"Leasing the airport? Who ever heard of such a thing? Aside from the rest of the world, that is"

Wednesday, June 18, 2008

Leasing the airport? Who ever heard of such a thing? Aside from the rest of
the world, that is.
By Patrick McIlheran
The Milwaukee (WI) Journal Sentinel


Whether Milwaukee County can put Mitchell International Airport's success to
work or not by leasing out the airport isn't clear, but it seems worth
investigating, at least. Especially since County Executive Scott Walker
seems to be suggesting the county retain ownership and take the winnings a
little at a time, rather than via one giant jackpot, as Chicago did in
actually selling some moneymaking infrastructure. 

The response in some quarters has been - let's see whether I can paraphrase
the nuance of it - something like, "Nonononononononononoooooooooo!!!!!"

What's most fascinating is how quite a bit of the reflexive naysaying has
been so parochial - as if the very idea of renting out the airport to a
manager who would run it, pay the county and make money were an utterly new
idea. County Board Chairman Lee Holloway says it'll just lead to fewer
flights, for instance. One blogger works up his own homemade accounting;
another yammers on about how it's all a Scott Walker shell game. Why, who
ever heard. . . ?

All this proceeds as if airports around the world hadn't been successfully
turned over to private operators for a couple decades already. But they
have. Dozens of formerly government-run or government-owned airports
worldwide have been either sold to private companies or their operations
have been contracted out. Among them are the airports in Copenhagen,
Frankfurt, Amsterdam, Singapore, London and Vienna. 

About the only place this hasn't happened is in the United States for
various reasons, mainly related to how passenger fees are collected by the
feds. Even here, however, Indianapolis contracted out its airport's
operations to the British airport operator BAA, which dropped the contract
last summer only because it decided under new ownership to concentrate on
airports it owns outright. Still, for 12 years, the deal seems to have
worked, reported USA Today: "The airport's revenue and passenger volume
grew, and its facilities and stores were modernized during BAA's
management," the paper heard from the airport's director. "BAA brought new
processes and procedures. They were a little bit ahead of the curve," he
told the paper.

BAA hasn't done nearly as well in the muffed opening of a fifth terminal at
London's Heathrow Airport this spring, though, as The Economist reports,
that's hardly due to privatization and instead stems from the fact that
British authorities gave a monopoly to the company over all of London's
airports. The outfit could use some competition, in other words. Other
places, it's worked well: Service is up at Vienna, Dusseldorf and Belfast,
all privatized in differing ways. 

In other words, the kind of deal you make matters. Whether Milwaukee would
do well isn't, of course, known, but, as Walker points out:

"The FAA will only approve (Mitchell) for the pilot program if we can show
that service remains the same or better. They are going through this very
process in Chicago with Midway Airport. This would suggest that (Holloway's)
suggestion is not possible.

"Plus, this is another reason why we would pursue a long-term lease and not
an attempt to sell the airport.  A lease allows the county to control things
like this in the future."   

In other words, Milwaukee could give a try to an idea that's new in the U.S.
but old hat around the world - and do so in controlled conditions informed
by what has worked elsewhere and what hasn't. Seems worth looking at to me. 

Unless the problem is that it would work. 

Among the closed-minded who are saying no-way-no-how, one hears the notion
as well that this would inevitably lead to higher fares - "airlines that use
the airport would have to OK the deal knowing their fees would rise to make
the airport a profit-making business," writes one critic. 

They would? That's happened in some privatizations worldwide, but not in
others. The fear is premised on the notion that Mitchell is right now being
run at the best conceivable trade-off of cost to revenue. It fails to grasp
that the whole way private contractors classically make money on such deals
is by lowering costs while offering attractive services at an attractive
price - by improving the trade-off. The Journal Sentinel reports, "Walker
said private firms also could make money on an airport lease deal by
offering fewer benefits to personnel than county workers now get," one
obvious way in which this could happen, given the known reality that
Wisconsin public employees are generally paid unusually generous benefits. 

So a private operator might turn a profit by getting more for what
passengers now pay. Insofar as passengers would benefit (from better
service), shareholders would benefit (from making money), the airport would
benefit (from the new capital such profits attract) and the county would
benefit (from the rent it earns), what's the problem, other than for
employees who previously had been making more than market-rate bennies?
Under this scenario, leasing the airport's a problem only for said employees
and for the politicians who see public-sector unions as their major
constituency. 

The other problem would be for those in Milwaukee County cheering for a
transit sales tax. Walker wants to use any airport earnings to sustain
buses; critics note that any such deal would take at least a few years
before money flows and favor, instead, a quick half-percent tacked onto
everything you buy. They have a point, but it hardly seems to disqualify
looking at an airport deal on its own merits. Rather, this angle seems to be
saying that the problem with an airport lease is that the money could
supplant (eventually, once it picks up) what's earned by a new, added sales
tax. One is left with the impression that some people in Milwaukee County
feel such a new, added tax has virtue in itself, beyond the revenue it
raises.

In the end, it's a matter of what works. Whether an airport deal would, I
don't know, though people who actually watch the airport industry tell me it
certainly can. It has elsewhere. It seems weird to rule out the possibility
from the start. 

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