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Airport financing

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.

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Airport financing

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  1. Airport financing An Overview of how Airports Function

  2. 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

  3. Types of Airports • Large and Small • Rural and Remote • Public and Private • Each serves a specific purpose in the Nation’s Air Transportation system

  4. Primary Commercial Service Airports • Divided into four groups • Large hubs: 33 • Medium hubs: 35 • Small hubs: 4 • Nonhubs (between 2500 and 10000 enplanements)

  5. What does my airport do for me • Transportation (fastest way of travel) • Makes the largest impact on intercity and interstate travel and commerce of any form of transportation • Economic growth • Competition • Expansion of markets • Generation of tax revenue which gives back to the community

  6. Airport Expenses • Operation and Maintenance • Employee salaries • Maintenance of airport facilities • Payment for utilities • Purchasing of supplies • Dealing with accidents/incidents and other unexpected day to day expenses

  7. Operating and Maintenance Expenses • Operating expenses fall into one of four categories • Airfield (runway maintenance, lights etc.) • Terminal (cleaning, plumbing, electricity etc.) • Hangars (includes all buildings) • General Administrative expenses (employee salary, leasing of land, liability insurance etc.)

  8. Capital Improvement Expenses • Capital Improvement expenses are periodic expenses that tend to be very large • Expansion or building of a new terminal • Construction of new runways • Purchasing of large equipment such as fire trucks, tow trucks, and other ramp vehicles • Acquisition of land • Noise restraint equipment (insulation of housing)

  9. “If you’ve seen one airport…you’ve seen one airport.” • All airports are unique • Airport systems function differently • Geographical location • Organizational setup

  10. Budgeting • Because airports have a relatively inconsistent flow of funds, they have special forms of budgets. • Most airports operate on one of four forms of budgets. • Lump Sum Appropriation • Appropriation by Activity • Line-item Budget • Zero-based budget

  11. Lump Sum Appropriation • Simplest form of budgeting • Is free of financial restrictions • Maximum flexibility is obtained and it is the job of the operator of the airport • Most commonly seen in general aviation airports with smaller budgets and less needs

  12. Appropriation by activity • Uses 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

  13. Line-item Budget • Most detailed form of budgeting • Adheres to a strict set of rules • Every operating and capital expense is accounted for • Every item is given an numerical code • Constant tracking of each item is followed up with analysis and if necessary change to the budget

  14. Zero-based Budget • Growing in popularity • Theory: “Don’t look back” • Programs are reviewed constantly and then ranked in degree of importance • Actual expenses are constantly being checked against budgeting expenses • This makes the department heads more accountable for what they spend

  15. Airport Revenues • Passenger Facility Charges (PFCs) • A uniform charge that many airports have adopted • Helps in aiding the airport to cover its O&M expenses • Current limit is $4.00 • Expected to go to $7.00 in near future • Really a small price to pay when you think of all the free public services available at airports

  16. Landing Fees • A fee incurred by the airlines • Based on gross landing weight • Helps pay for ground personal and airfield maintenance • Used more extensively under a compensatory cost • This is one way that the airport recovers the actual costs of the facilities and services that the airlines use

  17. Federal Funding / Grants • Federal 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

  18. Airport Improvement Program (AIP) • There are three main goals of this program • maintain that airport system in its current condition • aims to bring all airport systems up to current design standards • expand the current systems Things grant moneys can be spent on: • airport planning, airport development, airport capacity enhancement and preservation, and noise compatibility programs

  19. National Plan for Integrated Airport Systems • Airports must be part of the NPIAS if they wish to receive funding from AIP • The AIP trust fund is made primarily from taxes • The 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

  20. Concessions, Stores, and Specialty shops • Larger Airports have the luxury of space • “Prime business real estate” • Higher fees • Constant traffic • Makes for a great source of internal revenues • The more money an airport can produce internally the less they need federal funding • Reliever airports receive this “overflow”

  21. An Airport’s Relationship with the Airlines • One cannot function without the other • Two basic approaches • Compensatory agreement • Residual cost approach

  22. An Airport’s Relationship with the Airlines • It 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.

  23. 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

  24. Miscelaneous • Parking fees • Ground Transportation • Luggage Carts • Sleeping rooms • VIP and rest lounges (some require membership)

  25. Conclusion • Communities need airports just like airports need airplanes • Many of the benefits of airports go unnoticed by the public • Communities with airports of substantial size are dependant on their airport even if they don’t know it • Nothing is for sure in the Airport industry • The 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.

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