IATA Cautions FG on Airport Concession

• IATA Cautions FG on Airport Concession

The International Air Transport Association (IATA) has advised the federal government to be careful in its plan to concession the nation’s airports, saying the objective of having modern infrastructure at the airports may not be realised if the facilities are given out to wrong investors and on wrong terms.

The Director General and CEO of IATA, Alexandra de Juniac, gave the warning in Seoul, South Korea, during the 75th Annual General Meeting of IATA.

He noted that many states in Africa and other parts of the world see privatisation or concession of airport infrastructure as solution to airport modernisation and management.

The federal government had since 2016 insisted that it would privatise the major airports in the country because it does not have the funds to continue to manage them. It had argued that ceding the airports to the private sector through concession would enable the investors to expand and modernise the facilities in agreement with the concession terms.

IATA has very strong interest in airport infrastructure because it is critical to the airlines and most of the airports under privatisation or concession usually attract huge charges to the airlines, as investors tend to charge highly to recoup the cost of their investment, the director general said.

IATA noted that such high charges paid by the airlines go to the tickets and increase airfares, which discourage many people from travelling by air.

“We tell governments to be cautious when they want to privatise their airports or manage their infrastructure. There are several ways of doing this, so they should be very careful and not rush into privatisation.

“We have several systems, including management contracts, concession contracts before selling the assets. So we urge government to consider all possibilities.

“If they choose some of the solutions that are provided by the market, like concession, we have a kind of guidelines to tell them how to proceed. Based on experience, we have seen so many bad airport privatisation and some good ones. That is why we have established a kind of guide for best practices,” De Juniac said.

He said IATA knows that due to economic squeeze in some countries, governments take the option of privatisation because they don’t have enough funds to invest in airport infrastructure but warned that these governments should be careful because “privatisation is not the magic solution.”

Also in a presentation on airport privatisation, IATA Senior Vice President on Airport, Passenger, Cargo and Security, Nick Careen, said that there are concerns about airport privatisation because it gives rise to lack of competition, ineffective economic regulation, short-term financial gains instead of best consumer and public interest.

“Primarily a major shortfall has been that governments have focused on short term financial gains from sale or concession and often it is simply the highest financial bidder that is selected for the privatisation, without the necessary focus on the quality of service to be provided.

“We also find there are inadequate economic regulatory safeguards in place to project airlines and consumers. Lastly, there is lack of overall consultation with users, during the privatization process, on the intended expectation and outcomes.

“To address these shortcomings, IATA, with Deloitte, launched a report on Airport Ownership and Regulation to provide necessary solutions and ensure better decision-making for the interests of efficient and sustainable aviation growth,” Careen said.

He said Ownership and Regulation report details how there is a broad range of ownership and operating models that can often meet government objectives for increased financing or service improvement, without the need for sale of assets and loss of strategic control of the airport.

“If a government does not decide to pursue privatization, we now see that the large majority of airport privatisation is based on concession. That is where the government retains ownership of the asset and brings in a private operator to finance, build and or operate the airport.

“There are many models of concession for airports, which typically represent a contractual relationship negotiated between the government as the asset owner and the private sector concessionaire.

“We have found there too many shortfalls in existing concession contracts—mainly because the negotiated provision tends to be more biased to the interest of the government or concessionaire as opposed to the interest of the users of the airport facility,” he added.