Less optimistic about Naia’s privatization

The Ninoy Aquino International Airport (Naia) will finally be privatized. For years, the airport has been a hotbed of flight delays and cancellations, subpar service, and generally poor passenger experience. The government hopes to resolve this by relinquishing control to the SMC-SAP and Co. Consortium in a P170.6-billion, 15-year concession deal.

I am less optimistic about the prospect of improvement under this new management. A 2023 preprint published in the National Bureau of Economic Research suggests that the type of privatization matters a lot. Private equity (PE) fund ownership exhibits the best improvements in airport performance. Non-private equity ownership, as in the Naia deal, is found to be no better than public ownership.

Looking into specific performance metrics, PE privatization increases per-flight passenger traffic driven mostly by increases in domestic flights, indicating improvements in efficiency and capacity. Non-PE privatization does not exhibit this effect and is merely at par with public ownership. Flight routes and the number of airlines also increased under both PE and non-PE privatization. In the latter, however, the trend already existed before the change in ownership, which means that the increase in routes and airlines cannot be attributed to the privatization. Flight cancellations also decreased under both PE and non-PE privatization, though the latter already exhibited the trend prior to change of ownership. Flight delays actually increased under non-PE privatization while no change was observed under PE privatization.

Meanwhile, passenger service quality such as security wait times, restroom cleanliness, store quality, and lounge amenities improved under both kinds of privatization. The fate of airport employees also factor into the decision of privatizing Naia. Both kinds of privatization see improved airport profitability but in two different ways. PE privatization increases profit through growth and efficiency, with no evidence of cost reduction and employee layoffs. The same cannot be said of non-PE privatization.

In sum, privatization works only if the new management is not just any private firm, but a private equity firm. The state of Naia is so bad that any change in management would likely be better than its current one. But the benefits of privatization would be better extracted if a private equity firm spearheaded it. It makes me wonder if the Marcos trips were a lost opportunity to convince foreign PE firms to take over Naia instead.

Julan Omir P. Aldover,

Leyte Normal University