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56 Guidebook for Developing and Leasing Airport Property
Grant eligibility should be discussed early on in the project with the FAA, the state aeronau-
tical agency and with economic development organizations, because while grant funds are often
an important component of the project, they typically have limitations and restrictions on their
use. Grant funds, once applied to the development project, are generally viewed as equity and
will satisfy only a percentage of the development cost; therefore, additional resources needed typ-
ically translate into debt.
If an airport acquires debt to fund a project (either partially or in whole), the debt repay-
ment cost must be offset through revenue derived from the project. The airport sponsor must
be reasonably certain that the revenue generated from a given development project will be
sufficient to offset the expenses incurred. These considerations will not only include debt
expense, but also any additional liabilities that will be incurred through the operation of the
facility. Simply put, the airport sponsor needs to determine whether or not the benefits out-
weigh the costs.
5.1.2 Quantifying Benefits--Pro Forma Analysis
Regardless of the type of development an airport is seeking, the airport sponsor should make
every attempt to ensure that the project is financially beneficial for the airport, now and into the
future. By examining the financial implications and comparing the revenues versus the expen-
ditures of the project, the airport sponsor can evaluate, through pro forma analysis of potential
financing and lease agreement scenarios, how elements in the proposed lease agreement will
impact the airport's financial position.
A pro forma analysis is a projection of the expected costs and revenue associated with the con-
struction and operation of an airport facility. Before the decision as to whether the airport spon-
sor should play the role of developer or not, the airport sponsor should go through a pro forma
analysis and determine whether the direct and indirect benefits that can be derived from such an
arrangement outweigh other opportunities available to the airport sponsor. Direct benefits would
typically include rents and financial gain, while indirect benefits might include increased aircraft
operations that stimulate fuel-flowage revenue. Economic impact and job creation may also be
considered either direct or indirect benefits, but more so from a community perspective than an
airport sponsor perspective. In an unbiased pro forma analysis, a strict separation of benefits
directly attributable to the airport can be considered to ensure that the best interest of the airport
is served and strict compliance with grant assurances is maintained.
The level of detail of the pro forma is left to the discretion of the airport sponsor and often is
dictated by the complexity of the proposed project. However, there are core elements that must
be included when projecting the financial impact to the airport, including the following:
· Financing Costs: This represents the annual dollar figure required to service the debt associ-
ated with the project (principal and interest). Obviously, the more this number can be
reduced, either through developer financing or grants, the better the financial position for the
airport.
· O&M Costs: Depending on what is stipulated in the lease agreement, the airport sponsor may
be responsible for all or a portion of facility maintenance. In addition, operation expenses such
as utilities and security may be incurred by the airport to a level that is stipulated in the lease
agreement. These costs are often estimated per square foot, based on benchmarks from sim-
ilar facilities, increased annually with use of some widely-accepted metric such as the Con-
sumer Price Index (CPI).
· Lease Revenue: This is the anticipated annual revenue that will be derived from the facility
once occupied. When accounting for anticipated lease revenue, be sure to account for any
escalation clauses in revenue projections.
