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OCR for page 12
12 Guidebook for Developing and Managing Airport Contracts
agreements require the airlines to submit an activity report for the previous month by a certain date
(ranges from the 5th to the 15th day of the subsequent month), whereupon the airport submits an
invoice and the airline is required to pay the invoice by "a date certain" (ranges from 10 to 30 days
from the invoice date).
A growing trend in airport invoicing is the concept of "self-invoicing." Under this procedure,
the airline submits its landing weight report and includes the calculation of the landing fees due
based on the current rate. Payment of the fees must accompany the report.
A variation on this procedure is "advance self-invoicing." This process can be applied to land-
ing fees as the airline can readily estimate the fees based on previous month's actual flight activity
and known flight schedules. Under this process, the airline estimates its landed weight for the
upcoming month and self invoices based on the estimated weight, submitting a payment on the
first of the month. Any discrepancy from estimated to actual is then accounted for on the next
month's self invoice.
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for an excerpt
from the SEA Airline Agreement for provisions relating to self-invoicing.
Most agreements provide for some type of interim rate adjustment, most frequently a mid-year
adjustment of rents. Some airports, projecting significant variation of activity, require an adjust-
ment more frequently.
Most airports also require a year-end adjustment, comparing projected with actual in all cost
centers. The collection of the shortfall or payment of overcharges is handled either as a true-up or
a deficit/surplus forward. In the case of a true-up, the airlines receive a bill or a check, respectively,
for the variance. In the deficit/surplus forward, the deficit or surplus is rolled into the next fiscal
year's rates and fees.
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for excerpts
from the SEA, PDX, and PIT Airline Agreements for provisions regarding payment of amounts
due and year-end and midyear adjustments to rates.
1.18 Aviation Security
Most airline agreements have general language regarding airport security that requires the air-
line to comply with all federal, state, and local regulations. Gone is the language in older agree-
ments requiring the airlines to provide checkpoint and baggage security now that those have
been absorbed by the TSA.
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for excerpts
from the AUS, MWAA, and PDX Airline Agreements for provisions regarding airline responsi-
bility for compliance with airport security plans and TSA requirements.
1.19 MII Approval for Capital Projects;
Formula for MII Calculation
Airlines seek out Majority-in Interest (MII) rights of approval for airport capital projects. This
has been driven by an increase in airport costs related to required capital improvements to sup-
port aging infrastructure, increased aviation activity, and a lack of funding. The scope of the MII
OCR for page 13
Airline Agreements 13
approval, the monetary thresholds, and the percentages required for airline approval vary
considerably from airport to airport.
One trend that has arisen, particularly in larger airports, is the pre-approved capital improve-
ment program (pre-approved CIP). A significant number of airports are negotiating an inclusion
of a pre-approved CIP in new agreements or extension amendments of existing agreements. These
pre-approved CIPs provide a detailed description of individual projects with projected capital
expenditures and funding sources. The descriptions generally contain the estimated impact of the
capital projects on airline rates and charges. The pre-approved CIP is typically presented in the Use
and Lease Agreement as an exhibit.
The agreements generally require further airline approvals if any component project cost or the
total capital cost of the pre-approved CIP varies by an established measure from the pre-approved
amounts. A common measure for new airline approval is a value greater than 110% of the original
cost. Some agreements permit an individual project to exceed its estimated cost if the total CIP cost
does not exceed the approved amount. Many agreements provide for an annual cost escalator as
part of the pre-approved CIP.
It is also a trend for airline agreements with an MII requirement to include an increasingly
expanded list of projects that are exempt from MII. Projects that commonly fall into this category
are projects dictated by safety, security, emergency, casualty, judgments and settlements, laws and
regulations, compliance with trust indenture, and noise mitigation and environmental remedia-
tion. Some agreements have included an exemption from MII for capacity-enhancing terminal
projects (particularly if there is an airline commitment for the space) and special facility projects if
the benefiting airline agrees to pay for the project.
The required formula for airline participation in the approval/disapproval process varies.
Generally, there is distinction made between airfield projects and terminal projects. For airfield
projects, a common requirement is for approval or disapproval by 50% of signatory airlines
with 50% of landed weight. For terminal projects, many agreements specify 50% of airlines by
number with some requiring 50% of rents and others requiring 50% of enplaned passengers as
the threshold. Although 50/50 is common, there are myriad other formulas depending on the
size of the airport, the existence of a hub carrier, the extent of the pre-approved CIP and other
anomalies. Airports appear to be fairly evenly split between an approval process and a dis-
approval process.
Airline agreements generally contain a threshold definition for a project to be considered a cap-
ital improvement. A common dollar threshold is $100,000 but can vary from $20,000 to $500,000.
The useful life requirement also varies but the most common is probably 5 years. These thresh-
olds generally reflect the individual airport's overall treatment of expensed costs versus capital
improvements.
The value of the capital projects requiring MII approval (outside of a pre-approved CIP) vary
considerably between airports, with the range from $100,000 to $10 million. The values are usu-
ally higher in the airfield. The values are generally net of PFC and other funding.
Airline agreements are specific and detailed on the requirements of the consultation process,
particularly timing and information to be provided.
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for excerpts
from the BWI, PDX, SEA, and STL Airline Agreements for provisions regarding the consultation
with airlines and approval process for capital projects and for a summary of the ACI Survey of Air-
line Approval for Capital Projects.
