Issues in airport privatization
The case of SJO, Costa Rica
Bruno Miller
16.781 Final Project Presentation
December 5th, 2002
Outline
•
•
•
•
Arguments for/against privatization
Guidelines for successful privatization
Analysis of privatization contract for SJO*
Conclusions
Discussion based on contract available on the website of Costa Rica’s General Directorat
of Civil Aviation (DGAC): http://www.mopt.go.cr/Aviacion/Principal.htm
Arguments for privatization
• From government’s perspective:
• Source of immediate and possibly long-term revenue
• Construction of facilities without having to invest own funds
• Private operators may have more expertise in airport
management
• From investor’s perspective:
• Airports are natural monopolies  potentially high ROI
• From user’s perspective:
• Better service through state-of-the-art facilities and
management at no extra cost
Arguments against privatization
• Running airport as a business may hurt the public
interest:
• Monopolistic pricing
• Safety, security, LOS may suffer if profits are main objective
• Without right incentives, private investor may not be as
efficient and productive, adequate investments may not happen
• Private and regional interests may diverge
 Need to protect public interest with public/private
partnerships and/or economic regulation
Guidelines for successful
privatization
•
Goal:
Airport design, development and management that
reconciles private and regional interests
•
Need a regulatory framework that*:
1. Balances the interests of the stakeholders
2. Involves stakeholders in decision-making:
planning, design and management
3. Provides flexibility to adjust to changes in the
market
*Based on: de Neufville and Odoni; Ospina, Escobar presentations at ICAO Airport
Privatization Seminar for the NAM/CAR/SAM Region, Guatemala City, 1999
Guidelines for successful
privatization (2)
•
Need a regulatory framework that*:
4. Provides shared allocation of management control
5. Economic regulation:
– Avoids monopolistic pricing
– Gives incentives to maintain efficiency and build new
infrastructure (e.g. RPI-X charges)
– Standards for performance and quality must be
guaranteed
– Transparency of the airport’s income, cost and
investment
*Based on: de Neufville and Odoni; Ospina, Escobar presentations at ICAO Airport
Privatization Seminar for the NAM/CAR/SAM Region, Guatemala City, 1999
Juan Santamaría Airport (1996)
•6 contact gates
•9 aircraft stands (?)
•Out-dated passenger and cargo bldgs.
Source: DGAC Costa Rica
Juan Santamaría Airport (2018?)
•New surface of main runway
•Expanded taxi-way
•15 contact gates, 3 remote gates
•20 aircraft stands
•Expanded passenger and cargo bldgs.
Source: DGAC Costa Rica
Following the guidelines
1. Balance of interests of stakeholders: Government
– Contract given to Alterra Partners (conformed by
Singapore Changi Airport, Bechtel Enterprises)
– Government receives yearly payments from Operator
(pax fees, ATC fees, US$1M per year for new airport)
– Operator assumes all financial obligations for
improvements according to a master plan (~US$140)
Following the guidelines (cont’d)
1. Balance of interests of stakeholders: investors
– Financial balance guaranteed if profit loss due to:
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Traffic reduction of more than 15% in 12 months
Changes in FAA’s IASA category
Changes in the risk classification of the country
A new international airport that competes with AIJS from Costa
Rica
Changes in charges that result in loss of competitiveness of the AIJS
and reduced traffic
– Financial balance re-established by changing the
capital investment schedule, payments to gov’t, etc.
Following the guidelines (cont’d)
1. Balance of interests of stakeholders: Users
– LOS, safety, security and environmental standards
must meet ICAO, IATA, etc recommendations and
must be furnished at minimum cost
– Monopolistic pricing avoided with economic
regulation (price cap)
Following the guidelines (cont’d)
2. Involve stakeholders
–
–
Airlines and users consulted when setting fees
User surveys can be used to measures LOS
3. Flexibility to changes
–
Design changes allowed (however, master plan not
necessarily made with flexibility in mind)
4. Shared allocation of management control
–
Regulated approach: Gov’t remains owner of
infrastructure that operator manages, develops
Following the guidelines (cont’d)
5. Economic regulation
– Aeronautical fees:
• Economic regulation based on price-cap:
Chargenew = Chargeold * (1+US CPI – X) + P(capex)
• Efficiency factor X specified through 2006; may
change based on LOS provided
• P(capex) = amortize capital investment costs
• Dual-till approach
• If Chargenew results in loss of competitiveness,
charges may remain low and losses recuperated
afterwards
Following the guidelines (cont’d)
5. Economic regulation (cont’d)
–
Non-aeronautical fees:
•
Economic regulation based on:
– Cost of providing service
– Average fees in similar airports for same service
–
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Operator must provide detail financial reports
each year
Fees revised each year
Conclusions
• Positive aspects:
• Provision of world-class facilities and management
• Gov’t retains ownership of facilities, receives
revenue
• Flexible contract: Changes in design, fee structure,
etc allowed given market conditions and technology
• Economic regulation to control monopolistic pricing
and guarantee profitability of investors
• Transparency in finances
• Long-term contract (20 years)
Conclusions (2)
• Negative aspects:
• Weak participation of users in decision-making
• Who pays to guarantee profitability of investor?
» Example: Airlines refuse to enter new terminal
• Will government revenues be re-invested in air
transportation infrastructure?
Issues in airport privatization
The case of SJO, Costa Rica
Bruno Miller
brunom@mit.edu