 Overriding Principles  Asset allocation  Cost allocation

 Activity based allocation processes form the base of all allocations  Allocations cannot exceed 100% of total airport assets or costs  The Airport Authorities Act establishes the framework for allocation to identified airport activities  Information disclosure requirements are not determinative for pricing consultation – that is, what is in the asset base for disclosure may not be replicated for pricing  The allocation process while broadly similar for each airport must accommodate the individual circumstances of each airport eg. shared use v separate terminals, stage of construction development, drivers for past construction or commercial agreements

 Assets are grouped within main asset types for external reporting  Assets are componentised to meet requirements of financial reporting standards ◦ Land broken down by area of use. Underground services separately recorded as civil assets. ◦ Building assets comprise structure and different fit out categories such as partitioning, plumbing, electrical works, lighting etc ◦ Civil assets recognise the components of sealed surfaces including platform, base case and overlay as examples  Assets are allocated individual codes which relate to business activities  Assets not directly attributable are initially recorded as overhead or shared assets

 Airfield  Specified Passenger Terminal  Aircraft & Freight  Non-specified (contestable) terminal  Commercial property  Travel and Information  Transport activities including car parking  Infrastructure  Maintenance  Administration Identified Activities as per Disclosure Regulations 1999 Commercial Activities Overhead Activities to be allocated to Identified and Commercial activities Activities

 All assets are allocated a business activity code  Assets are aggregated to determine the total directly allocated assets to each business activity  Shared or common assets allocated to business activities ◦ Where possible shared assets are allocated on consumption, value or cause related factors. For example:  Common facilities within terminal are allocated between specified airport activities and contestable businesses – allocation bases include share of terminal floor space or terminal value  Usage of access roads can be applied based on assessed usage of the road by different activities or as an overhead with a more generic allocation based on, for example, value of directly allocated assets ◦ Remaining overhead assets can be allocated on a share of area, percentage or value basis to business activities – includes corporate or maintenance assets

 Depreciation and revaluation assumptions reconsidered by valuers at each valuation  Consideration given to expected future use of assets  Valuers consider assets at componentised levels  Allocation of depreciation and revaluations determined by methodology for allocation of underlying assets

 All transactions (Revenue and Costs) are allocated within general ledgers to business codes or cost centres  Cost centres or aggregation of business codes represent initial direct allocation of costs to business activities  Consideration then given to consider allocation of overheads and common costs

 Prior to allocation all transactions in overhead activities are reviewed to identify any direct costs that can be allocated to business activities  Any such costs are allocated manually to the business activity costs

 Remaining overhead costs then allocated on a general allocation basis depending on nature of cost. Examples are: ◦ Maintenance Overhead – expenditure is allocated using the maintenance costs already directly allocated to other business activities as the driver. ◦ Administration Overhead – expenditure is allocated using the total costs already allocated to business activities (including those costs allocated in the maintenance allocation) or the common cost rule based on terminal space. ◦ Terminal – income and expenditure allocated according to physical area, or asset value, of the specified and non-specified terminal ◦ Operation salaries – allocated according to estimate of time spent by operations staff on each business activity

 All company assets, deprecation and costs are allocated to business activities such that: Airfield, Specified Passenger Terminal, Aircraft & Freight + Non-specified terminal, Travel and Information, Vehicle business including car parking, Commercial property =Total Company

 The airport allocation processes are complex and detailed  The specific allocation processes need to be addressed with each airport  Commission staff are welcome to contact the airports directly to address their specific allocation models