Hands off Massport, says its board chairman

EDITOR'S NOTE: Massport, the quasi-public agency that runs Logan Airport and the Tobin Bridge, has received some bad press lately — just like every other organization that has anything to do with managing transportation in Massachusetts. And it's set to get more scrutiny as the House begins debate on complex transportation reform legislation (which has already cleared the Senate) that, among other things, takes control of the Tobin away from Massport.

But in a Perspective column to appear in the Spring issue of CommonWealth magazine, John Quelch, the chairman of the Massport Board whose term expires this summer, argues that the agency can celebrate its 50th anniversary knowing that it "mirrors the expectations of its founders: an independent, publicly accountable agency that runs like a business." See the full text below. (Disclosure: Massport is a sponsor of MassINC and CommonWealth magazine.)

For more on the history of Massport, the Turnpike Authority, and other semi-public agencies in Massachusetts, read Richard Hogarty's "Questioning Authority," from the Spring 2002 issue of CommonWealth, in which he notes: "Their distinctive virtue is that they are suited to solving particular problems or carrying out specific duties without the encumbrances of day-to-day politics. Their major weakness is that they contribute to the piecemeal character of governing, separating political authority from democratic accountability."

PerspectivesButton Massport: Government that works

By John A. Quelch

Fifty years ago, the Commonwealth of Massachusetts launched a bold experiment in bringing business principles to government when it entrusted its most important transportation facilities to a new agency, the Massachusetts Port Authority. Created by the Legislature in 1956 in response to concern among business, civic, and labor leaders that the Commonwealth’s deteriorating air and sea facilities were jeopardizing the state’s economic future, Massport formally took charge in 1959 of Boston Logan International Airport, the Port of Boston’s public terminals, the Tobin Memorial Bridge, and, in 1974, Hanscom Field.

Today, community activists, business leaders, journalists, and public officials are still debating the nature and responsibilities of this unique “quasi-public” entity, which is not quite a business and not quite a state agency. Just recently the Boston Globe's Noah Bierman asserted that Massport takes great “pride” in its “decidedly different philosophy” of managing its facilities more like a business than a state agency. Even after 50 years the Globe still doesn’t get it: Running Massport like a business isn’t our “philosophy,” it’s our mandate.

The current transportation secretary, James Aloisi, has been quoted as criticizing Massport officials for protecting their “cozy little worlds” and resisting change that would reduce the authority’s independence in favor of transportation reform.

Nothing could be further from the truth. Our bidding and procurement procedures are robust, our hiring and promotion policies prevent patronage appointments, and our board governance standards are second to none. Massport is a model of continuous improvement, striving to be a national leader in safety, security, and environmental issues. There is no room for cozy relationships when the safety of thousands of airline passengers is at stake each day. Unlike the Turnpike Authority, or the MBTA, Massport is not broken. So why try to fix it?

I’ve been chairman of Massport for seven years and a professor at Harvard Business School for more than 25. I am convinced that Massport’s independent, business model mandate makes sense. It is less about politics and more about getting the job done with zero dollars from the state’s general fund. It’s why David Cush, president and chief executive of Virgin America, was able to say at that airline’s launch of service from Boston to the West Coast that “Logan was able to do in six days what we had been trying to do for six months in Chicago.” We moved quickly while O’Hare stalled, and the New England economy will benefit as a result. It’s why, when Gov. Patrick approached us about running transportation assets and absorbing Big Dig debt, we told him the truth: Tunnel tolls would have to increase to $15 by 2025. No gimmicks. No campaign slogans. Just facts.

By putting its critical transportation infrastructure in the hands of a public agency built on market principles, the Massachusetts Legislature hoped to combine the best of two worlds: business efficiency and public accountability. To achieve this mission, Massport was accorded political independence through a seven-member board appointed to staggered seven-year terms by the governor. Massport was given the power to assess rents, fees, and tolls, and to issue revenue bonds, so it would not be a hostage to the ups and downs of the state’s fiscal condition and changing public moods. By putting these assets under a single agency with the financial and political independence to support them, Massachusetts hoped to ease the burden on taxpayers, recover its past airport and seaport investments, and pass responsibility for these critical facilities to an organization with the business and financial wherewithal to sustain itself and compete with other airports and seaports for global business.

The approach has worked remarkably well. Massport is the state’s only transportation entity that has a solid balance sheet and maintains its properties in good condition. Over the last 15 years, we have spent $4.4 billion improving the airport, have catered to consumers and the environment with the world’s first LEED-certified “green” airline terminal, and have contributed to the community, all without any tax support or subsidies from the Commonwealth.

As a business, we monitor cash flow closely. This fiscal year, our parking revenue was down $4.3 million in the first eight months. We cut costs, we froze hiring, and we are looking at more cuts, but we also needed to raise revenue. But sometimes, we make mistakes. We acted as a business, and we went ahead and raised hourly parking rates. But in this case, we should have acted more like a public agency and allowed more time for public input.

Still, despite a hiccup or two, we have maintained a strong AA bond rating from the various bond rating agencies, and we have one of the highest ratings in the country for airports. This helps lower Massport borrowing costs and produces millions of dollars in savings for its customers and aviation partners.
But most important, we have enhanced security, enabling Massport to regain the public’s trust after 9/11 and making the agency a national leader in transportation security. When I arrived at Massport in July 2002, the determination of all Massport board members and employees to make security at Logan (and at all Massport facilities) second-to-none was obvious. That year, the board committed to spending $150 million to build the nation’s first in-line checked baggage explosive detection screening system, even before we had any assurance of federal reimbursement. We did not have to get a political sign-off, nor hold public hearings to do it. We just did it. And Logan was the only major airport in the nation to meet the initial federal deadline for the completion of such a system.

We did not stop there. Security considerations remain paramount. Logan begins each day with an 8:30 a.m. briefing that brings together every agency and organization with security responsibilities to go over the latest intelligence and threat information. Logan has also developed a behavior pattern recognition surveillance program that is a model for other airports around the country. We also created a unique Security Center of Excellence that uses Massport facilities as laboratories to test promising new security technologies. We’ve also had a strong impact on the community.

A 2006 Massport economic impact report noted that the Authority employs more than 18,000 people (more than 16,000 of them in private industry); indirectly supports as many as 100,000 private-sector jobs; contributes nearly $9 billion to the local economy; and provides more than $670 million in tax revenue for state, local, and federal government. We are, like higher education and health care, a pillar of economic activity for the region.

Massport has been called a “power unto itself” that turns a deaf ear to the concerns of nearby communities. In fact, Massport strives to be a good corporate citizen. We have spent more than $150 million soundproofing homes, and another $281 million in payments in lieu of taxes to local governments over the last 25 years. During that period, Boston received $255 million from Massport, more than all of the payments from the city’s colleges and universities combined.

And we’ve done it all with an eye on the consumer.

At the end of the day, Massport is not in the airport business, processing flights. We’re in the people business, delivering experiences. In 2002, we reviewed Massport’s goals and objectives, strengths and weaknesses, and the demands and expectations of our many constituencies. Core businesses — the airport, the seaport, and the Tobin Bridge — were identified as separate “profit and loss centers.” Operational metrics were crystallized for each profit center, metrics that the board and management track closely month to month. Improving on these operational metrics enables us to deliver greater customer satisfaction.

The current economic recession presents Massport with a grave challenge. With 2009 passenger traffic continuing to fall around the nation and across the Atlantic, we continue to work with our airline tenant partners to further trim our costs. Our objective is to ensure that the per-passenger and per-flight fees we charge the airlines are held as close to constant as possible, even as we increase customer service.

Our airport sits on about 1,700 acres of land. We are looking to the future with projects like a consolidated rental car facility — needed so our roadways will not be crowded with rental car company buses in the years ahead. As our terminal space reaches capacity, we have already identified areas on the airport where new gates might be built. The first choice is expanding Terminal E to the west.

Like any sound financial portfolio, Massport derives its strength from diversification. Today, Logan is served by 46 air carriers (including 13 foreign flag carriers) that fly to 70 domestic and 31 international destinations. No single carrier dominates the market. Last year, the new airline produced by the Delta/Northwest merger topped our list, accounting for 21 percent of Logan’s passengers. American Airlines, US Airways, and JetBlue are close behind, each with between 14 percent and 16 percent of the market.

At Logan, when one airline leaves or reduces service, there are others waiting to take its place. That’s because Boston is a large, prosperous, travel-intensive market that’s a great place to do business for any carrier that serves it. And it is because Massport makes sure that, whenever airlines want to do business in Boston, there is space at Logan to accommodate them. Logan leverages its gates for maximum use. If an airline has four flights a day at a gate when others in the terminal are at six or seven flights per gate, we can ask for those underutilized gates back. So, when newcomer Virgin America wants to start service between Boston and the West Coast, Massport stands ready to help them succeed.

Through its 50-year history, Massport has experienced highs and lows. But Massport today mirrors the expectations of its founders: an independent, publicly accountable agency which runs like a business. We are an agency that puts the customer first, and, in so doing, connects New England with the rest of the world. Beacon Hill should make sure it remains that way.

John A. Quelch is chairman of the Massport Board and is the Lincoln Filene Professor of Business Administration and senior associate dean at Harvard Business School. He was previously the dean of London Business School.