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Airport financing. An Overview of how Airports Function. What makes an airport so great?. An economic cornerstone in our community Job creation (KSLC is a perfect example) Supports commerce Is a creator of business Encourages tourism Ease of travel for members of the community. - PowerPoint PPT Presentation
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An Overview of how Airports Function
AIRPORT FINANCING
What makes an airport so great?An economic cornerstone in our
community
Job creation (KSLC is a perfect example)Supports commerceIs a creator of businessEncourages tourismEase of travel for members of the
community
Types of AirportsLarge and SmallRural and Remote Public and PrivateEach serves a specific purpose in the
Nation’s Air Transportation system
Primary Commercial Service AirportsDivided into four groups
Large hubs: 33
Medium hubs: 35
Small hubs: 4
Nonhubs (between 2500 and 10000 enplanements)
What does my airport do for meTransportation (fastest way of travel)Makes the largest impact on intercity and
interstate travel and commerce of any form of transportation
Economic growthCompetitionExpansion of marketsGeneration of tax revenue which gives
back to the community
Airport ExpensesOperation and MaintenanceEmployee salariesMaintenance of airport facilitiesPayment for utilitiesPurchasing of suppliesDealing with accidents/incidents and other
unexpected day to day expenses
Operating and Maintenance ExpensesOperating expenses fall into one of four
categoriesAirfield (runway maintenance, lights etc.)Terminal (cleaning, plumbing, electricity
etc.)Hangars (includes all buildings)General Administrative expenses
(employee salary, leasing of land, liability insurance etc.)
Capital Improvement ExpensesCapital Improvement expenses are
periodic expenses that tend to be very large
Expansion or building of a new terminalConstruction of new runwaysPurchasing of large equipment such as
fire trucks, tow trucks, and other ramp vehicles
Acquisition of landNoise restraint equipment (insulation of
housing)
“If you’ve seen one airport…you’ve seen one airport.”All airports are uniqueAirport systems function differentlyGeographical locationOrganizational setup
BudgetingBecause airports have a relatively
inconsistent flow of funds, they have special forms of budgets.
Most airports operate on one of four forms of budgets.
1) Lump Sum Appropriation2) Appropriation by Activity3) Line-item Budget4) Zero-based budget
Lump Sum AppropriationSimplest form of budgetingIs free of financial restrictionsMaximum flexibility is obtained and it is
the job of the operator of the airportMost commonly seen in general aviation
airports with smaller budgets and less needs
Appropriation by activityUses a set of guidelines that directs how
much money is allocated to various work areas
Examples of work areas are: Fire Department, Ground control, Terminal service, Security, bagage handling
Although there are limitations placed on various departments, those limitations are subject to change
The result is a moderate amount of flexibility
Line-item BudgetMost detailed form of budgetingAdheres to a strict set of rulesEvery operating and capital expense is
accounted forEvery item is given an numerical codeConstant tracking of each item is followed
up with analysis and if necessary change to the budget
Zero-based BudgetGrowing in popularityTheory: “Don’t look back”Programs are reviewed constantly and
then ranked in degree of importanceActual expenses are constantly being
checked against budgeting expensesThis makes the department heads more
accountable for what they spend
Airport RevenuesPassenger Facility Charges (PFCs)A uniform charge that many airports have
adoptedHelps in aiding the airport to cover its
O&M expensesCurrent limit is $4.00Expected to go to $7.00 in near futureReally a small price to pay when you think
of all the free public services available at airports
Landing FeesA fee incurred by the airlinesBased on gross landing weightHelps pay for ground personal and airfield
maintenanceUsed more extensively under a
compensatory costThis is one way that the airport recovers
the actual costs of the facilities and services that the airlines use
Federal Funding / GrantsFederal Funding is a primary source of
income for primary commercial service airports
Private investing is not unheard of but it is rare
There are a number of elegibility requirements for federal funding
Most of these requirements are tied to how large an airport is and how many annual enplanements it has
Airport Improvement Program (AIP)There are three main goals of this program1) maintain that airport system in its current
condition2) aims to bring all airport systems up to current
design standards3) expand the current systems
Things grant moneys can be spent on: airport planning, airport development, airport
capacity enhancement and preservation, and noise compatibility programs
National Plan for Integrated Airport SystemsAirports must be part of the NPIAS if they
wish to receive funding from AIPThe AIP trust fund is made primarily from
taxesThe specific moneys that go into the fund
are collected from those who AIP benefits directly
10% airline ticket tax, a $6.00 international departure fee, a $0.15 tax on AvGas
Based on the number of enplanements funds are allocated accordingly
Concessions, Stores, and Specialty shopsLarger Airports have the luxury of space“Prime business real estate”Higher feesConstant trafficMakes for a great source of internal
revenuesThe more money an airport can produce
internally the less they need federal funding
Reliever airports receive this “overflow”
An Airport’s Relationship with the AirlinesOne cannot function without the other
Two basic approaches
Compensatory agreement
Residual cost approach
An Airport’s Relationship with the AirlinesIt is very important that a sound
relationship exists between the two counterparts if either is to survive.
Each has to give and each has to take.
Who is responsible for financial stability?With a compensatory cost approach it is the
airlines who assume the financial risk
With a residual cost approach one or more major air-carriers based at that hub accept responsibility
Residual cost approach normally found in long-term relationships
There is a gradual shift towards the compensatory cost approach
MiscelaneousParking fees
Ground Transportation
Luggage Carts
Sleeping rooms
VIP and rest lounges (some require membership)
ConclusionCommunities need airports just like airports need
airplanesMany of the benefits of airports go unnoticed by the
publicCommunities with airports of substantial size are
dependant on their airport even if they don’t know itNothing is for sure in the Airport industryThe key to running a financially sound airport comes
down to proper planning, proper knowledge, proper resources (both people and supplies), and a willingness to take things as they come, realizing that that is the nature of the beast.