Deregulation Could Fund Face Lift for U.S. Airports
Senior Editor, CNBC
But Midway's effort has stalled, if not failed completely. A $2.5 billion deal reached with a Canadian development firm fell through in 2010 because investors could not secure financing, according to then Chicago Mayor Richard Daley.
It's unclear at this point if the city's new mayor, Rahm Emanuel, will pursue any other deal to privatize Midway.
Midway's problem highlights the difficulty for all airports thinking of deregulation, says Ross Taylor, a corporate finance partner at the law firm Kelley Drye & Warren.
"The risk of privatization is that you might not be able to generate revenue to cover costs," Taylor explains. "The downturn in the economy chilled investment with Midway. Would a city have to step in and take an airport over if it failed financially? You have to have profits for investors and improve the airport at the same time. Deregulation is not an easy step."
If airports are deregulated, everyone can expect to pay more, says research professor Lee McPheters, director of the JP Morgan Chase Economic Outlook Center at Arizona State University.
"Airports could have less government control and be less dependent on state and local governments to fill revenue gaps," McPheters says. "But if that's the case, it would require higher fees for airport users, including passengers and airlines and other airport-related businesses."
Survival under government regulation is something passengers and airlines can count on with airports, even in a down economy, says Roy Williams, an aviation strategic management consultant and former director of three major airports.
"Traffic may decline, infrastructure may age, but the safety nets under government programs and cost cutting on the operations side have kept U.S. airports solvent," Williams explains. "Not one has closed because of an inability to get funds."
The debate over deregulation in the U.S. has been around since the first commercial airports were built in the 1920s and will continue, say analysts, as European countries like Spain, and Russia, are making efforts to privatize airports.
"If Europe and other areas have success with privatization, you'll see it getting more interest over here, especially if local and state governments, as well as Washington, have trouble coming up with the money for airports and see leasing land as a way to get money," says Ross Taylor. "Having cities get funds from airport privatization can have some appeal in these tough times."
Deregulation backers say it's unlikely airports will be set free economically anytime soon, but some sort of compromise would do for now.
"We'd like more airports to be available for the PPP program," ACI's McElroy says. "Looking forward, certain regulations would be appropriate, such as money earned staying at the airport and that airports can't discriminate against airlines as carriers."
McElroy admits any kind of victory will be hard won.
"It's a political battle in Washington and with the airlines," McElroy explains. "It took years for the airlines themselves to deregulate, so we know it's difficult. But we think we have a strong case for deregulation. and the time has come."