INTERNATIONAL CIVIL AVIATION ORGANIZATION * 07/16/96 INTERNATIONAL CIVIL AVIATION ORGANIZATION 11/21/2018 *

* Airport´s Privatization and the Quality of the Services 07/16/96 Seminar on “Airport Management: Security and Quality, Balanced Commitments” (La Antigua, Guatemala, 14-18 October 2002) Airport´s Privatization and the Quality of the Services Zenon J. Cortes FO/FAM TCB, ICAO Montreal 11/21/2018 *

Sources ICAO Circular 284, AT/120: Privatization in the Provision of Airports and Air Navigation Services (March 2002) 11/21/2018

Introduction In various parts of the world taking place changes in ownership and management in the provision of airports and air navigation services. ICAO provides analysis on the options available with its possible implications. 11/21/2018

Summary Airports and Air Navigation Services: Monopoly characteristics Description of terms Development in ownwership and management ICAO Policies and Guidance Ownership and management options Preparing for change on ownership: Regulatory aspects Selection of a private provider Privatization vs Quality Conclusions 11/21/2018

Airports and Air Navigation Services: Monopoly Characteristics Airports start change on ownership in 1970 Most Air Navigation Services no change Both services are monopolies ICAO Policy: Does not recommend one organizational format over another, but, in view the worldwide experience, recommends that States establish autonomous authorities where this is in the best interest of providers and users 11/21/2018

Description of Terms Privatization: Full or majority ownership Private participation: Contract, lease or minority participation in equity Corporatization: Legal entity outside the government Autonomy: Utilizing revenues originated from the operation and takes independent decisions Commercialization: Approach in which business principles are applied on developing commercial activities 11/21/2018

Development in ownership and management Growth of Air Transport Changes in airports infrastructure Advantages of Autonomous Authorities: Financial and Operational autonomy Encouraged a Business culture Lowered expenses per trafic unit Recycled aviation user charges into aviation Reduced Government´s finacial support Improved the quality of Services, and Established a clear distinction between Regulator and Operator 11/21/2018

Motivation for Private Participation and Privatization Financial problems Source of Revenue Commercial entities Emergence of Global Airport Management Industry 11/21/2018

World experiences Gradual changes from private participation into Privatization Forms of Private participation: Management contract Lease Transfer of minority ownership 11/21/2018

Pricing Regulation There is not formulae for price regulation perfect, (ICAO recommends Doc. 9082) It is necessary a transparent cost data Regulatory Authorities should ensure that monopoly power is not abused Use of revenues should return to aviation activities 11/21/2018

ICAO Policies and Guidance The States remain the responsibility even private entities provide services, (Article 28 of the Convention of Chicago) Freedom of aircraft to use the facilities and non-discrimination charges, (Articles 11 and 15) Securing the highest degree of unifomity in regulations, standards, procedures and organization, (Article 37) Reporting od finacial and traffic data, (Articles 54 and 67) Guidance on charges for airport services, (Doc. 9082) 11/21/2018

Ownership and Management Options Government ownership: Public interest rather than profit Management contract: airports with limited development requirements and need operational and management improvement Lease: transfer management and development to a private entity for a fixed period Transfer of minority ownership: ownership is partially transfered to the private sector Private sector ownership and control: Majority/full ownership is transfered to a private entity, including non-profit corporations or trusts 11/21/2018

Preparing for change in ownership and management Planning: a change of ownership/management may not solve all the problems of airports and could be facing adversses effects in the long term if poorly planned Consultation: existing airport management should be involved and user should also be consulted Study of financial and managerial situation: forescat of air traffic for at least 10 years, tarif structure and new sources of revenues Selection: would be taken place with caution and in stages Residual Facilities: It is essential considering the social and economic benefits derived from the operation of non-profit airports Utilization of revenue: cover deficits from other airports or services 11/21/2018

Changes to the legal framework The transfer of ownership or management of airports to the private sector A system of management of remaining airports and other services Non-discrimination in access to facilities and services Safeguards against abuse of monopoly power Uniformity of standars, procedures and organizations Reporting requirements Security and Safety requirementes 11/21/2018

Independent Mechanism for Oversight Establish independent mechanism to oversee the economic, commercial and financial practices of airports (Doc 9082, paragraph 15) Ensuring non-discrimination in the aplication of charges Ensuring there is no overcharging or other anti-competitive practices or abuse of dominat position Ensuring transparency to determine the basis for charges Assessing and encouraging efficiency and efficacy on the services provided Establishing and reviewing standards, quality and level of services provided Monitoring and encouraging investments to meet future demand Ensuring user views are adequately taken into account 11/21/2018

Other Regulatory Aspects Strengthening of regulatory organization Monopoly power is not misused Quality Control Statistical Data Dispute Settlement Balancing the interests of stakeholders 11/21/2018

Human Resource Issues Impact of the personnel currently employed Increase the training requirements Quality of Services comply the legal requirements Impact on local training institutions 11/21/2018

Selection of a private provider Requirements of the bidding process Transparency Shorlisting of Bidders Contract documentation Expert Advice 11/21/2018

Risks of States The leasing company may become insolvent The private provider may ignore Safety and Security requirements A provider may ignore the developmental needs of airports The rpivate provider may not honour the lease payments The private provider may pressure to negotiate the terms of lease 11/21/2018

Privatization vs Quality The new airport´s ownership and management changed the quality of services ? It is necessary the privatization ? What advantages do you realice in your privatization process ? What risks did you find ? Let see some examples 11/21/2018

Conclusions The primary objetive of airport services is to provide safe, secure, effcient and economical services to aircraft operators, passengers, shippers and other users There are several ownership and management options for the provision of these services A State should choose the option that is best suited for achieving this objetive after careful consideration and planning Regardless of the organizational structure or the legal status, the State remains ultimately responsible for Safety and Security The State should consider implementing an oversight mechanism to monitor the monopolistic tendencies, to mesure performance and productivity and to ensure compliance with fair and equitable cost-recovery as well as with ICAO policies and principles 11/21/2018

INTERNATIONAL CIVIL AVIATION ORGANIZATION * 07/16/96 INTERNATIONAL CIVIL AVIATION ORGANIZATION THANK YOU FOR YOUR ATTENTION 11/21/2018 *