1. Issues in airport privatization The case of SJO, Costa Rica
Bruno Miller
Final Project Presentation
December 5th, 2002

2. 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 Directorate of Civil Aviation (DGAC):

3. 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

4. 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

5. Guidelines for successful privatization
Goal:
Airport design, development and management that reconciles private and regional interests
Need a regulatory framework that*:
Balances the interests of the stakeholders
Involves stakeholders in decision-making: planning, design and management
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

6. Guidelines for successful privatization (2)
Need a regulatory framework that*:
Provides shared allocation of management control
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

7. Juan Santamaría Airport (1996)
Great economic importance for the country:
Tourism is ~10% of country’s GDP
SJO handles ~70% of all tourists
Handles 2 million pax/year (2000)
58,000 operations
High percentage of domestic traffic (~50%)
6 contact gates
9 aircraft stands (?)
Out-dated passenger and cargo bldgs.
Source: DGAC Costa Rica

8. Juan Santamaría Airport (2018?)
5 million pax enplaned
90,000 operations
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

9. Following the guidelines
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)

10. Following the guidelines (cont’d)
Balance of interests of stakeholders: investors
Financial balance guaranteed if profit loss due to:
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.

11. Following the guidelines (cont’d)
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)

12. Following the guidelines (cont’d)
Involve stakeholders
Airlines and users consulted when setting fees
User surveys can be used to measures LOS
Flexibility to changes
Design changes allowed (however, master plan not necessarily made with flexibility in mind)
Shared allocation of management control
Regulated approach: Gov’t remains owner of infrastructure that operator manages, develops

13. Following the guidelines (cont’d)
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

14. Following the guidelines (cont’d)
Economic regulation (cont’d)
Non-aeronautical fees:
Economic regulation based on:
Cost of providing service
Average fees in similar airports for same service
Operator must provide detail financial reports each year
Fees revised each year

15. 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)

16. 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?

17. Issues in airport privatization The case of SJO, Costa Rica
Bruno Miller