Creating a runway success
The terrorist attacks of September 11, 2001 (9/11) had an immediate
and pronounced effect on air traffic worldwide; by October 2001,
the number of emplaned passengers had fallen by more than 20%.1 One
result of this fall-off was a significant reduction in the revenues
of airports and airport operators. Although industry studies
pre-9/11 had consistently projected a progressive growth in future
airline traffic, with this rapid downturn in passengers such
projections were cast into doubt. In the months following 9/11,
both governments and private entities became more cautious in their
plans for airport privatization, and many projects were put on
hold, while a few were cancelled outright.
In 2002, however, the worldwide trend toward airport privatization started to recover, suggesting that the long-term prospects for airport privatizations remain strong. This article examines the impact of the 9/11 terrorist attacks on airport privatizations worldwide and identifies some trends and strategies in the airport privatization sector in the aftermath of 9/11. We begin with an examination of the motivating factors behind airport privatizations.
Motivating factors for airport privatization
Airport privatizations take many forms, including:
(i) the outright sale of an airport by a governmental authority to a private entity,
(ii) the granting of concession or other rights to private entities to develop, improve or expand and operate airport facilities,
(iii) the sale of a governmental airport authority to a private entity, either by way of a bidding process or the sale of shares to the public, and
(iv) a governmental authority entering into a management agreement or lease with a private entity.
Regardless of the form, however, certain motivations for privatization of airports tend to be universal.
First, as with the privatization of other areas of traditional governmental responsibilities, governmental entities recognized that airport privatizations can make available private funding for necessary airport expansion and operation.
Second, privatization offers governmental entities the opportunity to transform airports into revenue generators. Airports offer significant commercial opportunities in which the government authorities are keen to share. Transferring ownership and/or operation of commercial airport activities, such as duty free services, food concessions and retail sales, has dramatically increased revenues at many airports worldwide. Since a subsidiary of the BAA contracted to take over the management of retail operations at Pittsburgh International Airport in 1992, it is reported that per passenger retail spending has increased by 250%. Annual retail revenue per square foot at the ?Pittsburgh Airmall? is reported to have quadrupled after BBA took over the airport's management. It is customary for the relevant privatizing governmental authority to share in such increased retail revenues.
The third major motivation for airport privatization is the expectation of enhancing the quality of services provided to both the traveling public and the airlines using the airport. This expectation can be fulfilled by the private sector introducing market oriented management methods in order to increase efficiency, reduce cost and make airports more competitive.
The immediate impact of 9/11 on airport privatizations
The foundation of any successful airport privatization is the confidence of private developers and operators in projections of stable or increasing airline traffic, and the related forecasts of revenues from landing fees, terminal services, and rental payments from retail tenants and airlines. It is these revenue forecasts that allow private parties, in conjunction with governmental authorities, to finance the capital costs associated with airport construction, enlargement or modernization and to operate the airport in the long term. It is therefore not surprising that 9/11, with the resultant fall-off in airline traffic, had an chilling effect on many airport privatizations that were already in the pipeline.
In December 2001, the FAA rejected Niagara Frontier Transportation Authority's proposal to lease of the Niagara Falls Airport to Cintra Concesiones de Infrastructuras de Transporte S.A., a Spanish transportation development company, for 99 years as part of the FAA pilot US airport privatization program. The director of public affairs for the Niagara Frontier Transportation Authority noted that ?[t]he FAA was in the process of approving the agreement when the terrorists attacks of 9/11 changed the landscape of the aviation industry and altered the economy. That had a direct effect on how the FAA viewed the proposal.? The FAA suggested that its central concern was whether or not ?the business prospects of the proposed lease will encourage or even permit the investment in and development of the airport.?
The long-planned privatization of Sydney's Kingsforth Smith Airport in Australia, one of the largest proposed privatizations in the Asia-Pacific region, was initially put on hold after 9/11 as a result of the withdrawal of several potential bidders and governmental concerns about the effect of the terrorist attacks on the sale price.
In Europe, the combined effects of the reduction in air travel since 9/11 and the subsequent bankruptcy of Sabena, Belgium's flag carrier, put on hold plans to float shares of Brussels International Airport Company on the private exchanges.
In Asia several pending privatizations were placed on hold or abandoned. The proposed sale of a 49% stake in Soekarno-Hatta International Airport in Jakarta was among those placed on hold. Airport officials attributed the postponement of the proposed sale to low investor interest following 9/11. Schiphol Group's planned purchase of a 30% stake in Malaysia Airport Management, the management company for 37 airports throughout Malaysia (including the new flagship airport for Kuala Lumpur), was cancelled for undisclosed reasons in April, 2002.
Airport privatizations in the aftermath of 9/11
Worldwide airport traffic and revenues have started to recover from the dramatic reductions experienced in the period immediately after 9/11, although they have not yet risen to their pre-9/11 levels. A corresponding recovery can be seen in the pace of worldwide airport privatizations.
Europe
In Italy in February 2002, the City of Florence announced plans to privatize the City's airport, Aeroporto di Firenze, with a sale of a 29% stake in the company that owns the airport. This plan was the second stage of the City's airport privatization program, following an initial public offering of 38.7% of the airport company's shares in 2000. In July 2002, Macquarie Airports Luxembourg S.A entered into a conditional agreement for the purchase of 44.7% of the shares of Aeroporti di Roma SpA, the operator of Rome's Fiumicino and Ciampino airports, for a purchase price of approximately Eu480 million. In December 2002, the Italian Economy Minister formally approved the deal.
In April 2002, the Maltese government selected Malta Mediterranean Link, a consortium composed of the Vienna International Airport (a participant in the Berlin airport project), SNC-Lavalin Inc. and Bianchi & Company (1916) Ltd to be the purchaser of a 40% interest in Malta International Airport plc, which expects to be awarded a 65-year concession to operate the Malta International Airport.
In August 2002, Berlin-Brandenburg International Partners (BBIP), a consortium headed by IVG Immobilien AG and Hochtief AirPort GmbH, signed a wide ranging letter of intent with the German governmental authorities in connection with the concession to build and operate the new Berlin Brandenburg International Airport (BBI) at Schönefeld. In December 2002, however, Hochtief's Chairman suggested that it may want to renegotiate the Eu290 million purchase price for BBF in light of the potential adverse impact that some proposed changes in German tax law may have on the profits of the project.
United States
Even as the airport privatization projects worldwide recovered from the impact of 9/11, the US continued to lag behind in the area of airport privatization. There are numerous reasons for this, from legal restrictions to the ready availability of tax-free municipal bond financing and the opposition of the major US airlines and labor unions.
In 1996 Congress introduced a pilot airport privatization program to explore the potential benefits of airport privatization in the US. Participants in this program were exempted from some of the major legal impediments to privatization. The response to the FAA's pilot privatization program has been far from overwhelming. So far only one airport, Stewart International Airport in New York, has been successfully privatized under the pilot program. A subsidiary of National Express Group, a UK company, entered into a 99 year lease of Stewart International Airport with the State of New York in March 2000. As noted above, a proposal by Cintra Concesiones de Infrastructuras de Transporte S.A., to lease the Niagara Falls International Airport, also in New York, as part of the program was rejected by the FAA in 2001.
However, there remain some signs of continued interest in the FFA's pilot program. In April 2002, New Orleans Lakefront Airport in Louisiana applied to participate in the program. More significantly, in December 2002, the Transportation Committee of the City Council of Atlanta, the owner of the William B. Hartsfield International Airport, one of the world's busiest airports, convened to discuss plans for the airport to participate in the FAA program. However, Delta Airlines, the airport's key tenant, has come out in opposition of the plan, as have other airline tenants. Without the support of Delta, the chances of the plan gaining FAA approval are minimal.
Beyond the FAA's pilot privatization program, other privatization projects have occurred in the United States. The development of the Terminal 4 project at John F. Kennedy International Airport (?JFK?) in New York City is one significant example, which, unlike the privatizations under the pilot program, involves a major development of airport infrastructure by a private entity.
In 1997, JFK International Air Terminal LLC (?JFK IAT?), a joint-venture owned by subsidiaries of Amsterdam Airport Schiphol, LCOR Inc. and Lehman Brothers Inc, was granted a long term lease of the International Arrivals and Wing Buildings (Terminal 4) at JFK by The Port Authority of New York and New Jersey. Pursuant to this lease, JFK IAT was obligated to demolish the obsolete terminal (originally built in the 1950's) and construct a new world class international terminal in its place. The cost of the project was $1.4 billion, making it the largest airport privatization in the US to date. The new Terminal 4 was opened in May 2001 to great acclaim.
Another US airport privatization project was announced in July 2002 by the South Suburban Airport Coalition (?SSA Coalition?), which has proposed the construction of a new airport south of Chicago, Illinois. The project faces many challenges, including the bankruptcy in 2002 of United Airlines (one of the Chicago region's largest air carries), as well as opposition from various parties who prefer the expansion of Chicago's O'Hare International Airport. However, the SSA Coalition is continuing to move forward, and the State of Illinois has commenced the acquisition of a portion of the property required for the project.
Asia and elsewhere
In Jakarta, the government announced its intention to privatize the public operator of Soekarno-Hatta International Airport in 2003. An earlier privatization proposal involving the airport had been put on hold in the aftermath of 9/11. In September 2002, the Thai Government approved plans to privatize the Airports Authority of Thailand. The South Korean Government incorporated the public Korean Airports Authority (which operates 16 airports, including the Seoul-Gimpo International Airport) as a stock corporation as the first step towards it privatization.
In August 2002, the Japanese Government proposed the privatization of Japan's three international airports, Kansai International Airport, the New Tokyo International Airport at Narita and the proposed Central Japan International Airport at Nagoya (scheduled to be opened in 2005). This plan has drawn opposition from the airline industry, which fears that it will result in higher landing fees.
One of the biggest airport privatization events of 2002 was the privatization of Sydney's Kingsforth Smith Airport in Australia, which was initially delayed by 9/11. In June 2002, Southern Cross Airports Corp., the winning bidder, paid a record $A5.5 billion for the 99 year lease of the airport. Southern Cross Airports Corp. is a consortium, the leading members of which are Macquarie Bank and Hochtief.
In May 2002 the Indian Aviation Minister announced plans to lease India's four largest airports (Delhi, Bombay, Calcutta and Madras) to foreign operating companies in 2003. In September 2002, the Aviation Minister also announced plans to privatize 10 regional airports. However, in January 2003, the Indian Cabinet deferred deciding whether or not the privatization of the four larger airports should proceed. The labor union representing employees at these four airports has strongly opposed the plan.
The Government of Jamaica awarded a consortium, MBJ Airports Limited (MBJ), a 30 year concession to expand and operate the Sangster International Airport in Montego Bay in January 2003. The consortium includes YVR Airport Services Ltd. (a subsidiary of Vancouver International Airport Authority), Agencias Universales S.A., Ashtrom Group Ltd., and Dragados Concesiones de Infraestructuras S.A. The concession calls for the consortium to invest US$200 in the airport.
Trends and strategies
In contrast to airport privatizations worldwide in the 1990's, governmental municipalities and private developers have taken a more cautious approach to airport privatizations post 9/11, as demonstrated by some noteworthy withdrawals of key participants from earlier privatization efforts and by the announcement of revised financial terms of privatization bids. There seems to be a trend towards concentration in the industry, with some former leading developers curtailing their airport development efforts and signs of fewer private investors entering the area for the first time.
Some of the more prominent players seem to be staying closer to home, concentrating their resources in those regions in which their existing activities and ongoing familiarity create a sense of comfort during these times of intensified economic and political peril and afford an opportunity to realize the benefit of economies of scale.
Strategies to enhance the likelihood of success in airport privatization ventures in the post 9/11 era include:
(i) insistence by private developers upon longer term concessions/leases to counter the risk of a longer ?ramp up? period required for traffic and revenues to achieve the levels necessary to ensure financial feasibility,
(ii) greater awareness by private developers of the need for definitive and binding governmental commitments to support the privatized airport, such as government financed development of ancillary airport facilities, air traffic control, safety and security facilities, and ground transportation facilities, and
(iii) more focus on the private developers' rights to undertake the development of potentially lucrative ancillary facilities at or adjacent to the airport, such as hotels, conferences and convention facilities, resort development and cargo and commercial enterprises.
The private sector can be expected to be more discerning as to the type and extent of airport based services and concession revenues that the government authorities seek to retain in the public domain, or plan to privatize by separate concession arrangements in which the airport privatization entity might not share.
Financing structures are also evolving in response to the greater challenges of the current era, with strategies and products designed to appeal to a more skeptical and cautious investment community. In addition to demands for greater levels of equity investment and contingent equity support, there is evidence of increasing interest in more innovative financial products, and hedging strategies. The use of financial guarantee insurance that provides full coverage of debt service, and not merely limited types of political risk insurance, is bound to become more commonplace.
Conclusion
Although recent months have evidenced a renewal of interest in airport privatizations, the effects of 9/11 (including an increased emphasis on airport security, a move in many jurisdictions towards greater governmental control over certain aspects of airport operations and the financial difficulties and attendant cost consciousness of major airlines worldwide) have changed the environment in which airport privatizations take place. Those governmental authorities and private developers that are most likely to reap the considerable benefits of airport privatization are the ones which are able to develop and implement innovative business, financial and legal strategies and techniques that meet the challenges of this new environment.
Footnote
1 Statistical and other information in this article is derived from recognized industry sources.
In 2002, however, the worldwide trend toward airport privatization started to recover, suggesting that the long-term prospects for airport privatizations remain strong. This article examines the impact of the 9/11 terrorist attacks on airport privatizations worldwide and identifies some trends and strategies in the airport privatization sector in the aftermath of 9/11. We begin with an examination of the motivating factors behind airport privatizations.
Motivating factors for airport privatization
Airport privatizations take many forms, including:
(i) the outright sale of an airport by a governmental authority to a private entity,
(ii) the granting of concession or other rights to private entities to develop, improve or expand and operate airport facilities,
(iii) the sale of a governmental airport authority to a private entity, either by way of a bidding process or the sale of shares to the public, and
(iv) a governmental authority entering into a management agreement or lease with a private entity.
Regardless of the form, however, certain motivations for privatization of airports tend to be universal.
First, as with the privatization of other areas of traditional governmental responsibilities, governmental entities recognized that airport privatizations can make available private funding for necessary airport expansion and operation.
Second, privatization offers governmental entities the opportunity to transform airports into revenue generators. Airports offer significant commercial opportunities in which the government authorities are keen to share. Transferring ownership and/or operation of commercial airport activities, such as duty free services, food concessions and retail sales, has dramatically increased revenues at many airports worldwide. Since a subsidiary of the BAA contracted to take over the management of retail operations at Pittsburgh International Airport in 1992, it is reported that per passenger retail spending has increased by 250%. Annual retail revenue per square foot at the ?Pittsburgh Airmall? is reported to have quadrupled after BBA took over the airport's management. It is customary for the relevant privatizing governmental authority to share in such increased retail revenues.
The third major motivation for airport privatization is the expectation of enhancing the quality of services provided to both the traveling public and the airlines using the airport. This expectation can be fulfilled by the private sector introducing market oriented management methods in order to increase efficiency, reduce cost and make airports more competitive.
The immediate impact of 9/11 on airport privatizations
The foundation of any successful airport privatization is the confidence of private developers and operators in projections of stable or increasing airline traffic, and the related forecasts of revenues from landing fees, terminal services, and rental payments from retail tenants and airlines. It is these revenue forecasts that allow private parties, in conjunction with governmental authorities, to finance the capital costs associated with airport construction, enlargement or modernization and to operate the airport in the long term. It is therefore not surprising that 9/11, with the resultant fall-off in airline traffic, had an chilling effect on many airport privatizations that were already in the pipeline.
In December 2001, the FAA rejected Niagara Frontier Transportation Authority's proposal to lease of the Niagara Falls Airport to Cintra Concesiones de Infrastructuras de Transporte S.A., a Spanish transportation development company, for 99 years as part of the FAA pilot US airport privatization program. The director of public affairs for the Niagara Frontier Transportation Authority noted that ?[t]he FAA was in the process of approving the agreement when the terrorists attacks of 9/11 changed the landscape of the aviation industry and altered the economy. That had a direct effect on how the FAA viewed the proposal.? The FAA suggested that its central concern was whether or not ?the business prospects of the proposed lease will encourage or even permit the investment in and development of the airport.?
The long-planned privatization of Sydney's Kingsforth Smith Airport in Australia, one of the largest proposed privatizations in the Asia-Pacific region, was initially put on hold after 9/11 as a result of the withdrawal of several potential bidders and governmental concerns about the effect of the terrorist attacks on the sale price.
In Europe, the combined effects of the reduction in air travel since 9/11 and the subsequent bankruptcy of Sabena, Belgium's flag carrier, put on hold plans to float shares of Brussels International Airport Company on the private exchanges.
In Asia several pending privatizations were placed on hold or abandoned. The proposed sale of a 49% stake in Soekarno-Hatta International Airport in Jakarta was among those placed on hold. Airport officials attributed the postponement of the proposed sale to low investor interest following 9/11. Schiphol Group's planned purchase of a 30% stake in Malaysia Airport Management, the management company for 37 airports throughout Malaysia (including the new flagship airport for Kuala Lumpur), was cancelled for undisclosed reasons in April, 2002.
Airport privatizations in the aftermath of 9/11
Worldwide airport traffic and revenues have started to recover from the dramatic reductions experienced in the period immediately after 9/11, although they have not yet risen to their pre-9/11 levels. A corresponding recovery can be seen in the pace of worldwide airport privatizations.
Europe
In Italy in February 2002, the City of Florence announced plans to privatize the City's airport, Aeroporto di Firenze, with a sale of a 29% stake in the company that owns the airport. This plan was the second stage of the City's airport privatization program, following an initial public offering of 38.7% of the airport company's shares in 2000. In July 2002, Macquarie Airports Luxembourg S.A entered into a conditional agreement for the purchase of 44.7% of the shares of Aeroporti di Roma SpA, the operator of Rome's Fiumicino and Ciampino airports, for a purchase price of approximately Eu480 million. In December 2002, the Italian Economy Minister formally approved the deal.
In April 2002, the Maltese government selected Malta Mediterranean Link, a consortium composed of the Vienna International Airport (a participant in the Berlin airport project), SNC-Lavalin Inc. and Bianchi & Company (1916) Ltd to be the purchaser of a 40% interest in Malta International Airport plc, which expects to be awarded a 65-year concession to operate the Malta International Airport.
In August 2002, Berlin-Brandenburg International Partners (BBIP), a consortium headed by IVG Immobilien AG and Hochtief AirPort GmbH, signed a wide ranging letter of intent with the German governmental authorities in connection with the concession to build and operate the new Berlin Brandenburg International Airport (BBI) at Schönefeld. In December 2002, however, Hochtief's Chairman suggested that it may want to renegotiate the Eu290 million purchase price for BBF in light of the potential adverse impact that some proposed changes in German tax law may have on the profits of the project.
United States
Even as the airport privatization projects worldwide recovered from the impact of 9/11, the US continued to lag behind in the area of airport privatization. There are numerous reasons for this, from legal restrictions to the ready availability of tax-free municipal bond financing and the opposition of the major US airlines and labor unions.
In 1996 Congress introduced a pilot airport privatization program to explore the potential benefits of airport privatization in the US. Participants in this program were exempted from some of the major legal impediments to privatization. The response to the FAA's pilot privatization program has been far from overwhelming. So far only one airport, Stewart International Airport in New York, has been successfully privatized under the pilot program. A subsidiary of National Express Group, a UK company, entered into a 99 year lease of Stewart International Airport with the State of New York in March 2000. As noted above, a proposal by Cintra Concesiones de Infrastructuras de Transporte S.A., to lease the Niagara Falls International Airport, also in New York, as part of the program was rejected by the FAA in 2001.
However, there remain some signs of continued interest in the FFA's pilot program. In April 2002, New Orleans Lakefront Airport in Louisiana applied to participate in the program. More significantly, in December 2002, the Transportation Committee of the City Council of Atlanta, the owner of the William B. Hartsfield International Airport, one of the world's busiest airports, convened to discuss plans for the airport to participate in the FAA program. However, Delta Airlines, the airport's key tenant, has come out in opposition of the plan, as have other airline tenants. Without the support of Delta, the chances of the plan gaining FAA approval are minimal.
Beyond the FAA's pilot privatization program, other privatization projects have occurred in the United States. The development of the Terminal 4 project at John F. Kennedy International Airport (?JFK?) in New York City is one significant example, which, unlike the privatizations under the pilot program, involves a major development of airport infrastructure by a private entity.
In 1997, JFK International Air Terminal LLC (?JFK IAT?), a joint-venture owned by subsidiaries of Amsterdam Airport Schiphol, LCOR Inc. and Lehman Brothers Inc, was granted a long term lease of the International Arrivals and Wing Buildings (Terminal 4) at JFK by The Port Authority of New York and New Jersey. Pursuant to this lease, JFK IAT was obligated to demolish the obsolete terminal (originally built in the 1950's) and construct a new world class international terminal in its place. The cost of the project was $1.4 billion, making it the largest airport privatization in the US to date. The new Terminal 4 was opened in May 2001 to great acclaim.
Another US airport privatization project was announced in July 2002 by the South Suburban Airport Coalition (?SSA Coalition?), which has proposed the construction of a new airport south of Chicago, Illinois. The project faces many challenges, including the bankruptcy in 2002 of United Airlines (one of the Chicago region's largest air carries), as well as opposition from various parties who prefer the expansion of Chicago's O'Hare International Airport. However, the SSA Coalition is continuing to move forward, and the State of Illinois has commenced the acquisition of a portion of the property required for the project.
Asia and elsewhere
In Jakarta, the government announced its intention to privatize the public operator of Soekarno-Hatta International Airport in 2003. An earlier privatization proposal involving the airport had been put on hold in the aftermath of 9/11. In September 2002, the Thai Government approved plans to privatize the Airports Authority of Thailand. The South Korean Government incorporated the public Korean Airports Authority (which operates 16 airports, including the Seoul-Gimpo International Airport) as a stock corporation as the first step towards it privatization.
In August 2002, the Japanese Government proposed the privatization of Japan's three international airports, Kansai International Airport, the New Tokyo International Airport at Narita and the proposed Central Japan International Airport at Nagoya (scheduled to be opened in 2005). This plan has drawn opposition from the airline industry, which fears that it will result in higher landing fees.
One of the biggest airport privatization events of 2002 was the privatization of Sydney's Kingsforth Smith Airport in Australia, which was initially delayed by 9/11. In June 2002, Southern Cross Airports Corp., the winning bidder, paid a record $A5.5 billion for the 99 year lease of the airport. Southern Cross Airports Corp. is a consortium, the leading members of which are Macquarie Bank and Hochtief.
In May 2002 the Indian Aviation Minister announced plans to lease India's four largest airports (Delhi, Bombay, Calcutta and Madras) to foreign operating companies in 2003. In September 2002, the Aviation Minister also announced plans to privatize 10 regional airports. However, in January 2003, the Indian Cabinet deferred deciding whether or not the privatization of the four larger airports should proceed. The labor union representing employees at these four airports has strongly opposed the plan.
The Government of Jamaica awarded a consortium, MBJ Airports Limited (MBJ), a 30 year concession to expand and operate the Sangster International Airport in Montego Bay in January 2003. The consortium includes YVR Airport Services Ltd. (a subsidiary of Vancouver International Airport Authority), Agencias Universales S.A., Ashtrom Group Ltd., and Dragados Concesiones de Infraestructuras S.A. The concession calls for the consortium to invest US$200 in the airport.
Trends and strategies
In contrast to airport privatizations worldwide in the 1990's, governmental municipalities and private developers have taken a more cautious approach to airport privatizations post 9/11, as demonstrated by some noteworthy withdrawals of key participants from earlier privatization efforts and by the announcement of revised financial terms of privatization bids. There seems to be a trend towards concentration in the industry, with some former leading developers curtailing their airport development efforts and signs of fewer private investors entering the area for the first time.
Some of the more prominent players seem to be staying closer to home, concentrating their resources in those regions in which their existing activities and ongoing familiarity create a sense of comfort during these times of intensified economic and political peril and afford an opportunity to realize the benefit of economies of scale.
Strategies to enhance the likelihood of success in airport privatization ventures in the post 9/11 era include:
(i) insistence by private developers upon longer term concessions/leases to counter the risk of a longer ?ramp up? period required for traffic and revenues to achieve the levels necessary to ensure financial feasibility,
(ii) greater awareness by private developers of the need for definitive and binding governmental commitments to support the privatized airport, such as government financed development of ancillary airport facilities, air traffic control, safety and security facilities, and ground transportation facilities, and
(iii) more focus on the private developers' rights to undertake the development of potentially lucrative ancillary facilities at or adjacent to the airport, such as hotels, conferences and convention facilities, resort development and cargo and commercial enterprises.
The private sector can be expected to be more discerning as to the type and extent of airport based services and concession revenues that the government authorities seek to retain in the public domain, or plan to privatize by separate concession arrangements in which the airport privatization entity might not share.
Financing structures are also evolving in response to the greater challenges of the current era, with strategies and products designed to appeal to a more skeptical and cautious investment community. In addition to demands for greater levels of equity investment and contingent equity support, there is evidence of increasing interest in more innovative financial products, and hedging strategies. The use of financial guarantee insurance that provides full coverage of debt service, and not merely limited types of political risk insurance, is bound to become more commonplace.
Conclusion
Although recent months have evidenced a renewal of interest in airport privatizations, the effects of 9/11 (including an increased emphasis on airport security, a move in many jurisdictions towards greater governmental control over certain aspects of airport operations and the financial difficulties and attendant cost consciousness of major airlines worldwide) have changed the environment in which airport privatizations take place. Those governmental authorities and private developers that are most likely to reap the considerable benefits of airport privatization are the ones which are able to develop and implement innovative business, financial and legal strategies and techniques that meet the challenges of this new environment.
Footnote
1 Statistical and other information in this article is derived from recognized industry sources.
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