Privatization of Airports
For 51 years Bergstrom Air Force Base was home to fighter pilots, bombers, troop carriers and reconnaissance jets. It was the first port of call for President Lyndon B. Johnson on his trips home to LBJ Country aboard Air Force One, it was where Chuck Yeager, the first pilot to break the sound barrier, once brought a disabled jet to rest in an emergency landing. In September 1993, in the path of military cutbacks Bergstrom Air Force Base was closed. But the timing was fortuitous, because the closure came as the city of Austin, Texas was considering where to build a new airport. In 1993, the expected economic loss to Austin from the Bergstrom closure was estimated at $406 million a year and a loss of some 1000 jobs. But with the possibility of utilizing the prior Bergstrom Air Force Base as an airport the Austin economy was expected to have an opportunity to rebound and even improve these results from the base closure by privatizing the airport. The trend worldwide toward airport privatization presents an exciting and dynamic opportunity for the flying public, governments, operators and investors. The overall success of privatization of airports has been seen by the sale of long-term leases for three of the largest airports in Australia for $2.6 billion. Following this success, the Government of Australia announced their plans to privatize fifteen more airports. Several Latin American airports already are in private hands. Major airports in Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela are already concessioned or scheduled for privatization over the next two years. Smaller airports in Central America and the Caribbean also are to be privatized. In Europe, a significant number airports have been privatized and opportunities are imminent in Germany, Portugal and elsewhere. Governments in Southeast Asia, Africa, and the world over also are developing airport privatization plans. Why has this marked trend emerged and why did the city of Austin choose to act in this capacity? Governments in many cases do not have the financial capacity to invest in airport expansion as well as meet other needs of their citizens. They are recognizing that on one hand there are limits to their own knowledge of, and expertise, in managing airports; and, on the other, that such expertise can be provided by others with the effect of reducing costs, increasing revenues and improving services. An important objective in many instances is to increase competitiveness and enhance ability to attract economic development by improving airport facilities and obtaining additional air service. The private sector increasingly has come to view airports as an attractive investment; airports serve a dynamic growth industry–commercial aviation–and represent essential infrastructure with a near monopoly. Qualified private airport operating companies have materialized and others will evolve, while successful public airport operators are seeking to expand to provide airport management services–generally as part of broader investor groups. As a result, substantial numbers of airports will come to be operated by a worldwide network of airport operators. These worldwide operators will engage in healthy competition with each other to be efficient and offer superior services, and thus support the objectives of the investor groups in which they participate. The city of Austin expectations by privatizing were: h Accountability. Private contractors are paid for results. This gives them an unwavering focus on performance that can rarely be sustained in a public agency. Moreover, private contractors operate under the very real possibility that if their performance is found lacking, the contract may end. This accountability is transferred directly to employees who must deliver top-notch performance to preserve their position in a private organization. h Performance-based Compensation. Just as private contractors are paid based on results, they can base employee compensation on performance. Contractors can pay bonuses for exceptional performance and give merit increases alone rather than longevity-based pay increments. This elicits greater productivity and effectiveness from staff. h Management Expertise. Contractors develop expertise to compete effectively. They hire well-known experts and develop management structures geared toward continuous improvements in performance. h Flexibility. Private contractors have the flexibility to respond quickly to changing program requirements or evolving needs of organizations. They can acquire new technology, obtain new equipment, reorganize offices, and/or adjust staffing configurations without the encumbrances of slow-moving public civil service or procurement systems. Most importantly, if they can increase their revenue by investing in more staff and other resources, they have the flexibility to do so without the artificial constraints of limits found within the government bureaucracies. h Technology. Because of purchasing power and a conduit to leading edge technology, private companies can obtain and adapt technology to improve productivity and track performance in ways that the public sector is typically not able to match. Governments rarely act quickly enough to develop or use leading edge technology. h Customer Service. Private contractors tend to place a strong emphasis on customer service because, for competitive reasons, they must be acutely sensitive to their reputations in the communities that they serve. They also bring a level of expertise in improving customer service that may not be as well developed in the public sector. h Cost-effectiveness. Numerous studies have documented the cost savings agencies achieve from outsourcing services to private organizations. For full-service private airports, an initial investment may be required to transition to privatization, but a private contractor will tend to reduce the costs of operations. h Responsiveness. Private contractors are directly accountable to the governmental agency that has outsourced to them and, as a result, they tend to be very responsive to that agency?¦s mission and objectives. What the results were for the city of Austin In their effort to privatize Bergstrom, the city met many challenges and issues such as environmental clean up, what do with existing structures, noise pollution and re-use issues. The cleanup chore When Bergstrom closed in 1993, it was among more than 50 military installations being closed or realigned because of defense cutbacks. There was considerable work to do before the Air Force could turn the site over to the city. Foremost among the chores was the cleanup of 481 hazardous waste sites — everything from landfills of household waste to jet fuel spills. Such sites can make it difficult to reuse military installations for many purposes because of the cleanup required. The $55 million cleanup was led by the Air Force Base Conversion Agency and included efforts of the city, the Texas Natural Resource Conservation Commission, U.S. Environmental Protection Agency and U.S. Army Corps of Engineers, among others. Airport construction in any area could not be started without (environmental) clearance. The city’s construction schedule was constantly changing which made it difficult for the Air Force to plan its cleanup activities. That, and questions about what degree of cleanup was required, caused some friction between the regional site management for the Air Force Base Conversion Agency and the city of Austin. The mistrust simmered over everything from questions about the schedule to debate about the cleanup. The Air Force believed the cleanup should be done to the level of what might be found at an average industrial site. The city wanted everything cleaned up to the level of a residential site. Communication between all members of the clean-up team just wasn’t happening. A series of meetings were set-up at which the cleanup team determined it could work first in certain areas critical to construction, turning over those areas as they were completed. But it was a hill of dirt that finally broke the barriers between the city and the Air Force. At a cleanup team meeting, the Air Force brought forth a plan to truck in tons of soil to cap landfills on a site. The city of Austin needed to raze a hill on the building site for the east runway. The city was going to pay to remove the hill. The Air Force was going to pay to truck in soil. Why not just turn over the hill to the Air Force and save taxpayers the expense? After agreeing on this, cooperation between everyone became easier. For the Air Force, it was one of the better experiences. In the end, most of the base was cleaned up to the city’s liking. In cases where the Air Force met only its standards, the city went in afterward to clean up the final bit. This was done primarily because the city believes it will eventually have to expand the airport. City officials didn’t want to have to worry about cleaning up anything that might be unearthed later. Problems with reuse As construction began, planners soon discovered that although the city was saving time and money by reusing Bergstrom, there were drawbacks. One example came the day after the Air Force vacated the base. All across Bergstrom, residents and employees had turned off the water when they left. The resulting water pressure was more than the old system of pipes could handle. The city field staff ran around for months chasing water leaks. The city soon discovered that much of the base’s utility system could not be reused, resulting in one of the first increases in the airport budget. Utilities the city had thought would cost $6.7 million to refurbish ended up costing $24.5 million, in part because many new pipes and lines had to be installed. City planners also learned they couldn’t save or reuse as many buildings as they had planned. Bulldozers demolished 20 percent of the housing as well as an almost-new commissary and a 36-bed clinic, in addition to the buildings designers never planned to save. Some of the buildings were too old, not up to code and contained lead paint and asbestos. Others would have cost too much to relocate, city officials said. What actually happened to the buildings Of the 322 buildings, not counting 719 houses or duplexes, about 70 remain. Some house the Texas National Guard. City offices are in others. The most recognized of Bergstrom’s old buildings, the 12th Air Force division headquarters known as ”The Donut” because of its unusual design, is being remodeled and will become a Hilton hotel in the spring of 2000. One of the largest hangars is being used as a private aircraft maintenance area, and the aircraft painting facility still stands. Noise Pollution Many of the residents near the ?§new?? Bergstrom do not have late-afternoon barbecues in their backyards anymore. They have gotten tired of trying to yell over the roar of cargo planes on their approach to Austin-Bergstrom International Airport. Nearby area residents will most definitely be affected by a noise problem that is likely to get worse as air traffic increases in the Austin area. As a result, the city is doing a new noise study to determine just what impact the $690 million airport in Southeast Austin will have on residents nearby and under the flight path. They’re also trying to figure out just how to help residents and business owners who will be affected by the noise. Soundproofing and property purchases are options that now must be considered under this study to assist residents in coping with this result of progress. Residents already in the cargo flight path say the planes have disrupted neighborhoods that had enjoyed a brief respite from the noise after Bergstrom Air Force Base closed in 1993. Cargo planes tend to be noisier than passenger airplanes, and by the end of 1999, federal rules will require that older planes be replaced or retrofitted with engines that are quieter and less disruptive. The noise study will take that into account, as well as increased flights and expanded service. The city has placed five noise monitors around the airport to gauge how loud the planes are on some approaches. Although the prospect of airport noise is frustrating for many in the Austin-Bergstrom area, fewer residents will be affected by noise than the 30,000 people who live around Robert Mueller Municipal Airport or under the flight paths will. Increase in costs per passenger for landing fees The cost per passenger for airlines to operate in Austin will be higher than at some other Texas airports. At San Antonio, the airlines pay $3.45. At Dallas-Fort Worth it’s $2.84, and at Hobby in Houston it’s $4.79. This makes Austin-Bergstrom one of Texas?¦ more expensive airports for airlines to operate out of though the cost is still less than other new airports. At Denver International Airport, the cost per passenger is $15.58. In Pittsburgh, where a new terminal was built in the early 1990s, it’s $7.94. With the airlines flying in and out of Austin-Bergstrom International Airport in 1999, their costs per passenger for landing fees and rental rates will almost double from about $3.90 per passenger at Mueller to $7.30 per passenger at Austin-Bergstrom. Each airline that flies in and out of Austin-Bergstrom will determine how to deal with the cost increases — either by raising fares or by cutting costs elsewhere. What the airlines pay in rentals and landing fees is only about 5 percent of their total operating cost. For most airlines an increase in those costs in a city the size of Austin will not require raising fares. New construction is always expensive but most of the airlines will not pass this cost directly onto customers. Since the inception of actually privatizing Bergstrom for the new airport and after years of haggling, the city and the airlines that serve Austin signed off on an agreement assuring that when the airport opened there would be planes flying in and out of it. The city charges the airlines for everything from landing fees and leases for airplane parking to counter space and waiting rooms inside the terminal. Because the city is paying part of its $585.1 million share of the $690 million airport with revenue bonds, the rates have to be enough to pay back the debt. In most cases, it is deemed best to get the airlines on board for a new airport during the planning phase. But the airlines withheld support for a new airport, criticizing the size and cost. In particular, some of the airlines were concerned about the five-gate terminal expansion added by the city midway through construction. The airlines were unsure that 25 gates were needed. There are 16 gates at Robert Mueller Municipal Airport, but in the end the airlines ended up asking to have use of 21 of the gates. While the city does not have an official business agreement with the airlines, the fact that they committed to ?§an agreement?? made it unlikely the airlines would balk at moving. The alternative would have been to pull out of the growing Austin market. In recent years, passenger traffic at Mueller has increased between 5 percent and 8 percent a year. The airlines weren’t thinking of backing out. Those on both sides, the city of Austin negotiatiors and airline industry management, say a turning point in the negotiations came when the airlines agreed to the city’s plan to use the sale of Mueller municipal airport for city coffers instead of just retiring airport debt. In exchange, the airlines would get reduced fees at Austin-Bergstrom. About $2 million was trimmed from the operations budget at the airport. Assessment A study of the direct economic impact of the new airport has not been done, but by 2012 there are expected to be more than 16,000 new jobs associated with the airport and more than 725,000 square feet of new development drawn to the surrounding area. Federal and local authorities know of no larger conversion of a military base to a civilian airport in recent history. By transforming Bergstrom from a proud military base to the $690 million Austin-Bergstrom, the City of Austin saved $200 million in land and runway costs. Aviation industry officials are paying attention to what has happened in Austin. As more base closures happen and all levels of governmental agencies seek to outsource, industry experts, of all categories, look with interest at how Austin was able to cut costs by re-using an existing site. And the innovation of the environmental initiatives the city took during construction, such as an aggressive recycling program and building with energy-saving materials. Austin’s reuse and environmental initiatives were honored by the Airports Council and the Federal Aviation Administration. As such, I would say that the year 2012 will be looked upon with great interest in foretelling whether the actualization of Austin-Bergstrom is as much as a success in the practical as well as it appears to be in the theory.
Bibliography American Statesman, (1999). Airbase to Airport: A model transition Online. Available: URL: http://www.austin360.com/news/features/local/0131recycle.html 1999, January 31. Austin360.com, (1998). Airport?¦s neighbors hear city?¦s noisy plans. Online. Available: URL: http://www.austin360.com/news/features/local/1015noise.html 1998, October 15. National Center for Policy Analysis, (1999). Privatization trends. Online. Available: URL: http://www.public-policy.org/ncpa/pd/private/priv.html 1999. United States General Accounting Office, GAO/NSIAD-96-149 – Report to the Chairman, Subcommittee on National Security, International Affairs, and Criminal Justice, Committee on Government Reform and Oversight, House of Representatives, (1996). August 1996 MILITARY BASES – UPDATE ON THE STATUS OF BASES CLOSED IN 1988, 1991, AND 1993. Online. Available: URL: www.gao.gov 1996, August. SFA Gazette, (1999). Military Base Development Online. Available: URL: www.sfa.com.
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Privatization of Airports