The projected increase in the demand for air travel has compelled airport management to explore alternative approaches for sourcing funding to ensure airports have the required technology and facilities necessary to serve the growing client population. The need to broaden sources of capital for airport operations has resulted in the widespread sprout of airport privatization. Airport privatization is a phenomenon that started in the 1980s following Margaret Thatcher’s decision to privatize the former British Airport Authority by offering shares to members of the public (Gupta, 2015). The trend was then emulated by governments in Asia, Europe, Latin America, the Caribbean, New Zealand, and Africa. The efforts to privatize airports yielded capital that could then be used by airport authorities to conduct maintenance, fund expansion projects, and improve the quality of services rendered. Although privatization relieves the government from extreme financial commitments, it is often perceived as unattractive to airport owners because the terminated airport improvement program (AIP) funding implies that privatized airports will not enjoy government support. The endeavor may compromise the private airport’s ability to remain competitive (Atkinson, 2020). The bottom line is that even though privatization is integral in broadening an airport’s source of funding, the practice is not found desirable in today’s economic setup due to lack of attractive incentives, satisfaction with the current condition or status quo and the numerous benefits available to publicly owned airports discourage privatization.
Airport privatization, in the context of this research paper, is defined as relinquishing government ownership and function wholesomely or partially to the private sector. In the case of airport privatization, the change of ownership could be partial or the creation of a public-private partnership to own and control the airport. According to Tang (2016), airport privatization in the United States majorly falls under partial privatization. Such a partial ownership of the airport by the government allows the facility to benefit from continuous government support, maintain eligibility for airport improvement program funding, and shared operational and financial risks. Wholesomely, such benefits appeal to a private investor who would rather enjoy government support and funding, rather than acquire the entire airport. Furthermore, airport privatization is integral to the government because the funds that were initially committed towards financing development and improvement projects within the airport can be redirected to other developmental programs and sectors such as the education, health care, and security sectors.
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The core deterrent to the privatization of airports is the fact that AIP funding may be terminated. According to the Federal Aviation Administration (2020), AIP provides grants to publicly owned airports and, in some instances, privatized airports, to finance the planning and development of airports that are used by members of the public. The funding is integral in allowing an airport to adopt state-of-the-art technology, realize operational excellence, and become better placed to compete in today’s competitive air travel market because it can cover up to 80% of the eligible project cost. The allocation is even higher in the case of smaller airports whose project costs cannot compare to expenses incurred by major airports in funding improvements.
The AIP provides grants to airports that meet the stringent stipulation outlined in its eligibility provisions. Eligible airports are publicly owned or privately owned but have been exclusively designed by the Federal Aviation Administration as relievers, or privately owned but serve at least 2,500 annual enplanements. Asides from meeting the aforementioned eligibility provisions, the airport must be a public-use airport, this means that the airport must be open to the public. The chances of an airport to qualify for the grant are better if it has been included in the National Plan of Integrated Airport Systems (NPIAS). The NPIAS is published bi-annually, and it identifies airports that are essential to the growing need for public transportation and contribute to the postal services, national security and defense, and the continuously growing need for civil aviation.
Moreover, not all projects that may perceivably foster the development or improvement of an airport can be funded by the AIP. Projects that can be funded by the AIP grand projects that are related to the improvement of airport safety, eliminating environmental concerns associated with the operation of the airport, and abating security threats. The funds may be intended for non-aviation development, improvement of the terminal, and upgrading hangar security. To be precise, the funds can be used to construct or rehabilitate the runway, construction of the taxiway, renovating airfield lighting and signaling, construction of a weather observation station, and paying for land acquisition (Tang, 2019). Conversely, projects that pertain to landscaping, marketing plans, maintaining vehicles and equipment, and paying for office equipment is not covered by the grant. Given the scope of what the grant can be used to cover, it can be inferred that denying an airport such funding, as is the case with most privatized airports, not only cripples their ability to compete with publicly owned airports but also renders the venture extremely burdensome to the private investor’s finances.
Given the stringency of the eligibility criteria for awarding airport improvement program grants, privatized airports are disenfranchised, yet they contribute to the prosperity of the United States air travel, the economy, and relieve the government from operation risks and huge financial commitments. However, in a bid to foster a level playing field for all airports, it is integral that the criteria used in awarding AIP grants are revised. It is irrefutable that privatization is beneficial to both the private investor and the government. However, by denying privatized airports AIP, private investors are discouraged from joining the venture. As a result, the government will be stuck with the ownership of most financially demanding airports that should have been otherwise privatized.
In a bid to stimulate privatization in contemporary aviation platforms, it is integral that feasible approaches are explored and implemented. According to Tang (2017), privatized airports must be offered the same tax holidays and treatment as public airports. Typically, by extending tax-preferences and tax-exempts to the privatized airport as is the case for public airports, the cost of operation will be massively reduced; thus, rendering privatization a desirable business endeavor for private investors. Furthermore, private airports can be given an equal chance to compete in today’s competitive market by rendering them eligible for AIP grants (Tang, 2016). By making eligibility to AIP grants a prospective solution to privatized organization’s financial hurdles, the quality of air travel and competition in the workplace will be improved without imposing significant financial strains on the government. Moreover, by relaxing AIP grant eligibility provisions, privatization of airports would be deemed an attractive investment prospect. The initiative will relieve the government from funding for airport improvement, and the additional funds would be subjected to more beneficial public development projects.
In conclusion, the growing demand for air travel services in the United States has necessitated the development of airports. Therefore, publicly owned airports are better placed to offer state-of-the-art services because they are eligible for AIP grants. However, the stringent AIP grant eligibility means that privatized entities will not be in a position to enjoy government funding as opposed to publicly owned airports. As a result, privatized airports will not be able to compete effectively, and the venture will not be deemed desirable by investors. The problem can be resolved by relaxing AIP grant eligibility criteria and giving privatized airports tax reliefs as publicly owned airports.
References
Atkinson, C. L. (2020). The Federal Aviation Administration Airport Improvement Program: Who Benefits?. Public Organization Review , 1-17.
Federal Aviation Administration. (2020). 2020 Airport Improvement Program (AIP) Grants. Retrieved from faa.gov/airports/aip/2020_aip_grants/.
Gupta, R. (2015). Issues in Airport Infrastructure Development under Public Private Partnership. International Journal of Business Management Intervention (IJBMI) , 4 (6), 66-77.
Tang, R. Y. (2016, February). Airport privatization: issues and options for Congress. Library of Congress , Congressional Research Service.
Tang, R. Y. (2019). Financing Airport Improvements. Congressional Research Service , 15.
