Airport Ownership and Regulation

We are delighted to present our global Guidance Booklet, Airport Ownership and Regulation, which was commissioned by The International Air Transport Association (IATA) and researched by Deloitte.

This Guidance Booklet provides analysis and materials to support governments, stakeholders and decision-makers in the aviation industry that are considering public-private partnerships (PPP), privatization and other forms of private sector participation (PSP) in the airport sector. The Guidance Booklet also explores available Regulatory Frameworks and their relevance to the different ownership models.

The phenomenal demand for air connectivity is outpacing the capacity of current airport infrastructure and many governments are challenged in finding the effective financing means and delivery models to enable critical expansion.

Many governments have turned to PPP and privatization models to address these challenges. However, there are a broad range of ownership and operating models that can and have been used in the airport industry. In many cases alternatives to PPP and privatization can be used to meet the strategic management, financial and macro-economic objectives of government in place of full privatization.

The Guidance Booklet provides detailed analysis and guidance to help government decision-makers understand, appraise and deliver a full set of ownership and operating models.

“The global growth of airports is increasingly putting airports under pressure, increasing the need for governments to explore alternative financing solutions and enhance management efficiency. The current pipeline of airport privatization being considered globally makes this Guidance Booklet timely, and we believe it will support governments to better assess private sector participation options. There is a critical need to ensure strategic objectives are appropriately assessed and the benefits and risks understood when evaluating airport ownership and operating model options. Whatever ownership or operating model is applied, governments, investors and aviation stakeholders need to put the end-consumer central to the selection of the optimal solution”, said Dorian Reece, Global Airport Lead at Deloitte.

The Guidance Booklet highlights the need for governments to also understand how the market power of airports combined with different ownership models can result in more relevant economic regulatory models. When assessing the ownership models it is critical these considerations are explored in parallel to ensure the optimal regulatory model is applied to the selected ownership model that safeguards consumers whilst considering the potential impact on investor appetite if private sector participant is selected as a solution.

We explore three key areas in detail:

1.   What are the PPP and privatization options and alternatives?

The spectrum of options is wide, ranging from full government ownership, to forms of corporatization, hybrid models (e.g. service/management contracts); and to those with greater private participation (e.g. equity sales, concessions and full divestiture).

Each has its merits and there is no one-size-fits-all solution. What is critical is the rigor of the assessment process. A key element of that is ensuring that the interests and input of all stakeholders are thoroughly evaluated and a formal detailed business case undertaken before decisions are made.

2. How is a PPP or privatization program best delivered?

A competitive and transparent transaction process is a “must have” to assure public value for money. Governments should ensure that bids are assessed on balanced criteria and that the key terms of any concession contract ensure improvement in efficiency, quality of service and appropriate investment in the airport for the airlines and the end-consumers. A key element of achieving this is ensuring that the interests and input of all stakeholders, including airlines and customers, are thoroughly evaluated before decisions are made.

3. How is a privately-owned or operated airport best regulated?

The assessment of an airport’s market power and the development of the appropriate regulatory framework should take place in parallel with an assessment of potential ownership and operating models.

Economic regulation is needed to prevent market abuse, secure efficiencies and ensure service quality. When combined with limited or weak economic regulation, all models (private or public) can lead to adverse outcomes.

Best practice indicates that regulators must be: centralized, appropriately funded, independent, have a clearly defined mandate; and be endorsed by governments and defined in legislation. Regular assessment of an airport’s market power is needed to ensure that the regulatory function remains fit-for-purpose.

The Guidance Booklet is also freely downloadable from the IATA website.