Airports are critical to development, and PPPs can help them through the crisis

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Planes taxiing at Dusseldorf airport. Photo: Daniel Mennerich/Flickr
Photo: Daniel Mennerich/Flickr

 

Covid-19 has hit the aviation industry hard, including many airport PPPs. But there are tools available for public and private partners to sustain services and deliver stability to the sector.

 

Airports are critical to the economic development of cities, countries and regions. They’re hubs of commerce, moving passengers and transporting cargo around the world.

But like many sectors, airports are being hit hard by the COVID-19 pandemic, and if their struggles continue, it could stall recovery in emerging markets.

With most countries limiting entries or closing borders, passenger traffic has fallen dramatically. Even as the curve begins to flatten in some countries and their governments re-open parts of their economies, aviation will continue to be hit hard. Airports Council International estimates there will be 4.6 billion fewer passengers than expected in 2020, translating into nearly $100 billion in lost revenue.

Both publicly and privately operated airports are facing unprecedented pressure. Airports operated under public-private partnerships (PPPs) aren’t immune to the effects of the pandemic and face their own unique challenges. However, the PPP model presents opportunities for the public and private sectors to coordinate and collaborate to reduce risks. It’s crucial for both partners to leverage the PPP framework to find mutually agreeable paths forward to navigate the pandemic, reduce risks, sustain airport operations, and save jobs until the recovery takes hold.

 

What private partners can do

The unprecedented drop in passengers has significantly reduced revenues from airport charges and airport commerce. To compensate, airports, like any business, will need to be proactive in reducing operating expenses; conducting facility needs assessments to temporarily close areas; strengthening balance sheets by refinancing debt and seeking loan modifications to minimize short-term financing costs; working closely with airport staff and sub-concessionaires, such as retailers, to avoid layoffs and save jobs that are critical for day-to-day operations; and working with public partners to potentially delay capital investment projects and other maintenance that is no longer needed with reduced traffic.

 

What public partners can do

Governments also have tools at their disposal to reduce the financial pressure on their private partners. Many PPPs obligate private operators to make guaranteed revenue-sharing payments to the public partner. But these payments—an important revenue source for governments—represent a major financial risk for operators during this crisis. With revenues rapidly declining and an uncertain recovery for the industry, governments can choose to waive or delay these payments. Governments can also grant relief where warranted around service-level frameworks that were relevant a few months ago but may be more difficult to adhere to with the current social distancing guidelines.

 

Doubling down on partnerships

With so many health and economic challenges, governments with airport PPPs will prioritize sustaining airport services, a critical component of an economic rebound, while also actively coordinating with private operators on enhanced health and security measures to protect the economic recovery.

For these measures to work, both partners will need good communication and to be open to understanding each other’s challenges in order to decide the best course of action for sustaining vital services and protecting livelihoods. More than ever, the third “P”—“partnership”—is indispensable.

Authors

Georgina Baker

Vice President, Latin America and the Caribbean, and Europe and Central Asia, International Finance Corporation (IFC)

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