In our earlier article on history of airport privatization, we explained how United Kingdom was the first country to sell its airport to private sector. However, airport privatization comes in all shapes, forms and sizes. Let us look at the different types of airport privatization in this article.

Before jumping into the different types of airport privatization, we first need to understand the basic concept of privatization. Airport privatization is not different in its concept from privatization of any other state-owned organization.

In simple terms, Privatization is the transfer of partial or full control and ownership of a state-owned organization to private sector.

In order to understand airport privatization in more detail, we need to look at the background of airport ownership.

Airports around the world have historically been developed by governments and not private business owners. Airports were developed as essential transportation infrastructure like railways. They were initially not seen as commercial entities intended for generating revenues.

However, the potential for airports for commercialism was realized over time and business opportunities available at the airports for generating revenues and profits was understood.

The paradigm shift occurred when the 1980s British government privatized British airports and private sector took over airport management to run airports as businesses and make profits.

The trend was caught up by Europe as well as many other countries in the world. Today, airports’ potential as business entity is commonly realized and different ways of privatizing airports have developed.

As discussed earlier that privatization is simply transfer of control and ownership from government to private sector, the different types of airport privatization are based on the degree to which this transfer takes place. In this regard, there are three main types of airport privatization.

The first is outsourcing airport services through tendering and contracting in which this transfer is minimum.

The second type is airport concession and lease agreements which has a greater degree of this transfer.

The third type is complete divesture of airport ownership by the state to transfer full control and ownership to the private sector. Normally, when a layman refers to privatization, he/she is referring to this type of privatization in which government completely sells off all its stake and assets to a private company.

Outsourcing Airport Services

The first type of airport privatization where this transfer of control is the smallest is outsourcing airport services. It can be in the form of contracting with (or without) tendering.

In this type of airport privatization, the airport owner will be the state (federal or local government) and the complete control of airport development, airport policies, airport business strategy and all of the important decisions regarding running the airport will fall under the state.

State will exercise this authority and control generally through a local or national airport authority. For example, in United States, Hartsfield Jackson Atlanta International Airport in United States is owned and operated by the City of Atlanta through Atlanta Department of Aviation while Chicago O’Hare International Airport is owned and operated by City of Chicago through Chicago Department of Aviation. It is an example of a local state authority owning and operating airport of its respective city.

On the other hand, majority of Indian airports are owned and operated by Airports Authority of India (AAI) which is the national airport authority that owns and operates 24 international airports and 55 domestic airports of India (Source: AAI). It works under Ministry of Civil Aviation i.e., falls under the central government.

What happens in airport services outsourcing is that state will select a particular service of the airport and sign a contract with a private company (generally after tendering) to do that task for the state against a fee that the state will pay the company.

Moreover, the terms and conditions of the contract are devised by the state. Private sector gets a small chunk in the airport business but it is the State that retains control of the airport in this type of privatization.

What types of airport services are outsourced?

Airport management generally outsources two types of airport services:

  1. Services readily available in the market with a lot of companies providing that service enabling the airport management to leverage market competition to acquire that service at economical rates.
  2. Services that involve a high degree of expertise and knowledge (generally engineering and technology) making it hard on airport management to develop such expertise itself.

As example of the first type, cleaning and janitorial services are not specific to airports. There are companies that are offering these services to hospitals, railway stations, office buildings, shopping malls and many other buildings and infrastructures.

Cleaning of airports is not different from cleaning hospitals and railway stations. Therefore, a company that is providing janitorial services to railway stations can easily take care of airports as well. Moreover, there are a multitude of companies involved in providing cleaning and janitorial services to buildings.

Similarly, maintenance of elevators and escalators installed on an airport is another example where privatization in the form of outsourcing is generally beneficial. There are companies in the market who are already maintaining elevators and escalators in different residential and commercial buildings who can easily take care of the same at airports.

Therefore, instead of airport management making a dedicated team and management system of its own for maintaining these facilities, it can outsource these services to companies already involved in that business.

Plumbing; electrical works, airport’s car parking management are some other good examples of such services that can be contracted out through outsourcing.

In the second type, Outsourcing is common for systems and services that require certain technical or technological expertise. The rapid development in technology makes it more convenient for airports to outsource services to the experts instead of doing itself.

For example, the maintenance of jet bridges may be outsourced to the jet bridge manufacturer itself. For instance, Thyssenkrupp is a German multinational company that makes jet bridges and offers operation and maintenances services for its jet bridges through a subsidiary known as Thyssenkrupp Airport Solutions (TKAS). Most recently, it won a major services contract for operation and maintenance of 90 jet bridges at Doha International Airport in Qatar.

Similarly, John Bean Technologies (JBT) Corporation is an American multinational company that makes jet bridges through its division JBT Aerotech. It had consistently been providing maintenance services to George Bush International Airport in United States including maintenance of over 100 jet bridges.

Apart from jet bridges, there are many other technologies on an airport that are often outsourced to respective expert companies. Examples include Airfield Lighting (AFL) or Aeronautical Ground Lighting (AGL) systems; airport’s navigational aids (NAVAIDS) such as Very High Frequency Omni-Directional Range (VOR) systems and Ground Support Equipment (GSE).

It allows the state to tap into the expert knowledge of private companies who have focused their business on such specific airport equipment and solutions. It is difficult for airport management to do it on its own because it will have to develop that expertise itself by training its own engineers, technicians and a maintenance management system.

Therefore, privatization through outsourcing of such service areas becomes a viable solution for state-owned airports.

Airport Concession & Lease Agreements

The second type of airport privatization is airport concession and lease agreements. It involves the state signing an agreement with a private enterprise to take maximum authority and control of the airport from the government and run the airport however the private enterprise decides.

These agreements are characterized by long time periods which can range from 5 years to 40 years or more. Therefore, whichever private enterprise partakes in such agreements, enters the business for the long term.

After completion of privatization through concession or lease agreement, government removes itself from day to day business of the airport and all management and administration activities. Private sector takes full control of airport management, administration, maintenance and even development.

However, to preserve the public service element of airports, government does incorporate some checks and balances in the concession or lease agreement to prevent the private sector from compromising public benefits of airports in pursuance of profits.

For example, government may impose limit on the maximum fee that airport’s private owner can charge airlines for airport services. Why? – Because such fees directly affect the ticket price of air travel charged by airlines. In this way, what the airport owners charge the airlines has a direct impact on how expensive air travel becomes.

Governments also bind the private enterprise (through the concession or lease agreement) to keep airport open for all public. That is to prevent the private owner from creating a system where airport services are too segregated in favor of premium customers.

Governments can also bind the private enterprise with regards to development of the airport being privatized i.e., governments may include a minimum investment amount on airport development to be spent by the private enterprise.

The above is done to make sure that the new private owner does not leave the airport’s developmental aspects unattended and treat the airport as a revenue machine until expiry of concession agreement at which airport is left in an undesirable condition.

In short, the state gives full authority over the airport to the private owner to conduct airport’s business as it seems fit apart from some basic regulatory controls (in national interest) imposed on the private sector. State retains only a minority control while majority control is transferred to the private sector.

What state takes in return for giving its property to the private sector is concession royalty, generally on an annual rate basis i.e., the private enterprise has to give a sum of money to the state periodically. Why?

The concept is that airport belongs to the state and state has given its rights to the private owner to use state’s asset and property for generating wealth. However, the asset belongs to the state and private owner is bound to pay the state for the rights it has given.

Just to quote an example, Sydney Airport in Australia was privatized in 2002 through a lease contract having a duration of 49 years extendable by a further 50 year period subject to agreement between the state and the private sector.

Complete Divesture of Airport Ownership – Airport Sold off

The third and the final type of airport privatization is the divesture of ownership.

In divesture of ownership, as the name suggests, state does not keep any control or rights to itself. Complete ownership of the airport is transferred to the private enterprise.

There are no royalties to be paid to the state by the new private owner. There is no time duration of ownership. It is selling off of state’s property and asset to a private enterprise in exchange for a payment as value of the airport.

After the purchase, private enterprise gets full authority to run the airport as it seems fit.

Does that mean that the state cannot regulate the airport after selling it?

State can still regulate the owner through laws made for the aviation industry of the country. It is just that such regulation of the private owner is not made through a contract agreement as in concession or lease.

The type of privatization adopted by the United Kingdom for privatization of its airports in the 1980s was largely complete divesture of ownership. Government accepted a sum of money from the private sector to sell off the airport.

To quote an example, London Heathrow Airport and London Gatwick Airport had been sold off by British government. These airports are now owned by private enterprises who can decide to sell these airports as their own assets if they decide so. They are not under any sort of concession or lease agreement with the British government.

For instance, Heathrow Airport Holdings (a private enterprise) sold off London Gatwick Airport for 1.5 Billion pounds to Global Infrastructure Partners (GIP), another private enterprise in 2009. The new private owner later sold 50.01% stake in Gatwick airport to a third private enterprise VINCI Airports in 2018.

It can be seen how Gatwick is being traded between private enterprises like any large private entity would be sold. It is because the airport does not belong to the British government anymore.

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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.

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