Innovative Finance and Alternative Sources of Revenue for Airports (2007) / Chapter Skim
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PURPOSE OF REPORT This synthesis topic was identified by a 10-member panel of industry experts charged with overseeing syntheses of information related to airport problems and was initiated out of concern about challenges to airport operators' ability to finance operations and needed capital improvements in the context of: • Increasing air traffic volumes nationwide and emerging congestion at certain airports necessitating investment in future capacity and other measures. • Uncertainty about the financial health of the airline industry and the actual or potential affect airline bankruptcies may have on air service decisions and airport finances.
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6 Factors Governing Airport Financial Operations Most of the sources of capital available to finance airport improvements have either direct or indirect external restrictions on their use (i.e., federal or contractual restrictions)
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The capital needs of airports are principally driven by: • Traffic growth and the need to expand facilities; • Normal wear and tear of facilities as a result of use and age; and • Changing technology, particularly aircraft technology that over time can render older facilities obsolete. FIGURE 1 Factors governing airport financial services.
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Airport Sources of Funding As indicated earlier, increasing capital investments will be required for airport operators to provide needed infrastructure. The principal sources of funds for airport capital projects include the following, cited from largest to smallest: • Proceeds of bonds and other forms of debt • PFC revenues • AIP grants from FAA • Internally generated capital resulting from retained airport revenues • Security grants from TSA • State grants and local financial support The distribution of airport sources of capital is shown in Figure 2.
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• The amount of PFC revenue collected by airport hub size, which are orders of magnitude larger for large-hub airports than for the other hub sizes. More than $2.2 billion in PFC revenues are collected by airport operators each year.
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Rentals, fees, and charges collected from airlines cover a portion of the operating expenses and debt service incurred by airport operators. Rentals, fees, and charges collected from tenants of airport facilities are also often the primary source of funds for repayment of principal and interest on bonds.
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. State Grants and Local Financial Support Certain states provide funding for airport and aviation-related projects in the form of outright grants or matching share for federal AIP grants.
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After maximizing the use of federal AIP grants and PFC revenues for major capacity-enhancing projects, airport operators can fund capital projects from a combination of debt and equity. Private and/or third-party funding may also make sense for certain types of facilities, such as maintenance facilities, flight kitchens, and cargo facilities.
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