Privatization Takes Off

Financially strapped cities could receive a $23-billion windfall immediately and millions of dollars in extra taxes each year. Air travelers would enjoy a greater variety of fares, more timely service, and better amenities at airports. Private investors could earn tidy profits while enhancing airline safety and efficiency. A January study by the Reason Foundation revealed that these benefits could be had by privatizing the nation's airports.

Foundation president Robert W. Poole, Jr., who wrote the study, says, "My most pleasant surprise has been the interest and enthusiasm we have received from local governments." Lockheed Air Terminal, which operates the Burbank, California, airport, is trying to buy the airport in Albany, New York. The Philadelphia City Council has hired a consultant to study the sale of its international airport. And the city of Los Angeles might sell or lease LAX.

What caught the attention of local officials? Local governments own all commercial airports (except for federally owned National and Dulles in Washington, D.C.), so airports aren't on the property tax rolls. Airport authorities now get back only 18.5 percent of the ticket-tax funds they generate. As a result, they have few financial incentives to maintain or upgrade their facilities.

But Poole reports that a capacity crunch threatens air travelers. Seventeen airports are now classified as "seriously congested" by the Federal Aviation Administration, and three dozen others are heading in that direction before the year 2000. With the number of airline passengers expected to double this decade, and only one new airport even on the drawing board (in Denver), new terminals and runways are needed now.

Poole's study estimates that selling the 50 largest U.S. airports to private investors would yield an immediate $23.5 billion in revenue to their current government owners. In private hands, airport property would also annually generate about $400 million in property taxes, and the new corporate owners would pay about $600 million in federal income taxes.

Private operators could build new facilities faster, conduct tougher negotiations with airlines for landing slots, and charge peak-hour fees or use other market-oriented strategies to reduce congestion. (Copies of the study are available from the Reason Foundation for $10 each.)

Internationally, airport privatization is already off the ground. The British Airport Authority privately owns and operates the world's largest international airports, Heathrow and Gatwick. Istanbul, Turkey, plans to build a new private terminal. And Lockheed will open a 24-gate international terminal in Toronto this September.