COMMENTARY ON AIRPORT PRIVATIZATION : County Would Be Better Served if John Wayne Was Sold Off : Not only could it use the money, the airport could run more efficiently and give passengers a price break.

The recession has forced businesses to rethink how they operate and what products and services they offer. Orange County must do the same. The recessionary 1990s means thinking about a return to core county services which cannot effectively be supplied by other levels of government or private industry.

In making that evaluation, the county should look at all the assets that it holds and ask two questions: Can those assets deliver a higher value of services under private management? And can the resources tied up in those assets be reallocated to another use that is more valuable?

In asking if Orange County should sell John Wayne Airport and use the proceeds for other services, County Board of Supervisors Chairman Roger R. Stanton has focused public attention on these questions.

Many airports are privately owned and operated; the best known of these are the three London airports (Heathrow, Gatwick and Stansted) which were sold by the British government in 1987 to a company called British Airports Authority. The BAA also owns and operates four Scottish airports. The New Zealand government plans to sell its three international airports, Belgium shares ownership of the Brussels airport with a private corporation, and airport privatization is being considered or planned in several other nations.

Other airports are operated under contract, the best-known being Burbank Airport, which is operated by a division of Lockheed Aircraft.

The experience with privately operated airports enables us to evaluate the potential for private operation of John Wayne Airport and indicates that the airport could be sold to a private operator for about $160 million. It also indicates that private operation would be at least as efficient as county operation and that the noise issue would be addressed effectively and responsibly.

Any estimate of the value of John Wayne Airport is somewhat speculative. The only way to discover its value is to auction it off. I based my estimate on the “rule of thumb” of the Reason Foundation that the market value of a commercial airport is about $61 per passenger origination. In auctioning the airport, the county should set a minimum price of $100 million or so.

The Orange County Transportation Authority is in no better position than the county to operate the airport more effectively. There are no benefits to bringing the airport under the Transportation Authority’s control that cannot be achieved through normal channels of coordination. It is unwise to use Soviet central planning as a model for Orange County transportation. The Transportation Authority could bid in the auction along with others, but it is unlikely to be the high bidder.

In terms of cost and efficiency, a privately owned and operated airport should do at least as well as one run by the county. It is important to realize that private firms have the incentives and flexibility to operate more effectively than government enterprises. They must meet the market test or they cannot survive. They are not dependent on tax revenue, which is scarce and unpredictable. They are not bound by Civil Service restrictions so they can pay a premium where it is required and less when it is appropriate. They can raise capital quickly and build new facilities without being bound by glacial governmental procedures.

The evidence indicates that private operation is effective. The number of boardings per employee at Burbank Airport is almost three times what other comparably sized airports achieve. A private operator could turn the control tower over to a contract operator and free itself of the FAA controller pay scale that limits the ability of the airport to retain air traffic controllers. More experienced controllers make safer airports.

Private airports also have the ability to employ more efficient forms of pricing. Presently, it costs no more to land a jet at a peak hour than at an uncrowded hour (and it costs nothing to land a private plane). Under the pricing formula in use at most airports, the more crowded the airport gets, the lower the landing charge. This is silly and counterproductive.

Underpricing peak-hour operations means that airports have to be unnecessarily larger and that planes and passengers spend more time and fuel waiting on taxiways and circling in the crowded skies. A private operator would be free to introduce more efficient pricing as do the London airports, which imposed peak-load prices and landing fees for general aviation.

A private operator could develop new revenue sources and provide more services. John Wayne Airport is beautiful, but it is dull. Like so many other airports, one has to sit in a bar to watch television. The airport is a great place to read and watch people, but it could be a great place to do lots of other things.

The two areas of private operation that arouse the greatest concern are how the noise problem would be handled and the potential for the airport to charge prices that are too high. Safety remains under the direction of the FAA whether the airport is privately or publicly operated.

The record on noise is good. Private and public airports are held to the same noise regulations. The private London airports have adopted noise-related landing charges. Noisier aircraft pay a 25% surcharge on landing fees. Quieter aircraft receive rebates. This gives the airlines a direct and tangible incentive to reduce noise. The surcharge goes into a fund to purchase severely noise-impacted properties.

John Wayne Airport has held its noise contours relatively constant during the past decade by requiring quieter aircraft and limiting flights. At Heathrow Airport, the noise contours have shrunk over the past 15 years in spite of traffic growth. The same thing has happened in Burbank. Airport noise is a nuisance under the law. It is likely that the courts will hold a private firm to a more stringent test than a publicly operated airport when it comes to determining if higher noise levels constitute a taking of property.

A private operator would use landing fees to control noise and buy easements or noise-impacted property. Noise-related landing fees would encourage noise-control measures that do not depend so heavily on modified takeoff profiles which, aside from flight limits, are the primary means of noise control at John Wayne.

Would a privately owned airport charge too much? Passengers already pay a well-known premium for flights from John Wayne because the supply of flights is restricted under the county’s agreement to limit noise. The ticket prices will stay higher as long as the number of flights is restricted, irrespective of any landing fees that are likely to be charged.

As more airports go private, competition will become a more effective force in disciplining airport pricing.

Market prices for airport operations would induce the airlines to schedule somewhat fewer operations at John Wayne and peak-load prices would shift flights to less-crowded hours. A night surcharge would reduce nighttime noise.

Once the airport is in private hands and landing and passenger fees become more rational, the federal government should rebate to the airlines and general aviation pilots a portion of the fuel tax they now pay and the 8% federal passenger ticket tax should be cut in half on tickets for flights out of John Wayne Airport.