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Privatization Takes Hold

Special Report - InfrastructurePrivatization in Latin America is in line with overall industry expectations.

Around 2% of the world’s commercial airports are managed or owned by the private sector. Lima’s Jorge Chavez Airport has a decade of experience in the private sector. Run by Fraport, it has benefited from over $270 million in investment since 2001. The gateway recorded a 17% increase in traffic in 2010. Even so, the government takes a sizeable chunk of money from the deal, which isn’t reinvested in airport infrastructure.

In Brazil, 13 of the top 20 airports are experiencing congestion problems. São Paulo is in a dire state and plans for a new terminal are shrouded in an opaque approval process. Infrastructure is not ready for the soccer World Cup and the Olympics, being held in 2014 and 2016 respectively. The Brazilian Government has recognized that current operator INFRAERO is struggling and is considering a concession model.

In Argentina, 32 airports were taken over by AA2000 in 1998 and there followed a decade long dispute over tariffs, only resolved when a 50% discount for international flights came into play in 2007. Airport regulator (ORSNA) has played a very important role in maintaining this agreement.

Land-locked Paraguay’s airports have long needed investment and the government had agreed to look at a concession model. A $100 million concession for Silvio Pettirossi International Airport in Asunción was one of three potential privatizations on the cards. IATA successfully countered the proposed privatizations as they weren’t following clear ICAO and IATA guidelines and could have resulted in the concessionaires hiking up prices. President Fernando Lugo recently vetoed the privatization bill.

Although airport ownership isn’t a consideration, from a user perspective there clearly needs to be a strong regulator that enforces tough service level agreements and ensures transparency and efficiency at all times. Otherwise, putting a monopoly provider in the hands of the private sector could prove disastrous to service levels, prices, and the economy.

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