Risk transfer and uncertainty in privatisation: Cases from air transport

Abstract

This paper seeks to challenge the notion of risk transference via examples of PPP and privatisation of state owned assets. The paper draws on case studies in air transport operations, in which the private sector has been encouraged to take full / part responsibility for previously state-controlled operations. Cases have been drawn from the UK and New Zealand since these countries have been at the forefront of air transport privatisation, and provide examples of a variety of public/private arrangements and their outcomes. The state cannot avoid uncertainty through such contractual arrangements. The quantified approach to risk sharing has grave limitations under conditions of uncertainty. So, contrary to governments’ espoused expectations, although ownership and some benefits have been transferred, some risk elements have ultimately not been transferred. This is in part due to uncertainties surroundings the future prospects of the privatised entities / PPP’s. Indeed, the loss of control may result in greater risk, as private sector investors can reap the rewards of financial returns if the market remains buoyant, but at the same time they are protected to some extent by the state from the financial risk of losing their investments.