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5 CHAPTER ONE INTRODUCTION This report presents the results of ACRP Project 11-03, Because what is innovative to one airport operator may be S01-01, ACRP Synthesis of Airport Practice 1: Innovative common practice to another, no attempt is made in this report Finance and Alternative Sources of Revenue for Airports. This to stipulate where certain "traditional" financing mechanisms introductory chapter describes the purpose of the report, pre- or sources of revenue become "innovative." Rather, a con- sents the methodology used to develop the report, provides tinuum is presented, starting with the most common practices general background information, and outlines the organiza- at U.S. airports, and progressing to increasingly innovative tion of the report. practices. PURPOSE OF REPORT STUDY METHODOLOGY This synthesis topic was identified by a 10-member panel of Information used in this study has been acquired through a industry experts charged with overseeing syntheses of informa- literature review and selected interviews of airport operators tion related to airport problems and was initiated out of concern and industry experts. about challenges to airport operators' ability to finance oper- ations and needed capital improvements in the context of: Literature and Data Search Increasing air traffic volumes nationwide and emerging A comprehensive search of literature and data sources was congestion at certain airports necessitating investment in conducted to document financing trends and innovative ideas future capacity and other measures. explored by airport operators, FAA, TSA, and other trans- Uncertainty about the financial health of the airline portation agencies. The research had three primary areas of industry and the actual or potential affect airline bank- focus: (1) nontraditional revenue sources airport operators ruptcies may have on air service decisions and airport could explore, (2) innovative financing mechanisms, and finances. (3) new ways for airports to operate financially. Concerns regarding how willing the U.S. Congress will be to appropriate funds to aviation given the wars in Iraq and Afghanistan, the status of the federal budget, Interviews and other federal priorities. The potential effect that reauthorization of FAA, the Various interviews have been conducted to gather information Airport and Airway Trust Fund, and TSA may have on innovative financial alternatives for airports. Although air- on various funding sources for airports, including port operators have the most thorough knowledge of innov- passenger facility charges (PFCs), Airport Improve- ative financial alternatives used at their airports, rating agency ment Program (AIP) grants from FAA, and grants analysts, investment bankers, and financial advisors have also from TSA. been valuable resources in identifying those airports imple- Construction inflation owing to post-hurricane rebuild- menting innovative structures. ing efforts and the increasing demand for construction materials by growing economies elsewhere in the world, REPORT STRUCTURE particularly by China and India. The remainder of this report includes the following: Given these and other financial challenges, the panel believed it would be prudent for airport operators to consider Chapter one concludes with a general background sec- innovative finance mechanisms and alternative sources of rev- tion to provide a brief overview of common capital enue. This study is therefore intended to inform airport opera- funding sources used by airport operators. tors, stakeholders, and policymakers about alternative financ- Chapter two provides a high-level review of capital ing options and revenue sources that are currently available to financing mechanisms used by airports to obtain the airport operators in the United States, or that could be available most flexibility and/or capital funding from its revenue in the future if certain developments occur to facilitate them. sources.