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Not for Sale

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OCR for page 13
Airport Finance 13 Power to acquire private property for public use is known as the power of eminent domain. Most airport owners have this power, which is an inherent power of the local government derived from its sovereignty, as well as a power implied by the Tenth Amendment of the U.S. Constitution. State laws vary and must be followed. Revenue Generation With construction costs increasing, available funding decreasing, and periodic economic downturns affecting the industry, airport operators find themselves continually looking for addi- tional revenue sources to fund projects and sustain operations. Typically, one thinks of fuel sales, hangar leases, agricultural leases, and grants as primary sources of revenue, but there are other ways to bring money into an airport and resources to describe those methods. In the survey conducted to identify key issues for this guidebook, respondents were able to list more than one type of revenue generation method. The primary sources of revenue for general aviation airports that were gleaned from the 211 responses are shown in Table 2. Fuel sales account for most of the respondents' revenue generation, followed closely by land leases, T-hangar leases, and rent. Other sources were mentioned by 34% of those surveyed, including industrial park revenues, advertising, parking fees, and residential or office rent on air- port property. Agricultural leases are often in place at airports, and from the survey, they appear to be a common revenue generator across the United States as well. In addition to the survey, information on revenue generation can be obtained from ACRP Synthesis 1: Innovative Finance and Alternative Sources of Revenue for Airports (3). The objective of the report is to inform airport operators and policy makers about alternative financing options and revenue sources currently available or that may be available in the future. The synthesis report provides a brief overview of common capital funding sources used by airport operators, a review of capital financing mechanisms used by airports, descriptions of revenue sources, and a review of privatization options that may be available. Nationally, the principal sources of funds for airport capital projects, listed from most fre- quent to least frequent, are Proceeds of bonds and other forms of debt; PFC revenues; AIP grants from the Airport and Airways Trust Fund, administered by the FAA; Internally generated capital resulting from retained airport revenues; Table 2. Primary sources of revenue generation for general aviation airports. Respondents indicating they use this method of Revenue generation method revenue generation Fuel sales 63% Commercial land leases and rent 60% T-hangar leases 59% Other methods 34% Private hangar land leases 32% Agricultural leases 32% Landing or ramp fees 20% Tax subsidies 19% Terminal concession rents 17%

OCR for page 13
14 Guidebook for Managing Small Airports Security grants from the general fund and administered by the TSA; and State grants and local financial support. Some airport operators (typically at large- or medium-hub airports) regularly use municipal bonds. Many airports have maintained investment-grade ratings from credit rating agencies. In addition to bonds, the ACRP synthesis study found that, to finance capital projects, some air- port operators have used bond and grant anticipation notes, pooled credit programs, and capi- tal leases. They have also reduced interest rates on outstanding bonds and managed interest rate risk by entering into interest rate swaps with investment banks. Note that most airports do not have bonding authority, but their associated municipality may. Although the methods outlined previously have been used primarily by large- or medium- hub airports, other options exist for smaller general aviation airports. Many forms of non-airline revenue generators may be used to bring money into an airport. Like the survey, the ACRP syn- thesis study found that airports nationwide have developed many programs to maximize rev- enue sources: Fuel sales. As noted in Table 2, 63% of airport managers responding to the general aviation survey noted that fuel sales and flowage is their means of generating revenue. Pilots may stop at a general aviation airport simply because it has fuel and they want to avoid the congestion and traffic at a larger airport. Many things must be considered when initiating fuel service including storage, staffing, insurance, and environmental issues. Airport parking revenues. Parking continues to be a reliable source for airport operators. The synthesis study identified additional opportunities for increasing parking revenues, such as offering premium parking services, parking lot enhancements, parking for non-airport use, and collecting off-airport privilege fees. Rental car revenues. In addition to privilege fees and rentals, at some airports each rental car concessionaire collects a customer facility charge. These funds are used to pay the operating and capital costs of a consolidated rental car area or structured facility and may include the cost of transportation to the terminals. Terminal concessions. Depending on the size of the airport and terminal facility, retail or concession sales at airports could bring in revenue. At commercial service airports, conces- sion sales have increased dramatically as airlines discontinue meal service and passengers arrive earlier to get through security. Airport operators have been able to maximize revenues by reinventing their terminal concessions programs to recognize the customer and create an inviting shopping or dining experience. Advertising programs. Several airports are cashing in on advertising revenue. Modern air- port advertising programs specialize in the sales and maintenance of advertising sites at air- ports by using technology, sponsorship opportunities, and nontraditional advertising locations. Commercial development and land use. Airport operators have generated revenue from a variety of revenue-producing leases from non-airline operations including manufacturing, warehousing, freight forwarding, and farming on airport land. Commercial development and land use have been accomplished through coordinated planning efforts, mindful of FAA restrictions on land development. The ACRP survey also identified the following innovative methods to generate revenue : Late fees on leases. Several airports reported that they charge late fees on leases, and one air- port noted that it received over $15,000 one year on late fees alone. Innovative pavement use. Airports are charging for the use of closed runways and other pave- ment for driver training and motorcycle safety courses. Several airports rent out their airport for use in filming commercials.