The University of Lahore

TOPIC:
WHAT ARE THE IMPEDIMENTS TO PRIVATIZATION IN AVIATION INDUSTRY.

SUBJECT MA.
REGISTRATION NUMBER 70073121
SECTION 7A

SUBMITTED BY UMAIR ALI ARIF

SUBMITTED TO MR. SHARJEEL

Submission Date 3 DEC, 2021

Due Date 03 DEC, 2021

Remarks:

Marks:

/ 10

Instructor’s Signature
  Introduction to Airport Privatization
Privatization refers to the shifting of governmental functions, responsibilities, and
sometimes ownership in whole or in part, to the private sector. In case of airports
privatization can take in many ways including the transfer of an entire airport to
private operation or ownership or just giving some parts of the airports to some
private companies. Airport privatization fall into two categories.
1. Partial privatization
2. Full privatization
There is a significant number of entities in many states which are still owned and
controlled by governments. These are mostly government owned airlines and
airports which often do not allow new competitors into their respective national
markets. The importance of privatization in a liberal and deregulated aviation
industry must not be only limited to airlines. In the US, airlines have historically
been privately owned. The situation is very different when it comes to airports and
other aviation-related services such as security screening, which are under the
control of the Transportation Security Administration and air traffic control
operated by the Federal Aviation Administration
 Airport Privatization in Pakistan
Privatization involves the sale or long-term lease of an airport to private owner or
operator. Pakistani airports are facing serious infrastructure constraints and none of
the airports in Pakistan meets the world-class facility. Therefore, passengers and
airlines suffer due to poor facilities which leads to insufficient commercialization
of non-aeronautical areas at the airports. Non-aeronautical areas involved real
estate, car parking, food & beverages, retail stores, hotels, commercial plazas etc.
Poorly maintained airsides in Pakistani airports are a serious problem and, airports
infrastructure is not capable of handling the new technology aircraft such as A–
380, except the newly inaugurated Islamabad International Airport. Further during
fog season or at the occasion of heavy rain, airports have to close their operations
owing to outdated technology and poor air traffic control systems.The airside
facilities including runways, taxiways, aprons, aircraft maintenance, refueling and
air traffic control equipment. The lack of all these landside & airside facilities
leads to privatization and ultimately the compilation arises in the market among
competitors.
  Modes of Airport Privatization in the World
There are four different modes of privatizing the existing airports which take forms
of least privatized to long-term transfer of an airport.
1. service contracts
2. management contracts
3. developer financing/operations
4. long-term lease or sale.

 Impediments or disadvantages in privatization of airports

1. Primarily, airports are considered as a public or government utility, however
privatization can be considered as a commercialization or business to earn
profit. Operating an airport like a business will reduce the emphasis on the
Public’s interest and the burden will be shifted to air passengers. IATA
Annual Report 2008 stated that commercialization has resulted in significant
increases in the airport and aeronautical cost base that are used to determine
charges.
2. Airport privatization may cause concentration of market power in the hand
of private sector, and could create private monopolies. Private sector will
increase the aeronautical and airport fee due to its inaccessibility to some of
the privileges that public sector own.
3. Private sector will deliver poor services due to lack of opportunities and
investment.There is a huge investment require to own airport premises.
4. A private sector operating airport may adopt less favorable conditions and
compromise the health and safety standards as compared to the airport
owned by government, because private sector offers performance based
compensation whereas benefits or compensation offered by public sectors
are much higher than private sectors.
 Advantages of privatization of airports.
1. The major benefit through privatization of airports is the revenue diversion.
The amount collected through lease or sale of airports can be used to finance
the non-airports projects.
2. The fund allocations and utilization for a public sector are mainly based on
political decisions and increase the chances of unwise decisions, which may
cost several times more than the expected cost. Privatization sector may help
to solve these issues and can develop a world class airport infrastructure.
 3. Government owned airport land is free from property tax, but if private
sector leases an airport, it could be taxable on many instances depending
upon the agreement with government.
4. The privatized airports typically focus on increased customer amenities. The
privatized airports have expanded the retail space, included variety of brands
at one place, and prices of the products are equal to local market rates
 Conclusion
Pakistani airports are way far behind the foreign peers in terms of infrastructure
and efficiency and thereby creating a challenge for the government. Pakistan Civil
Aviation Authority cannot afford investment to develop all international airports to
a world-class level. Therefore to develop a world-class airports infrastructure in
line with the global standards, government should consider encouraging private
capital to construct or operate existing Pakistan aviation sector. Although the full
privatization of airport is not viable due to national security constraints, however
various public - private partnership programs may be initiated to foster the growth
in this regard.