Will the airport go on the block in 2011?
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In August 2006 the five commissioners who oversee San Francisco International Airport discussed renewing a small contract with a consulting outfit called John F. Brown Co.
The contract's value doesn't matter as much as the advice the outfit was giving. Brown is helping San Francisco prepare for 2011, when an agreement SFO maintains with several airlines is set to expire.
This, the folks at the airport realize, is a very big deal one that could cost the city hundreds of millions of dollars and tempt city officials to try to privatize one of San Francisco's most lucrative assets.
The contract that will expire four years from now is basically a lease the airlines pay in exchange for using SFO facilities like runways and terminals. The agreement was established in 1981 as part of a legal settlement with the airlines, and it permits the city to draw millions of dollars in concession revenue from the airport into San Francisco's General Fund. Last year the city received nearly $22 million from the airport.
But San Francisco is one of the few cities in the nation that are allowed to take money that the airlines pay for landing and use it to subsidize other city services. And the airlines have shown little desire to keep paying fees that are above what the airport needs to break even on its operations.
Nobody is talking publicly about what will happen after 2011, but it's entirely possible that the airlines, with the support of the federal government, will refuse to keep subsidizing San Francisco's General Fund. So $22 million per year in city revenue could suddenly dry up.
If the mayor is someone like Gavin Newsom, he or she will be looking for an easy answer and a lot of people will argue that San Francisco should follow the trend set by airports in Chicago, Indianapolis, and Pittsburgh and head toward a private management contract.
The Reason Foundation, a libertarian Los Angeles think tank, concluded in the 1990s that SFO could be worth as much as $888 million to the private sector; that number is almost certainly higher now. Imagine, for a moment, the deal the city would be offered: lose $22 million per year in revenue or get close to $1 billion in cash by turning over the airport to a private operator on a long-term contract.
But the airport's past experiments with privatization suggest that giving SFO to the private sector might not be such a good idea.
In 2001, Congress created a pilot program in which five cities, San Francisco among them, privatized their security screening of passenger, checkpoint, and baggage operations. Federal airport officials here hired Illinois company Covenant Aviation Security.
An investigation last year revealed that Covenant and SFO officials relying on surveillance cameras conspired to tip off personnel working at checkpoints when undercover federal inspectors were on their way to test possible security breaches.
A whistle-blower first revealed the scheme. Covenant, which partnered in the security venture with global weapons designer Lockheed Martin, was nonetheless rehired by the federal Transportation Security Administration late last year with a $314 million contract lasting until 2010, signed just weeks after an inspector general for the TSA's parent bureaucracy, the Department of Homeland Security, revealed the results of its probe.
What is perhaps the airport's greatest privatization disaster began in 1997 and didn't end until earlier this year. Managers at the airport formed a private, for-profit company called SFO Enterprises, which they hoped would join a consortium of other airports doing consulting and managing work around the world. The initial consulting contract was with a Honduran airport.
The plan turned into a disaster, leaving the airport in Honduras worse off. By the time San Francisco's controller caught up with the scheme in an investigation completed in January, he declared the city could lose as much as $1.5 million, with much of it poorly accounted for.