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Airlines' Privatisation in Europe: Fully versus Partial Divestiture

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  • Alfredo Macchiati

    () (University of Rome "Tor Vergata" and Ferrovie dello Stato)

  • Giovanni Siciliano

    () (CONSOB, Roma)

Abstract

We study the experience of the three fully privatised European airlines: British Airways, Lufthansa and Iberia. All airlines have undergone a deep restructuring much before (and in view of) the privatisation, with the state bearing most of the related financial cost (especially in the cases of Lufthansa and British Airways), and have taken over (before, after or in the same year of the privatisation) their main domestic competitors. Following full privatisation, labour productivity (particularly for Iberia and Lufthansa) and profitability increase compared to other major European state-controlled airlines; production capacity grows compared to the pre-privatisation period, as well as average salaries (though reflecting the increased labour productivity). Preliminary evidences from stock returns show that investors do not seem require a premium for political risk to invest in shares of fully privatised airlines. In general, these results imply that government ownership in the airline industry can be detrimental, at least to firms’ efficiency, while full privatisation does not seem to expose private shareholders to significant political risk.

Suggested Citation

  • Alfredo Macchiati & Giovanni Siciliano, 2007. "Airlines' Privatisation in Europe: Fully versus Partial Divestiture," Rivista di Politica Economica, SIPI Spa, vol. 97(1), pages 123-156, January-F.
  • Handle: RePEc:rpo:ripoec:v:97:y:2007:i:1:p:123-156
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    References listed on IDEAS

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    1. repec:hrv:faseco:33077889 is not listed on IDEAS
    2. Ehrlich, Isaac & Georges Gallais-Hamonno & Zhiqiang Liu & Randall Lutter, 1994. "Productivity Growth and Firm Ownership: An Analytical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 1006-1038, October.
    3. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Privatization and Incentives," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 84-105, Special I.
    4. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-859, September.
    5. Narjess Boubakri & Jean-Claude Cosset, 1998. "The Financial and Operating Performance of Newly Privatized Firms: Evidence from Developing Countries," Journal of Finance, American Finance Association, vol. 53(3), pages 1081-1110, June.
    6. Juliet D'souza & William L. Megginson, 1999. "The Financial and Operating Performance of Privatized Firms during the 1990s," Journal of Finance, American Finance Association, vol. 54(4), pages 1397-1438, August.
    7. Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 133-150, Fall.
    8. Massimo Florio, 2006. "The Great Divestiture: Evaluating the Welfare Impact of the British Privatizations, 1979-1997," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262562227, March.
    9. Eckel, Catherine & Eckel, Doug & Singal, Vijay, 1997. "Privatization and efficiency: Industry effects of the sale of British Airways," Journal of Financial Economics, Elsevier, vol. 43(2), pages 275-298, February.
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    More about this item

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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