Bottom line is that the Airport Board overbuilt and is now scrambling to find the resources to cover CIB-type operating deficits that loom in the future. To close the inevitable gap, the Airport Board is looking at using the long term (50 years) privatization contracts to generate substantial upfront revenue.
The Indianapolis Airport Authority agreed at its monthly meeting this morning to explore turning over management of the airport’s parking operations to an outside company.
Using a private operator for parking could bring in between $350 million to $500 million in additional revenue over the length of a 50-year lease for the cash-strapped Indianapolis International Airport, authority spokeswoman Susan Sullivan said. Sullivan emphasized that estimate was “very preliminary.”
The airport is facing a budget shortfall because of fewer flights as well as higher costs from the new, $1.1 billion Weir Cook terminal that opened last year. The airport now pays a mortgage on the terminal of about $40 million a year.
“Even if we issue requests for information, there is no commitment to act on them,” Sullivan said. “This is not something we would enter into lightly.”
Fewer than 15 percent of the nation’s midsize airports manage their own parking operations, she said.
The airport has 100 employees dedicated to parking services. Any privatization agreement would need to ensure the workers kept their jobs, Sullivan said. Parking fees account for about 50 percent of the airport’s $76 million in non-airline revenue. Total annual revenue at the airport is expected to be $127 million in 2010.
The authority voted last month to raise airport parking rates Sept. 1. Garage parking rose from $16 to $18; long-term parking from $11 to $12 and economy-lot parking from $7 to $9. Express valet parking also rose, from $18 to $20.
This is something I have preached about before. To work, privatization has to be about instilling market competition into the delivery of services. Handing a company a long term contract to provide a service not only does not instill competition, it creates a government-sanctioned monopoly. Insulated from market competition by the long-term privatization contract, the service provided by these monopolies inevitably declines.
You have additional problems with privatization. The privatization of services has unfortunately become a cash cow for politicians seeking to shake down private businesses for contributions. Not coincidentally, big political contributors win the lion's share of government contracts.
A related problems is that politicians, greased with campaign contributions, generally have no interest in properly overseeing and enforcing privatization contracts won by a major campaign donor. Vendors have little to fear about intervention from the public sector should the services they provide prove to be subpar or they violate the terms of their contracts. Generally it takes incredibly severe contractual problems, like what happened with FSSA, before politicians will intervene.
Privatization can be done the right way and done the wrong way. Handing out a 50 year contract to provide parking and shuttle services at the airport is definitely the wrong way.