Considering and Evaluating Airport Privatization (2012)

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60 Some forms of private sector involvement do not fit into the generic models discussed earlier, but are worthy of men- tion and are described here. 7.1 Green-Field Private Airport Development As indicated earlier, the direct and indirect federal con- trols on airports are largely the result of federal financial assistance to the airport. The legal structure applicable to an airport developed on a green-field site by a private entity without federal financial assistance is dramatically different. The private developer/operator would not be constrained by the grant assurances, statutory requirements applicable only to public entities (e.g., the Anti-Head Tax Act or AHTA), and statutory requirements applicable to entities that have received federal assistance at some point in the past (e.g., the statutory prohibition on revenue diversion found at 49 U.S.C. § 47133). Further, while it is possible that a private airport developer/ operator would be deemed a “state actor” responsible for guaranteeing the rights and protections afforded by the U.S. Constitution (e.g., on the basis that operating a public-use air- port is a public function), private airport developers/operators are less likely to be deemed bound by the U.S. Constitution. If subject to the Constitution, a private airport developer/ operator’s rates and charges likely would need to satisfy the rather favorable standard applied to public airport owners prior to the enactment of the AHTA.67 Freed from these constraints, a private developer/operator could, for example, do the following: 1. Impose user fees directly on passengers, likely subject to constitutional limits.68 2. Permit only certain air carriers to serve the airport. 3. Divert revenue from the airport. At the same time, a private developer/operator would not enjoy several of the benefits and protections afforded govern- ment entities. In particular, the private developer/operator would not (1) be able to issue tax-exempt debt, (2) be eli- gible for state constitutional and statutory exemptions from property taxation, and (3) enjoy state action immunity from liability under the federal anti-trust statutes. There have been a few examples of private airport devel- opment of airports, most of which have been for general aviation airports. 7.1.1 New General Aviation Airport There are numerous examples of privately developed general aviation airports in the United States. For example, Houston Executive Airport was built with private funds by WCF, LLC, which was founded by a Houston-area pilot and business executive. The airport is located 28 nautical miles west of the central business district of Houston, comprises 1,280 acres, has a 6,610-foot runway, and offers aircraft hangars and business aviation terminal facilities. The airport is designed for the business aviation community and general aviation pilots (not for commercial Part 121 carriers) as an alternative to the area’s more crowded commercial service air carrier C h a p t e r 7 Other Examples 67See Evansville-Vanderburgh Airport Auth. v. Delta Airlines, 405 U.S. 707 (1972) (The U.S. Supreme Court held that a fee is constitutional if it (1) is based on some fair approximation of the use or privilege, (2) does not discriminate against interstate commerce, and (3) is not excessive in comparison with the benefit conferred.). 68In considering the legality of an “airport facility charge” imposed by the private operator of the Branson Airport, DOT found that neither the AHTA nor the PFC statute applied, since the airport operator was not a public entity, but reserved judgment on whether the “reason- ableness” requirement of 49 U.S.C. § 47129 applies to a private airport operator. Letter from S. Podberesky, DOT, to G. Wicks re: Branson Airport’s Airport Facility Charge Request (Jan. 16, 2009).

61 airports. Construction started in November 2005 and the air- port opened in January 2007.69 7.1.2 New Passenger Commercial Service Airport Branson Airport is the only privately owned commercial pas- senger airport in the United States. It was built as a new airport on a green-field site by private investors to be operated as a for- profit business without the aid of federal or state grants. The airport opened in May 2009 with a 7,140-foot runway capable of handling 737s and 757s, a modest 40,000-square-foot ter- minal with four ramp loading gates, a contractor-operated control tower, and extensive general aviation facilities to serve the popular country-western music and entertainment tour- ist destination of Branson, Missouri. Prior to its opening, the nearest airport with scheduled service to Branson was 52 miles away (in Springfield) and offered virtually no service by low- cost carriers. A group of entrepreneurs created Branson Airport LLC, acquired a parcel of land in Branson, received airspace approv- als from the FAA, negotiated a 30-year agreement with the City of Branson to pay the airport $8.24 for each arriving visitor (with an annual cap of $2 million), and raised $27 million in equity and $111 million in tax-exempt revenue bonds to pay for the airport development. The $8.24 per arriving passenger represents a subsidy from the city’s general fund for the pri- vate airport. Branson Airport LLC retained Aviation Facilities Company, Inc. (AFCO) to oversee construction of the airport. Because Branson Airport LLC did not accept federal AIP grants for the airport, it is not constrained by FAA grant assurances. As a result, Branson Airport LLC has been able to offer airlines exclusive rights to provide commercial ser- vice from specific cities to the airport. In return, the airlines are required to offer low fares that are negotiated between Branson Airport LLC and the individual airlines. For example, Branson Airport LLC signed up AirTran for exclusive service to Atlanta and Milwaukee as well as Sun Country for service to Minneapolis-St. Paul and Dallas. Branson LLC and its affili- ated travel agency also started a scheduled charter service with ticket prices they determine in consultation with the airports at the other end of the routes. In addition, Branson Airport LLC signed an exclusive rental car agreement with Enterprise Rent- A-Car, which is unusual in the airport industry. However, although Branson Airport LLC may assess an air- port facility charge on passengers using the airport, air carriers are not permitted to separately list an airport-assessed airport facility charge from their advertised fares for air transporta- tion to and from the airport (a PFC, in contrast, is separately listed from the base ticket price). According to the U.S.DOT, because the company will be operating the airport as a private entity, the airport facility charge is not a government-imposed charge and may not be advertised separately from the fare for air transportation in compliance with the U.S.DOT’s full fare advertising rule set forth in 14 CFR 399.84 and its more than 20 years of enforcement case precedent. Since its opening, which was one month before the end of the longest recession in U.S. postwar history, Branson Airport LLC has struggled to meet traffic projections. In 2010, Branson Airport LLC (1) suffered a $2.2 million operating loss for the first six months of the year, (2) had to dip into reserves to cover its July 1, 2010 debt service payment, (3) reached an agreement with the city to make its payments directly to a nonprofit transportation district instead of the airport to forward to the trustee for debt service, and (4) needed the investor group behind the airport to pump in an additional $22 million to support operations.70 After falling into a techni- cal default on its bonds in January 2011, Branson Airport LLC entered into a forbearance and funding agreement with the bondholder’s trustee, which staves off enforcement actions (until June 30, 2012) to give the airport time for services and revenues to “become sufficient to meet all operating and debt service costs,” allowing the company to “stabilize its business.”71 On the basis of projections in the bond offering statement, the company believed 180,000 travelers would use the airport in 2009 rising to 275,000 in 2010. However, in 2010 the airport served only 92,000 passengers. 7.2 Examples of ‘Reverse’ Privatization There are also examples where (1) certain functions that were privatized have reverted back to public control or own- ership and (2) public airport owners provide services to the private sector. As noted above, Stewart International Airport, which was privatized under the APPP in 2000, reverted back to public ownership in 2007 when National Express sold its interest in the airport to the Port Authority of New York and New Jersey. Also mentioned earlier both Indianapolis and Harrisburg reverted back to public management of their air- ports after a number of years of private operation by BAA. Other examples are described here. 7.2.1 In-sourcing Services Clark County, the owner and operator of Las Vegas McCarran International Airport, has been replacing private contractors with county workers by in-sourcing a number 69FAA Airport Master (Form 5010 PDF), July 31, 2008; and Houston Executive Airport, official website. 70Yvette Shields, Branson Hits Turbulence, The Bond Buyer, August 4, 2010. 71Yvette Shields, Branson Airport Gets Forbearance, The Bond Buyer, May 11, 2011.

62 of functions. In the early 1990s, the county took over the responsibility for cleaning of all leased areas in public view, including the baggage claim area, the gate holdrooms, and the area in front of the ticket counters, from the airlines. The county did this because the service provided by the airline contractors was not performed to an acceptable standard for the airport. This function was added to the county’s in-house custodial staff resulting in an increase of approxi- mately 100 custodial staff to cover existing and new space added over time. The county believes that while its cost for performing this work is higher than what the airlines were spending, the standard of cleanliness is much greater than it was when the airlines performed this function. In 1990, all of the baggage handling systems were owned, maintained, and operated by the airlines with the exception of the baggage claim system, which the county owned and main- tained. As the airport transitioned to a common use opera- tion, it started to bring this function in-house. The county started assuming control over certain ticket counter and bag make-up areas as those areas became true common use facili- ties. When the county installed its in-line baggage screening system, it had to replace most of the baggage handling sys- tems, which was done as one integrated project. At the end of the project, the county owned all of the baggage handling sys- tems (except for the one used by Southwest Airlines, which it subsequently bought) and now owns and maintains all of the baggage handling systems at the airport. Maintenance of the baggage system is performed in-house. Initially, the county maintained part of the system with in-house staff and part with an outside contractor (split roughly 50/50), but found that the part that was maintained in-house was better main- tained than the portion maintained by the outside contract for the same or slightly less cost. As a result, the county brought all of the maintenance in-house. In the early 1990s, the airlines owned most of the jetways at the airport. The airport standard at that time was for air- lines to provide and maintain jetways for their leased gates. After an incident where the county encountered difficulty relocating one airline to another terminal due to its owner- ship of the jetways, it was decided that the county should own all the jetways to avoid these constraints as it sought to maxi- mize the utilization of the terminals. This was accomplished over time as new gates were added and as the county bought airline jetways on existing gates. The county now owns and maintains in-house all of the jetways at the airport. 7.2.2 Public Airport Providing Private Contract Services The Allegheny County Airport Authority, which operates Pittsburgh International Airport, provides an interesting example of a public owner providing a private function to a private company. In September 2009, the airport author- ity entered into an agreement with JBT Aerotech (an air- port ground support equipment and services company) to renovate jetways for JBT Aerotech’s customers east of the Mississippi River. The airport hopes to generate up to $500,000 from this service contract.72 After US Airways de- hubbed its Pittsburgh operations, the authority had less equipment to maintain for the airport and creatively rede- ployed its maintenance staff initially by refurbishing and sell- ing excess jetways and by contracting out its trained staff to JBT Aerotech. 7.2.3 International Airport Privatization Services The Houston Airport System manages three airports (George Bush Intercontinental, William P. Hobby, and Ellington Airport) and leverages its planning, development, and operating experience from these airports to provide airport professional services in the international arena. The Houston Airport System participates in the international mar- ket for airport privatization and strategic development ser- vices through its HAS Development Corporation (HASDC), a Texas nonprofit corporation. HASDC participates in bids for airport concessions globally and markets its expertise for the operational, commercial, and financial development of air- ports around the world. For example, HASDC is one of four partners in Quiport Corp. which developed and manages the new Quito Airport in Ecuador. 7.2.4 Private Airport Reverting to Public Ownership and Operation In January 2010, Deutsche Post DHL announced it would deed the privately owned Wilmington Air Park in Ohio to Clinton County Port Authority as a result of DHL’s pullback from the domestic U.S. market. DHL acquired Wilmington Air Park when it bought freight carrier Airborne Express, which owned the airport and used it for its central sorting hub. DHL had previously sorted packages at the Cincinnati Northern Kentucky International Airport (CVG), but con- solidated operations at Wilmington after the acquisition. The state of Kentucky offered DHL a $1.87 million tax credit to make CVG its hub, which led DHL to close its Wilmington Air Park hub. As of August 2010, the future of Wilmington as an airport is in question. Wilmington Air Park was the former Clinton County Air Force Base and is equipped with a control tower and two runways with lengths of 10,701 and 9,000 feet. 72Allegheny Airport Authority to Renovate Jetways for Airports, Pittsburgh Tribune Review, September 12, 2009.