Study: Privatizing San Jose airport could solve debt problem
The Mineta San Jose International Airport is pictured in this file photo.

    San Jose could cash in upward of $2.47 billion by leasing its airport to a private investor or company, a new study suggests.

    The study, conducted by Los Angeles-based think tank Reason Foundation and published last week, projects that 31 cities with medium to large airports could generate as much as $131 billion through leasing. Cities could then use the money to pay down debt or invest in other infrastructure, the study says.

    Using data from airport sales and long-term leases in other countries, the study estimates Norman Y. Mineta San José International Airport to be worth between $1.2 billion and $2.47 billion to private companies.

    That means, through a long-term lease, San Jose could pay off its growing $1.2 billion debt stemming from the airport renovation project in 2005—and still have between $520 million to $1.3 billion in revenue, the study shows. San Jose’s airport debt has tripled in the last decade, according to the city.

    “Many of the world’s best airports are already managed by private companies under similar arrangements, including London’s Heathrow and Gatwick, Athens, Copenhagen, Paris, Rome and Sydney,” Robert Poole, director of transportation at Reason Foundation, said in a statement.

    But San Jose isn’t entertaining the idea.

    “Mineta San Jose International Airport is owned by the city of San Jose, which has no plans to sell the airport,” spokesperson Keonnis Taylor told San José Spotlight.

    Mayor Sam Liccardo did not respond to inquiries about the possibility. Councilmember David Cohen, who is a liaison to the city’s airport commission, also could not be reached.

    John McGowan, a board member of Community and Airport Partnership for Safe Operation, says he’s not familiar with such agreements but notes that it’s “a fascinating idea.”

    “If somebody is deeply in debt and doesn’t know how to get out, I can see how they’d want to look hard at doing that,” McGowan told San José Spotlight. “But, in general, cities hate giving up critical assets.”

    Such partnerships could bring challenges with federal regulations, but there are airports, such as Moffett Federal Airfield, where governmental owners have already outsourced some operational duties to private companies, McGowan added.

    Slow recovery

    The pandemic hit San Jose’s airport hard. SJC saw a drop of 53% in passengers in April compared to pre-pandemic times. Both San Jose and San Francisco, which experienced a 60% drop in passengers, are in the top five airports that saw the biggest decline in passengers. According to the study, both SJC and SFO have the slowest service recovery rate of the 31 airports analyzed.

    The airport recently received $55.5 million in federal funding as part of the American Rescue Plan to help pay off debt, operating costs and concession programs, officials said.

    Airport privatization is rare in North America.

    Puerto Rico’s Luis Muñoz Marín International Airport became the only U.S. airport with a public-private partnership in 2013, and its 40-year lease is already proving successful, the study notes. The lease will generate $1.2 billion for the island’s capital city, and some of the money has gone to update other airports and pay off debts.

    Commercial airports in the U.S. are traditionally owned and operated by local governments per federal law. But in 2018, Congress created an exception to allow cities and counties to enter public-private partnership leases. Net leases can also be used for projects outside of airports—something prohibited for decades.

    Officials in St. Louis, Kansas City and Chicago have made attempts to lease airports in recent years to no avail, according to news reports.

    Across the world, countries in Europe, Africa and Asia have leased their commercial airports—partially or fully—for more than 30 years, the Reason Foundation study says.

    “The total 2018 revenue of all 100 top airports was $98.5 billion, and the 38 with significant investor ownership accounted for nearly 49% of the total, at $48 billion,” the study reads. “Few Americans have been aware of this new industry as it has emerged over the past 34 years.”

    Contact Tran Nguyen at [email protected] or follow @nguyenntrann on Twitter.

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