Airport Privatization

The possible sale or lease of commercial airports in the United States to private companies has generated considerable interest in recent years. Such cities as New York and Los Angeles have considered privatizing their airports. Proponents claim that privatization would inject much needed capital into the aviation infrastructure, while opponents argue that local governments favor privatization as a way to divert airport revenue intended for developing aviation infrastructure to other municipal purposes, resulting in higher costs for airlines and passengers. This report examines the (1) extent of private sector participation in commercial airports in the United States and foreign countries; (2) incentives and barriers to the sale or the lease of airports; and (3) potential implications for major stakeholders, such as the passengers, the airlines, and the government, should airports be sold or leased.

GAO found that: (1) none of the nation's commercial airports has ever been sold to the private sector, and only one has ever been leased, nevertheless, employees of private companies including airlines, concessionaires, and contractors account for 90 percent of all employees at the nation's largest airports; (2) the largest source of capital for airport development is long-term bond debt secured by future airport revenue and subject to the scrutiny of credit rating agencies; (3) in other countries, a majority of airports are owned and operated by their national governments, but 50 countries have sought greater private sector involvement in their airports; (4) several factors, such as providing additional private capital for development, are motivating greater interest in privatization, but legal and economic constraints impede the sale or lease of U.S. airports; (5) although FAA has permitted and even encouraged some limited forms of privatization, it has generally discouraged the sale or lease of an entire airport to a private entity; (6) FAA proposed policy on the use of airport revenue states that FAA will consider privatization proposals on a case-by-case basis and will be flexible in specifying conditions on the use of airport revenue that will protect the public interest and fulfill restrictions on diverting revenue without interfering with privatization, but FAA has not specified these conditions; (7) predicting how various stakeholders might be affected by the sale or lease of airports largely depends on how such privatization might ultimately be implemented; (8) recognizing the barriers to and the opportunity to test the potential benefits of privatization, Congress established an airport privatization pilot program and, as of October 9, 1996, the Secretary of Transportation can exempt up to 5 airports from some legal requirements that impede their sale or lease to private entities; and (9) the pilot program also requires that a sale or lease agreement meet certain conditions, such as requiring that the private owner or lessee maintain airport safety and security at the highest levels.