Mexico Getting Ready to Privatize 75 Airports in ’96 : Aviation: Effort has attracted wide interest from U.S., other foreign companies, who see much profit potential.

More than $20 billion worth of aviation business will be up for grabs next year when Mexico, continuing its flirtation with free markets, becomes the world’s newest and biggest showcase for the privately owned airport.

The prospect has attracted the interest of everyone from billionaire investor George Soros to the Koll Co. of Newport Beach and the owners of Britain’s seven largest airports, all chasing what has become an airport-privatization bandwagon.

With 75 airports scheduled to go on the block to varying degrees, hard-pressed Mexico is hoping the undertaking becomes an aviation gold rush to replenish its foreign-currency reserves and hasten the modernization of its motley collection of airports.

Among the proposals: a $10-billion project centered on a second airport for Mexico City, surrounded by a completely new town.

The whole idea of privatization worries Mexican public interest groups, which fear airports could fall into the hands of powerful drug traffickers. Union leaders warn of inevitable jobs losses. And airline industry officials wonder aloud about quality and safety control in an age of for-profit airports.

But large-scale airport privatization moved closer to reality this month when President Ernesto Zedillo sent a bill to Congress that would establish the enabling law. The bill is expected to pass by Dec. 15, and bidding could begin in early 1996.

Airports are to be auctioned off as 50-year concessions, with foreigners allowed no more than a 49% control, ensuring joint ventures with Mexican firms. Speculation is that bidders will have to acquire packages of airports that include less lucrative sites along with the major transit centers.

Potential bidders are gearing up. Koll Co., for example, has formed a partnership with Grupo Acerero del Norte of Mexico City to propose not just a new airport but an entire 100,000-acre residential and commercial complex in Hidalgo, 40 miles north of Mexico City. That is one of seven sites proposed for the second Mexico City air terminal.

“We don’t want to build just the airport, but the new town around the airport,” Koll executive Joe Woodard said last week.

Ogden Corp. of New York, the world’s largest independent airport operations and services company, has joined with Grupo ICA, a Mexican construction giant. An Ogden spokesman said the company already helps operate eight airports in Mexico and that an ownership venture is “more than likely.”

Air Group International of Glendale--a joint venture of Lockheed Martin Corp. and super-investor Soros that owns part of the airport in Toronto and operates the airports in Burbank; Albany, N.Y.; West Point, N.Y., and Columbus, Ohio--also plans to make bids and is looking for a Mexican partner. Johnson Controls of Atlanta and American Airlines parent AMR Corp. are also looking at Mexico.

“We are following the Mexico situation very closely, and we believe it to be an enormous opportunity,” said Tom Farrell, executive vice president of Airport Group International. “Despite the peso problems, we think there is long-term strength in Mexican passenger growth and other revenue sources.”

As recently as three years ago, Mexico’s plan to turn 75 state-controlled airports over to foreign and domestic entrepreneurs for expansion and modernization would have been unthinkable, bound up as they are in the national identity. But the worldwide trend toward privatizing all manner of government facilities, combined with Mexico’s dire need for foreign investment, have changed attitudes all around.

Governments point to Britain’s apparently successful privatization of its major airports, including Heathrow and Gatwick. And growing numbers of investors like Koll and Soros are pursuing projects from Sydney to Toronto to Macao, seeing big profit potential in airport development and operation.

Mexico has also earmarked seaports, railroads and parts of the state-owned oil monopoly for sale. But Zedillo’s government is especially eager to get the airport projects moving, seeing their development as a major economic stimulus and an important addition to the nation’s infrastructure.

“The great economic and social importance that air transportation has taken on and its future evolution demand a great investment,” said Carlos Ruiz Sacristan, secretary of transport and communications.

Critics fear that the government, in its rush to raise capital, won’t give the airport privatization process the scrutiny it deserves.

“When you lose control over a strategic service like airports, when you don’t know the provenance of the funds used to buy them and you haven’t been monitoring the prospective owners, the privatization process must be one of transparency,” said Homero Amidjis, president of Group of 100, Mexico’s leading environmentalist group.

Some critics wonder whether new owner-operators will invest as much in safety as in retail booths. And some airlines are wary about turning baggage handling, fueling, catering and other basic services over to third parties that would bid them out.

“The one thing that the court is still out on is: Can you, in a hospitality industry, transfer that quality-control responsibility over to a third party and not suffer disadvantages?” asked David Stamey, vice president of Avitas, aviation consultants in Reston, Va.

Will privatization mean that consumers will pay more?

“It’s a new area of evolution in the industry, and the key concern from airlines in particular is that without adequate competition or control, their airport costs will escalate unreasonably,” said Phil Roberts, chairman of Roberts Roach and Associates, a consulting firm in Hayward, Calif.

Higher airline costs would, of course, be passed along to consumers.

The overwhelming majority of U.S. airports are still owned and operated by government entities. But privatization has begun here--the Indianapolis airport is the biggest example--and is sweeping other countries.

Bankrupt Orange County, which needs the money, has mulled selling John Wayne Airport.

“It’s something governments are looking at in instances where they have been underwriting tremendous airport operating losses,” analyst Stamey said. “There doesn’t appear to be a single area of airport activity that is not being put under the microscope relative to privatization.”

Stamey and other industry experts say the trend was jump-started by the 1987 privatization of the British Airport Authority, once a government agency and now owner of seven airports in Britain, including Heathrow and Gatwick.

“They have been very successful from a government and private standpoint of successfully transitioning and making money,” said Barbara Beyer, president of Avmark Inc., an Arlington Va.-based aviation consulting firm.

The authority, now known simply as BAA, financed itself by selling stock to the public and has gone on to take over airports all over the world, including the Indianapolis terminal. BAA is thought to be preparing bids for Mexican facilities as well.

BAA and other companies have found that in addition to airport landing-gate and service fees, there is enormous potential in retail, duty-free and restaurant concessions, which government operators rarely exploit, Beyer said. And companies such as Koll see untapped real estate development tied to airports, from hotels and houses to retail and factory space.

The rush of savvy investors to airport privatization “tells you there is a lot of money to be made in these things. . . . The United States still has a government-owned model of airports, but the rest of the world has a very different vision,” said Robert W. Poole, president of the Reason Foundation, a Los Angeles-based research group that advocates privatization.

“There are potential risks,” Poole said. “You could create monopolies that rip off consumers, overcharging for everything from landing fees to hot dogs. But that can be coped with. The British put price caps on landing charges.”