Transcript Setting the basis for aeronautical charges

Approaches to the
privatisation of airports
April 21, 2009
Dr. Romano Pagliari
Senior Lecturer
Cranfield University
Why privatise airports ?
• Government needs to raise capital to finance public spending
• Government unable to finance capacity expansion
• To improve efficiency / financial performance of airports
• To improve quality of service to passengers and airlines
Short history of
privatisation
• 1940s to late 1960s – pre-corporate era
• 1970s to late 1980s – corporatisation of airports – rise of the
state-owned airport authority
• First privatisation – BAA in 1987
• Since 1990s – airport privatisation in other European countries,
Australasia, South America
• No privatisation in USA
• Most major airport companies today are still governmentowned
What are the benefits
of privatisation ?
• Focus on customer service
• Increased creativity in:
• Marketing to airlines
• Development of commercial (non-aviation) revenues
• Focus on cost efficiency and improving productivity
• Cost-effective investment
What are the risks of
privatisation ?
• Reduction in quality of service to passengers and airlines.
• Large increase in aeronautical charges to airlines.
• The privatised airport will not invest to expand capacity.
• Over-investment in airport capacity followed by higher
charges to airlines “gold-plating”.
• Economic regulation of privatised airport can deal with the
risks.
Methods of
privatisation
Stock market
floatation
Trade sale
Management
Contract
Concession
Project
Finance
BOOT
Methods of
privatisation
stock market
• All or a % of shares sold on stock market
• Management able to retain more control – investors are small
and generally passive.
• Employees can buy shares – stock options for management Management may be too concerned with share price
• Stock markets are volatile
• Only BAA has done 100% flotation (de-listed in 2006)
• Others (e.g. Copenhagen, Vienna, ADP, Fraport) have been
partial
Methods of
privatisation
trade sale
• All or % of shares sold to a single / group of investors
• Sale usually through public tender leads to higher prices
• Investors have experience
• Some shares could be retained by government to protect
public interest
• Trade sales common in Europe, Australia, New Zealand
• High prices
Methods of
privatisation
concession
• Private company has a concession to operate the airport for a
fixed period (30-50 years)
• Private company pays the government a charge
• Private company has service level agreement with government
(capital investment obligations)
• Very popular form of privatisation in Central & South America.
• No need for separate economic regulation – included in the
contract
• Bureaucracy / higher administration costs
Methods of
privatisation
others
• Management contract
• Private company responsible for day to day management
• State retains responsibility for capital investment and
aeronautical charges
• Used in “high risk” regions
• Project Finance (BOOT)
• Build Own Operate Transfer
• Used for new infrastructure (terminals)
• Similar to concession model
Privatisation of airport
networks
• Choice is to sell as one network or to separate the airports
and sell individually or in groups
• Advantages of network privatisation
• New private owners take responsibility for small loss-making
airports as well.
• Lower administration / transaction costs to the state.
• Advantages of separating airports
• Lack of diversity / competition between airports
• New private owners may neglect management of small airports
Privatisation of airport
networks
Mexico
• Privatisation of Mexican airports using concession model (19982000)
• Airports split into 3 regional groups – each group formed
around one large airport
• State retains share in each group
• Group pays % of revenue to the state
• Each group must have Mexican investor & foreign investor (AENA,
AdP, Copenhagen)
• Mexico City Airport remains state-owned
• All very small airports under government ownership
Privatisation of airport
networks
Australia
• Australian Government privatises government-owned airports
1998-2002
• Government received very good prices for selling the airports
(17 times EBITDA)
• Major airports were separated and sold individually to investors
(trade sale)
• 3 phases (Sydney in 2002)
• Foreign ownership restricted to 49%
• No government share holding
• Economic regulation
Privatisation of airport
networks
Argentina
• Argentina decided to privatise all its 33 airports as one network
in 1998 under concession contract
• No corporatisation prior to privatisation
• Annual concession fee to be paid to Government based on
winning bid
• Concession fee = AR$118 million and profits of the group =
AR$140 million
• 2001 economic crisis and problems with concession contract
UK experience of
privatisation
Central / regional government
Local Council
Government-owned BAA
Private
Privatised BAA
Before privatisation
After privatisation
UK experience of
privatisation
• UK Airports Act 1986
• Privatisation of BAA - BAA sold as 1 company
• All major local council airports to be established as commercial
enterprises
• Price-cap economic regulation of 4 airports (3 BAA and
Manchester)
• Local council airports cannot borrow capital to finance
expansion
• Government policy pro-liberalisation / anti-central planning
• Airports must be free to make commercial decisions
themselves
UK experience of
privatisation
• 2003 - Need for national airport strategy to deal with lack of
airport capacity
• BAA has become very commercial since privatisation – revenue
diversification
• Concern that BAA has neglected investment and service levels
• UK Competition Commission enquiry - BAA will have to sell 2
airports in London and 1 in Scotland (decision of March 2009)
• Regional airports have performed very well since privatisation
– all have become very profitable – competitive market
• Manchester airport is the only airport to have remained under
local council ownership
Do you need economic
regulation?
• Traditional view is that all airports should be regulated.
• Are airports monopolies and will they take advantage of their
market power to increase charges to airlines?
• Airports with little traffic and spare capacity less likely to take
advantage of airlines.
• Airports compete with:
• Other airports in the region /country.
• Other airports across the world.
• Possible abuse of market power more likely at large hub
airports with limited capacity.
Do you need economic
regulation?
• Proposed EU Directive on airport charges has provisions for
independent economic regulation
• What type of economic regulation should be applied to
privatised airports?
• Does the airport possess market power and is it likely to abuse
it?
• Forms of economic regulation are:
• Ministerial approval
• Price cap
• Rate of return
• Reserve power / prices surveillance
Do you need economic
regulation?
• UK has used price-cap regulation (3 airports)
• Price cap has been criticised:
• too bureaucratic
• Under-investment
• UK will move toward license-based regulation - type of
regulation depends on degree of airport market power
• Australia replaced price cap regulation with reserve power /
prices surveillance
Who buys airports?
• Other airports
• Fraport, Schiphol, Aeroports de Paris
• Transport infrastructure companies
• Ferrovial (BAA)
• Abertis (Luton)
• Airport Investment Funds
• Macquarie (Rome, Sydney, Brussels, Copenhagen)
• Hochtief (Hamburg, Dusseldorf, Sydney, Athens, Budapest)
How do investors
evaluate airports?
• Investors looking to maximise cash-flows from airports
• Passenger traffic volume and mix (business / Leisure) and
potential for further growth
• Limited competition from other airports
• High % of origin-destination traffic preferred
• Light handed regulation / regulatory stability
• Diversified sources of revenue
• Mix of airlines
• No significant medium-term capital expenditure requirements
Are private airports
better?
• Relations between airports and airlines have not been good
since privatisation
• Arguments over aeronautical charges and quality of service
• Examples of well managed government-owned airports
• Singapore, Incheon, Manchester
• Globalisation of airport management
• Transfer of management skills / knowledge across the world
• Privatisation has improved regional airport performance
Are private airports
better?
Sample of European regional airports
between 3 and 5 million annual passengers
ownership
revenue
/ cost
ratio
% commercial
revenues
Aberdeen
100% private (BAA)
1.6
43
Bordeaux
Chambers of Commerce
1.0
44
Leeds
Local Councils
1.1
51
Verona
Local Councils & Chambers of Commerce
1.1
23
Pisa
Local Councils & Chambers of Commerce
1.2
30
Bologna
Local Councils & Chambers of Commerce
1.3
45
Conclusions
• Most major airports / airport authorities still under government /
public sector ownership
• Privatisation of airports in many countries is a controversial issue
• Governments in many countries view airports as vital assets –
seek to maintain control
• Most privatisations have been partial
• Focus on managing airports post-privatisation