[Editor’s Note: This is part one of a multi-part series.]
In Europe and other places around the world, privatization of leading airports is a long-established fact.
In the United States, the number of commercial airports in private operating hands is zero. Not that some airports, or portions thereof, haven’t flirted with the concept of placing the management of those public assets in private hands. But, for a variety of reasons, those deals have fallen through.
Make no mistake. If it happens, the privatization of St. Louis Lambert International Airport will be precedent-setting. Whether the example turns out to be a resounding success or a boondoggle is a matter of debate.
Not surprisingly, there are strong views on both sides of the issue.
The path leading to airport privatization isn’t new. For example, a number of activities at Lambert, including its concessions and parking, already are handled by private companies, albeit with oversight by the airport’s own management.
Some 7,000 people work at Lambert but the airport directly employs only about 530 of that number. In addition to parking and concessions operations, the major and regional airlines and air freight carriers also employ a substantial percentage of the total work force.
In 1996, the door opened to the type of full-scale private operation now being considered for Lambert. That initial step – limited to just five airports – came with passage of legislation authorizing the Federal Aviation Administration [FAA] to establish an airport privatization pilot program.
A 2012 bill increased the potential number of airports to 10, while a 2018 measure removed the limitation on the number of participating facilities. With this action effectively ending the pilot program, the new arrangement now is known as the Airport Investment Partnership Program [AIPP].
Since the privatization concept became available 23 years ago, only one airport in the continental United States has completed the lengthy process for being operated by a non-public entity. Late in 1999, Stewart International Airport in the Hudson River Valley about 60 miles north of the Manhattan area was leased to a subsidiary of the UK-based National Express Group [NEG]. The company paid $35 million for a 99-year lease and subsequently made $10 million in capital improvements to the facility.
But the transaction’s timing proved to be ill-fated. Not only did NEG soon opt to realign its corporate priorities to bus and rail activities, Stewart also suffered from the significant cutbacks in air service following 9/11.
After seven years of operation, NEG sold the lease to the Port Authority of New York and New Jersey for $78.5 million. The price enabled the company to recoup its investments and record a sizable capital gain.
A 2012 in-depth examination by the Transportation Research Board, under FAA sponsorship, looked both at what has sparked interest in airport privatization and why it hasn’t become a trend across the nation.
Known as the Airport Cooperative Research Program [ACRP] Report 66, the document cited privatization’s potential benefits, including accessing private capital for development, stimulating air service and airline competition, more innovation and creativity in gaining non-airline revenue, enhanced customer service, long-term efficiencies in operating and maintenance and de-politicizing airport decision making.
All levels of government face a host of financial challenges today, including declining revenues, higher pension costs, the growing tab for employee health care coverage, other infrastructure projects and financial needs of various social and safety net programs.
Privatization is one answer – taking a city-owned asset and monetizing it by making it available for private business operation. For the city of St. Louis, which owns and operates Lambert, the airport is a valuable asset. Estimates of what a private company might bid for a long-term lease to operate the facility range up to a billion dollars or more.
Under the AIPP, commercial service airports such as Lambert [and Stewart] can only be leased.
Lambert today is the only commercial airport in the continental United States involved in any phase of the AIPP. St. Louis received FAA approval of its preliminary application in 2017 and since then has been taking the required steps toward a privatization decision.
Why aren’t more airports investigating privatization? The ACRP Report 66 lists a number of factors, including:
• The historic pattern of public ownership of airports and the desire of government owners to retain control.
• Availability of federal and, in some cases, state grants and loans to governmental owners.
• The ability to impose and require airlines to collect passenger facility charges, which provide a funding source.
• The exemption from property taxes for municipal owners.
• Access to low-cost, tax exempt bonds for financing capital expenditures.
• Constraints possibly imposed in collective bargaining agreements and contracts with airlines.
Meanwhile, operations at Lambert have been on the upswing. As of September, the operation has recorded 49 consecutive months of passenger growth.
Passenger numbers reached 1,307,068, a 3.4% jump from the September 2018 total. Cargo flights also recorded a 9.2% increase with 130 departures this year compared with 119 last year.
The growth was due to a new daily flight for Amazon operated by any one of three cargo airlines – Atlas Air, ABX or Air Transport.
Another factor has been the growing number of connecting passengers. Through September, the increase in connecting enplanements has been more than 4%, accounting for a connecting passenger base of nearly 1.4 million passengers.
“The economy definitely has been stronger locally, but the biggest factor has been our relationship with Southwest Airlines,” Rhonda Hamm-Niebruegge, Lambert’s director, said. “Starting about five years ago, we began working with Southwest to increase the airline’s connecting passenger volume here. We started in 2015 with three connections and have increased that number substantially since then.”
Southwest now accounts for some 60% of Lambert’s passenger volume, according to operating reports.
Another favorable trend has been the reduction in long-term bonded indebtedness. Lambert’s long-term debt now stands at just under $600 million. But with the pay down scheduled over the next seven years, the amount of revenue needed annually to service debt will drop significantly.
Earlier this year, S&P Global Ratings rewarded the airport by raising its rating on outstanding revenue bonds to “A” from “A-”, citing “a very strong management team that has sufficiently managed risks to ensure the airport’s steady financial and operational performance.” Fitch Ratings made a similar change in October.
With such favorable results, a logical question is why anyone would want to change a good thing by steering into the unknown skies of airport privatization. It’s a question local attorney Gerald Ortbals has pondered. Ortbals was chief of staff for former Gov. Joseph Teasdale, is a former president of the Bar Association of Metropolitan St. Louis and is associated with the local Bryan Cave Leighton Paisner, LLP law firm.
“Privatization is an interesting concept …as long as it’s done the right way,” Ortbals said. “But there are some alternatives that I would hope would be considered, including a more regional approach in the decision making.”
Ortbals explained that while the city of St. Louis owns Lambert, airport revenues generated from passengers outside the city have been and still are a much greater percentage of the whole and that those outside the city also have an obvious stake in the privatization issue.
“Yes, restarting the process with regional involvement would be difficult. But if the political will was there, it could happen. And I think the St. Louis region would be better off because of it,” Ortbals said.