Global airport privatization resumes take-off after the COVID-19 pandemic, except in the United States.
Having survived the COVID-19 pandemic in 2020 and 2021, the global trend of private investment in airports—via outright purchase, long-term lease, or public-private partnership projects at airports—continued its recovery in 2022. These activities are documented in Reason Foundation’s 2023 Annual Privatization Report: Aviation, which is available now to readers of this newsletter ahead of its publication tomorrow.
The airport section includes an updated table of reported 2021 revenue of the world’s 38 largest fully or partially investor-owned airport companies, with the five largest in the first year of recovery from the pandemic being Aeroports de Paris, Aena Aeropuertos, Fraport, Heathrow Airport Holdings, and Vinci Airports. As the recovery gained steam in 2022, albeit with wide variation around the world, there is reason for optimism for continued growth in airport privatization activities.
Looking more closely at the top-five investor-owned airport companies by revenue, Vinci Airports had the most-active expansion in 2022. In July, Vinci Airports signed a 40-year public-private partnership (P3) agreement to modernize and operate four international airports and three domestic airports in the Cape Verde islands off the Atlantic coast of Africa. In August, Vinci Airports announced its $1.17 billion purchase of a 29.99% stake in OMA, the company that operates 13 airports in northern, central, and along the Pacific coast of Mexico under a 50-year concession agreement. That sale reached financial close in December, increasing the company’s global portfolio to 65 airports.
Last year, several countries announced renewed interest in airport privatization. Greece is preparing to relaunch the sale of the government’s 30% stake in Athens International Airport after the pandemic put that transaction on hold. Japan also resumed privatization discussions for Kagoshima, Komatsu, and Oita airports following a two-year pause. Vietnam is pursuing multiple P3 airport concessions as part of its ambitious airport modernization plan, including a new $1.7 billion airport for which construction may begin later in 2023. In addition, Colombia is considering a P3 concession for its largest airport in the capital city of Bogotá, while the government of Sweden released a report recommending the partial privatization of Arlanda Stockholm Airport, that country’s largest airport.
These activities suggest long-term global interest in airport privatization remains strong following two years of uncertainty. But the United States remains an outlier, despite the large benefits that privatization offers travelers, governments, and taxpayers. A 2021 Reason Foundation study used valuations from the sale and lease of airports worldwide in recent decades to estimate the potential market value of 31 large U.S. airports owned by city, county, and state governments. In doing so, it used a high-end valuation based on 20 times EBITDA (earnings before interest, taxation, depreciation, and amortization), which is less than the 23 times EBITDA paid in the March 2022 Sydney Airport transaction.
This should interest private investors as well as government airport owners, which could use lease proceeds to improve their fiscal positions and fund other infrastructure improvements. Even at 20 times EBITDA, the Reason study found that for 20 of the 31 airports, leasing could be used to cover at least 60% of the jurisdictions’ unfunded public employee pension liabilities, which are a significant long-term drag on state and local government fiscal health in the United States.
Despite these benefits, whole-airport privatization and P3 leases in the U.S. remain vanishingly rare. Connecticut offered one bright spot in 2022. In Sept. 2021, the New Haven Board of Elders approved a 43-year lease between Tweed New Haven Airport in Connecticut and its airport management company, Avports, in which the company would invest $100 million in capital improvements. Avports has been the longtime contract manager of the airport.
In Aug. 2022, the Tweed New Haven Airport Authority finalized an agreement with Avports to enter a long-term concession. If the Environmental Assessment is approved, it would be the first time in the U.S. that an airport’s contract manager became its financial partner. Interestingly, the airport authority and Avports have reportedly structured the agreement so that it does not require approval under the Federal Aviation Administration’s Airport Investment Partnership Program, which was designed to facilitate airport privatization but has been barely used.
Despite the lack of whole-airport privatizations in the U.S., there has been growing use of public-private partnerships for individual airport projects. The replacement of New York LaGuardia Airport’s outdated central terminal opened to great fanfare in Dec. 2021 and won the 2021 UNESCO best new airport facility competition, as well as being featured in a glowing profile of “the team that fixed LaGuardia” in a Sept. 2022 article in The Wall Street Journal. At New York’s John F. Kennedy International Airport, the $4.2 billion Terminal 6 JetBlue project reached financial close in Nov. 2022 after being delayed for two years by the pandemic.
Smaller-scale airport terminal public-private partnerships in the U.S. are also showing promise. In Feb. 2022, the Gulf Shores Airport Authority selected Vinci Airports and TBI Airport Management to build, finance, and operate a passenger terminal and ancillary facilities at the general aviation Jack Edwards National Airport in Alabama. The P3 agreement was signed in Sept. 2022. The construction cost is estimated at $17 million, plus $3.7 million to construct a temporary terminal to allow commercial air service to launch shortly following financial close. Currently, 95% of the area’s seven million annual visitors must drive at least an hour to the nearest commercial airport, either to the east in Pensacola, Florida, or northwest to Mobile, Alabama.
The Annual Privatization Report — Aviation also covers recent private-sector activities in air traffic control, with particular attention to the past year’s developments in digital and remote air traffic control towers, and has updates related to contract airport security screening and trusted traveler programs.
Editor’s note: Readers of this newsletter also have early access to my Annual Privatization Report 2023 — Transportation Finance section examining developments in the infrastructure investment fund world, providing updates on the largest companies and major P3 projects underway, and reviewing pension funds’ increasing investment in revenue-generating infrastructure.
Originally published by Reason Foundation. Republished with permission.
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