Privatization of airports is an interesting topic in the fields of business, strategy, economics, political science and specially aviation management. It is often a newsworthy topic whenever any government announces plans for privatizing an airport.
However, what is the history of airport privatization?
This is the question we are going to address in today’ post.
Privatization of British Airports Authority – A Successful Experiment of Thatcherism
The roots of privatization in airport industry can be traced back to the 1980s Britain. Margaret Thatcher served as the Prime Minister of Britain from 1979 to 1990 and was a big supporter of privatization of industry. The ideology of Margaret Thatcher is commonly referred to as Thatcherism. It is in Thatcherism that we find the beginnings of airport privatization.
Margaret Thatcher’s administration was of the view that government must not be involved in businesses and that state-owned entities must be privatized to remove burden of financing and managing commercial enterprise from the government.
In the pretext of privatization were a lot of loss-making state-owned companies seen as a burden on government and public money. The reason for this inefficiency was attributed to state-ownership by Thatcher’s administration and privatization was considered its remedial.
With this ideology, British government carried out a massive privatization program of British industry. Government sold nearly 16 Billion British Pounds worth of its stake and shares in state-owned enterprises to private sector between 1979 to 1988.
In the same wave of privatization of industry, British Airways was privatized in the period 1984-1985 by selling 800 Million Pounds worth of government stake. During the same period, 400 Million pounds worth of government stake in British airports was also sold. However, full scale privatization was carried out later in 1987.
British airports were originally owned and operated by the British state-owned enterprise British Airports Authority. In 1987, British government sold British Airports Authority and privatized seven (7) major airports of Britain including:
- Heathrow Airport
- Gatwick Airport
- Stansted Airport
- Southampton Airport
- Glasgow Airport
- Edinburg Airport
- Luton Airport
More airports were subsequently privatized.
The big question was did privatization achieve its objective?
The impact of privatization on British airports has been widely studied. Let us present one of such analysis that studied the effects of privatization on British airports by comparing not-privatized airports with privatized airports to find if privatization resulted in improvement in profitability.
It studied 20 British airports in the time period of 1986 to 2005. The airports included most of the major British airports as stated below,
- Five (5) state-owned airports that were not privatized and served as a comparative reference:
- Bournemouth Airport
- East Midlands Airport
- Exeter Airport
- Manchester Airport
- Leeds Bradford Airport
- Four (4) privatized airports ending up with mixed ownership i.e., public-private partnership including:
- Birmingham Airport (privatized in 1997)
- Durham Airport (privatized in 2003)
- Newcastle Airport (privatized in 2001)
- Norwich Airport (privatized in 2003)
- Eleven (11) fully privatized airports including:
- London Heathrow Airport (privatized in 1987)
- London Gatwick Airport (privatized in 1987)
- London Luton Airport (privatized in 1987)
- London Stansted Airport (privatized in 1987)
- Belfast Airport (privatized in 1994)
- Edinburgh Airport (privatized in 1987)
- Aberdeen Airport (privatized in 1987)
- Bristol Airport (privatized in 1997)
- Cardiff Airport (privatized in 1995)
- Glasgow Airport (privatized in 1987)
- Liverpool Airport (privatized in 1990)
The measure of profitability was taken as Change in Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA) on a per passenger basis (i.e., earnings spread over the passengers the airport was serving).
What were the results?
- In fully privatized airports, 8 out the 11 improved in profitability, at least by 20% and at most by 160%. The remaining 3 declined in profitability. On an average, fully privatized airports improved in profitability by 110%.
- In mixed ownership airports, 2 out of the 4 improved in profitability while the other 2 declined.
- In not-privatized airports, 3 out of the 5 improved in profitability while the remaining 2 declined.
So, the objective of privatization of airports by the British government was achieved. Privatized airports were growing their earnings faster than state-owned airports. The privatization experiment of Thatcherism had given positive results.
Who Owns Airports in UK Today?
Today, United Kingdom is the only country to have fully private ownership of airports as the predominant form of airport ownership across the country.
For example, the busiest airport of United Kingdom by passenger traffic (year: 2021) is London Heathrow Airport. It is owned and operated by Heathrow Airport Holdings, one of the world’s largest private companies dealing in the airport operation business.
Similarly, London Stansted Airport is the second busiest airport in United Kingdom by passenger traffic. It is owned and operated by Manchester Airports Group (MAG), another big private company in airport operations business. The same company also owns and operated Manchester Airport, the fourth busiest airport in United Kingdom.
Gatwick airport is the third busiest airport in United Kingdom by passenger traffic. It is presently owned and operated by Gatwick Airport Limited which in turn is majority owned by VINCI Airports, a French company dealing in transport and construction industry. VINCI Airports also owns and operates Belfast Airport, the eight busiest airport in United Kingdom by passenger traffic.
London Luton Airport, the fifth busiest airport of United Kingdom by passenger traffic is owned and operated by London Luton Airport Operations Limited (LLAOL), a joint venture of Aena (a Spanish airport operations company) and AMP Capital (an Australian investment company).
Edinburgh Airport, the sixth busiest airport of United Kingdom by passenger traffic is owned and operated by Global Infrastructure Partners, an American infrastructure investment company.
Glasgow Airport is owned and operated by AGS Airports, a UK based airport operations company. The same company owns and operates Aberdeen and Southampton airports.
In short, United Kingdom was the first country to implement a nationwide privatization program of its airports which proved beneficial for the country. Therefore, the same airport ownership model is maintained till date.
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You may also find this 3-hour online Airport Privatization Course interesting that explains all about airport privatization from its background and history and compares private airports with government-owned airports to develop good understanding of whether airport privatization is good or bad.
References:
- Research Publication “Privatization: The Thatcher Case.” by Burton, J. published in Journal “Managerial and Decision Economics”, 8(1), 21–29, 1987.
- Research Publication “The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis“ by Megginson, W. L., Nash, R. C., & Randenborgh, M. V. published in “The Journal of Finance”, 49(2), 403, 1994.
- Research Publication “Impact of Privatization on Airport Performance: Analysis of Polish & British Airports“ by Wojciech Augustyniak published in “Journal of International Studies”, Vol. 2, No 1, pp. 59-65, 2009.