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 improve
productivity and track performance in
ways that the public sector is
typically not able to match. Governments rarely
act quickly enough to develop
or use leading edge technology. „h Customer
Service. Private contractors
tend to place a strong emphasis on customer service
because, for competitive
reasons, they must be acutely sensitive to their
reputations in the
communities that they serve. They also bring a level of
expertise in
improving customer service that may not be as well developed in the
public
sector. „h Cost-effectiveness. Numerous studies have documented the
cost
savings agencies achieve from outsourcing services to private
organizations.
For full-service private airports, an initial investment may be
required to
transition to privatization, but a private contractor will tend to
reduce the
costs of operations. „h Responsiveness. Private contractors are
directly
accountable to the governmental agency that has outsourced to them and,
as a
result, they tend to be very responsive to that agency¡¦s mission
and
objectives. What the results were for the city of Austin In their effort
to
privatize Bergstrom, the city met many challenges and issues such
as
environmental clean up, what do with existing structures, noise pollution
and
re-use issues. The cleanup chore When Bergstrom closed in 1993, it was
among
more than 50 military installations being closed or realigned because
of defense
cutbacks. There was considerable work to do before the Air Force
could turn the
site over to the city. Foremost among the chores was the
cleanup of 481
hazardous waste sites -- everything from landfills of
household waste to jet
fuel spills. Such sites can make it difficult to reuse
military installations
for many purposes because of the cleanup required. The
$55 million cleanup was
led by the Air Force Base Conversion Agency and
included efforts of the city,
the Texas Natural Resource Conservation
Commission, U.S. Environmental
Protection Agency and U.S. Army Corps of
Engineers, among others. Airport
construction in any area could not be
started without (environmental) clearance.
The city's construction
schedule was constantly changing which made it difficult
for the Air Force to
plan its cleanup activities. That, and questions about what
degree of cleanup
was required, caused some friction between the regional site
management for
the Air Force Base Conversion Agency and the city of Austin. The
mistrust
simmered over everything from questions about the schedule to debate
about
the cleanup. The Air Force believed the cleanup should be done to the
level
of what might be found at an average industrial site. The city
wanted
everything cleaned up to the level of a residential site.
Communication between
all members of the clean-up team just wasn't happening.
A series of meetings
were set-up at which the cleanup team determined it
could work first in certain
areas critical to construction, turning over
those areas as they were completed.
But it was a hill of dirt that
finally broke the barriers between the city and
the Air Force. At a cleanup
team meeting, the Air Force brought forth a plan to
truck in tons of soil to
cap landfills on a site. The city of Austin needed to
raze a hill on the
building site for the east runway. The city was going to pay
to remove the
hill. The Air Force was going to pay to truck in soil. Why not
just turn over
the hill to the Air Force and save taxpayers the expense? After
agreeing on
this, cooperation between everyone became easier. For the Air Force,
it was
one of the better experiences. In the end, most of the base was cleaned
up to
the city's liking. In cases where the Air Force met only its standards,
the
city went in afterward to clean up the final bit. This was done
primarily
because the city believes it will eventually have to expand the
airport. City
officials didn't wantto have to worry about cleaning up
anything that might be
unearthed later. Problems with reuse As construction
began, planners soon
discovered that although the city was saving time and
money by reusing
Bergstrom, there were drawbacks. One example came the
day after the Air Force
vacated the base. All across Bergstrom, residents and
employees had turned off
the water when they left. The resulting water
pressure was more than the old
system of pipes could handle. The city field
staff ran around for months chasing
water leaks. The city soon discovered
that much of the base's utility system
could not be reused, resulting in one
of the first increases in the airport
budget. Utilities the city had thought
would cost $6.7 million to refurbish
ended up costing $24.5 million, in part
because many new pipes and lines had to
be installed. City planners also
learned they couldn't save or reuse as many
buildings as they had planned.
Bulldozers demolished 20 percent of the housing
as well as an almost-new
commissary and a 36-bed clinic, in addition to the
buildings designers never
planned to save. Some of the buildings were too old,
not up to code and
contained lead paint and asbestos. Others would have cost too
much to
relocate, city officials said. What actually happened to the buildings
Of
the 322 buildings, not counting 719 houses or duplexes, about 70 remain.
Some
house the Texas National Guard. City offices are in others. The most
recognized
of Bergstrom's old buildings, the 12th Air Force division
headquarters known as
''The Donut" because of its unusual design, is
being remodeled and will
become a Hilton hotel in the spring of 2000. One of
the largest hangars is being
used as a private aircraft maintenance area, and
the aircraft painting facility
still stands. Noise Pollution Many of the
residents near the ¡§new¡¨
Bergstrom do not have late-afternoon barbecues
in their backyards anymore. They
have gotten tired of trying to yell over the
roar of cargo planes on their
approach to Austin-Bergstrom International
Airport. Nearby area residents will
most definitely be affected by a noise
problem that is likely to get worse as
air traffic increases in the Austin
area. As a result, the city is doing a new
noise study to determine just what
impact the $690 million airport in Southeast
Austin will have on
residents nearby and under the flight path. They're also
trying to figure out
just how to help residents and business owners who will be
affected by the
noise. Soundproofing and property purchases are options that now
must be
considered under this study to assist residents in coping with this
result of
progress. Residents already in the cargo flight path say the planes
have
disrupted neighborhoods that had enjoyed a brief respite from the noise
after
Bergstrom Air Force Base closed in 1993. Cargo planes tend to be noisier
than
passenger airplanes, and by the end of 1999, federal rules will require
that
older planes be replaced or retrofitted with engines that are quieter
and
less disruptive. The noise study will take that into account, as well
as
increased flights and expanded service. The city has placed five noise
monitors
around the airport to gauge how loud the planes are on some
approaches. Although
the prospect of airport noise is frustrating for many in
the Austin-Bergstrom
area, fewer residents will be affected by noise than the
30,000 people who live
around Robert Mueller Municipal Airport or under the
flight paths will. Increase
in costs per passenger for landing fees The cost
per passenger for airlines to
operate in Austin will be higher than at some
other Texas airports. At San
Antonio, the airlines pay $3.45. At
Dallas-Fort Worth it's $2.84, and at Hobby
in Houston it's $4.79. This makes
Austin-Bergstrom one of Texas¡¦ more
expensive airports for airlines to
operate out of though the cost is still less
than other new airports. At
Denver International Airport, the cost per passenger
is $15.58. In
Pittsburgh, where a new terminal was built in the early 1990s,
it's $7.94.
With the airlines flying in and out of Austin-Bergstrom
International
Airport in 1999, their costs per passenger for landing fees and
rental rates
will almost double from about $3.90 per passenger at Mueller to
$7.30 per
passenger at Austin-Bergstrom. Each airline that flies in and out
of
Austin-Bergstrom will determine how to deal with the cost increases --
either by
raising fares or by cutting costs elsewhere. What the airlines pay
in rentals
and landing fees is only about 5 percent of their total operating
cost. For most
airlines an increase in those costs in a city the size of
Austin will not
require raising fares. New construction is always expensive
but most of the
airlines will not pass this cost directly onto customers.
Since the inception of
actually privatizing Bergstrom for the new airport and
after years of haggling,
the city and the airlines that serve Austin signed
off on an agreement assuring
that when the airport opened there would be
planes flying in and out of it. The
city charges the airlines for everything
from landing fees and leases for
airplane parking to counter space and
waiting rooms inside the terminal. Because
the city is paying part of its
$585.1 million share of the $690 million airport
with revenue bonds, the
rates have to be enough to pay back the debt. In most
cases, it is deemed
best to get the airlines on board for a new airport during
the planning
phase. But the airlines withheld support for a new airport,
criticizing the
size and cost. In particular, some of the airlines were
concerned about the
five-gate terminal expansion added by the city midway
through construction.
The airlines were unsure that 25 gates were needed. There
are 16 gates at
Robert Mueller Municipal Airport, but in the end the airlines
ended up asking
to have use of 21 of the gates. While the city does not have an
official
business agreement with the airlines, the fact that they committed to
¡§an
agreement¡¨ made it unlikely the airlines would balk at moving.
The
alternative would have been to pull out of the growing Austin market. In
recent
years, passenger traffic at Mueller has increased between 5 percent
and 8
percent a year. The airlines weren't thinking of backing out. Those on
both
sides, the city of Austin negotiatiors and airline industry management,
say a
turning point in the negotiations came when the airlines agreed to the
city's
plan to use the sale of Mueller municipal airport for city coffers
instead of
just retiring airport debt. In exchange, the airlines would get
reduced fees at
Austin-Bergstrom. About $2 million was trimmed from the
operations budget at the
airport. Assessment A study of the direct economic
impact of the new airport has
not been done, but by 2012 there are expected
to be more than 16,000 new jobs
associated with the airport and more than
725,000 square feet of new development
drawn to the surrounding area. Federal
and local authorities know of no larger
conversion of a military base to a
civilian airport in recent history. By
transforming Bergstrom from a proud
military base to the $690 million
Austin-Bergstrom, the City of Austin
saved $200 million in land and runway
costs. Aviation industry officials are
paying attention to what has happened in
Austin. As more base closures
happen and all levels of governmental agencies
seek to outsource, industry
experts, of all categories, look with interest at
how Austin was able to cut
costs by re-using an existing site. And the
innovation of the environmental
initiatives the city took during construction,
such as an aggressive
recycling program and building with energy-saving
materials. Austin's reuse
and environmental initiatives were honored by the
Airports Council and
the Federal Aviation Administration. As such, I would say
that the year 2012
will be looked upon with great interest in foretelling
whether the
actualization of Austin-Bergstrom is as much as a success in the
practical as
well as it appears to be in the theory.
Bibliography
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Statesman, (1999). Airbase to Airport: A model transition
[Online].
Available: URL:
http://www.austin360.com/news/features/local/0131recycle.html
[1999, January
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noisy plans.
[Online]. Available:
URL:
http://www.austin360.com/news/features/local/1015noise.html [1998,
October 15].
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trends. [Online].
Available: URL:
http://www.public-policy.org/~ncpa/pd/private/priv.html [1999].
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