C

Ch 09 PT 2 Financial Management

Airport Parking Revenues

  • Generated by hourly/daily rates

  • Short Term Parking

    • Higher rates discourage long-term use of premium space.

    • Goal is to maximize revenue.

  • Long Term Parking

    • Lower rates accommodate long-term parking needs.

    • Facilities located farther from the terminal.

Car Rental Revenues

  • Base rents established for facility usage.

  • A percentage of revenues is taken from rental agreements.

  • Customer Facility Charge (CFC) is an add-on fee per rental car transaction.

    • This fee funds the development of Consolidated Rental Car Facilities (CRCFs).

Advertising Revenues

  • Focus on increasing non-aeronautical revenue sources.

  • Implementation of new technology (LED) allows for dynamic and changeable advertisements.

Airline Leased Areas

  • Rental rates guided by:

    • In-use agreements, individual leases.

    • Local ordinances and resolutions.

  • Lease types may include:

    • Exclusive-use

    • Preferential-use

    • Shared-use

  • Some airports offer long-term leases, allowing carriers to finance their own facilities.

Cost Agreements in Leased Areas

  • Residual Cost Agreement:

    • Term for leased areas generally coincide with term of the airport use agreement

  • Compensatory Agreement:

    • Rental rates calculated based on recovery of actual costs of space occupied.

Other Leased Areas

  • Categories include:

    • Agricultural land

    • FBOs (Fixed Base Operators)

    • Cargo terminals

    • Industrial parks

  • Rate calculations and adjustments vary, typically market-based.

Variation in Sources for Operating Revenue

  • Revenue diversification enhances financial stability.

  • Landing Fees and Terminal Concessions are based on traffic volume.

  • Airline terminal rentals and ground leases are essentially immune to fluctuations in air traffic

Revenue Base by Airport Size

  • Larger commercial service airports generally have a more diversified revenue base compared to smaller General Aviation (GA) airports.

  • Terminal concessions gain proportionally more revenue with increased passenger enplanement traffic.

    • Typically account for 1/3 of revenue across large, medium, and small airports.

Parking Facilities Revenue

  • Significant revenue stream, especially for airports with a high number of transferring passengers who generate lower parking-related income.

Rise in Airport Financial Burdens

  • Passenger charges have more than doubled in 20 years.

    • Significant increases in rent costs, now exceeding landing fees (more than double).

  • Limited new runway constructions, contrasted with many expensive terminal expansions/upgrades.

Future Financial Predictions

  • Fares expected to decline, with a highly competitive industry landscape.

  • Burdens largely from government mandates and outdated facility replacements.

  • Changing airline demand patterns must be anticipated.

Airport Funding Sources

  • Capital improvements for major construction and technology improvements have historically exceeded available revenues.

  • Dependence on three main funding sources:

    • Federal and State grant programs.

    • Bond issues.

    • Private investments.

Grant Programs Historical Context

  • 1970: Planning Grant Program & ADAP (Airport Development Aid Program):

    • Expired in 1981.

  • 1982: Airport Improvement Program (AIP):

    • To provide a unified assistance program funded through the Airport and Airway Trust Fund.

AIP (Airport Improvement Program, 1982) Fund Usage

  • Four general purposes for AIP funds:

    • Airport planning.

    • Airport development.

    • Enhancing airport capacity.

    • Noise compatibility programs.

Funding Eligibility and Projects

  • Trust Fund relies on user fees and taxes

  • Airports must be part of NPIAS to qualify for federal funds.

  • Planning Projects:

    • Can be area-wide or individual, addressing current and future needs.

  • Development Projects:

    • May include construction, repairs, land acquisition.

Restrictions on AIP Funds

  • Cannot be used for hangars construction, parking areas, art objects, decorative landscaping.

AIP Fund Categories

  • Projects that significantly improve capacity allowing the system to better accommodate service demands

  • Funds categorized as:

    • Apportionment

    • Set-aside

    • Discretionary

Fund Allocation

  • Apportionments:

    • For Primary Airports, based on annual enplanements and aggregate landed weight of all cargo aircraft weight.

  • Set-Asides:

    • Allocated according to congressional mandates or specific program requirements, ensuring that funds are directed towards projects that align with national priorities.

      • All 50 states have them

      • includes minimum funding for Alaska.

  • Discretionary Grants:

    • For projects meeting congressional goals of capacity, safety, and security.

    • Funds typically 80/20

Passenger Facility Charges (PFCs)

  • Airports may charge fees of $1, $2, or $3 per passenger on domestic, territorial, or international flights for enplaned tickets.

    • Maximum of 2 charges may be made on a passenger

      • AIR-21 allows for charges up to $4 or $4.50.

  • Funds may be used to enhance capacity, safety, or noise reduction efforts.

Other Federal Revenue Sources

  • Facilities & Equipment (F&E):

    • Covers costs for NAVAIDS and control towers at 100%.

  • LOIs (Letters of Intent):

    • FAA signals future federal funding intentions; not legally binding. Potential for budget cuts.

    • Bear the risk that congress may delay or even fail to grant reauthorization of AIP funding

    • Future budget cuts may limit discretionary funding for various projects, impacting our ability to move forward with planned initiatives and potentially affecting overall financial stability.

State Grant Programs

  • Funded by the state's general tax base.

  • Examples include:

    • Aircraft registration fees.

    • Aircraft excise tax.

  • State grants can supplement federal funds (e.g., 90/5/5).

  • Block Grant: where State’s administer federal apportionment funds to state airports as they see fit to improve local aviation infrastructure and services, ensuring that the needs of each community are met effectively.

Grant Assurances

  • Funds will be used in accordance with rules, regulations, design standards and operational policies

    • 1) General Federal Requirements: It will comply with all applicable Federal laws, regulations, executive orders, policies, guidelines, and requirements as they relate to the application, acceptance and use of Federal funds for this project including

    • 24) Fee and Rental Structure: It will maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection.

    • 25) Airport Revenues: All revenues generated by the airport and any local taxes on aviation fuel established will be expended by it for the capital or operating costs of the airport; the local airport system; or other local facilities which are owned or operated by the owner or operator of the airport and which are directly and substantially related to the actual air transportation of passengers or property; or for noise mitigation purposes on or off the airport.

Airport Financing Overview

  • Bond financing is a major revenue source.

    • From 1999-2001, $12 billion funded capital improvements, with $6.9 billion from airport bonds.

    • Distribution: 90% large/medium airports, 9% small commercial airports.

General Obligation Bonds (GOB)

  • Issued by states, municipalities to finance large public works projects

    • Tied to the full faith and credit of the issuing agency.

    • Typically, lower interest rates.

  • Self-liquidating bonds sufficient revenue is available from the operation to cover the debt service

  • Generally 10-15 years

General Airport Revenue Bonds (GARB)

  • First issued in Dade County for $2.5 million.

  • Important for financing large projects.

  • 25-30 years

  • These bonds are backed by the revenue generated from airport operations, such as landing fees and concessions, ensuring a reliable source of repayment. Additionally, they are often tax-exempt, making them an attractive investment option for bondholders.

  • Used predominately by large airports

  • Secured solely by revenue generated by airport operations

Bond Terms

  • General Airport Revenue Bonds (GARB) typically span 25-30 years;

  • Government bonds shorter, about 10-15 years.

Special Facilities Bonds

  • Secured by indebted facilities (e.g., hangars, terminals, maintenance facility, etc.)

Bond Ratings

  • Best Grade: Aaa or AAA

    • Exceptionally strong capacity to pay interest

    • Low degree of risk

  • High Grade: Aa to AA

    • Very strong capacity to pay interest

    • Slightly less secure than Best

  • Upper Medium Grade: A1 or A

    • Well protected

    • More susceptible to economic changes.

  • Medium Grade: Baa and lower

    • Lack outstanding investment characteristics

    • Adequate protection, but with speculative risks that impair ability to pay interest and principal

Private Investment Areas

  • Focus predominantly on terminal and ground access projects.

  • Includes:

    • Passenger and terminal buildings.

    • Rental car facilities.

    • Aircraft service facilities.

  • Fewer private investments for airfield facilities.