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The Future of Airports: Sustainable Business Models and New Sources of Funding (Topic No. 2)

11 May 2020 Airport of the Future
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The Airport Think Tank of ENAC Alumni published last month the global analysis of The Future of Airports. Each week, discover a new focus on one of the 11 topics of this research initiative.

During most of the 20th century, airports were planned, built and operated by central governments as tools of sovereignty, prestige, national defense, and territorial development. In the context of growing ancillary activities and capital expenditure, they were then turned into organizations created for operating airports often with a private corporation status and state-ownership. This move toward more independence promotes a culture of efficiency and a strategic vision, establishes the autonomy of decision from other governmental priorities, and enables an autonomy of the governance itself from political agendas as well.

Airport privatization might be seen as the next step of state-owned corporatization. There are privatization projects in all the regions of the world – and they take different forms. Public control of airport management is no more a necessity for national interests, and private operators are considered as more versatile, cost-efficient and innovative. Therefore, governments can focus on their role of market regulator and safety/security oversight.

Commercial service airports shall be allowed to adequately fund infrastructure maintenance and realistic development through their charges as they can no longer rely on direct public funding. Airport concessions and other PPP shall ensure benefits for both sides, and a fair distribution of profit and financial burden as well. High expectations on infrastructure development from governments that are not consistent with the actual level of traffic can challenge the financial viability of airports requiring vast capital improvements.

These considerations do not necessarily apply to smaller airports. Their financial equilibrium is more often precarious. While some of them might not appear as profitable, their impact on the local economy and connectivity has to be considered too. Several remote aviation facilities providing vital access to the world for air taxi, air ambulance, and subsidized air routes will remain public and require direct funding from local governments or national programs. They cannot be profitable and are not intended to do so.

Several programs exist around the world to ensure airports are safely developed and meet the needs of the nations. Their form and extent depend on the size of airports and the local specificities. These funds usually exclude the terminal facilities from grants. To rejuvenate and develop them, State and regional investment banks can lend money at a lower interest rate as long as the operator is based in the country. In every case, airport operators and governments shall carefully balance the opportunities created by these projects and the level of risk and sustainable debt ratio.

The fundamental principle is that “aviation shall pay for itself”. Indeed, direct injection of public money coming from the general budget of a state raises legitimate questions on national priorities – especially when projects are not profitable nor necessarily justified from a social profit perspective. Concessions to private operators of infrastructure developed with public money raise also the question of a fair return on investment to governments.

Investing in innovation is crucial not only for the industry but for the air transportation ecosystem entirely. Some larger airport operators have the ambition to be leaders in innovation. However, the groundbreaking trends and transformational changes explored in the next topics (e.g. automation in air traffic management, cybersecurity, etc.) require wider efforts supported by national policies and funding.

 

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