The Airport Privatization Pilot Program Has Resulted in Few Privatizations

		Airports That Participated in APPP Sought Financial or Economic Benefits

Since the FAA started accepting applications in 1997, 10 airports (5  commercial service and 5 general aviation or general aviation reliever  airports) have applied to the pilot program. Those 10 airports are  identified in figure 3. Public-sector airport owners’ objectives for full  privatization varied; however, the overriding reason for privatization for  nearly all applicants was to gain some financial benefit. Airports despite APPP

Financial considerations reduce both public and private sector demand  for privatizing airports in the U.S. as demonstrated by only two airports  successfully completing the privatization process under the APPP since  1997.operator must be able to make a profit and the public-sector airport owner  must believe that more will be gained than lost in the transaction. Potential Effects of Airport Privatization Are Difficult to Determine

We found that the potential effects of airport privatization on airport  efficiency, the Federal Airport and Airway Trust Fund, federal tax  revenues, and airport employees and concessionaires are difficult to  estimate. The factors that would  determine the net effect of a full airport privatization on federal tax  revenues include: whether the government owner of the airport provides tax-exempt  financing for the airport facilities through qualified private activity  bonds under the privatization arrangement;  the type of entity the new investor is and, if it is a pass-through  entity such as a partnership, the type of taxpayers its partners  are;  the profitability of the new investor, as determined according to  federal tax rules; the extent to which the taxable incomes of independent  concessionaires operating at the airport are affected by the  privatization;  the amount of federal taxes, if any, that the investor would have  paid on income from the alternative investment it would made if it  did not participate in the airport privatization; and the use that the public owner makes of whatever payment it  receives from the investor. Airport Privatization Is More Prevalent in Other Countries and Stakeholders’ Views on Privatization Vary Widely

		Different Airport Ownership Structures, Motivations, and Financing Drives Airport Privatization in Other Countries

There are several reasons why privatized airports are more prevalent in  other countries than in the United States. At least 450 airports around the  world have some form of private-sector participation in their management  or ownership. Meanwhile, instead of privatization under the APPP, many public- sector airport owners have engaged the private sector through a variety  of partnerships ranging from management contracts to development  agreements to help reduce costs, improve services, and obtain capital  investment without transferring airport control. Agency Comments

We provided a draft of this report to DOT for its review and comment. DOT also provided technical  comments which we incorporated as appropriate. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to examine (1) the experience with the  APPP since inception; (2) the challenges airport owners and investors  face when seeking to privatize U.S. airports within and outside the APPP;  (3) the potential effects of airport privatization; and (4) the lessons that  can be learned from U.S. and international airports that have been  privatized. We reviewed the legal  history of the APPP including the original legislation creating the program  and the 2012 FAA reauthorization law that modified the program. We selected these  stakeholders based on our review of the public docket documents for  applicants to the APPP, our prior work on airports, and the stakeholders’  work on U.S. or foreign airport privatizations. The results of these interviews are not generalizable. We reviewed the United  Nation’s International Civil Aviation Organization’s country reports on  airport and air navigation service privatization reports for 25 countries to  determine basic elements of airport privatization initiatives around the  world as well as ACRP’s and CRS’s recent reports on airport privatization  in the U.S.
Out of the 42 total stakeholders we interviewed (see table 1 below), 31  (airport stakeholders from the FAA, public-sector airport owners, airlines,  and private-sector airport owners, operators and consultants) mentioned  lessons learned from airport privatization in the United States or abroad.
Why GAO Did This Study

Nearly all the 3,330 airports in the national airport system in the United States are publicly-owned and operated. However, some argue that the private sector could better fund and operate airports than public owners. GAO reported in 1996 that many barriers to full privatization existed in the United States. In 1996, Congress created the APPP which reduced some of the barriers to privatization. However, over the program's 18 years only two airports have privatized and one of them has reverted to public control.
To better understand airport privatization, GAO was asked and mandated to review several aspects of privatization. Specifically, this report describes (1) the experience with the APPP; (2) challenges airport owners and investors face to full airport privatization; (3) the potential effects of airport privatization; and, (4) reasons why airport privatization is more prevalent outside of the U.S. and stakeholder views on the APPP.
GAO reviewed airport application and docket information and interviewed applicants. GAO also interviewed 42 airport stakeholders including airports, airlines, airport consultants, labor groups, and private airport operators and financiers to gain their views on airport privatization in the U.S. and other countries. This non-generalizable group was mainly selected from our review of APPP docket documents and our prior work on airports.
DOT reviewed a draft of this report and provided technical comments which were incorporated as appropriate.

What GAO Found

Since the FAA started to accept applications to the Airport Privatization Pilot Program (APPP) in 1997, 10 airports have applied to the pilot program (see figure). Of these 10, 2 were privatized, 7 did not complete the program, and one application is currently under FAA review. Public-sector airport owners' objectives for full privatization varied, but the overriding reason cited was financial benefit. The 7 applicants that withdrew did so for varied reasons, such as changes in market conditions that reduced expected privatization benefits.
Several factors reduce both public and private sector interest in airport privatization in the U.S.—such as higher financing costs for privatized airports and the possible lack of state and local property tax exemptions. Also, while the APPP reduces some of the challenges to privatization that we identified in 1996, privatization still requires considerable time and cost to navigate. Furthermore, public sector airport owners have found ways to gain some of the potential benefits of privatization without ceding control under full privatization, such as entering airport management contracts and joint development agreements for managing and building an airport terminal.
The potential effects of airport privatization on airport efficiency, the federal aviation trust fund, federal tax revenues, and airport employees and concessionaires are difficult to determine. Privatization's impact on these areas depends on many different factors such as how each airport privatization is structured, making it difficult to estimate the overall impact.
Different airport ownership and financing structures and motivations have driven more extensive overseas privatization efforts, as at least 450 airports around the world have been privatized to some degree. Stakeholders mentioned a variety of lessons learned from the U.S. and international experience, including ensuring public-sector due diligence, involving all stakeholders and creating a transparent privatization process. Stakeholders also provided a range of suggestions for modifying the APPP, from increasing the clarity of the program's rules to reducing the federal role in airport privatizations.