The Vertical Space

#79 Bob Poole, Reason Foundation: The pros and cons of privatizing airports

• Luka T • Episode 79

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In this episode we welcome Bob Poole, Director of Transportation Policy and the Searle Freedom Trust Transportation Fellow at the Reason Foundation, who brings his expertise on the complex and often debated topic of airport privatization. We discuss the pros and cons of privatizing airports, examining the potential value to various stakeholders, including government, investors and passengers. As Bob explains, privatization has transformed airports globally, boosting efficiency, revenue potential, and customer service in certain cases. Yet, the U.S. remains an outlier. He explores the reasons why, including unique legal and regulatory constraints, and what the implications might be if U.S. airports followed the global trend.

Bob:

And they found higher productivity in the privatized airports, more airline service, and increased airline competition, which I was surprised. I think a lot of people were probably be surprised at hearing that. And a few specific findings, if you average things over the two sets of privatized and non privatized, the privatized airports had 21 percent more passengers per flight. I guess upgauging must have taken place, at these airports.

Jim:

Hey, welcome back to The Vertical Space and a conversation with Bob Poole. Bob is the Director of Transportation Policy and the Searle Freedom Trust Transportation Fellow at the Reason Foundation, a public policy think tank. We often have guests who can set the stage on what has worked and what hasn't worked in aviation through the years, the economics of aviation, airlines and airports, as well as providing a perspective on how airlines and others make decisions on what and how and why technology and aircraft are purchased. A deep understanding of this history. buying processes, rivers of cash unleashed, and overall how technology decisions are made, help to explain why some technology will be purchased quickly and flourish while other technology and vehicles, although at first glance sound and look exciting and perhaps may appeal to the airline valuations, don't stand the test of time. Let's face it, introducing tech to aviation is hard and there's a reason for it. Today we hear from Bob Poole, a respected transportation expert, as he provides a deep dive into airports and the pros and cons of privatizing airports. With many of our guests we've discussed why airlines and airports in the US are different in their buying processes, even for technology versus others throughout the world, listen to Bob's conversation and you'll start to understand why. We discuss why the US is an outlier on airport privatization, what US law and FAA regulation allow regarding airport privatization about the performance of privatized airports globally, and an interesting conversation on what US airports might be worth to owners if long-term leased. To really understand the value of your technologies or innovative vehicle technology, you have to thoroughly understand the economics of your customers. So today's discussion will be well worth your time and study. Bob, thanks for joining us and to our guests, we hope you enjoy our talk with Bob Poole as you thoughtfully and profitably innovate in The Vertical Space. Bob Poole is Director of Transportation Policy and the Searle Freedom Trust, Transportation Fellow at the Reason Foundation, a public policy think tank based in Los Angeles and Washington DC. He was among the first to propose the commercialization of the U.S. air traffic control system and his work in the field helped shape proposals for a U.S. ATC corporation. A version of his nonprofit corporation concept was implemented in Canada in 1996, he has advised the office of the Secretary of Transportation, the White House Office of Policy Development and the National Performance Review, the National Economic Council and the National Civil Aviation Review Commission on ATC commercialization. He is a member of the Air Traffic Control Association, and of the GAO’s National Aviation Studies Advisory Panel. In 2012 and 13 he was member of the Business Round Table Task Force on ATC reform and at 14 and 15 he was part of the, ENO, Center For Transportation Working Group on ATC reform. In'18, he received the ENO's, Centers Thought Leadership award for his work on ATC corporatization. Bob's recent studies helped launch a national debate on air traffic privatization in the United States. He advised both the FAA and local officials during the 89 and 90 controversy over the proposed privatization of Albany airport. Policy research on this issue helped inspire the privatization of Indianapolis airport. Management under mayor Steve Goldsmith and Congress has 96 enactment of the airport privatization pilot program. In aviation security Bob advise the White House and House Republican Leaders on what became the Aviation Transportation Security Act of 01 enacted in response to the nine 11 attacks. He has authorized a number of Reason policy studies on aviation security and is the author of a paper on risk-based aviation security with the OECD International transport Forum. Bob has testified in airports, aviation security and air traffic control on a number of occasions before the House and Senate aviation and Homeland Security Subcommittees. And he has spoken on these subjects before numerous conferences. He has also done consulting work on several airport privatization feasibility studies. Bob also edits monthly Reason Foundation e-newsletter on aviation policy issues. He received his BS and Ms in mechanical engineering at MIT and did graduate work in operations research at NYU. Bob, it's a great pleasure to have you join us on The Vertical Space. Welcome.

Bob:

Thanks. I'm glad to be here.

Jim:

Bob, before I ask you the first question, which we ask everybody, is there anything that very few in the industry agree with you on? And I have a feeling you're going to be able to answer this question better than most. I, I first,

Bob:

There are probably several.

Jim:

wanted to give some context to our audience on why we're having this discussion today. We have a lot of innovators and entrepreneurs on the call who are creating capabilities that will eventually be sold to airlines, and in some cases, airports throughout the world. And as they do, we felt it was important to discuss how the money flows into and within airlines and airports. And as such, many of the topics we'll be discussing today, we believe, will be very important to understand, and you're considered a real expert on many of these topics. So, it's again, it's a great honor to have you join us. So, getting back to our first question, is there anything that very few in the industry agree with you on?

Bob:

I think certainly one of the issues that I have not succeeded in popularizing is variable runway pricing. Sometimes called congestion pricing. During the George W. Bush administration, Secretary of Transportation Mary Peters actually changed the federal law, and it was upheld in a court case that airports may do this, but not a single U. S. airport has taken, taken the opportunity to do it. And I think particularly at places like the New York airports, where they have a chronic problem of, of, more airlines wanting to use their runways than there is space for. Pricing is the obvious way to do that. And I did a paper on this with a guy who's a good, modeler, in 2007. It got a little bit of publicity, but, you know, nobody's taken it.

Jim:

Bob, first of all, I did not know that about you. Think about everybody's trying to shoot for the same runways in many cases, especially based on time of day, week, time of year, right?

Bob:

Yeah, and, and actually the FAA and, a consulting firm did a war game exercise where they had airline schedulers and airport people work on, I think it was LaGuardia airport as a case study. And they put them through the paces of, if, all of a sudden a pricing scheme, were implemented and they got the air airport, people said, this is sort of how we could do it. What would the airline schedulers' response be? And, the prediction was there'd be upgaging. You'd have a lot fewer, you know, 30 passenger, 50 passenger planes. This would reduce the number, but not reduce the passengers or the revenue, in general, revenue to the airlines. So. And, so this seemed like this was obvious good economic solution, but, nobody has, gotten anywhere close in this country to try it. There's a little bit of congestion pricing at Heathrow. It's just, it's not super variable. It's, you know, rush hour and non rush hour, But that's the only case I actually know of. And I've, I've keep, I keep

Jim:

I'm going to lean in a little bit here. We've talked a little bit with some guests, about congestion and how do you address congestion? And we've talked about, New York is responsible for arguably 70 to 80 percent of the delays in the United States, the New York airports. So how much could your idea affect congestion. I mean, was that the primary purpose?

Bob:

Yeah, the primary purpose was to reduce or basically eliminate. If you can match the demand with the actual runway capacity. The capacity can improve over time through technology, certainly, but at any given point in time, it is what it is, and, You just, it's a terrible thing to have that congestion. Now, there's also congestion in the New York region is partly due to air traffic control as well, which I've written a lot about. And, the FAA is attempting to, to deal with that by having moved the, Newark and the other New Jersey airports to the Philadelphia TRACON, instead. And it's, you know, it's having some teething troubles, but I think that is going to make a significant difference as it gets settled down and the controllers who move get fully up to speed on, doing it out of the, newer Tracon.

Luka:

What about weather? To what extent does weather cause congestion? And I'm thinking about this dynamic pricing relative to the timelines.

Bob:

Yeah. Yeah. Weather, pricing's not going to, you can't change the weather and blizzards and, wind shear from, storms and things, are going to be there and you will have stand downs or, you know, FAA programs to slow things down because of weather. I think nobody's going to get around that.

Luka:

Do you know how much weather contributes to congestion?

Bob:

I've never seen, an estimate. I'm sure there probably is in the literature some estimates along those lines. And it was, I mean, you know, winter time thing. In summer, I hate to go through DFW because of thunderstorms and things. You never know what's, when you're going to get in or when you're going to get out.

Luka:

Thinking about the dynamic pricing model in terrestrial use cases like hailing a ride where the payment and the consumption of the ride happens, in, you know, short succession, that makes sense. But I'm trying to think through the situation where somebody, buys a ticket, you know, a few months ahead of time, and then the schedules are made 45 days or maybe even longer ahead of time. You might not even know what the congestion situation will be at the time of the actual flight. How difficult is it to execute this idea in practice?

Bob:

Well, it's not the same as expressed toll lanes on the freeway, where you can do it minute by minute and you never know from one day to the next what the peak price is going to be. No, the scheme that the FAA studied, modeled in those war game exercises would be fixed for the given schedule period. So the set of prices would change about three or four times a year and be published in advance. So, you know, unless you made your reservation a year in advance, you might not know exactly what, what that's going to be. And airlines, I think would have to absorb that cost. I mean, it would be built into the fares within the period of, you know, where the pricing is in effect, but, if you buy a ticket a year in advance, they would have no way to know what increment to the price that would

Peter:

Well, Bob, just playing this out a little further, if you implemented dynamic pricing and it was done in such a way that it would encourage upgaging of the aircraft. Okay, but what about flights from smaller cities that can't support the upgauge? Is that really going to achieve the objective?

Bob:

That's the objection that, that was raised, and it's, I, I didn't have a good answer to that, other than that, there's upgaging has been going on, with, the, regional airlines to some extent, you know, larger, jets, and the latest Embraer models and so forth, so that is partly being, helped by changes in aircraft designs. And, you know, we still have scope clauses that limit what some airlines can do because of the pilot unions. But, I think that, that is at least helping the situation a bit. And I would hesitate, I think if you start having carve outs, for certain categories of planes, you're going to really undercut the, power or the value of the runway pricing. So, but it, you know, there's tough trade offs there that would have to be addressed in any real implementation.

Peter:

I mean you could make the pricing mechanism more complicated and you could factor in the population of the MSA, that people are flying from relative to the number of passengers traveling. Okay. You could go into the math with that. I, I don't know if you would end up in a better place or not with it.

Bob:

But the problem is I think the effect that you want to have on, on limiting the demand to the runway capacity would be reduced by doing those kinds of things. So it wouldn't have as much effectiveness.

Peter:

I mean, if your objective is getting the most people through the airport per day, period.

Bob:

And having as little congestion as possible, on a regular basis other than weather and air traffic problems and

Jim:

I mean, is it conceivable that, in addition to having a landing fee, let's say in an airport, you have an airport fee and a runway fee

Bob:

Well, I prefer to see it as a better landing fee, and the money would somewhat increase the airport's funding base.

Luka:

So Bob, your contrarian opinion is what the congestion pricing should be implemented?

Bob:

It's that it should be implemented at airports that have not enough runway capacity and no real way to improve the physical amount of runway space. Which is certainly true of the three major New York airports, to the best of my knowledge.

Luka:

Are there analogs in other forms of transportation?

Bob:

Well, we certainly have congestion pricing in, in a growing number of metro areas on, special lanes on freeways that are growing rapidly I cover a lot of surface transportation as well, and I actually originated, believe it or not, the idea of express toll lanes added to freeways or, converting the carpool lanes to express toll lanes. It was back in a, in a paper in what year was it? 1987 I think it was. And California, DOT, which I helped implement, helped them implement the first one in Orange County, California that opened in December of 1995. And there're now over 60 of these, animals out there on, American, freeways, suburban systems in a lot of major metro areas.

Jim:

Wasn't New York recently supposed to be implementing congestion pricing?

Bob:

On, Manhattan, lower Manhattan, well, Manhattan below 60th, I think, and, the governor got cold feet and withdrew the proposal. She had already approved, fearing, that, members of Congress from, New York who had, in the legislation, Members of, of, of her legislature who are, who voted in favor of it might not get reelected this fall. I mean, I think if that's, that was the speculation at least, of why she did that. Uh, but there was a news item today saying that she's gonna come up with a new plan by the end of the year. Because the MTA needs the money.

Jim:

Bob, getting back to our, the topic at

Bob:

Right, right.

Jim:

Talk a little bit about airport privatization. What is it, why is it popular in other locations and not here?

Bob:

Well, first of all, what it is, in, it started out with the UK when, when Margaret Thatcher was prime minister, and they, actually, sold shares. 100 percent of British Airports Authority and a number of other utilities, the government owned electric company, water company, channel, what do you call it? Hovercraft. I don't know if that exists any longer, but there was a whole long raft of these and several other European countries, I believe Denmark with Copenhagen Airport and, several others also did outright sale, either by finding a private sector buyer to take a majority, and the government would keep a minority, or through a stock market, offer like Margaret Thatcher had. But that is no longer the main mechanism around the world today, including in the European countries that did it later on, and in Latin America, and in Australia, is a long term lease. Long term public private partnership lease, which can range from 40 years in San Juan, which is the only active U. S. case, done through the federal program at least. And, it's the case, in, Australia really took the lead in doing this. A 50 year initial term in those agreements and all the major Australian airports, but they also have an option to renew for 49 years. I don't know what the terms are. You know, who can call the shots. But the long term P3 is the only form of airport privatization that is allowed by federal law in this country. And I think it's a pretty good, legal framework. There's some limitations to it that, have made it, difficult. one example of that is, is that, airport tax exempt revenue bonds, must be, paid off in the event of a significant change in control and the current aviation thinking is that a 50 year airport lease would be such a change and that's so the existing bonds would have to be paid off and that being one way or another it means that the owner of the airport would not get the full gross value and these typically in most of these situations around the world the whole lease value representing in most countries the gross market value of the airport gets paid up front as a huge windfall. In San Juan, they paid 50 percent up front and the other 50 percent in annual lease payments over the 40 year term of the agreement. But almost everywhere else, it's up front payment. And so the potential for airport owners to have a huge windfall would be there, but it wouldn't be as large as the windfalls received in, you name it, Latin American country or, Any place, places in Asia, Philippines, for example, Manila Airport P3s. These are almost all long term leases and the owners of the airport get basically the market value of the airport as determined by what investment people do. They use earnings before interest taxation to dividends called EBITDA. And, That you, they calculate a multiple of that as the, a way to, to get the market value. And so that, that's more, more details than, than your listeners probably want to hear. But, that's, that's how this all, all goes. Congress started about 20 years ago with an Airport Privatization Pilot Program that, had, one initial taker, Stewart Airport, was, was, sold by New York State, but the company that bought it didn't do very well, and, they, wanted out, and the, so the Port Authority of New York and New Jersey bought it from them. And it went back into the public sector. San Juan, was, was, was long-term leased under a slightly improved amended version of that airport privatization pilot program. But in 20, 18 or 2019, Congress made a big modification, a big improvement, in my view, it's now called the Airport Investment Partnership Program. Unlike the earlier programs that were limited to 5 or 10 airports, and only certain categories of airports, this one applies to all U. S. commercial airports. So any, you know, whether large, medium, or small airport whose owner wanted to do this, they have to apply to the FAA and, you know, get approval and so forth, which, FAA has a usual bureaucratic procedure and probably takes a year or two to get approval. But if they really want to do that, that is the way to go. And St. Louis tried that in 2019. And, had tremendous interest. They sent out a request for qualifications and 18 companies, assembled teams, typically an infrastructure investment fund and an airport company, and maybe a pension fund. And of the 18, they selected 12, a huge number to come and give presentations. And, people that I knew who were involved in that said, They were very credible teams. The airlines, attended those, presentations and, had worked up, and got sort of back of the envelope, at least, agreement on how the, airport, charges would be structured. Modeled after the programs that were agreed to in the two attempts to lease Midway Airport under the previous program, both of which failed. But the airport, that was, that broke through for the airlines. And ever since then, each time, an airport has come up and was serious about going through the program, the companies wanting to, bid on it, understand what it takes to get the airlines on board. And the airlines have a veto. They have to 65 percent approval in order for the deal to go forward. So that's no longer a problem. U. S. airlines now understand here's the formula and the companies that want to lease airports understand this is what we, this is the kind of pricing deal we need to reach with the airlines to get them on board and have them be supportive of the deal.

Jim:

Terrific. Thank you for the introduction. Talk about what's the benefits of privatization to the different constituencies.

Bob:

Sure, sure. Well, the be best way to understand that is to look at the research that's been done and there's two, papers that were detailed empirical studies, one done by ICF and Oxford Economics in 2022, and it was commissioned by ACI, Airport Council International, the world body, and that study focused on a phenomenon that's occurred only really over the last 10 or 12 years of airport groups. These are, companies that, that, own multiple airports. Their objective is to have, build a portfolio of airports and have economies of scale in purchasing, have, standardized, best practices that, get applied, obviously locally tailored to each of the airports and have career paths for, executives that they train at their smaller airports and they have, are available when openings come up at the bigger airports and so forth. So they get economies of scale and they realize cost savings. And that was the ICF and Oxford Economic Study documented those benefits. A more comprehensive study is National Bureau of Economic Research, NBER. they, commission working papers, all the time, and, working paper 30544, is about, the performance of, of privatized airports worldwide. Uh, it came out in 2023, so it's only a year old, and I've seen it cited all over the place, since it came out. They found that there were large performance improvements. They matched a set of conventionally managed airports with privately managed airports under long term agreements. And they found higher productivity in the privatized airports, more airline service, and increased airline competition, which I was surprised. I think a lot of people were probably be surprised at hearing that. And a few specific findings, if you average things over the two sets of privatized and non privatized. The privatized airports had 21 percent more, passengers per flight. I guess upgauging must have taken place, at these airports. They generally have deregulated airport pricing. Now, it's about a year since I read this study. I can't remember exactly what that means, but there may have been government restraints, on, how the pricing could be, and, that has become more flexible. I don't know of any that's done that congestion pricing, which is one of the things I would hope to see. Generally the terminals have expanded more in over whatever the time period they looked at. there are more airlines, especially more entry by low cost carriers, and more routes, more points you can get to from those airports, again on a matched set basis, and the use of global best practices and more experienced managers. So, those, that's pretty powerful. I, you know, you would have to go through in much more detail than I did in just reading the summary, but, if those numbers are really soundly based, and I suspect because NBER working, they're working papers, but, they get critical peer review, and I guess at some point they stop being working papers and become final papers. And if that has not happened with this paper yet, to the best of my knowledge, but it looks like pretty powerful benefits. And I see this as basically, converting, airports that are run okay by city or county or state governments, but not becoming real businesses with the kind of dynamism and, getting the most value out of the assets and being more, customer friendly in terms of the things that are amenities in the airport, but also more airline friendly by, making it attractive for more airlines to serve the airport. And there was one, one anecdote that in that study that I remember that some of the privatized airports formerly had still a national flag carrier that got special privileges. And that gets wiped out. That's one of the conditions, apparently, of doing the lease of the airport is that you don't give special treatment to a single carrier like that. And that can open things up to more entry and more points served and this kind of thing.

Jim:

Talk a little bit about, if you could, how common privatized airports are in different parts of the world. It's a lot more common than most people

Bob:

realize. This is just astonishing. The ACI has pulled together the data on this, and these data are a couple of years old, but I think it probably hasn't changed that much. And the way they measure it, they report it as a fraction of all passengers in that country that are served by privatized airports, and aggregating that over in Europe, 75 percent of airline passengers are served by privatized airports in Europe. Across, you know, a few countries haven't privatized, but, you know, the large ones have all, and, so that adds up to a lot of passengers. Latin America and the Caribbean, 66%. And this has been going on, Latin American, privatizations have not gotten very much publicity in this country, but I've been watching them and tracking them for years. And, all the largest airports in, all but Mexico City, for example, in Mexico, of the large, significant ones, like Cancun and others, have been long term leased. Asia Pacific, it's 47%. That includes Australia and New Zealand as among the pioneers, but also individual airports in places like the Philippines and, and, Malaysia, I think. That's sort of quasi private. I'm not sure how that was categorized. The Mideast, it's 18%. They're relatively new to this. Africa, 11%, and South Africa probably counts for most of that, because they privatized about 15, 20 years ago. North America, 1%, and that's accounted for basically by San Juan. So, it's a pretty dramatic difference between the United States and our, peer countries, let's say around the world?

Peter:

So what, what parts of the task of running an airport, are handled by the owner of the airport? I mean, if you think about

Bob:

Yeah. This is, it's as, as I say, the, it's a long-term lease. It's a public private partnership legally, technically. So the airport is not only the owner, it's also the public partner. The, the negotiate, a long, long-term agreement that, you know, 40, 50. in one few cases, 99 years. and so the, the airport owner is the, becomes the regulator. They put in presumably, performance measures, things that are requirements that they have to do in order to be in good standing under the lease and any of these long term leases. I know this better from the surface transit highways and things. there's always a termination clauses. Usually two kinds, termination for cause, egregious long term failure to live up to the agreement. That's it. They can yank the concession and whatever they put in, they can't particularly recover. but termination for convenience is also in most of these long term agreements, and there, they have to compensate. So they've built in a formula of how they will decide on the value that's owed at any point in the long period. And so that is designed basically to have everybody able to work to an understandable, you know, you know, these are the terms you, you sign up to on both sides of the table. And I think, of course, the airport is also still entirely regulated by FAA in terms of safety, and other things, FAA would, had not approved. It has exemptions to normal airport regulations, so there's two levels of regulation, or two and a half, if FAA is having some kinds of performance or requirements, and of course the safety regulation, and then the owner itself, as the public partner, has a significant ongoing regulatory role governed by that long

Peter:

The question I'm asking is, you know, for our audience to understand what are the activities involved in, quote, running an airport, and which of those activities are handled by the airlines, which of those activities are handled by the people who run the concessions at the airport, which of the activities are handled by, in the United States, the TSA, which of the activities are handled by the ground service contractors, which of the activities are handled by the ground service contractors. And then which, which of these are handled by the quote, airport

Bob:

know, TSA, you're not, you can't get rid of TSA, unless there is still a program that, I forget what his name is, that has about 20 airports, If you're using That, are allowed to, by TSA, to contract with private

Peter:

Yeah. But where my question is going is if. If you create a public private partnership for an airport, let's say in the United States, because that's what we've been using as the picture here. And then, that airport starts charging passenger usage fees, like what we see at Heathrow or airports in Europe. What does the passenger get in return for that? If the airline is already doing certain activities and the TSA is already doing certain activities, what parts of the quote airport management that the passenger is now paying a fee for, what's going to change? What are they going to see in terms of a benefit?

Bob:

I don't, the AIPP, the legislation that allows long term leases, does not exempt, an airport from the, Constraints of the, Passenger Facility Charge legislation. That same PFC legislation would apply to the P3 airport. So the airport could not do a Heathrow and charge an additional passenger fee by that, unless, unless that, unless the federal law were changed. So that's one thing they could not do. Now they obviously can negotiate, with, rental car companies, to, have maybe some different differences in the arrangements there. I mean, a lot of airports today are putting in consolidated rental car centers and charging a, if they're financing it off the airport's balance sheet, They're financing it, having the private firm, allowing it to charge a per day rental car, additional fee. That's the revenue source for building and operating and maintaining the consolidated rental car center. So that kind of thing you'd probably see more of, if, if, a P3, airport company, running the airport. I think all the regular operational decisions, negotiating with airlines, deciding which, vendors, you know, who would manage the concessions. we certainly saw when, BAA was privatized, it really radically, improved the airport concessions at the, the BAA airports and they set up a BAA USA in hopes of at least, and they actually got concession management at Pittsburgh, for an initial term. They may have done it at Indianapolis for 10 years or something. so there's a lot of things that, the current, the city or county government that owns the airport does now that would become the province of the, of the airport company that has the long term agreement. Anything that's commercial, they would want to be in charge of in order to, have the relationship that they think works best with their airlines and that works best with managing the concessions and in, you know, the, retail and so forth in the airport and rental car and all those things. I would think they probably would, would not try to, get an exception from TSA to, be in the, in the private security space. But that remains to be seen. They might try to do that because that program does exist. Typically today, U. S. airports that didn't already do this 20 years ago, because once TSA got its staff unionized, any airport Sacramento wanted to do this, and the unions ran a campaign against the elected officials, vowing that they would not get reelected if they went through with this. And Sacramento government caved in, and that was an object lesson for other airports that would, there's been very few attempts by a medium or large airport to opt out of TSA provision since the unionization of the TSA staff.

Luka:

Bob, I'm still trying to figure out what really is the benefit to the average passenger if they are traveling through a privatized

Peter:

That's what I don't get. No.

Luka:

Yeah, and I'll take me as an example. I don't really care whether my favorite restaurant is in the airport or if my favorite coffee shop is there. I just want to get on the plane as efficiently as possible. And back to Peter's point, that is really not in the control of the airport owner. There's other parties involved, TSA, airlines, et cetera. So, so as a passenger, I can expect higher prices perhaps for the rental that I'm getting or the occasional coffee that I'm getting, but what do I get in return?

Bob:

Well, I think one thing you get based on the, most recent study, you would probably have more destinations reachable from that airport over time, because that's, that's the kind of thing that the, the P3 airports around the world are, are accomplishing. and if your, if that, if your favorite airport does, is not served by a low cost carrier, they seem to be motivated to, open that up and, and manage to do that. Not be cowed by their established, incumbent airlines, to, to do that. Now, of course, they're willing to spend money on expanding the terminals, you know, certainly where that's feasible to accommodate, a larger, number of destinations and a larger number of airlines. Now, that's not going to work everywhere.

Luka:

Why is that the case? Why are airlines more likely to fly into a privatized airport?

Bob:

I'm not sure, but, certainly low cost carriers have had, difficulty, to some extent in getting into a number of airports. I mean, they seem to be making slow progress, but, Well, I hate to use, I was going to use Atlanta as an example, but now Southwest is there. I'm not sure if, if, if Frontier or Spirit has managed to get in there. I mean, this is not something that I track very rigorously. But, I think that is something that we see worldwide as something that the airport companies want to do is to have as broad a range of airline choices and as broad of a number of destinations that you could get to from, from, the airport.

Jim:

Bob, you're saying that they tend to release the stranglehold of a very large airline on the airport. If that's the case, I'm guessing more gates would be made available to other airlines. If more gates are made available, those other airlines will take those gates.

Bob:

Well, that's, I think that, that's a really good question. And, and I, would love to see some actual case studies that were in the, you know, in the NBER study to figure how did they do this in various airports to, to break the hold of a, of a dominant carrier and open things up, and certainly, long term airline use agreements, one of the things that has, gotten U. S. airlines thus far on board with the proposed, you know, actual San Juan and proposed St. Louis and Midway is, certainty over a long, fairly long period of time of what the landing fees and other fees are going to be. That was, seemed to be the real deal maker, in, in getting, and that model has been adapted each time there's a, a serious effort, to, do an airport P three.

Jim:

Based on your answer, to Luka's question, what's come of prices to passengers based on what you're saying? I have a feeling I've, I know where they went, Luka is asking, what's the benefit to the passenger of the privatization? What's, happened to to the airline pricing?

Bob:

I don't, I don't know the answer to that. it, it may, it, it's probably is somewhere in the, in the NBER study, but, the, the document that I read, which is a, like 50 page, that, that is the report. I, I'm sure there's backup materials, but, uh, I have not seen any of the backup materials, so I really don't know what has happened to airfares.

Luka:

But that sounds like a central question.

Bob:

I think it, I'd say it is a very, it's a good point. Uh, yeah.

Jim:

So Bob, before we get into, we're going to have two groups in a room. We're going to have a group that says, we got to do this. And who are those groups? And then we have a group who's going to say, this is a horrible idea. So we'll talk about the for and against in a minute, but tell everybody right now, there's going to be a lot of listeners thinking, well, no, we got privatization in our area. You know, there's places like in LaGuardia, you know, there's,

Bob:

Oh, sure. All right, Bren, wonderful new terminals and coming soon to JFK and maybe

Jim:

yeah, if you have not been to LaGuardia Airport, oh my,

Bob:

Oh, I was just blown away,

Jim:

see, blown away, and that's a management company, that's a, I assume, parts of that are privatized, but let me ask this question, we're talking about complete privatization of the airport here, talk about where in the U. S., where some parts of the airport are privatized.

Bob:

Rental car centers, new cargo facilities, potentially an airport hotel, and, definitely, a terminal, P3 or, or several, depending as in the case of JFK, there's three going on now, worth about, I think, 15 billion or something total, investment in those. So component privatization is, is catching on. It was one fiasco at Denver when, when between the airport and the company, there was not a meeting of minds and they, they terminated it after about a year. But the others seem to have been, have gone very well and, and this seems to be a trend that, that will continue and that no changes in law are needed. It's simply a case of if a big project that requires, that has to be financed, can be done off of the airport's balance sheet, which is the case with revenue finance P3s, which are the three terminals at JFK and the LaGuardia, existing one at LaGuardia, and the rental car center at LAX, no, the rental car center at Newark. But not the rental car center, P3 at, at LAX. so the off balance sheet financing can be attractive to an airport depending on what its overall balance sheet looks like. And so some of the, a number of these component privatizations are financed that way by the P3 entity. But there has to be a revenue stream that's, that's, tappable for that. And it might be a new revenue stream that wasn't there before.

Jim:

I was about to say, for those who question the value of the privatization of the airports, go to Europe and see those airports, and then come to the United States and see ours. But, there's a little bit of a change that's occurred, LaGuardia being one of the best examples.

Luka:

At the same time, being from Europe, I hate the idea of being a general aviation pilot and having to pay every time my wheels touch the ground at most European airports. So I don't know, Bob, if you're a pilot as well, but what are the impacts of waves of privatization of airports to general aviation.

Bob:

Oh, that's a very good question. I'm not a private pilot. I have, flown with friends who are. And actually learn, learn how to do coordinated turns and so forth, but, I, I've never had the time with money earlier on and the time later on to, try to get into that myself. No, I read a lot of GA things, and I know that, the U.S. GA community was very, very concerned and very, very opposed to air traffic control corporatization which would've been not a private company, but it would've been a new kind of entity separate from the FAA and there were huge battles fought over, two, two separate bills. The second one was much better, had, had been revised with inputs from me and several, members of the House Transportation Committee who were themselves private pilots, and the opposition, it did not make one whit of difference with the orchestrated campaign by NBAA and AOPA to make sure this didn't happen. I understand the concerns about this. I don't think U. S. aviation law I, I'm speculating here, would, allow, a situation where, GA aircraft would get charged outrageous fees at P3 airports. Now, that may be, blue sky, wishful thinking, but, I mean, U. S. has always been different in terms of, how GA is treated. GA was not in a happy place in Europe, even before airport privatization. And, in Canada, air traffic control thing, it turns out, really has been accommodating to GA. They are not paying, for air traffic services. They pay an annual in effect, membership fee that, is based on the weight of the the aircraft. And, it's, it's not been an obstacle or a problem. And even the Canadian Business Aircraft Association, is on board with NAV Canada and, and it's a way of pricing air traffic control. That's not say anything else about airports because airports are not the same as air traffic control. I just, I doubt that it would be seen as, a good thing to do for a P3 airport in the United States to start charging GA European type price.

Jim:

But, Bob, as you say, those are distinctly two different things. The privatization of an airport and privatization of air

Bob:

yeah, no, I understand. I'm just saying that the, the, I understand the lobbying power of general aviation in the United States, which is not repeated in any other country that I know of. And I think GA is, is likely to, be deferred to, and, in, the, in cases of, U. S. airport privacy I have, not heard any complaints about San Juan, which is our big, case in point that's been, in under a P3 for more than a decade now, has been transformed by the, the P3, I mean, the before and after, is unbelievable. People who used to travel on vacation to the airport, nowadays using it, come back, it's like a different airport. It has modern, array of, of retail and, and food options that, that were not there before. it was like something out of the 1950s that had, not, not changed. So I think it, it has worked very well, but I have never heard anything about, what GA aircraft pay there.

Jim:

So let's say the for and against in the United States. First of all, who would be most for a mid sized privatized airport in the United States and who would be against and then what are the principal reasons? You've already addressed most of the for. What would be the principal reasons that somebody would be against it? First of all, who are the parties?

Bob:

Who, yeah, who are the parties? Well, airlines, as I say, are generally on board if you have the same kind of airline pricing formula that was, that's in existence, in San Juan that was, that was proposed for and agreed to for Midway and St. Louis and so forth. The airport trade associations, have held conferences on this, but until very recently had not taken a position. But the, the CEO of, of, ACI North America came out, a couple of weeks ago in an interview with Aviation Week saying, if we're not going to get a PFC increase for another five years and we've got, umping up billions of capital improvements needed. probably plan B is going to be, long-term airport P three leases so you get the financing ability of the private sector to, cover a lot of the needed capital investments. So that is a sea change. I don't know how far that's gonna go. Local governments, still, there's not been much interest, I think, city, county, and state governments that, that own and operate airports have been, very content with their status quo, and, I'm not, I'm not quite sure, I mean, to some extent, it's just, it's always been that way, they're used to it, they also, a number of, of city governments, and I'll, I will mention Atlanta and Miami as ones that I know, detailed examples, like to micromanage things, at, at, at their airports. And so that is, you know, the micromanagement thing is one of the things they have to give up in the long term P3 agreement, I think would absolutely not cater to micromanaging little details. that's exactly the kind of things that the company wants to be managing and doing, local, let's see, federal government has been supportive by, you know, this succession of, of airport P3 programs. And, FAA has been frustrated that there haven't been more applicants to it. The guy who was in charge of it since the outset retired last year with only San Juan, to his credit as having been actually in the program and succeeded, New Haven. It's not being done through the AIPP. It's, managed to work around to do their, their deal. and, and so, FAA people are frustrated at, not, FBOs have never said anything about this. And I don't know, what FBOs might, might say about it. The thing that I think might change, airport owners is the potential of a one time windfall from a large upfront lease payment, and in a report that I did in 2019 I did 31 large and medium hub airports, got data from an FAA database to calculate their most recent EBITDA number, and then looked at average multiples in global airport privatization and made some estimates of value, and I've got just a few notes here, but let's find the right page, a net value for LAX, after, after paying off their, their existing outstanding tax exempt bonds, 10. 6 billion. If they didn't have to do that, if the law were changed, it would be 17. 8 billion. This, again, my 2019, figures. Las Vegas, net value 3. 4 billion. Gross value is 7. 2, San Jose, 1. 3 billion net, 2. 5 billion gross, St. Louis, net value, 970 million, and gross value 1. 3 billion.

Luka:

And Bob, the difference between gross and net is the,

Bob:

The bond, practically the bond pay off, yeah, yeah, and so that for some, some have a huge amount, some have, you know, O'Hare has a huge amount and they were, their numbers came out mostly negative, because, the, you know, the debt was larger than the, at least the net value.

Luka:

Bob, what's the profitability of U.S. airports in terms of, EBITDA percent?

Bob:

Well, they were all, all the medium and large are, are, are certainly operating in black. Definitely. I can't quote you the EBITDA numbers just off the top of my head. I'd have to, you know, take, find the report and get them. But, I think, I think when we released that report in 2019, no, actually we released it, it was done in 2019. We held off because of the pandemic. We released it in 2021. And, we put out tables showing, One of the things we did, Reason Foundation's pension team pulled together numbers for each of those airport owners of what it's unfunded public sector pension liability was. And, you know, most, most city, county, and state governments do not have fully funded, employee retirement systems. They have significant, unfunded liabilities. And so, we came out with the numbers that even, because we only use the net numbers in that study, even with the net numbers of some of them, out of the 31, a couple dozen would come close to being able to pay off their unfunded pension liability. And that had no traction whatsoever at the time of the study. Now, maybe, if the law were changed and they could get the gross value, with the, the, the P3 company taking over debt service on the existing bonds, a larger fraction of them would be able to pay off their underfunded liability and then some, you know, other things they could do. They could, you know, fund other interest. There's a concept that the Australians introduced, in the, in the, early, part of this century called infrastructure asset value recycling. So they would sell or lease a major infrastructure asset and use the proceeds for, for projects and infrastructure that were needed, but were gonna be difficult to fund or would, it would involve taking on a lot of debt to fund and they could fund them basically with cash, from the proceeds from the asset recycle. So that aspect, perhaps we should have emphasized that more, in the study. The pension thing didn't, didn't really get traction.

Jim:

Bob, talk a little bit about where the funding comes from for the privatization. There's a couple different entities.

Bob:

Yes, yeah. the, the three, three main, providers, of the money, the biggest amounts typically comes from, a global infrastructure investment fund. And I do an annual report at Reason Foundation looking at the largest hundred of those. And, how they rank and what their assets under management are and so forth. They look for revenue generating infrastructure, whether it's railroads, electric gas utilities, airports, seaports, anything that is a business that, that generates, revenue as the kind of things they would like to invest in. You can't invest, they're investing equity. And a government owned utility or government owned airport has no equity, so you cannot invest in it. Likewise, the second category is public pension funds. It's been a big trend in the last 10 to 15 years, started by pension funds in Canada and Australia, of investing equity to broaden their portfolios in revenue generating infrastructure. And so they can only do that in ones that are privatized if they were formerly government. So they invest in, in P3 airports, often as part of the, the team. And the third is, is airport companies, the global airport companies themselves. They're not as big of money investors as the infrastructure funds or sometimes the pension funds. And you typically, the teams that signed up for St. Louis, most of them included, an infrastructure fund, an airport company, and about half of them included at least one major, pension fund. So that's where the money basically comes from. It's, it's equity investment, and then from then on, it's, it's issuing, At this point, taxable revenue bonds, but we're writing a little brief for the Federal Surface Transportation Reauthorization that occurs in 2026, and it's going to start debate next year. There's a tax exempt private activity bonds that Congress legalized about 20 years ago for highways and transit. And a study committee in the House T& I committee about five years ago said, well, these should really be expanded so that those kinds of private activity bonds can be applied to airports and seaports as well. So we're going to pick that up and argue for that. And for, there's currently a federal cap of 30 billion, which is probably going to be used up by highway projects within the next few years. And so, instead of arguing for raising the cap another knot, if they expand it to airports and seaports, that could then issue, privatized ones could issue tax exempt, revenue bonds. We would argue to remove the federal cap altogether because there's no federal cap on municipal tax exempt bonds and, Once this has become a proven mechanism, why shouldn't it be available? so that, there's a chance that that could actually happen in the 2026 Surface Transportation Reauthorization, because that committee has jurisdiction over the existing private activity bonds, and it's that same committee in the House that recommended expanding it to airports and seaports. That would be a partial game changer for airport P3s.

Jim:

Technology spending, is there any correlation between the amount that airports spend on technology that are privatized versus non privatized?

Bob:

I haven't seen any data. The only, I can only give you the anecdotes of, of San Juan and one of the things that was changed when it was privatized is, ancient radar system. things that were actually out of service, for several years. I don't know how FAA allowed that to happen, but, but I think they, they were. And basically a crash program to bring that technology up to modern standards at San Juan, which is one thing the airlines, needless to say, loved because, it was more reliable flights with, with all of those things, in new technology and, and working, all the time. But I have not seen technology companies, taking any interest in U. S. airport P3s, to date. Partly because it hasn't been that big of a, of an issue. I mean, if, if, if a wave of this started happening, in the next five years, I think the technology companies might see, that, an airport P3 company, might be more willing to invest in newer technology sooner, because it would, please their airline customers and make things more reliable and make them, easier, have less problems in bad weather and things like that.

Jim:

So we had a guest on a little while ago that was talking about how they provided gate optimization, better gate turns to the airports.

Bob:

That's the kind of thing I think they would love to have, a company that's available from a U. S. company. that would be a good, a good candidate. It would be politically smart. it wouldn't have to be a European or whatever country,

Jim:

So he mentioned that, you know, that the airports purchasing with the United States are completely different than they are, for example, in Europe. How much of that does privatization play a role, do you think?

Bob:

I, I, I know that I, I recall traveling to, to, London and Paris before, airport privatization, and, the, the same general, way of arranging, of having gates, signed, late in, in the boarding process, and you wait and see, until, you know, 45 minutes before the flight, what gate you're going to be at. That seems to have continued. after privatization, and I, it always annoyed me beforehand, but it had, the airports that I've been at, at least, it hasn't changed. Madrid, I think, still the same after privatization, because I've been there several times.

Jim:

Luka, you were about to ask a question.

Luka:

Yeah, I was thinking about how to best frame this question, but I'm trying to understand the economics of it, because on the one hand we have airlines who are saying we don't mind privatization as long as our fees don't change. Passengers are probably equally excited about, you know, not paying more. and I think you referenced earlier in the conversation that there are some, constraints that even privatized airports, you know, cannot increase prices for, or

Bob:

They can't do a higher passenger facility charge, for

Luka:

Right. So, you know, that's, that's on the one hand. On the other hand is this, you know, investment in technology and growth and running things more efficiently, which requires investment, which, asks for a return. So how can you have a cake and eat it too?

Bob:

Right, right. I think the answer to that is, is the experience from, from the NBER study is that the game is to expand the, amount of flying, therefore the amount of passengers, the amount of retail sales. Not necessarily to jack those prices up to the point, I mean, people, yeah, they're sort of captive for an hour in your airport, but, if the prices are, you know, very high compared to, what they, you know, spend on a, on a, on a hamburger elsewhere, you know, that's a discretionary purchase. They're not necessarily going to put up with it if it goes to a silly, high, high price. I think the key is, is, is bigger volume, and that's what you really see the data in the NBER study, is more airlines, more destinations, some degree of upgaging of the kinds of, of, flights, or equipment that the airlines choose, to do in, in the, in the expanded environment. So I think I think that is, I mean, I mean, that that's, it sounds like, you know, a nice, a nice story, but I think there's, there's evidence there in, I mean, in. The, I haven't seen the underlying, work papers from, from the NBER study, so I can't be sure of that, but that seems to be, the, the picture that's drawn, is doing it on, on larger volume rather than depending largely on, on big price increases.

Luka:

Does that mean that airports that are already at capacity are not really good candidates for privatization?

Bob:

I think that's, that's, they'd probably be, low on, on the list of, of, candidates like St. Louis, was a great, opportunity, because it has a lot of unused capacity. They built an extra runway that has hardly ever, I don't think it's ever been used, when they thought they were going to be a bigger and bigger hub for TWA or then American, and that proved a fiasco. But yeah, I think, I think your speculation is right that a JFK or a Newark is not going to be high on the list of, of, but on the other hand, the scuttlebutt in, in, in the, Airport P3 industry and the infrastructure investment funds particularly is, the U. S. is the last big untapped market and, I would expect the first deals might, might pay a little, a little premium to be first in to, to get a good U. S. airport and, and make it a showcase for, what, what can be done.

Jim:

Let's say the CEOs of the big three airlines are on the call right now. Which airports would they, and this may be the same answer you just gave Bob, which airports are they going to say, we have to do this right now at these airports, and which ones do they say, stay away.

Bob:

Well, they would stay away from Fortress Hubs. Newark, United, Atlanta, Delta, and DFW American, I think, are, gonna not, not be, high on any airline's list, or those airline's list. They, have a good situation and they, they get what they want and, and, you know. No, I, I, I, it's hard press. I think one certainly with, with expanding room, and the potential for a, a large drawing on a larger, base of, of, you know, being served by, regional airlines to bring in more, people from, you know, from a realistic, reasonable distance. And there's a lot of, of, of mid-size airports and some, larger ones that, that would meet those criteria and those would go into the valuation estimates, certainly too, because you're not, you're gonna pay the higher dollar for the ones with the biggest potential. You know, you look at your existing EBITDA and the multiple that gets applied is going to reflect a lot of what's the growth potential

Jim:

So even the very large airports that are not fortress hubs, but have large volume, those could be airports that they'd be more apt to support the privatization you're saying.

Bob:

I think so because there's already, there's a lot there to build from. As long as they have room to expand, I mean, runways, runways are going to be a limiting factor at some airports because there just simply isn't room to build more. Denver, on the other hand, still has room and already has a lot of runways. They're not short by any means of runway capacity. And, and, and Dulles, which is not my favorite airport, but it, has room to, to, I think to add at least one more runway if they ever needed it. Whether that would be a good target or not, I'm, I'm not sure. I don't think that would be high on the list, but it's not really my business to make those assessments.

Peter:

So, on the one hand, it's capacity at the airport that allows you to grow. On the other hand, it's a growing population in the city that the airport serves.

Bob:

Definitely that. And, and also, in, in, let's say a three or 400 mile radius that could be reached by regionals as feeders and maybe even by, ha ha, eVTOLs or something, which I'm still a skeptic of, but, you've got to think of the, of the larger catchment area too, as, as a secondary consideration to the metro area itself.

Jim:

The more an airport is apt to be common use. It's probably a correlation between the likelihood of it being more willing to be privatized.

Bob:

I agree. Yeah, and that's of course a very common, European feature, pretty standard in Europe, not standard here, although that has been breaking down. Common use has more and more of that as airline agreements are renegotiated for new term, the airports are gaining more control over their space. And more ability to use it, with, with flexible gates and things. It's not, it's not universal by any means, but it's a, it's an ongoing trend, I think. And that, would certainly be something that an acquisition under a long term lease, they would certainly want to get to that, sooner rather than later.

Jim:

You know, something I was reading, I think you, you mentioned briefly, one of the benefits of having a professional business manager is that if there's a common use gates, for example, I'd like to have a, a business organization running this.

Bob:

Absolutely. You know, I, I, I'm appalled sometimes when I'm waiting at Atlanta, sometimes I'm there a few hours ahead and I see a gate locked off for an arrival, a Delta arrival, that's, that's two and a half, hours away. And it's, that gate could be in use, for other, other airlines, but oh no, it's, it's Delta's property.

Luka:

So, okay, the Airport Privatization Pilot Program was established in 1997. So 27 years ago. And then it was fixed and amended in 2018, renamed the Airport Investment Partnership Program and over 27 years, we have one airport that has adopted this process. What does that tell you? Has the market spoken that this is not a good idea?

Bob:

Well, I think it's, I think it's the, it's the airport owners that have spoken, that they're uncomfortable with it in general. And, I think the case has not been made well enough to them that, there could be a lot of benefits. They would not be losing control. I think they still think of this as Margaret Thatcher selling, selling the airport to strangers, and they would have no longer have any say in it. It wouldn't be their airport anymore, if they really understood what a, what a long term 50 year public private partnership is, and their role in it, and the potential of a large windfall up front that they could use for other things. And that's one of the things, the, the AIPP allows them to use those proceeds for any, any legitimate government purpose. The early program, you still, the money could only be, the, it could only be used on the airport. that, that was definitely a deterrent for, owners to, if they, unless they needed, additional funding to do things on the airport, there just wasn't a deal that was, easily makeable then. Now, the AIPP, makes real, global type long term P3 leases, doable. but the question is getting any of the owners to decide, hey, this would be good for us to do. I think it's one of those things, if you get, if, if one or two mainland airports, like if St. Louis had gone through, there was a whole lot of, of thinking in, in the global airport industry and among a lot of aviation professionals, that there would be followers, if they saw that this turned out to be a good deal for airlines, for passengers, and, and for the airport's role in the, in the overall aviation system. But we don't have that demonstration yet on the mainland. We have a good, small success story in San Juan, but that's hard to sell, 48 states on as, as, something we should do.

Jim:

Well, you mentioned that the head of, ACI North America, has said, listen, if I can't get funding from the government, I'm going to turn to potentially to privatizing the airports.

Bob:

I was, I was, I was flabbergasted by that and very pleased because now how far that goes, whether that's going to influence any airport owners, it may at least start some serious thinking about that. And I'm under contract, to a joint venture of American Enterprise Institute at Brookings Institution to do a study that will come out, next spring on, one or two policy changes that I think could, spark a serious, or starting of U. S. airport P3s. And it's basically the tax law changes to deal with the tax exempt bond questions. And so the paper, I have a draft written and it hasn't gone through peer review yet, so I'm not sharing it with anybody, but that is in the works. And, I, I, I hope that, it will start serious thinking, within the, U. S. aviation community and, and people like this, the ACI, North America CEO, maybe they'll hold a conference or two, which, AAAE did hold, airport P3 privatization conferences back when Midway was in play. And, I don't think they did another one when, when St. Louis was, was going through the process. But so there's, there's been interest by the associations. And I think, now that ACI North America has, laid down this flag I think they may start, looking at conferences and other things to talk with their members about, the financial problems of, you know, they're, they basically, they bonded all their PFC revenue and, and, without an increase, they can't bond anymore. So there's nothing more to bond.

Jim:

You mentioned New Haven, and it's right down the road from me, let's say the privatization took place, what do the local communities, how do they benefit, or why would they be against privatization, or would they just be a neutral

Bob:

I don't think there would be, I don't think they would be against it. certainly the, city government of New Haven has welcomed the idea because they have landed a scheduled airline, Avelo, which they didn't have for a number of years. And so the airport is back in business serving passengers. That airline is growing. I believe Breeze Uh, uh, competitor has announced that they're going to be starting some service from, from New Haven, which would give them a second airline all of a sudden. and so they're, they're proceeding, with, and they're, they're doing it. I, I'm not quite sure how, what, what they haven't needed the AIPP and FAA has not objected. So there seems to be a way to do this and a similar, non, AIPP thing is underway in the U. S. Virgin Islands.

Jim:

So from the standpoint of community and having access to an airline, and yeah, Avelo has been terrific for this area, but let's talk a little bit about the issues. What has been the response to noise concerns from privatized airports versus non privatized? I mean, as we know, those communities can be awfully influential.

Bob:

Oh, believe me, I know that. Yeah, I have not seen any data on that. And of course, we don't have a base of U. S. privatized airports to compare with. And, I know the only recent noise controversy, big one, that I know of in, in Europe is, is Amsterdam Schiphol, where they've tried to, you know, shut, you know, reduce the amount of flying on the ground, on the grounds at least, of noise exposure to, nearby residents. I mean, practically every airport in the world, or in the United States, other than Denver, has noise exposure problems. Maybe, maybe, The, the, other one in Virginia, but, it's, it's goes with the territory and I think, you know, airports have learned to do, you know, insulation programs and things and, you know, they cope the best they can and a lot of the, you know, problem is that, you know, an airport is there and, in its early years, the noise exposure is, is, is a small amount of land and as it gets bigger, it applies at more hours, it spreads further, although, you know, to some extent it actually gets reduced as the aircraft today are dramatically less noisy than, than the ones of, being manufactured 30 and 40 years ago. So part of this is people are more sensitive to it these days, and but it's a problem that almost every airport has to contend with, and I, I just haven't seen any data on how privatized airports have dealt with it compared to, to others.

Jim:

All right, a delicate question. Is there one political party in the United States that tends to prefer or support the privatization of airports versus the other?

Bob:

Broad generalization on privatization, not specifically airports, because that hasn't really been an issue, but Republicans and conservatives have generally been more open to privatization and P3s, and you see this more In, in states, in, in the southwest, southeast and southwest, Texas until recently, had a lot of P 3 highway projects. Virginia is full of them. Atlanta Airport, Atlanta, Metro Atlanta, Georgia DOT has lots of P 3 highway projects. Tennessee, Nashville, and other large metro areas are getting on board with this stuff. so it, you know, as a generalization, conservative, Republican governments have been somewhat more favorable, but you get the current populist trend in, in the Republican party, is exemplified by, by Texas, which has gone completely, the governor, lieutenant, Republican governor, lieutenant governor, Both strongly opposed to any more P3s in the highway system in Texas, and anti toll, very populist. So I can't predict for the future. In the next 5 or 10 years, the Republican Party looks to be very different from what it has been the last, uh, 40 or 50 50 years during most of my, uh, politically aware lifetime.

Jim:

And the hugely conservative Connecticut is maybe one of the first airports to go.

Bob:

This is really, really interesting, yeah.

Jim:

So, as you approached the podcast, you were probably thinking we were going to ask certain questions. And have we asked the questions you want us to ask? And is there anything else we haven't asked that you'd like to talk about?

Bob:

Well, one you didn't ask and it was kind of trivial to answer is, possible risks to investors in airport P3s. And they're the same kind of risks practically in any business, below, below forecast revenues. I mean, you have a, you have a big recession, or a pandemic and you're taking a risk that your revenue goes way downhill. And this has happened to a couple of, P3, toll road leases in the United States, both the Indiana Toll Road and the Chicago Skyway were leased. One case for 75 years, the other for 99 years, a big upfront payment. And when the financial, markets collapse happened about a decade ago, both of them declared Chapter 11 and were bought out by pension funds, paid much higher cash up front and a much less aggressive financing and are doing fine running them these days. But that's, that, that's certainly a risk in any kind of long term revenue finance, P3. Early termination of a long term agreement, if you run things well, that's not likely to happen. But once in a while, we just have seen in Texas, a termination for convenience of a less than 10 year old, 50 year highway P3, where the company invested about a billion and a half dollars in putting in express toll lanes, but they didn't do a very good job with their termination for convenience clause. They've had hard dollar numbers in five year increments and the state DOT and some legislators who don't like P3s looked at that carefully and said, they looked at its probable market value because it's done very well and it's fast growing market value was, was a couple hundred million higher than what the buyout price was. As if they did it this year. And so they did it. They terminated for convenience and paid the price that they had to pay in the agreement, but they made a several hundred million dollar profit on the deal. And they now can manage, micromanage it the way they would like to micromanage How

Jim:

do you see the airline airport community changing in the next 10 years in the United States?

Bob:

Well, I think we are a couple of things. I think we will see a few, major airport P3 leases, like, like San Juan, actually going forward, partly for the reasons that, ACI in North America has cited, but I don't think we're going to see a PFC increase even in the next FAA reauthorization five years from now, and certainly if that's the case, I think, even before then, we may see a few take place. And I think a few, I think is going to, sort of normalize the idea. It's no longer going to be this weird thing that only the people in Puerto Rico would do. at a mainstream airports, it's now okay to do, particularly if, if the airlines are happy and the customers are happy that hasn't, hasn't been charging them an arm and a leg to do things they used to do at low cost. And, Yeah, I think we'll see that. I think we're going to see a little bit of movement on the air traffic control system. and I've started talking about it as there's several steps that could be taken separately, and the first important step would be to separate the FAA's air traffic organization organizationally from the safety regulatory body of FAA. That has been ICAO policy since 2001 and all over the world, almost everybody has done it except France and the United States, And it really should be done. It's a good, basic good government principles because FAA as a safety regulator is basically regulating itself when it regulates air traffic control. Those should be at arm's length. And I think that one change might actually be doable in, in the next five years, certainly within the next 10 years, it may not go past that at that point in time, but, and I think we eventually will get there. We'll join the global trend over 60 governments have privatized or corporatized their air traffic systems, taken it out of the government transport ministry, put it at arm's length, safety regulated at arm's length. Those are mostly government corporations would say typically, transportation minister or a commerce minister as the sole shareholder. Not my ideal, but it definitely makes them somewhat more businesslike. And there's also, when you add up the number of countries, because there's two multi country organizations that do air traffic control for about six or seven Central American countries and about 12 African countries. So over 80 countries have a corporate entity of some sort running air traffic control separated from government safety regulations. So that's the global trend and I think eventually we will join it.

Jim:

And Monty Brewer was talking about some of the benefits of it in his discussion, the former CEO of Air Canada. Any other advice to our entrepreneurs, our business leaders, our innovators,

Bob:

I think, I think the, as you mentioned, the tech industry, would probably stand to gain from a more business like, aggressive, pursuit of, of, of improvements to the airport technology sooner rather than later, because it would help the business case going forward. So that would, that would help. I think there's real potential in the airport community if ACI, North America starts making a big deal out of this, which I hope they do, and, and I would be glad to speak at a conference or two.

Jim:

Great. Bob, can't thank you enough for joining us. it's been terrific talking with you and reconnecting and, all the best. Thanks for joining.

Bob:

Thank you. I really enjoyed it. Thanks for having me.