All of these sources of capital are affected by federal policies. Objectives, Scope, and Methodology

Because of continuing widespread interest in airport privatization, the Chairman and Ranking Minority Member of the Subcommittee on Aviation, House Committee on Transportation and Infrastructure, requested that we undertake a study to examine the current extent of private sector participation at commercial airports in the United States and foreign countries; the current incentives and barriers to the sale or lease of airports; and the potential implications for major stakeholders, such as the passengers, airlines, and local, state, and federal governments, should airports be sold or leased. At the Largest Airports, Most Services Are Provided by the Private Sector

Most of the people working at the nation’s largest airports are employed by the private sector. To Attract Private Capital, Airports Must Demonstrate That Revenue Will Be Sufficient to Cover Debt Payments

The use of private investment funds, such as bonds, is subject to the scrutiny of credit rating agencies. 1.2). However, considerable legal barriers currently block the sale or lease of U.S. airports. First, they note that private entities would provide additional private capital to help finance airport development. Few Public Sponsors Have Sustained Efforts to Sell or Lease Commercial Airports in the United States

As of October 1996, only one of the ten attempts by public owners to sell or lease U.S. commercial airports to a private entity has been successfully implemented (see table 3.1). However, the proposal also states that FAA does not intend to discourage privatization and will consider privatization proposals on a case-by-case basis. The proposal further states that the FAA will remain open and flexible in specifying conditions on the use of airport revenue that will protect the public interest and fulfill revenue diversion restrictions without interfering with privatization. However, FAA has not specified these conditions. Implications of the Sale or Lease of Airports for Various Stakeholders Depend on Several Factors

How the sale or lease of airports would affect local and state governments, airlines, passengers, and the federal government depends on several factors, including how privatization is implemented, how privatized airports might be regulated, and the unique characteristics of each airport, such as its size and future revenue potential. The Congress recently established a pilot program for airport privatization. Up to five airports can participate in the pilot program. Also, the Secretary must determine that the sale or lease agreement would meet several conditions, including the following: the airport would remain available to public use; airport operations would not be interrupted if the operator went bankrupt; the private owner or lessee would maintain and improve the facilities; airline fees would not increase faster than the rate of inflation, unless a higher amount is approved by 65 percent of the airlines that service the airport; general aviation fees would not increase faster than airline fees; safety and security would be maintained at the highest levels; and noise and environmental effects would be mitigated to the same extent as at a publicly owned airport.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed issues relating to airport privatization in the United States, focusing on: (1) the extent of private sector participation at commercial airports in the United States and foreign countries; (2) incentives and barriers to the sale or lease of airports; and (3) the potential implications for major stakeholders, such as the passengers, airlines, and local, state, and federal governments, should airports be sold or leased.

What GAO Found

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.