Thursday, February 15, 2018

Privatization plan for St. Louis Lambert International Airport (KSTL) is pie in the sky

By Daniel Rust 

Daniel Rust is an assistant professor at the University of Wisconsin-Superior. Previously he was assistant director of the Center for Transportation Studies at the University of Missouri-St. Louis. He is the author of “The Aerial Crossroads of America: St. Louis’s Lambert Airport.”

In the commentary ”We should explore airport’s untapped potential” (Feb. 4), former St. Louis Mayor Francis Slay says that he initiated the process for examining the possible privatization of St. Louis Lambert International Airport “after many years of listening to airport stakeholders and the business community talk about the airport’s massive debt, limited connectivity, significant excess capacity, and how Lambert does not stack up to airports in other cities.” Those claims are belied by the facts.

Under the leadership of Airport Director Rhonda Hamm-Niebruegge — appointed by Mayor Slay in 2010 — the airport has made solid, continued progress in recovering from the loss of its hub status for TWA and American Airlines in 2003. Passenger traffic has been steadily increasing in recent years. December 2017 was the 28th consecutive month of passenger traffic growth. It increased 5.5 percent in 2017 to 14.7 million, making 2017 Lambert’s busiest year in a decade, following a 10 percent increase in 2016.

The airport opened additional gates at Terminal 2 in 2017 to serve the growing needs of Southwest Airlines, the No. 1 domestic air carrier, which has announced it will add new destinations in 2018. Air cargo activity has also shown steady growth, increasing over 6 percent in fiscal 2017.

In November 2017 Fitch Ratings upgraded its ratings on Lambert’s $325 million airport revenue bonds, citing “continued enplanement growth in conjunction with a renewed airline agreement providing full recovery terms (which) will allow Lambert to maintain stable debt service coverage ratios.”

Fitch said that the rating upgrade reflects the airport’s status as a medium hub airport with stable financial metrics, limited competition from other airports and modes of transportation.

Earlier in 2017, Moody’s and S&P also upgraded their ratings of Lambert’s debt. Moody’s said the upgrade was “based on our expectation of growth in enplanements, a significant decline in debt from the historic levels, and a continued increase in debt service with no major capital investment needs, resulting in an improved operating and financial profile.”

As a result, the airport was successful in refinancing $258 million of its debt at a substantially reduced interest rate, reducing costs by about $35 million. This will allow a reduction in fees charged to airlines, making Lambert more attractive for additional passenger service.

Much of the current debt was incurred to construct a new runway, a project undertaken in the 1990s to handle the great volume of traffic generated by TWA’s Lambert hub. The majority of that traffic disappeared after American Airlines bought TWA and closed the Lambert hub.

Slay does not explain what he means by Lambert’s “untapped potential.” In today’s concentrated airline market, Lambert will never again be a major hub as it was in the 1990s, but it has the capacity for further growth without major new capital expenditures. This is a blessing, not a curse.

Given all these favorable facts, why should St. Louis now contemplate a major change in the operation and governance of Lambert?

The advocates of privatization, including current Mayor Lyda Krewson, former members of Mayor Slay’s staff and retired investor Rex Sinquefield, have no meaningful answer to this question. All they offer is vague predictions of millions of dollars of new revenue, with no facts, data or analysis to support them. No one has attempted to show any long-term benefit to the public from inserting a private, for-profit middleman between the airport and the city.

At best, privatizing Lambert might give the city a short-term revenue influx in exchange for handing long-term control over an airport constructed with public dollars to a private entity. There is no evident upside for anyone other than the city’s political leadership and its allies. In other large-scale privatization deals that have gone through, such as the Indiana Toll Road, once the political body spends the cash that results from the sale of infrastructure, regret follows.

This looks like a solution in search of a problem. Unless privatization advocates can show long-term benefit, supported by hard data and sound analysis, objectively and with participation by the public and all affected parties, St. Louis should reject the current effort. It’s time for facts and figures, not pie in the sky.

Original article ➤

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