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Airport Finance 9 · Fuel flowage fees, and · Landing and ramp fees. Local government tax subsidy is often required to offset the gap between budgeted revenues and expenses. Innovative airport managers have also developed programs to generate non-standard airport revenues through special rentals, billboards, or direct fueling of aircraft. Each airport is unique and may have attributes such as a geographic location that lends itself to possibilities such as scenic flights for hire. Other supplemental revenues may come from sources such as investments, sale of surplus equipment or property, or utilities. These income sources may vary widely between airports. The goal of revenue generation should be to provide for an economically self-sustaining airport operation. Most general aviation airports do, however, require some form of tax subsidy to oper- ate. In some cases, the governmental structure of the airport provides for its own taxing authority. This structure, or airport authority, operates somewhat more autonomously than the typical small general aviation airport. In other cases, it may be possible to operate the airport as an enterprise fund that is financially self-supportive through revenues generated in the department or organiza- tion. This overview will not attempt to differentiate between the varying airport structures for the purpose of describing the financial management process. In preparing an airport operating budget it is usually easier to anticipate airport revenues as opposed to airport expenses. Revenues are generally tied to certain operating or rental agree- ments and are therefore more clearly defined. The next section will discuss the expenditure com- ponent of the airport operating budget. Expenses Determining small airport expenses depends on many factors. The structure of an airport oper- ation within a municipal organization varies, and many actual expenses are difficult to measure. For example, equipment operators or trade personnel labor costs at the airport may be hidden within another department budget. Therefore, the actual labor costs of the organization may not be reflected in the airport operations budget. Typically, the airport manager will organize and pre- pare a budget within the accepted budgeting methods for the municipal organization. This bud- geting normally involves anticipating expenses for both operating and non-operating expenses. Operating expenses are all of those costs associated with the actual operation of the airport. These costs may include labor, supplies, utility, and maintenance costs that are incurred on a day-to-day basis. These costs will vary considerably according to geographic region and the structure of the airport. For example, maintenance and equipment expenses may be significantly less in warmer areas of the country as opposed to those areas that require snow removal. Another example is the cost of maintaining an asphalt slab, which increases as it ages and varies due to weather and usage. The accounting of non-operational expenses also depends on the position of the airport within an organization. The airport manager must consider these costs--which may include equipment depreciation and debt service on existing airport financial obligations. Economic Impact of an Airport Most airports must justify their improvement projects to their city council, county board mem- bers, airport authority, or other governing bodies. Economic impacts are measured by the eco- nomic activity, earnings, and jobs generated by the airport activity or because the airport exists. Economic impact generated by a local airport can be either direct or indirect. In addition, an air- port may generate multiplier impacts, which include money spent at or for the airport that flows through the regional economy.
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10 Guidebook for Managing Small Airports Direct impacts can include any of the following: · Airlines, · Air cargo carriers, · Air taxis or charters, · Aircraft services, · Airport management and operations, · Car rental agencies, · Corporate flight operations, · Freight forwarders, · Fixed-base operators, · Government projects based at airports, or · Airport tenants. Indirect impacts may be generated from expenditures by airport users or from regional expen- ditures at local businesses as a result of airport use or travel. Some examples of indirect impacts generated by aircraft activity or users are · Food and beverage sales, · Lodging, · Entertainment, · Retail sales, · Travel agencies, and · Ground transportation. To calculate the economic impact of aviation, direct and indirect impacts must be measured, along with an assessment of the multiplier effect. A study on the economic impacts of Minnesota airports, completed by Wilbur Smith Associates in January 1999, examined 20 Minnesota airports in four different categories: commercial service, key airport, intermediate, and landing strip (1). The study found that economic activity for commercial service airports ranged from $13 mil- lion to $168 million, with an average of $61 million. Earnings generated from the airports ranged from $409,000 to $54 million, with an average of $13.1 million. For the airports studied, 20 to 3,061 jobs were generated, with an average of 760. A summary of the study's findings for three of the airport categories is given in Table 1. One way to show the importance of an airport and its growth is by calculating its economic impact on the surrounding community. This calculation will easily illustrate how the community benefits from having an airport close by, regardless of its size. William Gartner, professor of applied economics at the University of Minnesota, researched and developed a tool that airport Table 1. Summary of 1999 Wilbur Smith Associates study. Airport Descriptor Economic Activity Earnings Jobs Generated Key airport $1.8 million to $5.5 million $556,000 to $1.6 25 to 74 (runway longer than (average: $3.4 million) million (average: (average: 54) 5,000 ft w/o commercial $1.1 million) service) Intermediate system $224,200 to $6.9 million $65,000 to $2.1 3 to 92 (paved runway < 5000 ft (average: $1.7 million) million (average: 23) long) (average: $508,000) Landing strip $65,300 to $393,000 $64,300 to $123,000 1 to 6 (average: $217,000) (average: $70,000) (average: 4) SOURCE: Wilbur Smith Associates (1)
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Airport Finance 11 personnel can use to calculate the economic impact of their airport (2). The calculator was designed for 134 airports in the state of Minnesota. It was not designed for use at Duluth International, MinneapolisSt. Paul International, and Rochester International Airports. People assess economic impacts in many different ways, so defining economic impact can be challenging. This tool defines the economic impact as "the result of expenditures or sales trans- actions between businesses or other entities that can be directly traced to the presence of a par- ticular facility, activity, or related service" (2). Following are several input variables used in the Gartner tool for determining the economic impact of an airport. · Public ownership: Total dollar figure provided by all government sources for yearly operation of the airport; and Amount of money spent for construction during the year for which the financials are being reported. · Fixed-base operator and other aviation businesses: Number of full-time annual employees; Number of full-time seasonal employees; Number of part-time annual employees; and Number of planes operated by the FBO. · Commercial scheduled air service: Number of enplanements recorded at the airport during the last year; Percentage of enplanements that are recorded by local residents; Number of employees maintained at the airport by the airline providing the service; and Number of TSA employees maintained at the airport. · Retail businesses located at the airport--Number of employees maintained by the business. · Overnight use by general aviation pilots and other visitors: Amount of overnight use accounted for by general aviation pilots; and Number of tourists that access the region through the airport but not as pilots. · Businesses that ship freight: Number of times a particular business uses the airport each week; and Distance in miles from the airport in use to an airport with similar facilities. · Businesses that own hangars and do their own aircraft maintenance: Number of full-time annual employees; Number of full-time seasonal employees; Number of part-time annual employees; and Number of planes operated by the FBO. · Nonprofit or government entities: Number of full-time annual employees; Number of full-time seasonal employees; Number of part-time annual employees; and Number of planes operated by the FBO. Most economic impact studies are performed by consultants for specific airports. There are very few economic impact calculators available online for free, and those that are available, such as the one developed by the University of Minnesota, tend to be regionally focused and may use dated information. The FAA provides guidance for determining an airport's economic impact in Estimating the Regional Significance of Airports, but the publication was last updated in 1992. The American Association of Airport Executives offers a service through its website to produce General Aviation Economic Impact Statements for a fee. For small airport managers who want to