Airport Privatisation: Ownership Structure and Financial Performance of European Commercial Airports

Abstract

After a discourse on commercialisation and privatisation in the sector, this paper assesses the financial performance of 35 European commercial airports for the decade 1990 to 2000 by comparing those in mixed public-private and fully private ownership to those in public possession. The outcomes of partial factor productivity (PFP), financial ratio (FRA) and data envelopment analysis (DEA) are evaluated, in order to investigate differences attributable to the degree of privatisation. Changes in performance after a change in ownership structure are reviewed. Finally, airport privatisation is put into perspective. 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 also shows structural differences between partially and fully privatised companies. The major differences lie in operating efficiency, asset utilisation or capital productivity and capital structure. Whereas privatised airports operate more cost-efficiently, publicly owned airports generate comparatively higher ratios of unit revenue and work load units to total assets. Their capital expenditure to total revenue ratio is lower and the asset turnover is higher. In terms of operating margin, the revenue/expenditure ratio and the ratio of cash flow to revenue, partially and fully privatised airport companies rank higher on average than those in the public sector. Their increased operating efficiency does not, however, translate into significantly higher returns on shareholders' funds. Regarding capital structure and financing of productive assets, publicly owned airports assume more debt relative to their respective equity, which results in considerably higher gearing and financial leverage, compensating for the comparatively low return rate on assets.