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What is it meant when an airport is owned by a Municipality?
An airport operated completely by a municipality, such as a city or county, means that the airport is a division or department of the city or county. The Airport Executive may report directly to the mayor or city council, or in the case of a county owned airport, county commissioners.
State the advantages of being owned by a Municipality.
- The advantages are that costs are shared by other public entities such as police, fire and public works.
- The advantage of an airport being municipally owned is that the airport administration has access to the resources of other city or county departments. Having such access reduces the requirement of the airport department to provide duplicate services such as personnel, finance, or police. The municipal government also has the power to tax and issue government bonds to aid in the operation of an airport.
State the disadvantages of being owned by a Municipality.
A disadvantage of operating an airport by a municipality is that the policy-makers are often very unfamiliar with the operation of an airport. An option for a municipality in these cases is to create an Advisory Board to review requests from airport staff and prepare action recommendations for the Mayor or Council. Also, that profits and revenue gains my be shared with other public entities.
What is an Airport Authority?
Airport Authorities are independent public agencies created by state legislation. Once created, they are another layer of government.
What are some reasons that Municipality's create Airport Authority's?
Airport market or service areas have outgrown the political jurisdiction whose responsibility the airport entails.
Authority control of an airport allows for the governing board to concentrate and specialize on airport business matters rather than general social or community issues not related to airports.
Efficient operation and economies-of-scale can be obtained when several political jurisdictions, each with separate airport responsibilities, choose to combine these responsibilities under one governing board.
Authorities can provide the on-scene decision makers that result in less political impact on the business of running the airport.
Authorities can provide multiple jurisdictions that may benefit from or be impacted by the airport with representation in the airport’s operation and development.
Why is it good to be an airport authority or port authority?
The creation of an airport or port authority is often viewed as a way to provide the advantage of focused leadership and specialized attention to a significant community asset.
Authorities can also provide for a more business focused efficient operation and economy of scale.
What are some disadvantages to a Port Authority or Airport Authority?
The disadvantage of airport or port authorities is that resources and finances may not be readily available in the quantities or level necessary to provide support to the airport.
What is a Port Authority?
Under this system, airport manangment reports to the head of the Port Authority who also often oversees the Marine Facilites and other related departments. This system allows for independent decsion making by transportation offcials. However, the airport may sometimes take a back seat to the Porth Authority other operations or may even provide a subsidy for other Port Authority operations.
What is a Grant Assurance?
When airport owners or sponsors, planning agencies, or other organizations accept funds from FAA-administered airport financial assistance programs (e.g., AIP grant) they must agree to certain obligations or assurances. These obligations require the recipients to maintain and operate their facilities safely and efficiently and in accordance with specified conditions. They address an airport’s responsibilities during a project and establish continuing obligations for a period of up to 20 years, or for the useful life of the facilities developed or the equipment acquired.
Explain Grant Assurance #25.
Grant Assurance #25 Airport Revenues restricts the use of airport revenue generated by the airport and local taxes on aviation fuel to be expended for the capital or operating costs of the airport, the local airport system, or other facilities owned or operated by the airport sponsor which directly and substantially relate to the actual air transportation of passengers or property, or noise mitigation efforts.
What may airport revenue be used for?
- 1. Capital or operating costs of the airport, the local airport system or other facilities directly and substantially related air transportation;
- 2. Promotional expenditures designed to increase air travel at the airport; stimulate new air service and competition at the airport and airport marketing expenses;
- 3. Cooperative airline–airport marketing expenses promoting air service;
- 4. Reimbursements to sponsors of capital or operating costs;
- 5. Support of community activities or organizations that are directly and substantially related airportmoperations;
- 6. Certain mass transit airport access projects located entirely on airport property;
- 7. Costs incurred by government officials for services to the airport;
- 8. Lobbying and attorney fees used to support any activity or project consistent with these policies.
What does Disadvantaged Business Enterprise mean?
Means a small business concern that is at least 51% owned and controlled by one or more socially and economically disadvantaged individuals, including women.
All airport sponsors are required to meet the following four general requirements when it comes to DBE?
- 1. A policy and obligation statement must be included in all contracts between the sponsor and any contractor.
- 2. Each contractor is to be advised that failure to carry out the requirements of the DBE regulations constitutes a breach of contract.
- 3. The airport cannot enter into a long-term (5 years or more) exclusive lease with non-minorities, unless the FAA concurs that local circumstances warrant this and the sponsor and the lessor provide for adequate DBE participation throughout the term of the lease.
- 4. The airport is to ensure lessees practice nondiscrimination in their activities and provide DBE participation in their leases in order to meet the airport’s goals.
Name some aeronautical revenues.
Aeronautical revenue includes landing fees, land leases, terminal and hangar rents, tie-down rents, fuel tax, and fuel sales.
What are some non-aeronautical revenues?
Non-aeronautical revenue includes non-airport facilities such as land rent received from an off-airport industrial park that is owned by the airport, rental car operations, parking and concession sales. Additionally, some airports receive non-aeronautical revenue from the rental of airport property for purposes completely unrelated to aviation, such as agricultural (farming), golf courses, light industrial parks, gaming, advertising, and racetracks.
What is a Majority-In-Interest clause?
MII clauses give signatory airlines the ability to influence capital projects undertaken at the airport by giving them the right to approve or disapprove proposed projects, depending upon how the agreement is structured.
Generally, one of two different methods is used for determining airline rates and charges structure, what are they?
Either the residual or the compensatory approach.
What is the residual method in determining rates?
Under the residual method, the financial risk is transferred to the airlines in return for a negotiated limit on an airport’s profits. This is referred to as the “single-cash register” approach. Once the airport’s costs are determined, non-airline revenues (excluding airline fees) are subtracted from these costs to determine additional revenue that is needed for the airport to cover its costs.
What is the compensatory rate methodology.
This is whereby the airport assumes the underlying financial risk of operating the airport, but retains all profits for its own use.
What is the cost-of-service method?
Fees and charges are set for each revenue producing cost center so that the charges cover the costs of operation.
What are the benefits of a compensatory agreement?
The benefits of a compensatory agreement are that it allows the airport operator to manage facilities as a business enterprise; it provides incentives and financial reward for good management; it permits discretionary use of surplus monies within limits; and it provides a greater degree of flexibility in managing the airport.
What are some different ways to assign value in a rate?
Minimal Annual Guarantee (MAG), Fair Market Value, Net Gross Revenue per sq ft, Net Gross Revenue per enplaned passenger, comparative analysis, rate surveys, appraisals, % of gross revenues
What are the are four types of lease agreements?
The straight lease; the graduated lease; the revaluation lease and the percentage lease.
- The straight lease remains constant
- throughout its term. The graduated lease provides for changes in rents and fees at previously arranged intervals. The revaluation lease provides for periodic valuations of the property and rent adjustments to current values (which can sometimes go down). The lease percentage calls for rents equivalent to a percentage of business sales, which are common in concession lease agreements.
What is a Revenue bond?
Revenue bonds are issued by a state or local government or by an airport authority, commission, special district, or other unit having the required statutory authority. They are based on the philosophy that facilities should be paid for by those who use them and are backed by the revenue from the issuing agency. Consequently, they do not usually require voter approval or constitute debt within the constraints of a municipality’s maximum obligations of allowed taxpayer debt. An advantage of revenue bonds over G. O. bonds is that they can be issued for a longer period of time, often 25-30 year terms, resulting in lower monthly debt payments.
What are General Obligation Bonds?
General Obligation (G. O.) bonds are issued only by states, municipalities, and other authorized general-purpose governments. These bonds, which usually require voter approval, pledge the full faith and credit of the bond issuer as security to the investor. This means the issuer is providing its pledge to support the bonds as necessary to meet the debt service requirement. This is accomplished through a government’s ability to levy property, sales, or income taxes. In addition, G. O. bond issuers give bondholders first claim on monies in the issuer’s general fund. The community also pledges the ability to pass any legislation needed to increase general fund revenues to pay the debt service. A key advantage of general obligation bonds is that they typically can be issued at a lower interest rate than can other types of bonds due to the community guarantee.
What are Airport Revenue Bonds?
Airport Revenue Bonds (ARB) is a tax-exempt bond issued by a city, state, country or airport authority, which is guaranteed and based on general revenues of the airport or leasing payments made by an airline to rent a facility. These types of bonds are issued when the airport is seeking money to fund an expansion or help maintain current operations. Payment for airport revenue bonds may also be contingent on the well-being of privately held companies. This type of backing poses a risk for investors because if the company runs into financial hardships, the investors may not be able to recoup funds invested.
What are PFCS?
“passenger facility charges” (PFC) are levied on the ticket, collected by the airlines, and forwarded to the airport (less a handling charge by the airlines). Revenue from PFCs is to be used to preserve or enhance safety, security, capacity, reduce noise, and to enhance competition among carriers. The ASCEA included a stipulation that the maximum PFC charge on any one passenger travel ticket is $12 total. In 2000, this limit was increased to $4.50 per segment, with a round-trip cap of $18.00.108 A project for a medium or large airport is eligible for PFC funding at levels of $4 or $4.50, only if the project will make a significant contribution to: improving air safety and security; increasing competition among air carriers; reducing current or anticipated congestion; or reducing the impact of aviation noise on people living near the airport. In 2007, the Airport Council International-North America recommended to Congress that PFCs should be raised to $7.50 per route segment.
What does a medium to large airport have to give up when they make PFC's $4.50?
They have to forgo 75% of the AIP entitlement funds.
PFC revenues are to be used for what?
(1) any AIP eligible development or planning project, (2) noise compatibility projects, (3) gates and related areas for movement of passengers and baggage, (4) access projects on airport property, and (5) construction, reconstruction, repair or improvement of areas of an airport used for the operation of aircraft or compliance with the responsibilities under the Americans with Disabilities Act, the Clean Air Act, or the federal Water Pollution Control Act. Projects may also be for any other airport under the control of the petitioning public agency, and may include eligible development in a capital improvement program or a new airport.
What is the process when using PFC's for a project?
List the projects, they must fall under improving the airport in safety, security, capacity, competition, and noise, then provide notice to the airlines and negotiate with airline for a handler fee, then submit a PFC App and project list to FAA, then have open PFC discussions with the public, then FAA will approve.
What are some sources for Capital Projects are airports?
- Airport Cash Flow (rates and charges, concession revenue, rentals, fees, etc.) Revenue and General Obligation Bonds, Hybrid bonds Airport Improvement Program (AIP) Grants Passenger Facility Charges (PFCs)
- State and Local Grants FAA Discretionary Funds
List the parties involved in the Bond Sale process?
- Airport Finance and Airport Legal, Credit Rating Agency, Consultant (financial adviser), Underwriter
- Also possibly tax payers for General Obligation bonds and at large airports Bond Council and Underwriting Council
What are some sources to fund non-aviation revenue?
Concessions, Parking Revenue, Property Rental, Oil on property, Advertising, Rental Cars, Golf Courses
What does the RFP process include?
- 1. Develop an RFP package, including facility specifications, proposer’s
- minimum experience level, proposers financial history, lease terms, minimum annual guarantees or percentages of revenues (if applicable),
- 2. limitations on use of facility, operating hours/days and other pertinent requirements of a lessee.
- 3. Advertise according to localpractices and legal requirements for concession opportunities at the airport.
- 4. Direct mail to those concessionaires that have previously expressed
- interest or whom you wish to attract.
- 5. Send out specifications at least two weeks before a pre-proposal meeting. Include in proposal specifications an invitation to proposal, a proposal form, the proposed contract, and any other standard requirements such as a qualification form or proposal bond form.
- 6. Hold a pre-proposal conference to explain the procedures, review the requirements, inspect the premises, and respond and resolve questions and concerns.
- 7. Send out a report or minutes of the pre-proposal conference to all respondents to the Request for Proposals (RFP).
- 8. Receive proposals and open at designated place and time.
- 9. Review proposals for compliance with specifications. Perform due diligence on top ranked proposers.
- 10. Award proposal to most responsive proposer.
- 11. Execute contract/lease.
- 12. Monitor new operation for compliance with lease terms. Address deviations/defaults as necessary.
In formulating an operating budget, four important tasks must be addressed, what are they?
(1) plan for the operational needs of the organization, (2) obtain resources from the airport’s operating environment, (3) distribute those resources throughout the organization, and (4) track the resource expenditures to ensure they are used effectively and efficiently.
Explain the phases of the budget cycle.
Prepare the budget, submit budget to air carriers and legislative body, execute budget, and perform audits
As it relates to budgets airport revenues are divided at many airports into what four functional areas?
Airfield, Terminal, Land-side and General or General Admin
What are some budgeting techniques?
Traditional Budgeting, Capital budgeting, Performance-based budgeting, Level of service approach, Unit cost approach, Activity-based budgeting, Program plan budgeting, Revenue/cost-centered budgeting, Line-Item Budgeting
Expenses are classified as what?
As operating (including maintenance) or non-operating, depending on how they are incurred. Non-operating expenses include the payment of interest and the repayment of outstanding debt (bonds, notes, loans, etc.), and contributions or cost allocation payments to governmental bodies.
What is cost accounting?
The cost accounting system philosophy is that, as tenants or users consume resources, they should be charged directly, rather than have the cost subsidized by other non-associated sources of revenue. For instance, the cost of terminal building supplies and maintenance should not be included in the rate base for the fixed base operator (FBO) located on the other side of the field. Similarly, the cost of maintaining the parking garage should not be included in the ratemaking mechanism used to determine costs for use of the airfield.
How do you establish a cost accounting system?
To establish a cost accounting system, airport management must first set and define the areas under which the cost is to be assigned. Management typically divides the airport into several major functional areas, each having an identifiable rate structure. These typically include the terminal building, the airfield, nonaeronautical areas, parking/ground transportation, FBO areas, and other building or ground areas. After establishing the expense attributable to each area, the revenue necessary to cover the expense can be arrived at through a schedule of rates and charges. Revenue from each of the functional areas is matched to the cost of operating and maintaining the same functional area.
Explain some key points in the Airline-Airport contract negotiations.
- Understand your end objective, second determine the object of the other party
- Try to work the less complicated issues first
One device that can assist the parties is a Memo of Understanding. This document articulates the business deal with its major elements and can be used as a guide to both parties as they work through development of the negotiation.
- A negotiator should identify drop dead issues early in the process.
- During the negotiating it is helpful to draft meeting summary after each negotiating session. The summary should identify the points discussed, work assignments and due dates.
Don’t gloat! If a party hears that the other side is claiming victory there will be hard feelings that may disrupt the completion of the current negations and will affect future relationships.
Explain Employee Performance appraisals.
- Employee Performance appraisals are a method by which the job performance of an employee is evaluated (generally in terms of quality, quantity, cost, and time) typically by the corresponding manager or supervisor.
- Give employees feedback on performance
Identify employee training needs
Document criteria used to allocate organizational rewards
Form a basis for personnel decisions: salary increases, promotions, disciplinary actions, bonuses, etc.
Provide the opportunity for organizational diagnosis and development
Facilitate communication between employee and administration
Validate selection techniques and human resource policies to meet federal Equal Employment Opportunity requirements.
To improve performance through counseling, coaching and development
Explain progressive discipline
- The objective of any disciplinary system is to create and maintain a productive, responsive workforce. A progressive discipline system essentially begins with the recruitment process and continues through orientation, training, performance evaluations and day-to-day supervision.
- Disciplinary actions, when they occur, should focus on rehabilitating employees by deterring them from repeating past problems. However, once an employee repeatedly demonstrates a lack of concern for a job or apparent inability to perform at minimum standards, written discipline must be clear and decisive.
What is due process and the elements?
- * Step 1. Clearly state in writing the nature of the problem and how the employee's performance or conduct damaged the company.
- * Step 2. Provide a clear and un-equivocal warning that failure to improve will result in discipline, up to and including termination.
- * Step 3. Prove through progressive disciplinary actions that the employee's poor performance continued despite repeated warnings.
- * Step 4. Show that discipline was doled out in a fair and consistent manner, so that any worker will reasonably expect to be terminated under similar circumstances.
- The typical progressive discipline formula begins with a verbal warning and progresses to a written and then a final written warning prior to termination
What are some liability exposures at airports?
- Controlling air traffic and movements in the AOA involving lives and large aircraft
- Airport personnel operating equipment in AOA and in public area
- Movement of passengers in the thousands in airport facilities
- Airports providing weather services which pilots rely on
- Navaids that are maintained by airport/FAA personne
- Board of directors and management decisions that that affect the safety of passengers on a daily basis
- Maintenance of runway and taxiway by airport personnel
- Commercial activities of airport tenants and vendors
- Airport responding to emergencies in accordance with FAA standards.
- Repairs and maintenance of runway & taxiway lighting system, signage and markings pursuant AC guidelines.
What type of insurance are airports required to carry?
- It is recommended that airports “self-insure” as much as possible. This is a challenging strategy for airports seeking to protect their assets against liable actions. Self-insurance requires the ability to budget and invest large amounts of liquid capital that can be used to pay future judgments against the airport.
- Public liability Insurance (Injuries) (Can range from $10 to $500 million), Vehicle Insurance, Building Insurance, Errors and Omissions Policy, Airline Insurance, Workers Compensation Coverage, Directors and Officer Liability, Crime Insurance, Money and Securities Insurance
What options does an airport have when it comes to parking managment?
The airport can either contract the services out to an experinced parking contractor or choose to conduct it themselves. These companies usually require a managment fee that will be their cost for operating the parking operation. Other costs normally are reimbursable through the contract.
What are the ways airports control parking revenue?
- There are a few ways this is accomplished at airports and those methods include LPI (License Plate Inventory) and LPR (License Plate Recongintion). LPI is based on the passngers ticket they present at the exit combined with a nightly inventory and if there are questions or lost tickets they priced is based on a nightly inventory. LPR works through matching the license plate at the entry and the exit, combined with the ticket. This allows for easy in and out payments.
- There are also pay on foot and transponder payment options at airports.
What does underwriting mean?
Underwritting refers to insurance: underwriters evaluate the risk and exposures of potential clients. The function of the underwriter is to acquire or to write business that will make the insurance company money and to protect the companys book of business from risks that they feel will make a loss.