Airport Privatization
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