Corruption scandals hit US airports
Two scandals at US airports could pave the way for an influx of private investment. Christopher O’Dea
Recent instances of corruption at two of the busiest airports in the US – Hartsfield Jackson Atlanta International and Chicago O’Hare, both government-owned – could lead to changes in airport governance, including opening the door to private capital.
“There seems to be a direct correlation between airport ownership by a city government and both micro-management and corruption in the awarding of contracts and leases,” says Robert Poole, Searle Freedom Trust Transportation Fellow and director of transportation policy at the Reason Foundation.
In his latest aviation policy update, Poole notes that “these are not problems we generally see at airports run by airport authorities or those operated by private companies under long-term public-private partnership (PPP) leases”.
Problems in Atlanta surfaced after former airport director Miguel Southwell was fired by then-Mayor Kasim Reed in 2015. As Poole summarises the matter, Southwell said he was fired because of his to his objection to long-standing practices of airport contracts being steered to friends of elected officials – in particular Mayor Reed – and after extensive legal exchanges between the parties, Southwell and the City reached a settlement in 2016 in which Southwell was awarded severance pay of $85,516 (€75,665).
But investigative reporting by the Atlanta Journal-Constitution (AJC) revealed an additional $147,000 paid to Southwell, of which there is no record in city financial documents. Further digging by AJC unearthed evidence of major conflicts of interest between the mayor’s former law firm, which had been hired to represent the airport, and various airport concession companies. As of last fall, corruption at the airport and within the city government was under investigation by a federal grand jury, the Georgia Bureau of Investigation, and the Federal Aviation Administration. Earlier this year, a prominent contractor who has bid on airport contracts was indicted on bribery and other charges.
Issues regarding Chicago O’Hare arose after the FBI raided the City Hall office of Alderman Ed Burke, chairman of the City Council Finance Committee. The FBI seized computers, flash drives, and paper files relating to various city contracts and real estate deals. In December, former Chicago Aviation Commissioner, Ginger Evans, responding to a question from the Chicago Sun-Times about the federal raid, cited five examples of Burke interfering in airport business. Several were of great consequence: demanding that a sole-source airport transportation contract be extended rather than re-bid; pushing for major changes in a contract with the in-terminal advertising contractor, and insisting that all of more than 50 airline leases Evans had negotiated be brought individually before his Finance Committee for review.
Poole asks the unavoidable question: “Don’t people realise that airports are vital businesses that need to be insulated from politics and corruption?” Many Georgia legislators are “disgusted with Atlanta’s corruption”, Poole says, and that has helped generate support for a bill in the current legislative session to change the governance from city ownership to a regional airport authority.
The track record of airport authorities is better than that of city-owned airports, Poole notes, in terms of insulation from corruption, airport efficiency and productivity. The Georgia Senate passed the bill on the day the Atlanta contractor was indicted, but optimism should be restrained. Poole expects that “the city government and the airport’s anchor tenant, Delta Airlines, will go all-out to prevent this from happening”.
Poole suggests an alternative for Atlanta – a long-term PPP lease of Hartsfield Jackson, which would not remove all control. “The track record of ‘privatised’ airports worldwide is excellent,” he says, and a major advantage to the financially-stressed city would be the possibility of using lease proceeds to boost its balance sheet, perhaps by shoring up its public employee pension system, which is only 69.7% funded.
This kind of asset recycling was proposed twice for Chicago Midway Airport and both times fell through. But times may have changed. “Thirty years ago, a city considering ‘cashing out’ the value of its airport might have been accused of risking the airport’s future for some quick bucks,” Poole says. Today, with world-class airport companies backed by infrastructure investment funds and a sound vetting process that carefully negotiates a long-term agreement, “a city could end up with a more-productive, passenger-friendly, and de-politicised airport”, he adds. “That would be good for airlines, passengers, and taxpayers alike.”
It would also be good for the institutional investors that would provide the capital for such a transaction. It may still be some time before a major US airport is privatised, but the winds of change are creating turbulence for the US airport sector, and PPP deals might offer municipal officials a way to preserve some level of control over the airports serving their cities.