Airport privatisation and performance

This study assesses the financial performance of a representative sample of 35 European commercial airports for the period 1990 to 1999 inclusive, comparing those subject to partial or full privatisation with those in public ownership. It is hypothesized that privatised airports operate more efficiently than others and that they are an attractive investment as compared to alternative capital projects. Partial factor productivity (PFP), total factor productivity (TFP) indicators and financial ratio analysis (FRA) outcomes are compared, in order to investigate differences which may be attributable to the degree of privatisation.
The main results of PFP and FRA indicators are tested by an independent and a paired-samples t-test for differences between airports in public, mixed public-private and fully private ownership. Changes in performance after a change in ownership structure are reviewed. The analysis of sample data reveals economically meaningful and statistically significant differences between publicly owned and privatised airports. The latter group is not a homogeneous one but shows decisive structural differences between partially and fully privatised companies.

The major differences lie in operating efficiency, asset utilization and capital structure, which vary substantially with the respective ownership status. Whereas privatised airports are more cost efficient, publicly owned airports generate comparatively higher ratios of unit revenues and work load units to total assets. Their asset turnover is higher but the capital expenditure to total revenue ratio is lower. The increased operating efficiency of partially and fully privatised airports does not, however, translate into higher returns on equity in general. Only partially privatised sample airports may be considered an attractive investment. Regarding capital structure and financing of productive assets, publicly owned airports assume more debt relatively to their respective shareholders' funds, which results in considerably higher gearing and financial leverage, compensating for the comparatively low return rate on assets. Based on the findings of this research, key success factors and value drivers of the airports' business model are identified and consequences for airport management are deduced. Major contributions to the knowledge on the subject result from an application of financial ratio analysis to the sector, including the analysis of capital structures, the usage of performance indicators and financial ratios before and after privatisation and from conducting a DEA analysis strictly based on financial variables.