IATA Industry guidance issued for airport PPPs

The International Air Transport Association (IATA) and Deloitte recently published a guidance booklet aimed at governments and authorities entitled "Airport Ownership and Regulation" which considers public-private partnerships (PPP) and other forms of privatisation for airport infrastructure.

The guidance booklet details the different operating and ownership models available to governments looking to privatise airport infrastructure across the full public-private spectrum, including consideration of the following models: corporatisation, management/services contracts, PPP concessions and both partial and majority equity sales.

The publication of the guidance booklet is particularly timely for the Middle East as a number of governments across the region are currently considering or are in the process of procuring new greenfield airport projects, rehabilitating and expanding existing airports and/or privatising the operation and ownership of airport infrastructure. In particular, the General Authority for Civil Aviation (GACA) in Saudi Arabia announced its intention in 2016 to fully privatise all of the Kingdom's airports in line with the central government policies set out in Vision 2030 and the National Transformation Programme. GACA has employed a combination of different models to attract private sector investment, including an operation and maintenance contract for the King Abdul Aziz International Airport in Jeddah (since terminated by GACA), adopting the PPP-model for airports which require significant expansion works (Taif, Al Qassim, Hail and Yanbu) and corporatising the existing operating companies in Riyadh and Dammam, particularly with a view to a full or partial sale to the private sector.

Although Kuwait has recently entered into a management agreement for the new Terminal 4 at the Kuwait International Airport, it remains to be seen whether the UAE, Oman, Kuwait and Qatar will follow Saudi Arabia's lead in opening up the aviation sector to further private sector participation. Outside of the GCC, government authorities in Egypt, Lebanon and Jordan are focusing on PPP structures to develop and expand critical airport facilities with the assistance and support of multilateral agencies.

The intervention of IATA in this way is broadly to be welcomed. If the region's airports are to be successfully created and upgraded using private sector expertise and capital then it is essential that the right project structure and risk allocation is brought to bear for each individual project.

All too often a lack of proper analysis of the underlying economics of a particular airport, combined with a less than clear-eyed view of the partial and economic drivers behind the desire to involve the private sector can lead to the adoption of a structure or risk allocation that is ill-suited to the project – most often around expectations over passenger forecasts, the ability of concessionaires to influence passenger numbers over time and the likely willingness of the private sector to take material risks in these respects – especially for smaller regional airports. This leads, in turn, to the subsequent failure of the procurement or the concession.
This new guidance booklet will not, of course, solve these problems at a stroke. However, anything that – like this – helps educate the public sector as to the available options for engaging the private sector for the region's airports, should, over time, lead to better structured deals that are more likely to succeed when put into the market.

The table below sets out a number of existing airport PPP projects in the Middle East, as well as future opportunities for private sector investment.