💰 AIRPORT FINANCIAL MANAGEMENT FLASHCARDS

Airport Financial Accounting

Purpose is to track expenses, allocate resources, and inform decisions

Why accounting systems are important

Helps with financial statements, cost control, and pricing decisions :contentReference[oaicite:0]{index=0}

Operating Expenses (Airfield)

Runways, taxiways, lighting, maintenance, equipment

Operating Expenses (Terminal)

Buildings, utilities, parking, baggage systems, concessions

Operating Expenses (Hangars/Cargo)

Maintenance, utilities, access roads, employee parking

Other Operating Expenses

Staff salaries, debt interest, depreciation

Liability Insurance

Covers risks from accidents and damages

Why liability is important

Airports can be held responsible for safety failures

Major liability areas

Aircraft operations, premises, product sales

Examples of liability

Runway defects, poor markings, failure to warn hazards

Airport Liability Coverage

Bodily injury, property damage, contractual liability

Who is responsible for safety

Airport operators (courts hold them accountable)

Operating Revenue Categories

Airfield, terminal concessions, airline leases, other leases, other revenue

Airfield Revenue

Landing fees, hangar parking, tie-down fees

Terminal Concessions

Food, retail, personal services, advertising

Outside Terminal Revenue

Parking, rental cars, hotels

Airline Leased Areas

Cargo, offices, hangars, ticket counters

Other Revenue

Utilities contracts, interest income, leasing property

Airport Budgeting

Process of planning short-term and long-term financial decisions

Purpose of budgeting

Set performance standards and improve operations

Lump Sum Budget

Flexible budget by activity

Line-Item Budget

Detailed budget based on categories

Zero-Based Budget

Build budget from scratch and justify all costs

Airport Use Agreements

Legal agreements between airports and airlines

Residual Cost Approach

Airlines cover all costs not paid by other revenue

Risk in Residual Approach

Airlines assume financial risk

Benefit of Residual Approach

Airport guaranteed to break even

Compensatory Approach

Airlines pay only for facilities they use

Risk in Compensatory Approach

Airport assumes financial risk

Net Income Strategy

Revenue above expenses improves financial performance

Residual vs Compensatory

Residual = stable; Compensatory = more profit potential

Majority-In-Interest Clause

Airlines can approve or reject airport investments

Why MII exists

Protect airlines from high costs

Term of Use Agreement

Length of airport-airline contracts (often 20–30 years)

Pricing Strategy (Airports)

Based on cost recovery

Landing Fees

Based on aircraft weight and usage

What affects landing fees

Non-aeronautical revenue levels

Terminal Concessions Pricing

Based on rent + percentage of revenue

Market Pricing Strategy

Prices based on demand, not captive audience

Parking Revenue

Short-term (higher cost), long-term (lower cost)

Car Rental Revenue

Base rent + % of revenue + customer facility charge (CFC)

Advertising Revenue

Uses digital displays to increase income

Revenue Diversification

Multiple revenue sources increase stability

Largest Revenue Sources

Landing fees, concessions, parking

Airport Financial Burden

Charges per passenger increasing

Why costs are rising

Government mandates, facility upgrades, airline needs

Airport Funding Sources

Federal/state grants, bonds, private investment

Airport Improvement Program (AIP)

Main federal funding program (1982)

AIP Funding Uses

Planning, development, capacity, noise reduction

AIP Funding Source

Airport and Airway Trust Fund

AIP Taxes

Ticket tax, segment tax, international tax, cargo tax, fuel tax

AIP Eligibility

Airport must be in NPIAS

AIP Cannot Fund

Hangars, parking lots, landscaping

AIP Grant Types

Apportionment, set-aside, discretionary

Discretionary Funding Ratio

Typically 80% federal / 20% local

Passenger Facility Charges (PFC)

Fee charged to passengers for airport improvements

PFC Uses

Capacity, safety, security, noise reduction

Other Federal Funding

F&E program (funds equipment like control towers)

Letter of Intent (LOI)

Future funding promise (not guaranteed)

State Funding Sources

Taxes, fuel fees, aircraft registration

Grant Assurance

Funds must follow regulations

Airport Bonds

Main method of financing large projects

General Obligation Bonds

Backed by government taxes

Revenue Bonds (GARB)

Backed by airport revenue only

Special Facility Bonds

Backed by specific facility revenue

Bond Ratings

AAA (best) → BBB (medium risk)

What ratings indicate

Ability to repay debt

Private Investment

Focus on terminals, rental cars, cargo facilities