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Privatization: Taking into account airport externalities

Vicente Padilla

Vicente Padilla

AERTEC / CEO & Founder


Air pollution, water pollution, noise, traffic jams, biodiversity loss, land appropriation… Those who oppose airport developments, fierce activists, don’t lack arguments. Airports do indeed generate many negative externalities for some communities. In economics, externalities are costs or benefits that affect a third party not involved in the economic transaction. Airports generate quite a few negatives.

But airports also create many positives. Airports are regional and national economic boosters. Airports provide access to faraway markets. Airports attract inbound visitors creating jobs for the tourist industry. They are a primary factor for the decision-makers in terms of business location. They provide vital competitiveness to high-tech and innovative industries. They are often the only means of transportation to remote areas, delivering medical services and promoting awareness of cultural differences. They promote trade. They connect nations. Airports bring people closer together.

Governments should be aware that the real value of an airport lies beyond the accounting books.

Given the impact of an airport on the community, can we privatize an airport as if it were a modest bakery?

The balance sheet of an airport business plan does not account for any of these externalities. The impact of an airport on the community cannot be measured in dollars, euros or yuans. That’s why the airport privatization debate is often misguided.

Yes, airports are moneymakers on-site, but airports also generate money – and bills – beyond the limits of their fences. Government regulatory policies must ensure that the private investor does not consider only revenues and profits within the airport limits. Private operators may root out inefficiency, but they are also more inclined to take dividends off airport development projects –and for that matter – the community.

Don’t get me wrong. I truly believe in privatization of airports. It brings efficiency and awareness of competition to the sector. Nevertheless, we can’t expect the private sector to think selflessly about the region’s long-term development. If an airport is going to be 100% privatized, a strong and independent regulatory body is mandatory.

Pricing, safety compliance, service quality levels, noise mitigation programs, operational resilience plans, emergency plans, investment plans and more must be strictly regulated and controlled by an independent body. The regulator must also be empowered to impose penalties for non-compliance. Furthermore, if necessary, it must be able to take away the operator’s license.

Airport privatization has become a worldwide phenomenon. Governments in Europe, Asia, Australia, Latin America and the Caribbean are selling off public assets. Some are seeking a quick fix for the empty chests of the treasury. Governments should be aware that the real value of an airport lies beyond the accounting books. A solid-built regulatory framework must be established before selling. If they don’t do that, no matter what they cash in on the auction block, chances are they may be sorry years later.



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