COLUMN RIGHT / ROBERT W. POOLE JR. : The Evidence Tells Us to Privatize : Studies saying the city would make more money running LAX fail to account for the vitality of the private sector.

A recent city-sponsored study confirmed that Los Angeles International Airport is a potential gold mine for Los Angeles taxpayers. Restructured as a commercial enterprise, LAX is worth $2.6 million to $3.4 billion.

The question being discussed from the City Council chambers to the White House is: What is the best way to restructure?

Some officials, including Clifton A. Moore, the airport’s executive director, have declared privatization a dead issue, since the study found that selling LAX would produce less revenue than either leasing it or making it a city-owned corporation. But this conclusion ignores a decade of global privatization experience.

Against this backdrop, the study deserves scrutiny. It’s not necessarily wrong, but it flies in the face of evidence from more than 75 countries.

The study assumes that future expenses and revenues would be identical whether the airport was sold, leased or operated by the city. But if ownership really made no difference in the incentives or efficiency of a business, there would be no worldwide privatization trend--indeed, no particular reason to have a private sector at all.

Evidence to the contrary abounds. In 1987, the British privatized the former British Airports Authority, now known as BAA. It owns and operates seven airports, including London’s Heathrow and Gatwick. Studies have shown increases in BAA’s efficiency and productivity since its days as a government agency; there is good reason to expect a privatized LAX to follow that trend.

The LAX study also assumes only one major change in airport revenues: a tripling of landing fees. While the airport’s fees are well below market levels, putting all the burden on the airlines creates needless antagonism between airport operators and airlines in what must always be a partnership.

Privatized airports have instead tapped into the potential of passenger concessions on the ground. LAX today nets just $1.40 per passenger from inside concessions (food, beverage, gift, news, duty-free, phone), while the private Toronto Terminal 3 nets $5.78, Gatwick $6.80 and Heathrow a whopping $8. This is not accomplished by charging $10 for a hamburger; the key is creating a greater array of goods and services for airport users.

This approach would permit LAX operators to adopt a more airline-friendly approach to landing fees. It would also generate a greater net return to the city than the revenue stream projected for direct city operation of the airport. Finally, a concession-intensive privatization also would generate more jobs and sales tax revenues.

Feasibility is also a major issue. Here privatization wins hands-down, for reasons not made clear in the study.

The biggest obstacle to running LAX as a for-profit business is not the City Charter; it is federal law. The Airport and Airways Improvement Act of 1982 provides for airport grants to be made from the Aviation Trust Fund. Congress, concerned that cities use these airport grants only for airport purposes, mandated that all revenues generated by the airport must remain on-site and be used for airport purposes. Without this restriction, federal airport grants would, in effect, end up being passed through to city general funds in the form of airport profits. Neither Congress nor the Federal Aviation Administration is likely to repeal this restriction.

A privatized airport, however, is legally free to make a profit, with no restrictions on how the proceeds could be spent. Moreover, the President’s April 30 Executive Order on Infrastructure Privatization directs the FAA and other federal agencies to cooperate with local governments that wish to sell or lease assets such as airports to private owner/operators. The order sets forth a formula for partially repaying previous federal grants, and establishes that cities are entitled to receive the bulk of the proceeds from such a lease or sale.

In short, even if the city would net more by running LAX at a profit than from selling or leasing it, the point is irrelevant. Federal law prohibits the city from using profits for any purposes other than airport-related ones. But new federal policies encourage officials to sell or lease the airport.

Privatizing LAX is not simply a financial issue. It is also an issue of ensuring the best world-class international airport for America’s most important 21st-Century city. Profit-oriented management--under suitable restrictions to protect the public interest--is the best way to ensure such an airport.