AIRPORTS FOR PROFIT
"Everyone thinks the government must run airports," says Abe J. Moses, vice-president and treasurer of Northrop Airport Development Corporation (NADC). Everyone, that is, except Mr. Moses and his colleagues, plus a small but growing number of customers. For NADC, a subsidiary of aerospace manufacturer Northrop Corporation, has entered into the business of not only designing and building airports, but running them as profit-making businesses, to boot. NADC recently completed arrangements for its first major turnkey airport project—a new $100 million international airport for Bangkok, Thailand.
Consistent with its private enterprise approach to the airport business, Northrop did not seek government funding for the Thailand project, not even in the form of revenue bonds (which would have been paid off without taxes). Instead, it has set up a separate company—Northrop Thailand Airport Co. (NTAC)—which is owned 51% by private Thai investors, 15% by Northrop, and the remainder by foreign (non-Thai) private investors. Key to NTAC's ability to raise capital is a 20-year franchise to operate the airport, after its 1978 opening date. Northrop expects the airport to gross $1 billion over the 20-year period, netting $290 million in profits. The Thai government will receive a $50 million franchise fee during the 20-year period.
How will the new airport differ from government-developed and operated ventures? For one thing, Northrop estimates that the costs of the project will be about 35% less than if the Thai government were conducting the program in conventional fashion. And by utilizing a single-point, profit-oriented management approach, Northrop expects to cut two to five years from the usual development time (which could normally run up to ten years). Because of the need to convince private investors to fund the project, without government guarantees, Northrop has a strong incentive to ensure that the airport is (and remains) commercially viable. The company will therefore seek to maximize non-aeronautics revenue, so as to minimize airline charges, will construct the airport in carefully-planned phases so as to avoid overcapacity, and will optimize the use of surrounding land (for industrial, commercial, and recreational uses).
Northrop is dead serious about being in the airport business. One Northrop executive has said that "We hope to be the Hilton of the airport industry." Already the company is engaged in planning and design for Singapore International Airport, design and construction of an airport in Saudi Arabia, planning airports for the state of Louisiana, Athens, and Panama City, and participating in airport construction in Iran. But so far the new Bangkok airport is the only one to be designed, built, and operated by a single company—for a profit. As a harbinger of things to come, it will bear careful watching in the years ahead.
• "Thailand: Now Northrop Adds Airports to Its Line," BUSINESS WEEK, 10 February 1973, p. 39.
• "Northrop Stresses Overall Airport Role," Harold D. Watkins, AVIATION WEEK, 30 April 1973, p. 44.
FIGHTING BACK AGAINST SUBSIDIES
One reason why government subsidies are so easily enacted and so difficult to repeal is the fact that the beneficiaries of the subsidies, though few, are usually well-organized and highly vocal; those who are harmed by the subsidies (such as those who pay the taxes) are generally numerous but unorganized and voiceless. Witness the success of the few-thousand-member National Railroad Passengers' Association in getting the feds to set up Amtrak a few years back.
In the past few months, however, this particular subsidy has come under concentrated attack, not from citizen groups but from competing transportation companies who are being directly harmed by Amtrak's subsidized services. Northwest Airlines recently featured an editorial in its company magazine urging employees to protest the Amtrak subsidies. "Why should an airline employee help subsidize a competing transportation system when his or her job security and advancement is affected?" asked the editorial. It also noted that the Amtrak route between Miami and Chicago (one of Northwest's air routes) loses $10 for every passenger carried.
In a similar vein, Greyhound has begun running magazine ads knocking Amtrak; the hard sell, however, is reserved for Greyhound passengers and customers. Leaflets headlined "YOUR TAX DOLLARS ARE ON THE WRONG TRACK!" point out that while bus fares cover the full costs of the trip, Amtrak loses an average of $9 on every ticket. The leaflet cites Amtrak's 1972 loss of $147.4 million, "all of which the taxpayers had to subsidize," and urges that readers write their Congressman and Senators urging full-cost pricing of Amtrak tickets.
If more companies would begin lobbying against subsidies and special privileges rather than calling for more such programs, perhaps the interventionist trend of the past 50 years could finally be reversed.
• "Airline Observer," AVIATION WEEK, 5 March 1973, p. 29.
• "Your Tax Dollars Are on the Wrong Track," Greyhound Lines Inc. leaflet.
CREEPING CAPITALISM HITS THE JAILHOUSE
"Not too many men and women at various levels of government want to talk about it for attribution, but the idea of turning various traditionally state functions over to private enterprise is looking more and more attractive." So began a recent column by journalist Phil Jordan. After noting the growing success of private trash collection, private schools, and private police and security firms, Jordan pointed out the most recent State monopoly to be penetrated by creeping capitalism—rehabilitation of former convicts.
The Chicago-based firm of Palmer-Paulson Associates, Inc. is a sales motivation and manpower development company. Several years ago the firm was awarded a federal grant to test out its management expertise in attempting to find jobs for ex-offenders. The initial pilot project in North Carolina was so successful that the company decided to get into the rehabilitation business in earnest. Its next two projects, in Maine and Indiana, were equally successful. The average rate of recidivism in the Palmer-Paulson program was 10 to 15%, compared with 50 to 75% for most groups of ex-offenders.
Palmer-Paulson's approach to job-oriented rehabilitation is a three-phase process. The first phase is a pre-release orientation program, available to inmates in the two months prior to their release. Pre-release counselors work with the inmates on such topics as positive work attitudes, techniques of getting a job, basic money management, and personal problems and goals. The second phase involves job development. Palmer-Paulson's "job developers" match inmate skills and interests with employment openings in the area where the inmate plans to live, and attempt to sell employers on the inmate's abilities. Finally, the third phase consists of post-release counseling—going to job interviews with the inmate, helping him find housing, etc.
What accounts for Palmer-Paulson's striking success? For one thing, the firm is careful to avoid hiring as staff persons who have been part of the government criminal justice bureaucracy. It does hire a number of ex-convicts, who can understand the realities of trying to make it in the straight world, and the pressures of the prison subculture. Together with the firm's management and motivational resources, these factors combine to produce an operation highly attuned to individual needs and solidly in touch with the realities of the business world—unlike nearly all government-run "corrections" programs.
John Palmer, president of the firm, suggests that the day may not be far distant when the states will contract out their prison systems as well. If the Palmer-Paulson experience is at all typical of what creeping capitalism can do, that day can't be too soon in coming.
• "Switch to Private Enterprise for State Services Grows," Phil Jordan, LOS ANGELES CITY PRESS, 21 September 1972.
• "Successful Approach to Ex-Offender Employment," TARGET, International City Management Association, Vol. 2, No. 2, March/April 1973 (available without charge from ICMA, 1140 Connecticut Ave., NW, Washington, DC 20036).
FREEING THE PUBS
Although it may appear to be a law of nature that once the State takes over a field of endeavor it becomes "unthinkable" for it to be returned to the free market, just such a transaction is occurring in England. During World War I over 200 taverns, hotels, and liquor stores were nationalized, allegedly to combat drunkenness in munitions factories. As state-owned institutions, the pubs developed their own set of bureaucratic rules: no drinking at the bar, no standing, only one drink could be bought at a time, and no hard liquor could be sold on Saturday. Now, after 57 years, the pubs are being denationalized, in one of the few remnants of the Heath government's nearly-forgotten free-market policy. The highest bid—for 6 million pounds (roughly $14.4 million)—was accepted by the government in January, and the new private owners should be in command by the time this issue is published. Don't let anyone tell you it can't be done!
• "Britain Going Out of Pub Business," Associated Press (London), 6 January 1973.
This article originally appeared in print under the headline "Trends".