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An Overview of how Airports Function AIRPORT FINANCING.

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Presentation on theme: "An Overview of how Airports Function AIRPORT FINANCING."— Presentation transcript:

1 An Overview of how Airports Function AIRPORT FINANCING

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 Nations 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 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)

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10 If youve seen one airport…youve seen one airport. All airports are unique Airport systems function differently Geographical location Organizational setup

11 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. 1) Lump Sum Appropriation 2) Appropriation by Activity 3) Line-item Budget 4) Zero-based budget

12 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

13 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

14 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

15 Zero-based Budget Growing in popularity Theory: Dont 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

16 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

17 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

18 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

19 Airport Improvement Program (AIP) There are three main goals of this program 1) maintain that airport system in its current condition 2) aims to bring all airport systems up to current design standards 3) expand the current systems Things grant moneys can be spent on: airport planning, airport development, airport capacity enhancement and preservation, and noise compatibility programs

20 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

21 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

22 An Airports Relationship with the Airlines One cannot function without the other Two basic approaches Compensatory agreement Residual cost approach

23 An Airports 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.

24 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

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

26 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 dont 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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