Leveraging private sector to improve aviation

The die is cast. As the Federal Government approves concession of major airports. WOLE SHADARE weighs the pros and cons
Airports have evolved mainly as government-run enterprise. Now, many airports seek privatisation or concession in part to improve their abilities to compete in global economy. The manner of ownership covers a wide spectrum: government-owned and controlled airports, government-owned corporations, independent airport authorities, public-private partnerships with the government majority ownership or with private majority ownership. For Nigeria, the Federal Government has opted for concession of the nation’s aerodromes starting with the Murtala Muhammed Airport, Lagos and the Nnamdi Azikiwe Airport, Abuja.
 
The argument
While majority of people have commended the government for its courage to do what should have been done many years ago, others are of the view that it was not a well thought out policy, further arguing that it may not be transparently done and could end up in the hands of cronies of people in government. Penultimate week, the government approved the concession of the nation’s four major airports, starting with Lagos and Abuja.
Expectedly, the workers re-emphasised their opposition, arguing that the government was not transparent in the process and that it would lead to mass sack of workers without any plan by the government to protect their interests.
Scores of FAAN workers stormed Freedom Square leading to the entrance of FAAN headquarters to draw attention to what they described as illegal selling of the airports to people who are unknown to workers.President of Air Transport Service Senior Staff Association (ATSSSAN), Mr. Illitrus Ahmadu, said the workers were opposed to the concession of airports because the template is not clear to them – especially the parameters being used by the government to select the would-be concessionaire.
Reasons to concession an airport include an improved ability for an airport to diversify its operations to enhance profitability, to fund expansion, and to improve competitiveness. The arguments for privatisation include that the shortfall in public funds, and a need to change to the market-oriented outlook that private businesses develop.
Apprehension
Objections to airport concession or privatisation are related to the apprehension that a private operator would take advantage of the monopoly that airports represent in air travel. Not all airports are suitable for privatisation. Some aerodromes in developed world such as United States are controlled by local governments and affected by airline requirements.
The less developed countries and their airport authorities lack sufficient funds to develop their airports; although these countries need these airports, concession is impractical, and alternate business plans must be developed. Unlike other countries, Canada, Australia, and New Zealand have taken the path of mixed public-private control to maintain power over matters that affect the public good.
The focus
Privatisation enables a long term focus to meet the demands of international competition, to maintain a customer-focused plan, and to free the government from providing subsidies to an unprofitable enterprise. The potential for Canada to completely privatise the National Airport System is small due to the serving of the public good under the current system.
Those who are for airport concession are quick to cite the Murtala Muhammed Airport Domestic Terminal (MAA2) as a good example of private sector driven airport facility development. The terminal was built by Bi-Courtney Aviation Services Limited (BASL) under a build, operate and transfer agreement. The terminal was opened in 2007 and today when compared with the airport terminals being managed by FAAN, MMA2 is relatively better in terms of passenger facilitation, modern facilities and IT equipment.
Clear policy framework
Nigerians, who are pushing for concession, have suggested that government should develop a policy on airport concession and put in place administrative and legal frameworks that will provide the platform for transparent concession agreement that would be fair to both the government and the investors.
 They also argue that the 22 airports under FAAN management are too much for one organisation to manage effectively.
In 1987, the UK government founded British Airports Authority (BAA) plc, now known as Heathrow Airport Holdings Ltd, to raise funds as part of a wider effort to monetise government-owned assets. Since then, the business of airport privatisation has, mature and diversified to meet the objectives of governments and investors around the world.
After a lull, airport privatisations became particularly active again, between 2012 and 2015, with the most substantial activity seen in South America, the Middle East and Europe. The predicted exponential growth in passenger volumes worldwide will require improvements and expansions of aviation infrastructures for many years to come. Not a few believe that privatisation/concession will be a key tool in securing funding for these types of projects. The benefits of airport privatisation, if managed diligently, can be significant.
Most airports operated by public entities do not focus on the customer experience. Privatisation can allow for better adjustments to market changes and will often provide more innovative solutions to customers, resulting in improved outcomes for all. It could also create a dynamic workforce.
Although the government has set up the process for concession, experts advised that transparency should be on a government’s agenda from the beginning of the process. One possible solution is to have the programme regularly monitored and audited by a well-financed, independent agency reporting to the parliament or to a similar ultimate authority.
Last line
The concession model selected will largely determine the potential participants in the process. During the early stages of the process, therefore, it is important to identify the parties to be targeted as potential participants. The entity in charge of privatisation should involve key stakeholders to gain their support for the concession or at least to determine how to deal with their opposition.
These stakeholders include, but not limited to, unions, airlines and other tenants and business groups. From the beginning, the underlying rationale for the concession should be presented carefully, highlighting the key characteristics of the process and model; the value creation story and the levers for value growth; the characteristics of the economic regulation model; and other issues.
Wole Shadare

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