Funding airport infrastructure

Recently there has been misunderstanding and conjecture reported regarding the funding model for airport infrastructure and in particular, how the new parallel runway at Brisbane Airport will be funded. Here are the facts on infrastructure funding at Australia’s airports.

The current funding model for infrastructure at Australia’s airports was set in 2002 when the Productivity Commission reviewed airport/airline pricing arrangements, and once again endorsed the model following rigorous reviews in 2007 and 2012. All the terminals, roads, taxiways, aircraft parking bays and every piece of infrastructure built at privatised airports across the country have been funded using this model.

Without the privatisation of airports and the airport infrastructure funding model that’s in place, we would never have seen the improvements, expansions and upgrades of Australia’s airports over the past decade.

Finding 6. 2 within the Productivity Commission’s 2012 Report on the Economic Regulation of Airport Services states: “There is evidence of significant investment in aeronautical infrastructure at Australian airports in the period since light-handed monitoring was introduced in 2002, with significant future investment planned. Compared to other Australian infrastructure, airport investment outcomes rate favourably. ” The government highlighted this outcome in its response to the 2012 Productivity Commission inquiry into the economic regulation of airports, commenting that: “The inquiry noted a number of positive outcomes under the current price monitoring regime, including strong investment in new aeronautical assets, a generally good level of service provision, and reasonable aeronautical charges, revenues and profits compared to international benchmarks. ” (Government response, March 30 2012).

Normally airports and airlines negotiate their pricing arrangements on a five-year basis. With Brisbane Airport’s new runway, because the project will take eight years, it must be negotiated over a longer period.

This funding model proposes users contribute 25 per cent of the construction costs via landing fees as the runway is being built over an eight year period.

The project will take eight years to complete because the runway is being constructed on very poor soils and low-lying land, which means the ground level has to be raised to avoid flooding and tidal inundation. It will take two to four years alone to stabilise the ground before pavement construction can commence.

It is not unreasonable to expect users to share one quarter of the risk on a project of this magnitude, which will deliver airlines and their passengers such significant benefits on a national scale.

The new runway at Brisbane Airport will be funded by a mix of retained earnings, debt and modest increases in airline charges during the construction period. The partial contribution for the construction of the runway system set by Brisbane Airport Corporation is a modest incremental increase of only an extra 35 cents per domestic passenger. It will increase gradually, to at the most, an extra $3. 15 per international passenger or an extra $1. 80 per domestic passenger by 2017 (during the construction phase).

Australia’s privatised major airports are private or publicly-listed companies with shareholders, many of whom are superannuation funds. They do not receive any government funding. Every piece of infrastructure built is done without a cent of taxpayers’ money.

Airport shareholders are mainly superannuation funds that expect dividends so they can pay their own superannuation members. These superannuation funds expect that their investments are not only financially sound, but will produce a return. Without this surety shareholders will not be willing to make the significant investments in the infrastructure which Australia needs as a country heavily dependent on domestic and international aviation for our economic productivity and prosperity.

Unlike many other infrastructure sectors, final demand from airlines is not underpinned by long-term contractual commitments and, accordingly, airports must bear substantial demand risk. This can impede forward investment decisions, such as on infrastructure and terminal facilities.

Hence the reason we should maintain the funding model that has been in place since 2002, which has been proven to be a successful model for funding airport Brisbane needs the capacity to continue to fuel growth. aaa

It is not unreasonable to expect users to share one quarter of the risk on a project of this magnitude.