final bill that makes its way to President Barack Obama for a signature. Before that can happen, Congress must first iron out differences between the House and Senate versions of the bill, and the Senate version – which passed by an 87-8 vote in February – did not include similar provisions.

A decision on the bill could come soon. Prior to the Senate vote, Congress had already extended the old version of the FAA bill, which expired in 2007, 17 times. A final, short-term extension passed in March, effectively forcing a deadline of 31 May for the finalisation of a new bill in order to avoid a new extension.

Launched in 1997, the pilot privatisation programme to date has only resulted in one completed privatisation, that of New York’s Stewart Airport, in 2000. But six years later, the private concessionaire decided to quit the airport management business and eventually New York State repurchased Stewart for $78.5 million.

Since then, Chicago came closest to a successful transaction when it got a $2.5 billion offer for Midway in 2008. But the transaction fell apart in 2009 because the private concessionaire could not raise the cash needed to fund the $2.5 billion payment.

Today, Midway, along with two small airports in Georgia and Florida, occupy slots in the privatisation programme. Puerto Rico’s Luis Munoz Marin International Airport in San Juan occupies the fourth of the five available spots.