DALLAS – A 20-year-old federal pilot program of airport privatization has found few takers because of restrictions on how the Federal Aviation Administration allows private operators to fund related infrastructure projects, the Congressional Research Service said.

St. Louis Lambert International Airport is the only U.S. hub airport currently seeking a slot in the FAA’s privatization program after Chicago Midway International Airport withdrew its application in 2013.
St. Louis Lambert International Airport is the only U.S. hub airport currently seeking a slot in the FAA’s privatization program after Chicago Midway International Airport withdrew its application in 2013.
St. Louis Lambert International AIrport

A CRS report, released earlier this month, points to challenges that may lie ahead for the Trump administration, which says it is preparing a 10-year, $1 trillion plan that will focus on leveraging private investments in infrastructure through public-private partnerships.

The CRS focused on the FAA’s Airport Privatization Pilot Program (APPP), created by Congress in 1996 to increase airports’ access to private capital for infrastructure projects. Only two airports have been privatized since the law was enacted, and one of them, Stewart International Airport in Newburgh, N.Y., reverted back to public ownership after seven years in private hands.

Transportation Secretary Elaine Chao said the acceptance of St. Louis Lambert International Airport for application for a slot in the FAA program in April shows the Trump administration’s commitment to innovative financing strategies to revitalize U.S. infrastructure.

“This approach to airport management increases productivity, revenue and operating efficiency for airports, creating greater access to capital for infrastructure needs,” Chao said.

The APPP measure provided for five slots in the privatization program, and was later expanded to include up to 10 airports. Aside from St. Louis airport, however, there are only two county airports in in Florida and New York currently seeking slots.

St. Louis expects to receive a significant up-front payment that it could use to fund projects at the airport or across the region when it selects its preferred airport operator in 2018, said former St. Louis Mayor Francis Slay.

Airport privatization could be made more attractive if lawmakers would allow the operators to issue tax-exempt revenue debt on the same basis as public airports and make it easier for the public entity that owned the airport to use revenues generated by lease payments to fund roads, bridges, and other offsite infrastructure projects, said CRS transportation analyst Rachel Tang.

Privatization outside the framework of the APPP is generally not a viable option for airport owners or potential investors, Tang said. Going private outside the FAA program would likely result in higher financing costs and the loss of federal airport grants without providing the public sector owner with revenues that can be used for other purposes, Tang said in the recent report.

Significantly increasing interest in airport privatization is likely to require structural change to the existing airport financing system, she said.

“This could be done by eliminating the current federal income tax exemption of interest on bonds issued by public sector airport owners or by extending tax-exempt or tax-preferential treatment to airport infrastructure bonds issued by private investors,” she said.

Either change would eliminate a major barrier to moving airports from public to private ownership, Tang said.

“On the other hand, removing the tax exemption for public sector airport bonds would raise airports’ financing costs, while extending it to private sector bonds could have consequences for federal revenues,” she said.

There are few easy answers for lawmakers looking to boost private sector investments in airports, Tang said, with each solution having its own problems.

“Reducing the obstacles for public sector owners to use privatization revenue for non-airport purposes would stimulate local and state government interest in privatization,” Tang said. “On the other hand, it could potentially lead to a lower level of investment in aviation infrastructure.”

Allowing privatized airports more flexibility to impose passenger facility charges and to raise rents and landing fees would make privatization more attractive to investors, Tang said, but airlines serving the airport might object to the higher costs.

FAA regulations ban the sale of commercial service airports such as Lambert but they can be leased to a private operator.

The only privatized airport in the U.S. is Luís Muñoz Marín International Airport in Puerto Rico. Private operator Aerostar has spent more than $176 million to rehabilitate two passenger terminals and install a new baggage-handling system since the FAA approved the move in early 2013.

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