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23 Icons are defined in Figure 1 of Section 1.1. Financial and administrative management are key functions of small airport management. Airports should strive to be as self-sustaining as possible through revenue generation and good fiscal management of expenditures through budgeting. Appropriate lease documents, establish- ment of rates and charges, maximizing grant funding, if eligible, and minimizing risk through insurance are also important fiscal management tools. When a small airport has multiple employees, the small airport manager may also have human resources-related management responsibilities. 3.1 Revenue Generation and Use Key Insights The FAA defines airport revenues and their allowable uses. It is important for the airport manager of a federally obligated airport (one that has accepted a federal grant) to understand what airport revenue is and how it can be spent. FAA grant assurances require an airport to be as self-sustaining as possible. Airport grant funding is intended to assist an airport toward self-sufficiency. Diversion of airport revenue away from the airport for nonaviation use jeopardizes that goal. It is the airport sponsorâs responsibility to develop and maintain a clear accounting system of all revenue generated at the airport and all fees paid by the airport to a local governmental entity and all services received for those fees. Even if an airport does not receive federal funds, many state aviation grants include similar provisions that prohibit revenue diversion. Key Definitions Airport property: Any property described as part of an airport in an agreement with the United States or defined by an airport layout plan or listed in an Exhibit âAâ property map is considered to be obligated property for airport purposes. Airport revenue: All fees, charges, rents or other payments received by the sponsor for use of the airport property and services; sale, transfer or disposition of airport real property; sale or lease of sponsor-owned mineral, natural or agricultural products or water taken from C H A P T E R 3 BusinessâFinancial and Administrative Management
24 Guidebook for Managing Small Airports the airport; revenue from sponsor activities on the airport; and state or local aviation fuel taxes, except taxes in effect on December 30, 1987. Fair market value (FMV): An estimate of the market value of a property, based on what a knowledgeable, willing and unpressured buyer would probably pay to a knowledgeable, willing and unpressured seller in the market. Federal grant assurance: A provision of a federal grant agreement to which the recipient of federal airport development assistance has agreed to comply. Revenue diversion: Use of airport revenue for nonaeronautical uses or for payments in excess of stated tax rates or the value of services received. Airport Revenue Generation and Use One of the challenges in managing an airport is generating the revenue needed to sustainably operate and improve the airport. In addition, it is imperative that revenue diversion (using airport revenue for non approved uses) is avoided at a federally obligated airport, which is an airport that has accepted federal grants. When planning the financial operation of an airport, it is important to recognize what airport revenue is (see the text box on Grant Assurance 25), what uses of airport revenue are appropriate and what would constitute revenue diversion. To help airport sponsors strive to be as self-sustaining as possible, the FAA has defined airport revenue and its allowable uses. For example, in addition to paying operating expenses incurred at the airport, an airport can pay for services from its local communityâsuch as legal or securityâ but the value of the services must align with the fees that are charged. ACRP Legal Research Digest 2: Theory and Law of Revenue Diversion explores the issue of revenue diversion and how the prohibition against revenue diversion has been enforced. Airport Revenue Sources The first step in managing airport revenue and avoiding revenue diversion is to understand what the FAA classifies as airport revenue. Common airport revenue sources include revenue from operations directly related to the operation of aircraft, such as terminal and hangar rents, tie-down rents, fuel flowage fees, fuel sales, local taxes on aviation fuel, landing fees, terminal concessions and land leases. Allowable Uses of Airport Revenue The FAA defines allowable uses for airport revenue: â¢ Capital and operating expenses of the airport, local airport system, or other local facilities owned or operated by the airport owner or operator and directly and substantially related to air transportation of passengers or property â¢ Activities directed toward promoting competition at an airport, including public and industry awareness of airport facilities and services, new air service and competition at an airport (other than the direct subsidy of air carrier operations) and the salaries and expenses of employees engaged in promoting air service at the airport â¢ A share of promotional expenses, which may include marketing efforts, advertising and related activities designed to increase the use of the airport â¢ Repayment of the airport ownerâs or operatorâs contribution to capital and operating costs. If the contribution was a clearly documented loan, interest may be paid. It is common for small airport managers to need to educate their policy board or local elected leaders about the restriction on the use of airport revenues.
BusinessâFinancial and Administrative Management 25 Grant Assurance 25: Airport Revenues a. All revenues generated by the airport and any local taxes on aviation fuel established after December 30, 1987, will be expended by it for the capital or operating costs of the airport; the local airport system; or other local facilities which are owned or operated by the owner or operator of the airport and which are directly and substantially related to the actual air transportation of passengers or property; or for noise mitigation purposes on or off the airport. The following exceptions apply to this paragraph: 1) If covenants or assurances in debt obligations issued before September 3, 1982, by the owner or operator of the airport, or provisions enacted before September 3, 1982, in governing statutes controlling the ownerâs or operatorâs financing, provide for the use of the revenues from any of the airport ownerâs or operatorâs facilities, including the airport, to support not only the airport but also the airport ownerâs or operatorâs general debt obligations or other facilities, then this limitation on the use of all revenues generated by the airport (and, in the case of a public airport, local taxes on aviation fuel) shall not apply. 2) If the Secretary approves the sale of a privately owned airport to a public sponsor and provides funding for any portion of the public sponsorâs acquisition of land, this limitation on the use of all revenues generated by the sale shall not apply to certain proceeds from the sale. This is conditioned on repayment to the Secretary by the private owner of an amount equal to the remaining unamortized portion (amortized over a 20-year period) of any airport improvement grant made to the private owner for any purpose other than land acquisition on or after October 1, 1996, plus an amount equal to the federal share of the current fair market value of any land acquired with an airport improvement grant made to that airport on or after October 1, 1996. 3) Certain revenue derived from or generated by mineral extraction, production, lease, or other means at a general aviation airport (as defined at Section 47102 of Title 49, United States Code), if the FAA determines the airport sponsor meets the requirements set forth in Sec. 813 of Public Law 112-95. b. As part of the annual audit required under the Single Audit Act of 1984, the sponsor will direct that the audit will review, and the resulting audit report will provide an opinion concerning, the use of airport revenue and taxes in paragraph (a), and indicating whether funds paid or transferred to the owner or operator are paid or transferred in a manner consistent with Title 49, United States Code and any other applicable provision of law, including any regulation promulgated by the Secretary or Administrator. c. Any civil penalties or other sanctions will be imposed for violation of this assurance in accordance with the provisions of Section 47107 of Title 49, United States Code.
26 Guidebook for Managing Small Airports â¢ Lobbying fees and attorney fees, to the extent these fees are for service in support of any activity or project for which airport revenue may be used â¢ Costs incurred by government officials, to the extent that such costs are for received and documented services to the airport â¢ General government service or officials in the proportion they serve the airport â¢ Support of community activities or community-purpose uses of airport property, if such expenditures are directly and substantially related to the operation of the airport â¢ Capital or operating costs of the portion of an airport ground access project that can be considered an airport capital project Prohibited Uses The prohibited uses are, in general, payments that would take away from the operation and maintenance of the airport or are in excess to the value received by the airport. The FAA defines prohibited uses as follows: â¢ Payments that exceed fair and reasonable value of the services provided to the airport (administrative fees) â¢ General economic development â¢ Payments in lieu of taxes or other assessments that exceed the value of services provided â¢ Payment to compensate nonsponsoring governmental bodies for lost tax revenues exceeding stated tax rates â¢ Direct subsidies of air carrier operating costs â¢ Rental or use of facilities for nonaeronautical uses at less than market value, with an exception for use of property by nonprofit aviation organizations FAA Order 5190.6: Airport Compliance Manual, Chapter 15: Permitted and Prohibited Uses of Airport Revenue, and the Federal Register notice upon which it is based, Federal Register, Vol. 64, No. 30: Policy and Procedures Concerning the Use of Airport Revenue, provide additional details and examples of allowable and prohibited use of airport revenues. Fuel Tax Revenue Because taxes on aviation fuel are not directly a small airport revenue issue but are related to airport revenues, the FAA has been working to address them to ensure that these revenues remain in the aviation system. In 2014, the FAA amended the airport revenue regulations to include proceeds from any tax imposed on aviation fuel by a state or local government as airport revenue, unless the tax was in effect on December 30, 1987. As airport revenue, the aviation fuel tax revenue is to be used for purposes for which other airport revenues may be used. Proceeds from a state tax on aviation fuel can also be used for a state aviation program. States are to be in compliance with the aviation fuel tax requirements by December 8, 2017, unless an extension was requested, as detailed on the FAAâs web page on aviation fuel tax action plans and status. Nonaeronautical Revenue An airport may also generate revenue that is classified as nonaeronautical. The generation of nonaeronautical revenue is allowable and encouraged. Typically, the airport manager has more flexibility in uses for nonaeronautical revenue, versus that of aeronautical revenue. While nonaeronautical revenue can be used for the same uses as airport revenue, it is not limited to just the approved uses mentioned previously. FAA Advisory Circular 150/5100-19: Guide for Airport Financial Reports Filed by Airport Sponsors provides a detailed list of what is considered airport revenue and what is considered
BusinessâFinancial and Administrative Management 27 nonaeronautical revenue. The types of nonaeronautical revenue that can be generated on an airport vary with the type of activity on the airport. There are generally more opportunities to generate nonaeronautical revenue at an airport with commercial service. Nonaeronautical revenue sources include the following: â¢ Lease revenue from compatible land-use development â¢ Nonaeronautical building leases â¢ Retail and concession sales â¢ Rental car operations â¢ Parking â¢ In-airport advertising At small airports without commercial service, the most likely nonaeronautical revenue is from compatible land-use development and nonaeronautical building leases. When rates are set for nonaeronautical use, they must be based on FMV, with limited exceptions for property with community purposes, nonprofit aviation organizations, transit projects and systems, and military aeronautical units, as described in FAA Order 5190.6, Chapter 17: Self-Sustainability. Airport property (as shown within the airport property line on the airport layout plan (ALP)) used for nonaeronautical use requires a land release from the FAA, even for a lease, unless it is approved by the FAA as concurrent use. For small airport managers, the most important part of using airport revenue and avoiding revenue diversion is to understand what airport revenue is and to make sure it is used for an approved use and not taken from the airport to fund other local government activities. As identified in FAA Order 5190.6, Chapter 19, at small airports with commercial service that have received an AIP grant since January 1, 1995, annual airport financial reports must be filed with the FAA on Form 5100-126, Financial Governmental Payment Report, and Form 5100-127, Operating and Financial Summary, which provide detailed instructions for airport operators. When reports are filed electronically, a paper copy is not required.
28 Guidebook for Managing Small Airports 3.2 Budgets Key Insights A budget is an important tool in the financial management of an airport and the development of financial and administration key performance indicators. The complexity of the budget will vary depending on the size and type of operations at an airport. Budgets should be categorized in a way that will offer the airport manager the best possible information regarding his or her ability to meet financial goals. Key Definitions Benefitâcost analysis: A systematic approach to estimating the strengths and weaknesses of alternatives by determining options that provide the best approach to achieve benefits while preserving savings. Budget: An estimate of income and expenditure for a set period of time. Incremental budget: The most used budgeting technique. Typically adds increments to the prior yearâs budget based on changing conditions and new requirements; anticipates line-item trends for the new budget year. Performance-based budget: This budgeting technique begins with established performance goals, or return-on-investment goals, and attempts to ensure that capital and operating expen- ditures are set to achieve these goals. Zero-based budget: Budget line items from the prior year are zeroed out, and the new line-item budget is built from a zero baseline; used primarily to set up the airportâs operating budget. Budgets A budget is the tool an airport manager should use to align the financial needs and goals of the airport with the available revenue. It may also be used to demonstrate to a policymaking board or airport sponsor, such as a city or county, the need for increased revenue to meet the airportâs ongoing expenses. An airport may have more than one type of budget to align with its intended function. The two primary types of budgets are the operating budget and a capital budget. Operating Budget An operating budget can be a simple, operating profit-and-loss statement. The operating budget is used in the budgeting process to capture all operating revenues by type and all oper- ating expenses by type. Table 6 shows common items in a budget. Two budget templates are included in ACRP WebResource 6. These templates are based on more complex small airports to encompass the extent of the items that may be part of an operating budget. An operating budget can be used airport-wide, or within a cost center(s). At small airports, it is more common to have one budget. The operating budget is used to ensure that budgeted revenues will cover, and potentially exceed, budgeted expenses within one or numerous cost centers by a preset operating margin or factor. The operating budget is a tool for the airport manager to manage the financial functions of the airport. The budget should be reviewed on a regular basis during the budget year to identify how the operations of the airport are aligning with the budget. If expenses are below the budget, revenues are exceeding the budget or both, there may be an opportunity to
BusinessâFinancial and Administrative Management 29 address additional needs (expenses). If the reverse is true, steps must be taken sooner rather than later to identify how to reduce costs or increase revenues. Along with the operating budget, it is important for small airport managers to understand the cash flow of revenues. Income streams and expenses may not align, especially when revenues are paid less frequently, such as an annual payment from agricultural operations or hangar pay- ments that are paid less often than monthly, such as quarterly. It is important for the airport manager to budget not only for expenses but also for the timing of expenses. Depending on the size of the airport, there may also be times when it is necessary to borrow money to meet current needs that will be paid with future revenues. Capital or Financial Budget In addition to an operating budget, an airport may have a separate capital budget to help manage cash flow of annual capital improvement needs. A separate capital budget is more common at an airport with multiple capital projects each year. It is also more common at air- ports with commercial passenger service, because the airlines may need to review and support the operating and capital costs separately. Whether or not a separate capital budget is used, it is important for an airport to plan and budget for the local share of grant-funded capital projects. The purpose of a detailed capital budget, something also referred to as a financial budget, is to assist in managing the capital improvement program planning. A capital budget includes a statement of net assets, a statement of cash flows, and sources and uses of cash. It is an important tool to develop the airportâs capital improvement program and demonstrate to the granting agencies, as well as the local policymaking board, that local share of capital improvements can be achieved within the policy for cash and cash reserves. Operating Expenses Nonoperating Expenses 1. Wages and benefits 2. Consultants 3. Supplies 4. Ground maintenance 5. Vehicle maintenance 6. Building maintenance 7. Utilities and services 8. Insurance 9. Advertising 1. Depreciation 2. Debt service 3. Capital improvement 4. Interest 5. Government contribution 6. Amortization of deferred financing 7. Licenses 8. Losses or damages Operating Revenues Nonoperating Revenues Fees 1. Fuel flowage 2. Landing fee and apron parking Concessions 1. Restaurants 2. Retail shops 3. Parking 4. Rental cars 5. Airshow 6. Taxi, limo, network transportation companies Leased Areas 1. Fixed-base operator 2. T-hangars 3. Agriculture 4. Airline space 5. Office areas 1. Property taxes 2. Government grants 3. Interest income 4. Sale of property 5. Investment income 6. Subsidies 7. Passenger facility charge 8. Customer facility charge (rental cars) Table 6. Elements in a budget.
30 Guidebook for Managing Small Airports Budgeting Techniques There are several techniques that can be used to establish the capital or operating budget, including incremental, lump sum, zero based and performance based. Incremental Budget Incremental budgeting, also referred to as traditional budgeting, is the budgeting technique used most often. It typically adds incremental increases or decreases to the prior yearâs budget, based on changing conditions and new requirements. It is more effectively used for managing airport financial operations if the increases or decreases are applied per line item rather than the overall budget. In an incremental budget, the goal is to anticipate trends for the new budget year, such as a percentage increase in utility costs or a percentage increase in hangar rental rates. Information from the previous yearâs budget is used as a starting point, with the incremental increases or decreases in categories based on expectations for the upcoming year. Lump-Sum Budget A lump-sum budget typically is only used at a very small airport and may be used if the operation of the airport is a line item within a larger municipal department budget. A lump- sum amount is allocated to the airport, and the manager then uses judgment in expending it throughout the year. If an airport manager receives a lump-sum budget, the airport manager should develop a more detailed budget to administer the major categories of airport revenue and expenses. Zero-Based Budget In a zero-based budget, the line items from the prior year are zeroed out. This results in the new line-item budget being built up from a zero baseline. This budgeting technique is used primarily to set up the airportâs operating budget. It intentionally does not use information from previous budgets to establish the new budget, so that the budget is re-examined annually for operating needs. The purpose of this re-examination is to prioritize the needs. Because this process requires the needs to be prioritized, it essentially combines planning and budgeting into one process. A zero-based budget is more time consuming to prepare than an incremental budget. However, the process of establishing a line-item budget can help zero out organizational legacy costs that are no longer valid. A variation on a zero-based budget is a target-based budget. In a target-based budget, an estimate of revenue is prepared, and a spending limit is established for the airport based on that estimate. The airport manager is then responsible to stay within the target spending budget. Performance-Based Budget This technique begins with establishing performance goals, or return-on-investment goals. It attempts to ensure that capital and operating expenditures are set to achieve these goals. Key performance indicators are used to measure progress toward the goals or show the benefits of the expenditures. For example, a capital investment in light-emitting diodes (LEDs) for the airfield should contrast capital costs to an expected return on investment via reduced energy costs. The performance indicators are then established to ensure that the expected energy cost reductions take place over an established time frame. A performance-based budget aligns expenditures with goals, and the performance indicators are then used to measure progress toward the goals. This method can be employed for any investment that has defined costs, cost savings and a return on that investment over some period of time. The method can be used whenever the organization has an established return-on-
BusinessâFinancial and Administrative Management 31 investment policy, and it should be considered as complementary to the broader incremental or zero-based budgeting techniques. Preparing a Budget There are four phases to a budget cycle: preparation, approval, execution and audit. The preparation of a budget starts many months in advance of the airportâs start of the fiscal year, to allow for the budget requests to be made, revised and compiled into the overall airport budget. Allow time in this budgeting process for the budget review and approval by the appropriate governmental entity at a publicly owned airport. For a publicly owned airport, the budget approval process may involve the opportunity for public hearings or other reviews. If an airport has multiple departments, each department should provide input or prepare a department budget to be considered in the overall process. In preparing the budget, the airport should assess its financial condition, regarding its overall revenues, expenses and cash position. Next, the revenues and expenses should be projected for the coming year. Growth forecasts should be developed for each budgeted revenue or expense category. Pertinent questions should be asked during this process, such as: What will be the increases in rental rates or new activity? What will be the anticipated increase in fixed costs, such as salaries and benefits? Are there anticipated purchases or maintenance requirements, such as new equipment or pavement maintenance? The budgeting process usually involves some give-and-take to prioritize expenses while trying to align with projected revenues. Using the Budget as a Management Tool The budget is a management or decision-making tool for the airport manager in executing the airportâs financial operations. The airport budget should be used throughout the year as a guide and tool for making spending decisions. Budget transfers can be made during the course of each year within line items, as long as solid budget management takes place. There may be limits and prohibitions regarding transfers from primary sources, such as major capital to operating, etc. Each month can be viewed as a one-twelfth snapshot of the whole to establish proper budget control. The exceptions to this are large budget expenses or revenues that may be paid or received on a basis other than monthly, such as quarterly, semi-annually or annually. These must be considered during the monthly budget reviews. Near the end of the fiscal year, if the revenues have exceeded the expenses, there may be an opportunity to accelerate some unbudgeted costs from the next year to the current year, such as equipment or supply purchases that will benefit airport operations in the future year. An airport manager should consider whether additional spending is necessary now, to attain the expected budget decrease in the following fiscal year. At the close of the fiscal year, the end-of-year results should be prepared. Also, regular audits should be conducted to demonstrate compliance with required financial practices and identify opportunities for improvement. At a commercial service airport, there are also specific financial report requirements, as detailed on the FAA web page about its Airport Financial Reporting Program.
32 Guidebook for Managing Small Airports 3.3 Managing the Airport as a Stand-Alone Business Key Insights The airport manager acts as a property developer and business manager. The airport manager should lead the organization from a set of well-defined goals. Setting goals can help establish reasonable expectations with the airport board or municipal government. Use the airport business plan to establish goals, develop key performance indicators and focus on the bottom line. Standard financial accounting software should be used to manage the airport business. Key Definitions Accrual-based accounting: Under the accrual basis, revenues and expenses are recorded when they are earned, regardless of when the payment is issued. Airport revenue: All fees, charges, rents or other payments received by the sponsor for use of the airport property and services; sale, transfer or disposition of airport real property; sale or lease of sponsor-owned mineral, natural or agricultural products or water taken from the airport; revenue from sponsor activities on the airport; and state or local aviation fuel taxes, except taxes in effect on December 30, 1987. Cash accounting: The cash method accounts for revenue only when the money is received and for expenses only when the payment is made. Exclusive rights: The provision of aeronautical services by a person or company other than the airport cannot be construed as exclusive by the provider. Key performance indicator (KPI): A defined, quantifiable performance measurement used to help assess how an organization is performing relative to its goals. Proprietary exclusive rights: The owner of a public-use airport may provide aeronautical services to the public at the airport. This right may be exercised by the airport in the absence of a qualified commercial operator or when it is in the best interest of the public and must be provided by the airport ownerâs staff. Self-fueling: The fueling or servicing of an aircraft by the owner of the aircraft. Operating the Airport Like a Business The role of the modern airport manager has evolved from an operational coordinator to include business manager and economic or property developer. This change is occurring because the focus of airports, by necessity, has moved more toward operating as a business in order to generate increased revenue to support the airport operation. With airport subsidies becoming more difficult in most municipalities, the airport management role has evolved to meet this financial need. In order to grow into this role, the airport manager should have a basic under- standing of business management and accounting principles. Considering Accrual Versus Cash-Basis Accounting There are two primary accounting methods: accrual and cash. The airport sponsorâs govern- ing agency most likely will dictate the accounting method to be used. The difference between
BusinessâFinancial and Administrative Management 33 the two methods is the timing of when revenues and expenses are recorded. In accrual-based accounting, revenues and expenses are recorded when they are earned, regardless of when the money is received or the payment is made. This method is more commonly used than the cash method. In cash accounting, revenue is only accounted for when the money is received and expenses only when the payment is made. The cash method is mostly used by small businesses and for personal finances. Cash accounting is generally best only for very small airport markets with minimal payable and receivable accounts. Accrual accounting is more consistently used by most airports. Additionally, accrual-based accounting is considered a best practice for most governmental entities. Establishing Financial Controls Financial controls are needed to monitor financial transactions, report financial results, protect assets and eliminate the potential for fraud or embezzlement. At a minimum, financial controls should include establishing staff qualifications, responsibilities and signing authority; financial policies; guidelines for document management; requirements for handling accounts receivable, accounts payable, bank accounts, and payroll and managing capital assets; and inventory. If the municipality or authority has an enterprise-level financial management system, it is best practice for the airport to have a compatible, or the same, system to ensure the ease of data management throughout the entire organization. For stand-alone airports or airport authori- ties, off-the-shelf accounting systems are available. Stand-alone financial systems should be robust enough to handle the level of sophistication and need expected well into the future and to allow data mining sufficient for the airport to set financial performance indicators, track goals throughout the year and provide the basis for periodic and year-end reporting. Establishing Business Policy When operating an airport as a stand-alone business, the business policy should guide busi- ness decisions. The policy should be set at the board, commission or director management level and balance airport needs with user needs. The business policy provides a fallback for airport management when dealing with outside interests. The policy should align with the strategic goals of the organization. ACRP Report 77: Guidebook for Developing General Aviation Airport Business Plans will help develop a useful strategic policy for your airport. ACRP Report 77 also offers a worksheet to assist airport staff with implementing a business plan. The types of business policies must be tailored to the individual airport but will include poli- cies on topics such as rates and charges, aeronautical business incentives, minimum development standards, leasing for ground and buildings, broker or developer arrangements for nonaeronau- tical property development, return on investment and unrestricted cash on hand (monetary reserves not dedicated to a particular use). Establishing a solid business policy is a crucial first step in the top-down management of airports. Business policies for municipal airports will most usually follow policies set for the entire municipal enterprise. Without the establishment of this high-level policy that directs the business development parameters for airport staff, operating as an airport business becomes very difficult. Setting Goals and Focusing on the Bottom Line As part of operating an airport like a business, airport managers set goals, track progress through KPIs and focus on the bottom line. Setting goals, as a part of either an overall business
34 Guidebook for Managing Small Airports plan or an annual financial planning or budgeting process, should touch on every aspect of managing the airport, including operational, administrative, financial and capital development. Setting goals should also include an understanding of historical performance versus goals. These broad goals must be customized to each airport. Establishing KPIs is the first and most important step in setting goals and establishing a bottom-line focus for your organization. The long-term or annual goals should be derived from your list of performance indicators and should give you a strong indication of the pulse of what is happening at your airport. The goal-setting process should be an annualized, or roll-up, list of your more detailed monthly or quarterly performance indicators that are being tracked. Common examples of annual goals are profit-margin goal by percentage, business development goals by a number of new tenants or businesses, fuel sales by type and completed capital projects. Goal setting and managing from focused annual performance indicators will help ensure that the airport will be bottom-line driven. Developing and keeping a bottom-line focus is an important step toward improving the long-term financial sustainability of the airport. Establishing Performance Indicators Performance indicators, commonly referred to as âkey performance indicatorsâ or âKPIs,â should be established for all aspects of airport management: operations, financial, administrative and capital devel opment. A detailed set of customized KPIs is typically established, and these will roll up to annual goals, as mentioned previously. Establishing KPIs is critical to operating the airport as a business. The KPIs must be items that can be measured. They also must be valid indicators of what is really happening in the realm they are developed to measure for each airport. ACRP Report 19A: Resource Guide to Airport Performance Indicators identifies KPIs applicable to all types of airport, including small airports. Performance indicators can be used for annual goal setting and then used for tracking progress versus goals. Some examples of typical performance indicators include the following: â¢ Fuel sale dollars per itinerant operation, or per based aircraft â¢ Monthly fuel flow revenue â¢ Monthly or quarterly airport revenue per operation â¢ Monthly or quarterly operating expense per operation â¢ Monthly or quarterly fuel sale ticket per aircraft â¢ Monthly or quarterly number of maintenance work orders closed â¢ Monthly or quarterly complaints received airport-wide â¢ Monthly or quarterly T-hangar or storage hangar lease revenue â¢ Monthly or quarterly return on airport facility investment versus goal â¢ Monthly or quarterly profit margin versus goal In addition to the list of performance indicators in ACRP Report 19A, a list of potential KPIs for small airport management is included in ACRP WebResource 6 (crp.trb.org/acrp0132). Understanding Exclusive Rights Exclusive-rights clauses protect airport users from private monopolies. The establish- ment of minimum standards per FAA Advisory Circular 150/5190-7: Minimum Standards for Commercial Aeronautical Activities helps an airport sponsor avoid granting exclusive rights. What you can measure, you can manage. KPIs provide the tools to measure airport operations so that they can then be managed.
BusinessâFinancial and Administrative Management 35 At some airports, there may be only one aeronautical service operator providing one or all of the services available. This might occur when only one operator has applied to provide these services with no competition present. As long as the airport owner allows the opportunity for other operators to also offer a commercial aeronautical activity at the airport, an exclusive-rights violation does not exist. There may be situations at small airports with minimal space suitable for aeronautical activities in which a single operator already occupies all available space. An exclusive-rights violation may occur if an airport owner unjustly leases all available space to a single user. An airport sponsor may also deny an operator of aeronautical activity the right to operate on an airport for safety reasons. Restrictions based on safety should be discussed with the local FAA ADO. The FAA is often the final authority in the matters of potential compromises to safety. Additionally, the FAA ADO should always be consulted in any situation that might require a decision on exclusive rights. Understanding Proprietary Exclusive Rights (of an Airport Sponsor) Proprietary exclusive rights are allowable. As described in FAA Order 5190.6: Airport Com- pliance Manual, Chapter 8: Exclusive Rights, Section 8.9a: Aeronautical Activities Provided by the Airport Sponsor, proprietary exclusive rights means the owner of a public-use airport may elect to provide any or all of the aeronautical services needed by the public at the airport. The airport sponsor may exercise, but not grant, an exclusive right to provide aeronautical service to the public. If the airport sponsor opts to provide an aeronautical service exclusively, it must use its own employees and resources. Thus, an airport owner or sponsor cannot exercise a Grant Assurance 23: Exclusive Rights [The airport sponsor] will permit no exclusive right for the use of the airport by any person providing, or intending to provide, aeronautical services to the public. For purposes of this paragraph, the services provided at an airport by a single, fixed-based operator shall not be construed as an exclusive right if the following apply: a. It would be unreasonably costly, burdensome, or impractical for more than one fixed-based operator to provide such services. b. If allowing more than one fixed-based operator to provide such services would require the reduction of space leased pursuant to an existing agreement between such single fixed-based operator and such airport. It further agrees that it will not, either directly or indirectly, grant or permit any person, firm or corporation the exclusive right at the airport to conduct any aeronautical activities, including, but not limited to charter flights, pilot training, aircraft rental and sightseeing, aerial photography, crop dusting, aerial advertising and surveying, air carrier operations, aircraft sales and services, sale of aviation petroleum products whether or not conducted in conjunction with other aero- nautical activity, repair and maintenance of aircraft, sale of aircraft parts and any other activities that, because of their direct relationship to the operation of aircraft, can be regarded as an aeronautical activity, and that it will terminate any exclusive right to conduct an aeronautical activity now existing at such an airport before the grant of any assistance under Title 49, United States Code.
36 Guidebook for Managing Small Airports proprietary exclusive right through a management contract. The right of the public airport operator to provide these aeronautical services, using its own staff, can also afford the airport the opportunity to become more financially self-sufficient. When considering proprietary exclusive rights, in addition to equipment and staffing consideration, an airport also needs to consider budgetary impacts of purchasing fuel for resale and insurance requirements. This proprietary exclusive right may be exercised in the absence of a qualified commercial operator, or when in the best interests of the public. The best interests of the public include con- ditions such as the airport sponsor choosing to perform the aeronautical services itself in order to become more financially self-sustaining, or the fixed-base operator (FBO) lease is expiring and the airport sponsor elects to start providing the aeronautical services to improve customer service. The proprietary exclusive right most often occurs when an airport or municipality elects to exclusively provide fuel service to aircraft, but it can extend to full FBO services. When considering aeronautical services, airport owners should not attempt to prohibit aircraft owners the right to self-service. Aircraft owners are entitled to maintain, fuel and service their aircraft, subject to reasonable rules and regulations of the airport and in accordance with federal regulations. It is important to establish airport rules and regulations to allow aircraft owners to self-fuel while maintaining control for how self-fueling occurs. ACRP Legal Research Digest 8: The Right to Self-Fuel explores the meaning and constraints related to self-fueling at airports.
BusinessâFinancial and Administrative Management 37 3.4 Revenue Generation and Diversification Key Insights Because of escalating airport facility costs and pressure to end or reduce airport subsidies, airport managers must continually seek to maximize all revenue sources at their facilities. Commercial opportunities at each airport are unique and driven by each airport setting. One size does not fit all in airport revenue generation and diversification. Strategic and business planning for airports can set the stage for maximizing revenue opportunities and diversifying the airport revenue base. This is the recommended first step in developing your revenue generation program. As a best practice, many airport managers have begun to adopt a business or property developer role and mindset as a primary management focus. Key Definitions Aeronautical revenue: Revenue generated from core aeronautical activities, defined as those activities that take place on the airfield or in non-passenger-dependent activities around the terminal. Fuel flowage fee: Fixed fee added to each gallon of fuel pumped or percentage added to fuel purchased at the airport to support airport operations, which is generally collected from a private entity that provides the fueling services and is remitted to the airport owner. Nonaeronautical revenue: Revenue generated from nonaeronautical activity, which is a broad category that encompasses the passenger-dependent activities such as food and beverage, retail concessions, parking and rental cars as well as rent on land and nonterminal facilities and fees collected for activities and services on airport property. Ground lease and property develop- ment revenues derived from property that has the long-term designation of ânonaeronautical,â or not needed in the long term for supporting aeronautical activities, can also be classified as nonaeronautical revenue. Nontraditional revenue sources: Any local source that can be developed at the airport for enhancing the revenue base (e.g., oil, gas and mineral rights, nonaeronautical property develop- ment, local agriculture, forestry, hunting rights, solar installations, airport cities or mixed-use development, etc.) Solar installation: Any ground-based solar energy installation and those solar energy installations co-located with a building or structure (e.g., rooftop installations). Guiding Principles for Revenue Generation and Diversification Todayâs small airports are under significant financial pressure, with state and federal programs becoming more competitive for fewer dollars and the costs of constructing and managing airport assets rising in the long term. Small airports have fewer traditional revenue sources than larger airports and are under continual pressure to relieve or reduce any local general fund subsidies the airport might receive. These dynamics have begun to push airport managers into the role of business or property developer. In assuming this new role, airports should engage in self-assessment and pre-planning. This proactive approach to revenue generation and diversification will help the airport manager
38 Guidebook for Managing Small Airports develop reasonable local expectations and a program profile that ultimately can be implemented. To meet all the local expectations and to help ensure a successful outcome, the following macro- level steps are recommended: â¢ Initiate an airport master plan or business plan to identify goals, opportunities, investment required and policy requirements. This document can also be used to define nonaeronautical- use properties on an approved ALP, if this has not already happened. This planning function can also be beneficial to identify discreet revenue production sources and initiatives, establish revenue goals and develop return-on-investment policy and goals, revenue-based KPIs and broad implementation timelines and guidelines for each initiative. â¢ Initiate a self-assessment regarding local capabilities to help understand the role of airport manager versus the role of an airport property developer. This self-assessment should try to define all gaps in local capabilities for planning, legal, finance, property management or development and business acumen that will be needed for successful program implementa- tion. It is recommended that ACRP Research Report 176: Generating Revenue from Commercial Development on or Adjacent to Airports should be referenced to access the self-assessment, site evaluation and implementation tools, as well as the other valuable information that is available. â¢ Define success by adopting reasonable goals and expectations. This can be accomplished either as a part of, or in parallel to, a business-planning effort. Importance of Planning and Adopting Revenue Generation and Diversification Goals Revenue generation objectives and policies should be clearly stated in the airportâs strategic business plan. The business plan should strive to encompass broad strategies for the development of the aeronautical and nonaeronautical land and facilities at the airport. Inclusion or consider- ation of the local governmentâs policies or economic development goals is crucial to the successful implementation of the plan. Through the planning process, aeronautical and nonaeronautical property limits should be defined. The planning process will also allow for a conceptual under- standing of the revenue potential and highest and best use for each land parcel. This level of pre-planning will be required in order to obtain the necessary buy-in from the various agencies, including the FAA, which will be a critical factor in developing the follow-up marketing plan. In completing the business plan, or in parallel with a business plan, it is necessary to under- stand the specifics of distinct revenue generation at your airport. An evaluation, typically referred to as SWOT (strengths, weaknesses, opportunities and threats) analysis, with the self-assessment tools mentioned in the previous subsection, can be used to provide a realistic understanding of potential property uses and related upside revenue streams for the property designations. Establishing relationships with the local and state economic development agencies or coalitions benefits the airport, because these entities will be more familiar with the potential available development opportunities and may provide insights to understanding the hurdles of economic development, including the identification of local competing sites. As already stated, revenue generation is critical to the success of the airport and can lead to an increased fiscal self-sufficiency. Diversifying the airportâs revenue streams is necessary to accomplish this goal and, like for any business, will help ensure a steady flow of revenues during economic downturns. Common Revenue-Producing Activities Common revenue-producing activities include the standard aeronautical sources of fuel sales, fuel flowage fees or both; hangar leases; tie-down and ramp parking fees; ground lease for the construction of an aeronautical facility; and leases of terminal or office space for aeronautical
BusinessâFinancial and Administrative Management 39 purposes, such as flight schools or FBO operations. ACRP Synthesis 19: Airport Revenue Diver- sification addresses how airports can incorporate revenue diversification in their planning pro- cesses. ACRP Synthesis 19 focuses on aviation services, nonairline tenants and ancillary land use. A new challenge, especially for commercial service airports, is transportation network companies (TNCs), as addressed in ACRP Synthesis 84: Transportation Network Companies: Challenges and Opportunities for Airport Operators. When negotiating the terms of lease-based sources, an escalator clause such as the consumer price index (CPI) or periodic appraisals should be included in the agreement to ensure that the increased revenues will be available to offset the increased expenses. An additional source of revenue for concession-based airport businesses might include the percentage of gross sales, although these may be difficult to administer, because they require audits of tenant records. The proper use of strong lease terms is discussed in Section 3.6: Leases, which is an important element of revenue generation. Farming operations on undeveloped property may also be an option for some airports, as long as they are not carried out in runway and taxiway safety areas, do not exceed obstruction limits, do not create line-of-sight issues and are not a wildlife attractant. Lease terms for farmland should be relatively short term and renewed periodically through a bidding process in order to obtain the highest financial return. Lease terms can take into account and promote improve- ments to the farmland, such as drainage, to maximize the landâs productivity. Nonaeronautical revenue may also be generated from other sources, including restaurants located on the airport but that draw patrons from the community, and the short-term rental of vacant facilities or conference rooms for special events. Some airports with sufficient land area have also developed business or industrial parks on airport land. This may require an upfront investment by the airport sponsor to prepare the land for development and also requires an FAA land release for developing a nonaeronautical use. Nonaeronautical-development areas would include property for which there is no identified or master-planned long-term aviation need. This nonaeronautical designation should be the result of an airport planning process, and the land use must be depicted on an approved ALP. Depiction on the ALP is the first step toward a land release that is required to be obtained before airport land can be used for nonaeronautical uses. The practice of leasing aeronautical facilities for nonaeronautical uses on a temporary basis for revenue generation requires FAA approval on a case-by-case basis, pending the demonstration that the facilities are empty and without aeronautical demand and that acceptable leasing terms can be established that can return the facilities to aeronautical use when there is demand. Commercial service airports usually have a wider variety of additional revenue sources, including airline space rentals for ticket counters, offices, gates and baggage handling; landing fees for air carrier aircraft; parking, rental car, taxi and ride-share fees; space rentals for concessions; large aircraft maintenance, repair and overhaul facilities; advertising; and retail sales. Commer- cial development revenue sources, such as office buildings, business or industrial parks, rail and transport infrastructure, retail centers and logistic hubs, to name a few, are also a possibility for commercial service airports. The airport should establish expected performance indicators for all terminal-related revenue sources in order to track the performance of the various revenue sources and adjust lease and concession terms accordingly, when practical. Unique Opportunities for Revenue Generation In addition to the more traditional revenue sources, several unique revenue opportunities may be available to airports, as identified in ACRP Synthesis 19. These may include the extrac- tion of minerals, water wells and renewable energy sources, such as solar or wind farms.
40 Guidebook for Managing Small Airports ACRP Report 108: Guidebook for Energy Facilities Compatible with Airports and Airspace describes practices for aviation safety associated with the development of energy production facilities at and around airports. For example, the development of solar farms requires the air- port sponsor to check for glare impacts to controllers or pilots on final approach, as identified in the FAAâs Technical Guidance for Evaluating Selected Solar Technologies on Airports. This check can be done through modeling the potential glare. Height restrictions and the potential for impact on FAA radar facilities will dictate whether wind farms may be installed. These uses are considered nonaeronautical and will require a land release from the FAA for development. Recreational areas, such as golf courses or playing fields, can be considered. These types of recre- ational facilities should be established with caution because they may be designated a Section 4F recreational landâan environmental impact categoryâin the future and therefore may become difficult to close if the airport needs to develop that area. The temporary use of areas for special events, leasing or renting unused or closed pavements, and auctioning off airport equipment can also provide additional revenue to the airport. If an airport is pursuing renewable energy as a revenue source, ACRP Report 141: Renewable Energy as an Airport Revenue Source can be a guide. ACRP Report 141 includes case studies from airports that have implemented renewable energy projects. In accordance with the exclusive aeronautical rights provision for airports, commercial service airports can choose to perform aeronautical services that are more typically provided by the airlines. These servicesâsuch as marshalling, ground handling, baggage service and above- or below-wing servicesâhave become a valuable additional revenue source for some small commercial service airports. In the smaller commercial service markets, the provision of these services can help market the airport to new carriers that do not want to take on the added expense of hiring ground staff, and this concept can also help the airport ensure consistent, high-quality customer service. The provision of these nontraditional services must not interfere with the business requirements of air carriers, and a detailed business plan with a benefitâcost analysis should be made before initiating any new services. The provision of FBO services by airports is a concept that has gained significant ground over the last 20 years. Under the exclusive aeronautical rights provision for airports, many GA and small-to-large commercial service airports are providing exclusive FBO services. In a market with a reasonable annual fuel throughput of in excess of 500,000 annual gallons, this can be a very worthwhile additional revenue source. Great consideration and care should be taken by airport management to balance the many pros and cons of self-performing FBO services. However, numerous small airports have been successful in the provision of FBO services. ACRP Synthesis 86: Airport Operator Options for Delivery of FBO Services identifies the three types of FBO delivery optionsâtraditional lease, contract management and self-performanceâand explores the local factors used by airports to determine how to provide FBO services. A concept that is gaining momentum and beginning to demonstrate success at some airports is the development of nonaeronautical property in a nonaviation mixed-use, or âairport cities,â concept. The airport city concept is based on using the airport as a catalyst for surrounding development. While most of the current success has been at large airports, such as Dallas/Fort Worth and Denver, this concept is considered to be scalable to small airports. When developing the nonaeronautical revenue potential of the airport, the community should consider using transportation-related synergies, forming strategic alliances with indus- tries set to mutually benefit from the airportâs success and using private equity and expertise (publicâprivate partnerships, or P3s) as valuable tools. In this concept, the airport manager must think like a business manager and look beyond the airfield to visualize the airport and its potential.
BusinessâFinancial and Administrative Management 41 Revenue Generation and Diversification Best Practices The most critical aspects of developing and diversifying revenue sources at the airport are solid, strategic business planning; a self-assessment of internal capabilities; and defining success by adopting reasonable goals and expectations for the various programs. From this perspective, the airport manager should plan and execute at the strategic level before putting out âfor rentâ signs. General revenue generation and diversification best practices would include all of the strategic planning and proactive and organizational initiatives and would comprise the following: â¢ Initiating a master plan or business plan that will establish goals, identify opportunities, identify nonaeronautical property available for development, set reasonable expectations for success and provide a detailed, step-by-step implementation plan â¢ Self-assessment, a SWOT analysis or both to help assemble the necessary development resources â¢ Developing policy regarding rates and charges, approval for the use of P3 development, incentive program(s), developer or broker policy, property determinations or lease versus fee simple, and return-on-investment goals â¢ Documenting and understanding the legal, zoning, land-use planning, regulatory and FAA encumbrance implications for the nonaeronautical property site(s) â¢ Developing sustainability goals for the program: environmental sustainability through creative planning and design, and financial sustainability through asset management programs and sustainable development, such as solar farming, agricultural farming, etc. â¢ Setting goals or expectations for the program or programs with the governing body â¢ Implementation planning: site development, engagement of consultative and other resources and pre-investment in the site(s), in accordance with stated incentive and other policies â¢ Identifying and using private funding through P3s for aeronautical and nonaeronautical opportunities â¢ Constantly evaluating nontraditional revenue sources, such as self-performing aeronautical services and airport city development opportunities; brainstorming for local opportunities in farming, minerals, solar, etc. â¢ Developing a true entrepreneurial, property marketer or developer mindset among airport manager and local staff â¢ Developing solid partnerships with local economic development groups, industry and chamber organizations The foregoing list is for reference of the small airport industry. You must determine what can be done and customize your approach to revenue generation and diversification based on your local environment and your own opportunities. It is important to remember that almost all revenue generation and diversification programs that are successful today are scalable to all airports and their own individual development dynamics and circumstances. ACRP Research Report 176 provides airports with background on the legal requirements of commercial development at and around airports and tools to evaluate the potential at your airport. ACRP Report 47: Guidebook for Developing and Leasing Airport Property includes presentations on aeronautical-use development and nonaeronautical-use development that are available on the web page for the guidebook.
42 Guidebook for Managing Small Airports 3.5 Rates and Charges Key Insights Aeronautical lease rates should be based on an aeronautical market analysis, not on a non- aeronautical or off-airport property market analysis; these markets operate separately. Nonaeronautical properties must be appraised according to the local real estate market. Aeronautical rates and charges should be keyed to a local or regional aeronautical or airport market analysis. Information about rates and charges should be used as a baseline analysis for return-on- investment evaluations and policy decisions. A policy of rates and charges should be set by the airportâs policy board to ensure fundamental fairness and a proper return on public investment. Key Definitions Charges: A price paid for services rendered, such as fuel delivery. Fair market value (FMV): An estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market. Fuel flowage fee: Fixed fee added to each gallon of fuel pumped or percentage added to fuel purchased at the airport to support airport operations, which is generally collected from a private entity that provides the fueling services and remitted to the airport owner. Rates: A fixed price paid for something for which there is value, usually property, buildings or fixed assets. T-hangar: A hangar building, typically containing multiple units. This type of hangar derives its name from the shape of the interior of the units (in the form of a T), which increases the efficiency of the design so as to accommodate the wingspan and the tail section of an aircraft. Triple net lease: A lease in which the lessee pays rent to the lessor as well as all taxes, insurance and maintenance expenses that arise from the use of the property. Rates and Charges for GA Airports The airport has a responsibility to maintain the airport in a safe operating condition. Estab- lishing a policy for rates and charges that ensures a positive revenue flow to cover the costs for the operation and maintenance and capital development is critical for the airport to remain economically viable and self-sustaining. Airports generally set rates and charges for a wide variety of provided services and for facilities available to the flying public. Common rates for small airports without commercial services are as follows: â¢ Fuel flowage fees: Generally range from $0.05 to $0.15 per gallon at small airports but can vary based on local conditions, particularly if the fuel flowage fee is being used to fund a capital program. A percentage of fuel price may also be charged as a fuel flowage fee but can be harder to administer as it requires documentation because of price fluctuations.
BusinessâFinancial and Administrative Management 43 â¢ Tie-down fees: Typically, there are different rates for short-term (transient) and long-term tenants. Transient tie-down fees are typically per day and may be waived with a purchase of fuel or other airport services. â¢ Landing fees: Landing fees are less common at small airports, but some small airports that accommodate significant corporate traffic use landing fees to support operational costs. â¢ Hangar rental fee: Hangar rental rates are most commonly established in lease documents, but if space is available, an overnight hangar rental rate may be established for transient traffic. Section 7.1: Transitioning to Commercial Airline Use Service addresses the additional fees associated with commercial passenger service. Airport Compliance with Establishing Rates and Charges Rates and charges must maintain compliance with the airportâs grant assurances, particularly the following: â¢ Grant Assurance 22: Economic Nondiscrimination â¢ Grant Assurance 23: Exclusive Rights â¢ Grant Assurance 24: Fee and Rental Structure â¢ Grant Assurance 25: Airport Revenues â¢ Grant Assurance 30: Civil Rights FAA Order 5190.6: Airport Compliance Manual provides guidance to help airport operators establish rates within the framework of grant assurance requirements. Nonaeronautical rates are treated differently than aeronautical use rates, in that they need to be based primarily on a local fair market evaluation. The ratemaking best practice is to set rates and charges outside of lease documents and have the lease document refer to the rates and charges policy. The FAA also has available an FBO Industry Consolidation and Price Practices Question and Answer Memorandum regarding rates charged by FBOs. This allows the rates and charges to be adjusted on a routine basis, without the need for lease amendments. As a sample, the rates and charges for Gary/Chicago International Airport are in ACRP WebResource 6. The rates and charges should be reviewed on an annual basis and updated as required to ensure they are sufficient for the purpose intended. All leases and agreements should contain escalation clauses to ensure that the fees collected will grow in an amount equal to the rising cost of the operation and maintenance of the facilities. Leases are discussed in more detail in Section 3.6: Leases. When initiating the policy for rates and charges, it is critical to begin at a level that will ensure that the airport is not starting âin the hole.â Appraisals can, and in some cases are required to, be used to set the lease rate for property and buildings, including hangars. Return-on-investment goals are usually applied to property or facilities that have an out- standing debt service requirement or were funded by the airport sponsor. In this case, the lease rate should be equal to the annual debt service or the unamortized, self-funded value plus funds set aside for maintenance, utilities, administrative costs, etc., unless these require- ments are assigned to the lessee. If possible, the airport should also consider an additional fee to cover airport common-area operations and maintenance costs. When developing a return-on- investment policy, the best practice would be for the airport to consider, at a minimum, all cost components, including cost of capital, asset operations and maintenance, administrative costs and common-area costs, if applicable. To protect hangars from becoming storage units, compare the square-foot rate of the hangar to local off-airport storage units and, if possible, set the hangar rate slightly higher.
44 Guidebook for Managing Small Airports Market Evaluation Market evaluations consist of researching pertinent rate and charge data in similar repre- sentative markets. While there are many methods for conducting market evaluations, the most preferred method is surveys. Some state aviation agencies periodically, sometimes annually, conduct surveys that can be used to help determine appropriate charges. Results of the Wisconsin airport rates-and-charges survey are available online. An internet search on rates and charges may identify other studies as they occur over time. Also, some airports publish their current rates on their websites, which can be useful as a comparison. When conducting market evaluations by survey or interview, it is important to attempt to understand the underlying issues inherent to each airport that will cause its rates and charges to be skewed higher or lower than the overall market average. Detailed analysis is usually required in order to arrive at a true apples-to-apples comparison of rates and charges derived from the internet or via a survey. Rates-and-Charges Methodologies for Air Carrier Airports Airline rates-and-charges methodologies can be classified as residual or compensatory and are discussed in more detail in Section 7.2: Airline Use Agreements. However, for many years, the airport industry has employed a hybrid model that incorporates aspects of residual and compensatory models. In Chapter 18 of FAA Order 5190.6, the FAA defines these methodologies as follows: â¢ Residual: Agreements that permit aeronautical users to receive a cross-credit of nonaeronautical revenues are generally referred to as residual agreements. In a residual agreement, the airport applies excess nonaeronautical revenue to airfield costs to reduce air carrier fees; in exchange, the air carriers agree to cover any shortfalls if the nonaeronautical revenue is insufficient to cover all-in airport costs. In a residual agreement, aeronautical users may assume part or all of the liability for nonaeronautical costs. A sponsor may cross-credit nonaeronautical revenues to aeronautical users, even in the absence of an agreement. However, except by agreement, a sponsor may not require aeronautical users to cover losses generated by nonaeronautical facilities. A residual rate structure may be accomplished only through agreement of the users. As the FAA emphasizes in the compliance manual, as well as in its 2013 Policy Regarding Airport Rates and Charges, an airport sponsor cannot impose residual rate making on airlines and must obtain the residual guarantee through a bilateral agreement. â¢ Compensatory: An agreement in which a sponsor assumes all liability for airport costs and retains all airport revenue for its own use, in accordance with federal requirements. Aeronautical users are charged only for the costs of the aeronautical facilities they use. â¢ Hybrid: Sponsors frequently adopt ratemaking systems that employ elements of residual and compensatory approaches. Such agreements may charge aeronautical users for the use of aeronautical facilities, with aeronautical users assuming additional responsibility for airport costs in return for a share of nonaeronautical revenues that offset aeronautical costs. A hybrid ratemaking methodology should be a subset of residual ratemaking methodologies. A com- pensatory ratemaking methodology without a residual protection should not be classified as hybrid.
BusinessâFinancial and Administrative Management 45 3.6 Leases Key Insights Leases typically comprise a complex mixture of factors that represent a cost basis at a certain point in time. While each lease consists of the same or similar core elements, each particular lease arrangement must be carefully tailored to the specific circumstances and characteristics of a landlordâtenant relationship. It can be difficult to ensure the proper blend of lease term, rate of return or market rate, rate adjustment and reversionary requirements. Because leases are effectively long-term partnerships, they also need to ensure effective routine maintenance, the service levels expected, the capital investment required and the ability of the airport to inspect and take corrective action, if necessary. Key Definitions Base rent: A set amount, used as a minimum rent in a lease, with provisions for increasing the rent over the term of the lease. Effective rent: The actual rental rate to be achieved by the landlord after deducting the value of concessions from the base rental rate paid by a tenant, usually expressed as an average rate over the term of the lease. Fair market value (FMV): An estimate of the market value of a property, based on what a knowledgeable, willing and unpressured buyer would probably pay to a knowledgeable, willing and unpressured seller in the market. Graduated lease: A lease that includes variable terms. The variable terms are triggered to change after a specific event takes place, such as periodic appraisals, the tenantâs gross income changes or the passage of time. Land lease: A long-term land lease, generally for the purpose of erecting a building or buildings or for constructing improvements to the land to be used by the lessee. The lease should reference the airportâs rules, regulations and minimum standards. The land lease price per square foot could vary by location, possibly by the length of the term, and may be connected to a business permit or an FBO lease. Market value: The highest price a property would command in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably in the ordinary course of trade. Net lease: A lease for which the payments to the lessor do not include insurance and main- tenance expenses, which usually are separately paid by the lessee. Operating cost escalation: Although there are many variations of escalation clauses, all are intended to adjust rents by reference to external standards, such as published indexes, negotiated wage levels or expenses related to the ownership and operation of buildings. Renewal option: A clause giving a tenant the right to extend the term of a lease, usually for a stated period of time, and at a rent amount given in the option language.
46 Guidebook for Managing Small Airports Reversionary clause: The reversion of ownership of the improvements by the lessee to the landlord at the end of the lease agreement. Triple net lease: A lease in which the tenant pays rent to the lessor as well as all taxes, insurance and maintenance expenses that arise from the use of the property. Airport Lease Philosophy The nature and character of airport leases will vary, depending on the type of tenant and anticipated use of the airport property. Each new aeronautical lease represents a point in time, reflecting the market conditions, the investments to be made and services that must be rendered. Although equity among tenants with similar operations is an overarching goal, there will be differences between the tenants and leases due to the market forces prevalent at the time each lease is initiated. It is the responsibility and duty of the airport sponsor to control and set the stage for airport development projects. The airport sponsor is responsible for defining and finding the appropriate balance between revenue maximization through development and meeting the demands of airport users and the surrounding community. Additionally, the airport sponsor, as applicable, is typically responsible for coordinating with the applicable stakeholders, including local, state and federal agencies, as well as the local community and business organizations. Strong lease and rental agreement documents provide a clear understanding of the rights and responsibilities of the airport sponsor, as the lessor, and the lessee. A best practice agree- ment should provide the airport sponsor with control to act if the lessee is not meeting its obligations. The lease should be written to correlate, and in most cases directly cite, the airportâs minimum standards and rules and regulations. In the case of fees that are set by ordinance, the lease should reflect that those fees will be handled through the airportâs policymaking process and that the rates will be those in the ordinance, including if the rates change. For long-term leases, this provides the airport sponsor with the ability to adjust these other fees and rates as needed to support the airport operations without requiring the lease to be amended to incorporate new fees or rates. Written amendments should be prepared and signed by all parties to clearly document any changes to the lease or rental agreement. While lease and rental agreements reflect the point in time in which they are negotiated, the airport sponsor should always strive for lease and rental agreements and encourage aviation use and development, while enabling the airport to be, or make progress toward being, self-sustaining. Several FAA grant assurances are particularly applicable to leasing airport property: 5: Preserving Rights and Powers; 22: Economic Nondiscrimination; 24: Fee and Rental Structure; and 38: Hangar Construction. Preserving rights and powers ensures the airport sponsor will not deprive the airport of any of the rights and powers necessary to operate the airport to meet the grant assurances. The economic nondiscrimination and fee and rental structure require the airport operator to make the airport available for public use on reasonable terms and without unjust discrimination to all types, kinds and classes of aeronautical activities and that the airport is as self-sustaining as possible. This means that within the same classes of aeronautical activity, the terms need to be similar, but the terms can vary between classes of aeronautical and non- aeronautical activity. Also, the structure for fees and rentals requires the airport to be as self-sustaining as possible, meaning the airport manager must balance the revenue generated from aeronautical use with It is a best practice to set by ordinance certain fees that are subject to continual change, such as security fees, common-use fees and fuel flowage fees.
BusinessâFinancial and Administrative Management 47 the needs of the community. For nonaeronautical use on airport property, charging fair market value is the standard. The assurance for hangar construction enables the airport sponsor to enter a long-term lease for hangar construction and impose appropriate terms and conditions. ACRP Legal Research Digest 23: A Guide for Compliance with Grant Agreement Obligations to Provide Reasonable Access to an AIP-Funded Public Use General Aviation Airport provides additional information about the grant assurances that limit the sponsor from unreasonably restricting access for aeronautical activity at GA airports. Keeping these grant assurances in mind when seeking to establish new airport property leases, the airport sponsor must begin the process with a strategic overview of the existing leases (if any), as well as the strategic goals and leasing policy of the organization. A best practice, especially at small airports with multiple leases, is to develop a leasing policy as described in Section 6.2.1 of ACRP Report 47: Guidebook for Developing and Leasing Airport Property, which is approved by the airportâs policymaking board. The leasing policy establishes standard terms and require- ments to serve as a leasing and airport development guide and provides a fallback position to aid in lease negotiation. It should also correlate with the airportâs minimum standards. While strategically targeted industries can always be incentivized through beneficial lease terms, the airport must seek to promote a balance between economic development and the business needs of tenants. Common Types of Airport Leases As described in ACRP Report 47, there are many common types of airport lease agreements: â¢ Airport land lease: One of the most common types of leases at an airport is an agreement that leases a parcel of airport land to a tenant, who in turn is responsible for developing, improving and maintaining the property. These leases contain terms regarding the rever- sion or disposition of the development at the end of the lease and any terms to extend the lease. These are typically long-term leases to allow the developer to receive a return on its investment. â¢ Airport land lease option or first right of refusal: This type of land lease allows the airport a nominal ground lease payment by offering the option holder a longer-term control of a land parcel. The airport must balance the expected annual option payment with the relinquishment of control of the parcel over the option term. â¢ Airport building lease: Similar to a land lease, except the airport owns the building and leases the building and ground to the tenant. These leases will vary, based on the type of operation using the building and whether there is investment required by either the lessor or lessee, for which a return on investment is needed. â¢ Hangar rental agreement: When the airport owns a hangar facility with multiple tenants storing aircraft within a building such as a T-hangar or community hangar, a hangar rental agreement is the typical leasing document. Hangar rental agreements tend to be a shorter initial term with an established renewal process or notice for terminating the lease after an initial lease period. â¢ FBO lease: A multifaceted lease, which provides for the operation of an aviation service business that offers a variety of services required or allowed in the lease, typically described in the airportâs minimum standards. An FBO lease may encompass land and building leases and the payment of fuel flowage fees, a percentage of gross revenue or both. This type of agreement may also include development rights to unimproved land. â¢ Specialized aviation service operator (SASO) lease: This type of a lease allows the tenant to provide specific specialized aviation products or services. The airportâs minimum standards are used to describe the SASO services allowed while avoiding unfair competition with a full-service FBO at the airport. The SASO lease may be with the airport sponsor or with an
48 Guidebook for Managing Small Airports FBO to enable the FBO to provide all the required services within its lease. An example of SASO is a flight school that only provides flight instruction but no other aviation services. â¢ Airline lease: Air carriers lease space in and around the terminal to carry out their core activities, including ticketing, passenger check-in, baggage handling, etc. Chapter 7 provides information related to commercial service operations at small airports. â¢ Concession lease: Other businesses that complement the aviation operations, such as a restau- rant or rental car operation, may lease space from the airport. Concession leases may include a minimum annual guarantee (MAG) of the amount to be paid to the airport based on a per-square-foot rate or a percentage fee of gross revenues, with revenue sharing when revenues exceed the MAG to benefit the airport and incentivize the tenant. Concession leases also typically include requirements related to product offerings, operating hours or lease space improvements, if desired, during the lease term. â¢ Nonaeronautical-use lease: Not all tenants at an airport may operate an aircraft or provide an aviation-related service. This type of lease will be specific to the type of nonaeronautical land use while complying with FAA grant assurance conditions, if the property was originally purchased through a federal grant. A common nonaeronautical-use lease on small airports is for farming operations. â¢ Farmland lease: A lease of airport-owned land that can be agriculturally used to generate revenue without impairing its function as a buffer for airport operations. This type of lease should include any restrictions and requirements for the agricultural operations. It should also include language that provides the airport sponsor with the ability to develop that land, as needed. â¢ Sublease: Subleases are typically between tenants on the airport and an additional private tenant. Standard airport lease or rental agreements should include provisions that regulate the legal authority of a tenant to sublet all or a portion of a property it leases from the airport sponsor, and the requirement to obtain approval from the airport sponsor prior to subleasing the property. Sublease agreements must also conform to the airportâs minimum standards. ACRP Legal Research Digest 30: Contract Risk Management for Airport Agreements also provides a general overview of the types of agreements, including leases as well as other airport agreements and the risks associated with each type of agreement. The FAA does not allow lease terms longer than 50 years and encourages shorter terms. Common Lease Elements An airport land or building lease agreement template, a hangar lease agreement template and a farmland lease agreement template are included in ACRP WebResource 6 (crp.trb.org/acrp0132). The farmland lease agreement template has sample conditions specific to agricultural opera- tions. While FBO and SASO leases are more specific to the operation at each airport, they are typically built upon a land or building lease with additional operating requirements. The templates in ACRP WebResource 6 are intended as a starting point and must be customized through a local legal review to ensure that all applicable local, state and federal requirements are incorporated. The primary difference between a land or building lease and a rental agreement is that, for the land or building lease, the lessee has the responsibility for and control over the operation of the building. In a rental agreement, the lessee is obtaining the right to occupy the space, but the responsibility for and control of the building typically remain with the lessor. A rental agreement includes many of the same elements as a land lease, except for the elements associated with the operations and maintenance of the facility, because that responsibility would typically rest with the lessor.
BusinessâFinancial and Administrative Management 49 Lessor The lessor is the owner of the property that is being leased. This is typically the airport sponsor or controlling agency with the authority to enter into contractual agreements. Contact infor- mation for the lessor for the notification of changes is included within the lease. Lessee The person or business leasing the property from the owner. If the tenant of the facility will operate under a different name than the signatory of the lease, as in âdoing business asâ (dba), the dba entity is identified as well. A contact person for the lessee for the purpose of notification is included in the lease. Premises The premises, or leased area, define the land and improvements subject to the lease agree- ment. It should include a legal description of the premises, including size and location, included improvements and equipment. It is recommended that a leasehold site exhibit be included in addition to the legal description of the property. In the case of a new development, it is highly recommended that the exhibit be prepared and certified by a land surveyor. If, in addition to the lease area, the lessee is leasing an option area or area of first right of refusal for future development, it should also be identified as part of the premises. With a rental agreement, the premises are typically identified by a hangar name or unit number and its address, rather than a legal description of the property. An exhibit may or may not be included with a rental agreement. The lease should document that the lessee is familiar with the existing conditions of the premises and accepts the premises in the existing conditions. A leasing best practice is to include a condition that the premises are returned to the airport in the same or similar state of repair at the termination point of the lease. Use of Premises This states what activities can and cannot be performed within the leasehold. For example, if the lease is for a private hangar, it may exclude commercial activity or may limit what can be stored in the hangar. The lease should also state if the use is limited to aeronautical use or not. This portion of the lease must be specific to the individual lessee. The lessee should be required to abide by the airportâs minimum standards and operating rules and regulations, including any future changes. The lease document may include language requiring the lessee to acknowledge receipt and an understanding of the airportâs minimum standards and rules and regulations. For commercial aviation operations, the required and allowed commercial activities should be identified as part of the lease. The right to, or prohibition of, the fueling of aircraft should also be addressed in the lease, directly or by reference to the airportâs minimum standards for that type of operation. This section may also detail the financial and maintenance responsibilities of the lessee. If the leased premises, such as a hangar, cannot be accessed from a public roadway, the lease should also specify any requirements for the operation of vehicles on airport pavements. The lease or rental agreement should also indicate where the lessee-owned or lessee-operated private vehicles can or cannot be parked. If the airport issues an access card to lessees, a security deposit for the card and an annual check of the cards are recommended for accountability. It is a security best practice that the airport have a system in place to ensure that access cards are being properly used by tenants. The airport rules and regulations should stipulate how these
50 Guidebook for Managing Small Airports cards will be used and cover penalties for misuse and the passing of access cards to unauthorized individuals. Lease Term, Option to Renew, Right of First Refusal and Holdover The lease term should state the fixed period of time for which the lease is in effect. The length of the lease will typically align with the investment in the facilities. For new construction, typical airport lease terms range from 20 to 30 years. The FAA advises against longer lease terms and considers any term longer than 50 years to be a de facto, fee simple transaction. State regulations may also cap the term for a lease of public property. The term section may also include options or renewal periods that can be exercised by the lessee, and any associated notice or other require- ments that must be met. An example of this would include a minimum investment required in order to exercise the lease option term. For instance, a 20-year lease may have two 5-year options with a 90-day notice requirement and a specified capital investment to be made by a specific date in order to exercise the out-year options. When the lessee is required to construct a new facility as part of lease requirements, the lease may also grant a right of first refusal for the lessee at the end of the lease term and option periods. This means that the airport sponsor can offer the premises to other entities, but the original lessee has the first right to lease the premises at the terms offered by the other potential lessee. Holdover provisions allow the airport sponsor to extend the terms of a lease, in the event the airport sponsor and lessee desire to continue the agreement but a new lease is not yet in place. Typically, holdover provisions continue on a month-to-month basis under the previous terms or other specified terms. The holdover provision should specifically state that it is not a lease extension agreement. The most common term of a rental agreement for existing hangar space, such as in a T-hangar or community hangar, is one year from a specified commencement date. Rent and Escalation Clause The rental rate should be based on the market value of the property following the airportâs leasing policy, a required return-on-investment hurdle or other method to determine market value. Some methods used to determine market value include appraisal, a comparison to similar facilities, and competitive offers and should consider if a below-market incentive has been made in order to attract a specific type of development to the airport. If leasing the property to another public entity at a less-than-market rate, the airport should receive an operational or in-kind benefit in return for the lower rate. For example, an airport may lease property to the local fire department in return for having emergency services available at the airport. Best leasing practices include a written leasing policy that addresses how and how often lease rates would be modified as a means of protecting airport management from entering into poorly performing business deals. The rental agreement section should identify how the lease payment is derived, such as per square foot, plus any additional costs, such as a security fee, common-use maintenance fee, fuel flowage fee, self-fuel fee and percentage of tie-down or landing fee for commercial operators. The lease should clearly state the amount of payment per period. Typical payment periods are per month, quarter or year. This agreement section should also identify the day by which the payment is due, such as the first business day of the month, and the additional costs associated with late payments. A 10- to 15-percent late payment fee is common. It should also identify the location where the payment is to be delivered. Any lease for a period of more than a year should also include an adjustment for inflation. The U.S. Department of Laborâs CPI is commonly used by airports as an adjustment tool. The It is a best practice to handle certain fees that are subject to continual change, such as security fees, common-use fees and fuel flowage fees, to be set by ordinance.
BusinessâFinancial and Administrative Management 51 increase in the lease rate is indexed to the increase in the CPI, typically with language prohibiting a decrease in the lease rate. In certain metropolitan locations, a locally generated price index may be preferable to using the broader-based CPI. Some lessees may desire to include a maximum increase amount for the entire term, such as not to exceed 50 percent. It is recommended that adjustments occur every 1 to 3 years and no less frequently than every 5 years. On leases with a term of 20 to 30 years, especially if they include buildings, it is also desirable to include the opportunity to reappraise the property at least every 10 to 15 years to adjust beyond that allowed under a CPI adjustment. When this reappraisal provision is included, typically the right to request the reappraisal is provided to the lessor and lessee, with the party that requests the reappraisal paying the reappraisal costs. Reappraisal is also recommended when initiating a new option period. Many hangar rental agreements will automatically be extended or renewed for an additional rental period or up to a specified number of additional rental periods. When the lease can be automatically extended, the airport sponsor should include the right to adjust the rental rate in the agreement on an annual basis. If the agreement needs to be re-executed for each additional rental period, the rate adjustment can be included in the new agreement. Security Deposit The type of deposit or security fee and the conditions under which it is to be paid and returned to the lessee should be identified in the lease or rental agreement. Depending on the use of the premises in the lease, the security may range from a deposit to a surety bond or letter of credit. If the lessee will construct new improvements, as part of the construction, the airport sponsor should require a performance and payment bond to protect its interest in the facilities under construction. If environmentally sensitive operations are to be conducted, an environmental liability insurance policy should also be required. Taxes and Fees While the airport sponsor as a public entity is likely exempt from many taxes and fees, the lessee as a private developer on airport property or aircraft owner may or may not be exempt, depending on local and state regulations. The lesseeâs responsibility to pay these taxes and fees should be stated in the agreement. Aircraft Especially with hangar rental agreements, in addition to identifying the lessee, a best practice is to identify the aircraft that is to be stored in the space, with the requirement that the lessee notify the lessor of any change in aircraft. This assists the lessor in documenting the use of the space for aviation purposes. At some airports, hangar space is in high demand, and it is therefore in the airport sponsorâs best interest to have active airworthy aircraft hangared at the airport. While there may be periods of time when an aircraft is undergoing maintenance or repair, a best practice is to require notification by the lessee of hangar space to the lessor if an aircraft is inoperable for more than a set period of time, such as 60 to 120 days. For aircraft out of service longer than the notification period, the lessor should have the right to grant an extension if there are factors beyond the lesseeâs control, such as obtaining parts. Also, the FAA allows the final stages of construction of an experimental aircraft to occur within airport hangars. The lessor can allow this but may want to include a schedule or some reporting requirement to ensure progress is being made toward completion of an airworthy aircraft. If the lease will automatically renew, the airport sponsor should include the right to adjust the rental rate annually, at the discretion of the lessor.
52 Guidebook for Managing Small Airports An airport may allow a hangar to be leased while an aircraft purchase is pursued. If the lessor wishes to allow this, a best practice is to include a specified period in which the purchase needs to occur. If the airport has unused hangar space and no aviation demand, the FAA allows for a short- term lease for nonaeronautical use, but the lease must include the ability to terminate quickly to revert to aviation use when and if there is demand. Rights, Reservations and Obligations of Lessee and Living Clauses A building or ground lease should specify the rights of the lessee, such as ingress and egress, signage within specified limits, quiet enjoyments (possession and unimpaired use of the leasehold) and approved additions or improvements to the facility. If new improvements are being made to the leasehold as part of the agreement, the lease agreement should specify the size and type of improvements, value, approval of plans requirement, schedule for completion and other associated details. For hangar rentals, to control changes to airport sponsor-owned property, any alteration to the hangar or facility under lease should be required to be preapproved by the airport sponsor. The rental agreement should indicate that any changes become the property of the lessor. Operation and Maintenance A building or ground lease should clearly specify the division of responsibility between the lessee and lessor for the cost to maintain the leasehold and the standards to which it will be kept. Common responsibilities of the building or grounds lessee include keeping the area clean and free of trash, mowing grass and removing snow on the immediate premises and meeting applicable environmental regulations. This section of the lease should also address who pays for utility costs and trash removal. Provisions should be included within the lease to allow the airport sponsor to address operations and maintenance needs if they are not being adequately performed by the lessee and to cover the ability to back-charge the lessee for the work. In a rental agreement, typically, the lessor has the responsibility to maintain the hangar in decent, safe and sanitary conditions by making necessary repairs. The lessee also has the responsibility to keep the hangar in the condition accepted, except for normal wear and tear. The requirement to keep the hangar in a clean and safe condition is typically part of the rental agreement. Sublease, Assignment or Sales Restriction The lease or rental agreement should either exclude the ability of the lessee to sublease, assign or sell their property lease rights or, if the ability is included, require prior approval of the lessor. The terms of this section should align with the type of facility and the lesseeâs investment in the facility. If the lessee builds a hangar on a 30-year lease, allowing for the sublease or sale of lease rights for the property may be reasonable, with lessor approval. If the lessor owns the hangar, restricting the right to sublease and instead allowing for a termination of the lease may provide more appropriate control to the airport sponsor. Some airports lease land with the anticipation of the property being developed and sold or leased to an end user. Leases for this type of develop- ment should allow for transactions, such as sale or lease with the appropriate notice and approval. A lessor can also include a transaction fee, as a percentage of the sale price as part of a lease, so that the airport sponsor can receive a benefit to cover its associated transactional costs. Defaults The lease should identify the conditions or defaults that allow the lessor to prematurely terminate the lease, such as a declared bankruptcy; death; incompetency; failure to abide by
BusinessâFinancial and Administrative Management 53 the requirement of the lease; failure to timely pay rent, taxes or fees; failure to provide proof of insurance; inappropriate or illegal use of the airport property; or abandonment of the property. In addition to identifying the defaults, the section should include actions the lessee can take to cure a default. Liens Financial costs associated with improvements on airport property funded through a lending institution typically require some sort of security for the face value of the loan. A lien can be established against the improvement, but a lien on the property itself must be excluded in the lease agreement, because this would be considered a lien against the property interests of the FAA and would, therefore, be restricted. Insurance To protect the airport sponsor from liability and to protect the investment on the leasehold, the lease should specify the types of insurance and minimum levels of coverage required to align with the use of the leased premises. Commonly required types of insurance for building or ground leases include property (structure and contents), general liability (bodily injury and property damage), automobile (if operating vehicles on the airport), hangar keepers (to cover aircraft storage) and environmental. A rental agreement should document that the lessor is not responsible for loss by the lessee due to theft, fire, rain, wind, hail or other casualty. It should also specify the general liability and property damage insurance required to be maintained by the lessee for the term of the hangar rental agreement and the requirement to provide a certificate of insurance to the lessor. Some airports also require the aircraft owner to maintain hull insurance on the aircraft. The level of insurance required should be specified to align with the local conditions. The lease should require the airport sponsor to be included as an additional insured on the coverage, and copies of the certificate of insurance must be provided to the airport sponsor on an annual basis as the policies are renewed. The lease should also clearly state that the lessor does not insure the lesseeâs property on or within the premises. Indemnification The lease document should include language for the tenant to hold harmless or indemnify the airport sponsor from legal action that may be filed against the lessee. Many airport leases also include language to provide some level of indemnification for the lessee in the case of negligence by the airport sponsor or its agents. Compliance with Regulations The lease should include the requirement that the lessee recognizes and meets all federal, state and local laws, including future changes in such laws. Based on the type of operations, some additional details regarding environmental laws or stormwater may also be specified in the lease, such as compliance with stormwater regulations being a lesseeâs responsibility. If the use of the leased premises involves the handling or generation of any hazardous waste, additional provisions to address these activities should be included in the lease documents. For airports that accept federal funding, the agreement should also be subordinate to existing and future FAA regulatory changes. The installation and operations of any underground or above-ground storage tanks should require approval by the airport sponsor and associated permit and operator training compliance with federal, state and local laws, whichever are applicable. For leaseholds serving the general
54 Guidebook for Managing Small Airports public, or new development, lease provisions for complying with the requirements of the Americans with Disabilities Act will be necessary. FAA Approval and Requirements Airport sponsors receiving AIP grants are bound by the associated grant assurances. Grant Assurance 30: Civil Rights prohibits discrimination on the grounds of race, creed, color, national origin, sex, age or disability. Tenants leasing airport land fall within these requirements, so the airport sponsor should include nondiscrimination language in its lease agreements. Also, to comply with Grant Assurance 23: Exclusive Rights, the lease should include language indicating the airport is not granting an exclusive right to the lessee. This is particularly important for leases to commercial aviation services operators. To protect a lessee from unfair competition, the airportâs minimum standards document should specify the minimum facility and operational require- ments for entities providing like services. FAA Order 5190.6, Appendix O lists general lease clauses for all airport agreements and for agreements that provide services to the public. Rights, Reservations and Obligations of Lessor The lease should include the airport sponsorâs right to access the property for inspection or to show the property prior to the expiration of a lease. The lease should identify the lessorâs notice responsibilities that will be provided prior to inspection. The lease should include the right, but not the obligation, of the lessor to maintain and operate the airport. It should also include the right of the airport sponsor to close airport facilities for construction, special events or the publicâs safety as well as conduct aeronautical activities on the property. The lessor should also maintain the right to relocate or acquire and remove the facilities, if needed, to develop the airport to meet the requirements of Grant Assurance 5: Preserving Rights and Powers. Force Majeure The force majeure provision of an airport lease addresses unavoidable causes, typically for the delay of capital projects due to acts of God and natural disasters. This clause is particularly important if the lease includes a schedule for completion of improvements by the lessee or airport sponsor. Disposition of Improvements Upon Lease Termination For facilities constructed by a private investor on leased airport property, the lease must address the disposition of the improvements at the conclusion of the lease and any option periods. Traditionally, leases were written so the improvements reverted to the ownership of the airport sponsor. This provision is still used by many airport sponsors. The primary challenge with reversion clauses is that in the final years of the lease, the lessee does not have an incentive to continue good maintenance of the facility. Depending on the length of the lease and the expected life of the facility, some airport sponsors include the requirement for the lessee to remove the improvements and return the property to predevelopment conditions, unless the airport spon- sor allows the improvement to remain and be turned over to airport ownership. Including the removal language provides the airport sponsor the potential benefit of reversion of the asset as well as protection, if the asset is in poor condition and needs to be removed. This provides some incentive for the lessee to maintain the property, because the lessee would ultimately bear the removal costs. Another variation used by some airports at lease termination is to allow the lessee to remove or sell the improvements, with the airport sponsor having the right of first refusal to acquire the improvements at an agreed-on price. ACRP Report 47 includes several case studies. One of the case studies includes an airport that becomes 75 percent vested in the improvements to the property over the lease period, with the lessee retaining 25 percent interest at the termination
BusinessâFinancial and Administrative Management 55 of the lease. In this example, the airport sets aside funds to acquire the remaining 25 percent interest if the tenant wishes to vacate the facility. However, by the tenant retaining an interest in the facility, it has an incentive to continue the maintenance and upkeep, because that would maintain or increase the tenantâs asset value. The rental agreement should stipulate the specific steps and what will occur at the end of the lease term, so that there are no misunderstandings regarding the return of the rental space to the lessor. Governing Law The lease should specify the state laws that will govern the agreement. This is typically the state in which the airport is located. Other Legal Clauses Other legal clauses typically included in a lease agreement include the invalidity of clauses (if a portion of the lease is found invalid, the remaining portions will remain in effect), para- graph headings (as a guide, not part of the context of the agreement), relationship of parties, corporate tenancy, attorneyâs fees, entirety of agreement (any changes only by written agreement) and gender neutrality of terms. The responsibility for attorney fees associated with enforcing the agreement should be documented in the agreement. The lease should also indicate the manner in which any legal matters will be settled related to the lease, such as arbitration or waiver of jury trial. The lease should also specify the responsibility for legal fees in the event legal action is required. Amendments The lease should indicate that any changes will occur in writing, typically in the form of an amendment. It may also indicate that if the lessor elects to waive a requirement, this action does not change the lesseeâs other responsibilities. Notice The provision for how notice is to be provided, and to whom it is to be provided, should be part of the hangar rental lease agreement. Updating this information when it changes should be a requirement included in the lease agreement. Signatures The signature section should include the signature, printed name of the signatory and the title of the signatory for the lessor and lessee. It may also include a section to allow a witness to attest to the signatures. When there are changes to a lease, they should be documented as an amendment to the original lease and identify what terms changed and what terms are the same.
56 Guidebook for Managing Small Airports 3.7 Airport Operations Documents Key Insights While not encouraged by the FAA, through-the-fence access to GA airports is not a violation of grant assurances, provided the FAA-required terms are met. An airportâs minimum standards provide a âlevel playing fieldâ for businesses to operate and compete at an airport. Airport rules and regulations provide the baseline for the conduct of businesses and tenants at the airport. Key Definitions Aeronautical activity: Any activity that involves, makes possible or is required for the operation of aircraft or that contributes to or is required for the safety of such operations. Federal grant assurance: A provision of a federal grant agreement to which the recipient of federal airport development assistance has agreed to comply. Fixed-base operator (FBO): A commercial business granted the right by the airport sponsor to operate at an airport and provide aeronautical services, such as fueling, hangaring, tie-down and parking, aircraft rental, aircraft maintenance, flight instrument, etc. Minimum standards: Sponsor-established minimum service levels and development space requirements for commercial aeronautical activities at the airport. Rules and regulations: The document adopted by the airport sponsor to govern the general conduct of the public, tenants, employees and commercial users of the airport. Specialized aviation service operator (SASO): Sometimes known as single-service providers or special FBOs, performing less than full service. These types of companies differ from a full- service FBO in that they typically offer only specialized aeronautical service, such as aircraft sales, flight training, aircraft maintenance or avionics services. Through-the-fence: Access to the airfield granted by the sponsor of a public airport to a person or business that owns property adjacent to the airport for the personâs or businessâs aircraft, or authorized aircraft to taxi onto and use the airport. Minimum Standards In accordance with the Airport and Airway Improvement Act of 1982, U.S.C. Title 49 and the AIP sponsor assurances, the owner or operator of any airport that has been developed or improved with federal grants or conveyances of federal property assistance is required to operate the airport for the use and benefit of the public and to make it available for all types, kinds and classes of aeronautical activity. ACRP Synthesis 74: Combining Mixed-Use Flight Operations Safely at Airports discusses the challenges with accommodating multiple classes of aeronautical activity, except seaplanes, at an airport. ACRP Synthesis 61: Practices in Preserving and Developing Public-Use Seaplane Bases specifically addresses seaplanes. These federal obligations involve several distinct requirements, the most important of which is that the airport and its facilities must be available for public use as an airport. The terms imposed on those who use the airport and its services must be reasonable and applied without unjust discrimination, whether by the airport sponsor or by a contractor or licensee that has
BusinessâFinancial and Administrative Management 57 been granted a right by the sponsor to offer services or commodities normally required to serve aeronautical users of the airport. The establishment of minimum standards at an airport, while optional, is highly recommended by the FAA as a means for airports to minimize the potential for violations of the grant assurance at small airports that have accepted federal funding. FAA Advisory Circular 150/5190-7: Minimum Standards for Commercial Aeronautical Activities provides basic information about the FAAâs recommendations for commercial minimum standards and related policies. During development of minimum standards, while not mandated by the FAA, it is recommended that the FAA be provided an opportunity to review and comment on the minimum-standards document prior to adoption. Additionally, the minimum standards should be incorporated into lease documents by reference. The FAAâs objective in recommending the development of minimum standards serves to promote safety in all airport activities, protect airport users from unlicensed and unauthorized products and services, maintain and enhance the availability of adequate services for all airport users, promote the orderly development of airport land and ensure efficient operations. There- fore, airport sponsors should strive to develop minimum standards that are fair and reasonable to all aeronautical service providers at airports and that are relevant to the aeronautical activity to which they are applied. Any use of minimum standards to protect the interests of an exclusive business operation may be interpreted as granting an exclusive rightâa potential violation of the airport sponsorâs grant assurances and the FAAâs policy on exclusive rights. The minimum standards should describe for each class of commercial operation on the airport the minimum levels that must be met to operate at the airport. ACRP Legal Research Digest 11: Survey of Minimum Standards: Commercial Aeronautical Activities at Airports explores current practices in the area of minimum standards. These minimum standards typically include the following: â¢ The amount of land required to be leased â¢ The size of the building to be constructed or leased, with the required amount of office space, public areas including restrooms, and storage and shop areas â¢ The size of the aircraft parking area â¢ The minimum number of employees and their required licenses or certifications â¢ The required hours of operation â¢ The number of vehicular parking spaces â¢ The types of services required and allowed to be provided for each class of operator â¢ The number of aircraft to be owned or leased by the operator â¢ The insurance requirements for each type of operation These minimum standards should not be developed as one size fits all; they should be tailored to the size and type of operations at the airport. For example, a full-service FBO will need more land, hangars and office space and may be required to offer more services than an SASO would. Therefore, separate minimum standards should be set for each class of business. When developing minimum standards, consider the following: â¢ Apply standards to all providers of aeronautical service, with standards right-sized to each type or class of business at, or potentially at, the airport. The minimum standards for a full- service FBO will differ from a single-service provider, but each provider within the respective class must meet the same standards. â¢ Impose conditions that ensure the safe and efficient operation of the airport per FAA rules, regulations and guidance. â¢ Ensure that standards are reasonableânot unjustly discriminatoryâattainable and uniformly applied to protect the aeronautical service providers that make the investment to meet the minimum standards from competition that is not making a similar investment. Minimum standards assist an airport in meeting its grant assurances and protect airport businesses from unfair competition.
58 Guidebook for Managing Small Airports â¢ Ensure that standards are relevant to the activity to which they apply. â¢ Ensure that standards provide the opportunity for newcomers that meet the minimum standards to offer their aeronautical services within the market demand for such service. â¢ Ensure the minimum standards also protect the rights of aircraft owners to conduct permitted activities on their aircraft. FAA Advisory Circular 150/5190-7 includes questions and examples to help develop and implement minimum standards. FAA Order 5190.6 Appendix O contains sample minimum standards. ACRP WebResource 6 also includes a sample minimum standards document that can be edited to fit your airport. Rules and Regulations Rules and regulations are typically developed and adopted to provide for the operation and management of the airport, to ensure the adequate protection of the health, safety and welfare of the traveling public, airport tenants and area residents. Because the people using the airport may not be lessees or bound by other legal documents, it is advisable to institute rules and regulations to control the conduct of these individuals. The rules and regulations should be adopted by ordinance to make them enforceable and be incorporated into lease documents by reference. The rules and regulations can be wide-ranging and generally address items such as: â¢ Public parking areas â¢ Smoking and nonsmoking areas â¢ Abandoned vehicles and aircraft â¢ Security badging requirements â¢ Operation of vehicles on the airport and driver training requirements â¢ Aircraft operations (although these cannot conflict with federal regulations) â¢ Aircraft tie-down requirements â¢ Engine run-up areas â¢ Safety hazards â¢ Matters of personal conduct FAA Order 5190.6 Appendix P contains sample rules and regulations. ACRP WebResource 6 (crp.trb.org/acrp0132) contains sample rules and regulations that can be edited to help develop airport rules and regulations. Through-the-Fence Operations While through-the-fence operations are discouraged by the FAA, they are permitted sub- ject to Section 136 of the FAA Modernization and Reform Act of 2012 and FAA Order 5190.6, Section 12.7. For residential through-the-fence access, GA airports may enter into an agreement with property owners, or an association representing property owners, provided the agreement complies with the specific terms and conditions of the law. The airport sponsorâs primary obligation remains to serve the interest of the aeronautical public. Airport sponsors considering a through-the-fence agreement need to work with the FAA to ensure their proposals are as follows: â¢ Are consistent with current and future plans for the airport â¢ Comply with the terms and conditions of Section 136 â¢ Do not impede the sponsorâs ability to comply with its federal grant assurance The obligation to make an airport available for the use and benefit of the public does not require the airport sponsor to permit ground access by aircraft from adjacent property.
BusinessâFinancial and Administrative Management 59 If through-the-fence access is established, or for such access already in place, it must meet the following conditions: â¢ There must be a written agreement that: â Identifies the duration of the agreement, the rights conveyed (which cannot be more favorable than those received by on-airport tenants) and the responsibilities of the user and airport sponsor; â Includes legal indemnification for noise and emissions and waives the right to bring action against the airport; â Includes a hazard removal clause; â Requires the user to comply with airport rules and regulations; â Imposes any special rules on fly-in guests; â For residential through-the-fence, prohibits the provision of aeronautical services, unauthorized users to pass through the property to access the airport, and the sale of fuel; â Allows the airport sponsor to terminate the agreement for a breach of the agreement or violation of rules and regulations; and â Identifies the access point(s). â¢ Through-the-fence users must bear the cost of building and maintaining the infrastructure the airport sponsor determines is necessary for access to the airfield. â¢ Users must pay access charges similar to those charged to tenants and operators making similar use of the airport. The agreement should specify the fee, schedule and method of collection. â¢ The agreement must address whether the transfer of rights is allowed. The FAA encourages the transfer to not be allowed and, rather, if an owner sells his or her home, a new agreement be executed between the airport sponsor and the new owner desiring through-the-fence access. The FAA Residential Through-the-Fence Access Toolkit provides numerous resources for airport sponsors considering through-the-fence operation or desiring to bring existing through-the-fence operations into compliance with current law. ACRP Report 114: Guidebook for Through-the-Fence Operations also provides guidance and includes a worksheet for assessing through-the-fence operations.
60 Guidebook for Managing Small Airports 3.8 Complaints Under FAR Parts 13 and 16 There are two types of complaints that can be filed against an airport sponsor. Airport complaints are for issues dealing with compliance with federal obligations usually contained within the grant assurances or property deed restrictions. While not common, if a complaint is filed against an airport, it will cost the airport operator time and, likely, money for legal services. Compliance with the grant assurances helps an airport minimize complaints. Complaints made under FAR Part 13 are referred to as informal complaints, and FAR Part 16 complaints are referred to as formal complaints. They differ in the FAA staff (regional versus headquarters) that reviews the complaint, the process and timelines. The FAA Complaints About Airport Compliance web page offers additional information about the two forms of complaints and the associated processes. Key Insights An airport manager should strive to address issues before they arise to a complaint level. Meeting the grant assurances and property deed restrictions and uniformly applying all airport rules and regulations, the minimum standards for commercial aeronautical activities and lease requirements and obligations will assist the sponsor in avoiding complaints. The complaint process is contained within FAR Parts 13 and 16. Key Definitions Federal Aviation Regulation (FAR) Part 13 (14 CFR Part 13): An informal airport complaint process. Federal Aviation Regulation (FAR) Part 16 (14 CFR Part 16): A formal airport compliance process. FAR Part 13 Informal Complaints FAR Part 13: Investigative and Enforcement Procedures complaints may be made to, and are handled by, the governing FAA Airports district or regional office. Any violation of the Federal Aviation Act of 1958, as amended; the Hazardous Materials Transportation Act, relating to the transportation or shipment by air of hazardous materials; the Airport and Airway Development Act of 1970; the Airport and Airway Improvement Act of 1982, as amended by the Airport and Airway Safety and Capacity Expansion Act of 1987; or any rule, regulation or order issued thereunder should be reported to appropriate personnel of any FAA regional or district office. The FAA published a memorandum outlining the procedures for accepting and investigating 14 CFR Part 13 complaints. The full procedures for Part 13 complaints are in 14 CFR Part 13: Investigative and Enforcement Procedures. A summary of the process is contained below. Complaint Content The FAA will accept a Part 13 complaint verbally or in writing. However, complainants are encouraged to initiate their complaints in writing, because a telephone conversation may not capture all the details of the allegations. Each report made under this part, and any other Airports of all sizes are subject to the filing of FAR Parts 13 and 16 complaints if they are in noncompliance with the grant assurances or property deed restrictions.
BusinessâFinancial and Administrative Management 61 information the FAA may have that is relevant to the matter reported, will be reviewed by FAA personnel to determine the nature and type of any additional investigation or enforcement action the FAA will take. The complaint should: â¢ Clearly identify the airport sponsor against which the allegations are made; â¢ Clearly identify the assurance(s) or surplus property deed restrictions alleged to have been violated; â¢ Provide a comprehensive, detailed description of the actions and inactions taken by the airport sponsor that resulted in the alleged violation; and â¢ Provide, issue-by-issue, supporting arguments, information and documentation. Complaint Investigation Once the initial review is done by the investigating office, the airport sponsor will be notified by letter of the complaint and asked to respond to each allegation. The investigating office should include a copy of the complainantâs package as an enclosure to this letter. A copy of the com- plaint notification letter should be sent to the complainant. If the complainant has requested anonymity, a copy of the complaint letter will not be sent to the sponsor as an enclosure. The complaint notification letter will request the airport sponsor respond within 15 to 30 days from the date of the letter, depending on the urgency or complexity of the complaint. Upon receipt and review of the complaint, the airport sponsor may take one of several options, including the following: â¢ Requesting a time extension to respond â¢ Requesting a meeting with FAA staff to further discuss the complaint â¢ Requesting additional information or providing a response to the complaint The response may address reasons why the sponsor believes it is not out of compliance, or it may detail the steps the sponsor will take to regain compliance. During the investigative phase, the investigating office will review the airport sponsorâs response and its obligating documents (such as grant agreements and surplus property deeds). The role of the investigating office is to separate the facts from any unsubstantiated allegations. To do this, the investigating office may take one or more actions, including a site visit, discussions with the parties to the complaint separately or jointly, or an attempt to obtain additional evidence. In some cases, the investigating office may be able to assist the parties in resolving the dis- pute through mediation. If the facts do not support the allegations of noncompliance, and the investigating office is able to identify options that might resolve the complaint in a manner that is satisfactory to both parties and consistent with the sponsorâs federal obligations, the investi- gating office may mediate the complaint or encourage the parties to seek an independent outside mediator. Conclusion of Investigation Upon completion of the investigation, the investigating office will notify the parties of the conclusions reached by the FAA. The office may issue a compliance dismissal letter, if the investigation concludes that no further FAA action is warranted, or a notice of potential non- compliance if it appears that the airport sponsor may be violating its federal obligations. All compliance dismissal letters and notices of potential noncompliance will state that this is not a final agency decision subject to judicial review. They will also state that the complainant may file a formal complaint under FAR Part 16 to pursue a final agency decision appealable to the courts of appeals.
62 Guidebook for Managing Small Airports Stale Complaint An FAR Part 13 informal complaint that has been inactive for 2 or more years is considered stale. Any complainant who lacks interest or abandons the complaint is recognized as having a stale complaint. Stale complaints may be archived or discarded with no follow-up. The FAA Office of the Chief Counsel will not docket stale complaints for formal review under FAR Part 16, unless the complainant can demonstrate recent substantial and reasonable, good-faith efforts to resolve the disputed matter informally and that there appears to be no reasonable prospect for a timely resolution of the dispute. FAR Part 16 Formal Complaint Resolving an FAR Part 16 formal complaint process is complex and can be very daunting and stressful. In some respects, it can be likened to a civil lawsuit, with FAA legal counsel being the hearing officer. In fact, if the matter is not resolved through the formal complaint process, the complaint could end up in a federal court of appeals for resolution. Resolving the complaint can also be very time consuming. In many cases, the respondent may need to engage legal representation, which can be costly. For these reasons, every effort should be made to resolve the complaint during the Part 13 process. 14 CFR Part 16: Rule of Practice for Federally Assisted Airport Enforcement Proceedings describes the formal complaint process, which is summarized below. When a resolution cannot be reached under the informal proceedings of FAR Part 13, an action may be filed under FAR Part 16. Prior to filing a complaint under this part, a person must show the following: â¢ To have been directly and substantially affected by the alleged noncompliance. â¢ To have engaged in good-faith efforts to resolve the disputed matter informally with those individuals or entities believed responsible for the noncompliance. â¢ There is no reasonable prospect for practical and timely resolution of the dispute. The efforts at informal resolution may include, without limitation, mediation, arbitration, or the use of a dispute resolution board or other form of third-party assistance. The FAA ADO, field office or regional office responsible for administering financial assistance to the sponsor or the FAA Office of Civil Rights will be available on request to assist the parties with informal resolution. Complaint Content Complaints filed under FAR Part 16 shall state the name and address of each person who is the subject of the complaint and the provisions of each act that the complainant believes were violated, including all documents then available in the exercise of reasonable diligence, to be offered in support of the complaint and to be served upon all persons named in the complaint as persons responsible for the alleged action or omission upon which the complaint is based. The complaint must also provide a concise but complete statement of the facts relied on to substantiate each allegation and describe how the complainant was directly and substantially affected by the things done or not done by the respondents. The burden of proof is on the com- plainant to show noncompliance with any act or any regulation, order, agreement or document of conveyance issued under the authority of an act. Responding to a Complaint Within 20 days after the receipt of the complaint, unless a motion has been filed under FAR Â§16.26, the director will dismiss a complaint or any claim made in a complaint with prejudice, if it appears on its face to be outside the jurisdiction of the administrator or it does not state a
BusinessâFinancial and Administrative Management 63 claim that warrants an investigation or further action by the FAA. The complaint may also be dismissed if the complainant lacks standing to file a complaint. A dismissal under this section will include the reasons for the dismissal. If a complaint is not dismissed, the FAA notifies the complainant and respondent in writing within 20 days after the date the FAA receives the complaint that the complaint has been docketed. The respondent shall file an answer within 20 days of the date of service of the FAA notification. The answer must contain a concise but complete statement of the facts relied on to substantiate the respondentâs answers and should be accompanied by supporting documentation. The answer should deny or admit the allegations made in the complaint. It can also state that the person filing the document is without sufficient knowledge or information to admit or deny an allegation, and can assert any affirmative defense. The respondentâs answer may include a motion to dismiss the complaint, or any portion of it, with a supporting memorandum of points and legal authorities. FAR Part 16 allows the complainant and the respondent one additional response. The com- plainant may file a reply within 10 days of the date of service of the respondentâs answer. Once the respondent receives the complainantâs reply, he or she may file a rebuttal within 10 days of the date of service. Like the answer, the reply and rebuttal should each contain a concise but complete statement of the facts relied on to substantiate the answers and should be accompanied by supporting documentation. Complaint Investigation If there appears to be a reasonable basis for further investigation, the FAA Office of Airport Compliance and Management Analysis will investigate the subject matter of the complaint. The investigation may include one or more of the following: (1) a review of the written submissions of the parties, information gathered by the FAAâs investigation of the matter or information furnished by the parties at the FAAâs request; (2) oral and documentary evidence obtained through the FAAâs use of its authority to compel production of such evidence; and (3) conduct of, or requirement that a sponsor conduct, an audit of airport financial records and transactions. In some cases, the FAA may initiate its own investigation without having received a com- plaint. In this case, the FAA sends a notice that sets the areas and the reasons for the investigation to each person subject to the investigation. Each party must respond to the FAA within 30 days from the date of service. Complaint Determination The directorâs determination is an initial, nonfinal agency decision based on the record that contains a concise explanation of the factual and legal basis for the directorâs decision. The decision will be provided to each party within 120 days of the date that the last pleading was due. Any party adversely affected by the directorâs determination may appeal the initial determination to the associate administrator for airports within 30 days after the date of service of the initial determination. The other party may file a reply to an appeal within 20 days after the date of service of the appeal. Appeals and replies should include the arguments of the parties concerning affirmance or reversal of the initial directorâs determination. If the initial determination finds the respondent airport in noncompliance and proposes to issue a compliance order, the initial determination will include a notice of opportunity for a hearing, if a hearing is required by statute. The associate administrator may issue a final agency decision on appeal from the directorâs determination, without a hearing, in cases in which (1) the complaint is dismissed after investi- gation; (2) a hearing is not required by statute and is not otherwise made available by the FAA; or (3) the FAA provides the respondent an opportunity for a hearing, and the respondent waives
64 Guidebook for Managing Small Airports the opportunity for a hearing. In such cases, the final agency decision will be issued within 60 days after the due date of the reply. Also, in cases in which no hearing is available or the opportunity is waived, if an appeal is not filed within the 30-day time period, the directorâs determination becomes the final decision and order of the FAA. A person may seek judicial review of an FAA final agency decision and order in a federal appeals court. A petition for review must be filed not later than 60 days after the final decision has been served on each party. Many agency decisions are not considered final and, therefore, are not subject to judicial review. For example, the following do not constitute final decisions and orders: (1) an FAA decision to dismiss a complaint without prejudice, (2) a directorâs deter- mination, (3) an initial decision issued by a hearing officer at the conclusion of a hearing and (4) a directorâs determination, or an initial decision of a hearing officer, that becomes a final decision of the associate administrator because it was not appealed within the applicable time limits.
BusinessâFinancial and Administrative Management 65 3.9 Insurance Key Insights Insurance is a risk management tool. Aeronautical activities may not be covered by your airport sponsorâs insurance. Understand what is covered and what additional insurance coverage is needed. Construction and project insurance is complex and should be evaluated on a project-by-project and stand-alone basis. Some risk aspects can be pushed down to contractors. Key Definitions General liability insurance: A standard insurance policy issued to businesses to protect them against liability claims for bodily injury and property damage. Insurance broker: An insurance intermediary that represents the insured. Liability limit: The set amount beyond which an insurance company is not liable for payments due to a third party. The insured remains legally liable above this limit. Loss: The basis for claim for damages under the terms of a policy. Primary Insurance Criteria and Areas of Importance Among airports, despite the substantial importance that risk has on their operations, airport insurance may remain a rather ambiguous and misunderstood matter. While an insurance expense is frequently seen as necessary but undesirable, it is crucial for airport managers to understand the function of airport insurance in financial risk mitigation. Insurance is not the sole means of mitigating financial risks to the airport, but it is designed to work with other safety and risk management techniques. For each airport, when buying insurance coverage, the key is to identify the sources and likelihood of risk exposure, identify and address any short- comings in how this risk exposure can be mitigated by other practices (e.g., airport driver training or the implementation of safety risk management or safety management systems) and then cover the risk mitigation shortfall with insurance. When selecting airport insurance, airport managers should focus on balancing the three primary criteria: price, coverage and risk exposure. ACRP Synthesis 30: Airport Insurance Coverage and Risk Management Practices lists the following primary areas of risk concern for airports of all sizes, discovered as a part of the projectâs study: general liability, construc- tion and business interruption. For the small airport operators surveyed, general liability and automobile liability were listed as two high-risk exposure concerns. Business inter- ruption and environmental considerations were listed as a concern by less than half of those small airports surveyed. Common Types of Insurance for Airports The study behind ACRP Synthesis 30 also found that smaller airports tend to purchase a wide variety of coverage types, such as property insurance, car liability, business interruption, general liability, workersâ compensation and employment practices liability. This could be, in part, due
66 Guidebook for Managing Small Airports to the ability of larger airports to self-insure. A commercial general liability insurance policy may include coverage for the following: â¢ Premises liability: Coverage for bodily injury and property damage that arises from the use of the airport premises and any or all operations at the airport. â¢ Products/completed operations: Coverage for damages or loss arising from the use of products or services rendered by the airport, as a result of product or material fault or negligence. â¢ Personal/advertising injury liability: Coverage for injury arising as a result of offenses committed during the conduct of airport business that result in or include such actions as wrongful eviction, slander, violation of a personâs rights or copyright infringement. â¢ Contractual liability insurance: Coverage protecting the airport from risk arising from the airportâs violations of contracts or agreements. â¢ Premises medical coverage: Coverage intended to address emergency medical expenses, such as co-payments and deductibles, which arise from injury caused by airport operations. â¢ Property insurance: Coverage to provide protection of airport property and its contents if damaged and resulting in the loss of use of the property. â¢ Hangar keeperâs liability: Coverage for damage or loss of aircraft that are on the airport premises while in the custody of the airport for the purposes of storage or repair. â¢ Independent contractorsâ liability: Coverage for losses or damages caused by an independent contractor operating on the airportâs behalf. For the purposes of insurance, an independent contractorâs liability coverage may be adjusted to cover a broad range of service providers not employed by the airport or its sponsor. â¢ Environmental liability: A form of business insurance providing coverage for companies to protect them from uninsured environmental liabilities. In addition to the risk mitigation offered by general liability insurance, workersâ compensation is highly recommended as a risk mitigation tool and may be required by state law, in addition to other types of insurance. Workersâ compensation insurance provides wage replacement and medical benefits to employees who were injured during employment. Airport environments, and the physical impacts of many on-airport tasks, place a higher degree of injury on airport employees in the course of performing their day-to-day duties and make workersâ compensation insurance a valuable risk mitigation tool. Moreover, in many states, workersâ compensation insurance is a required coverage for all entities that exceed a threshold of full-time-equivalent positions. Airport managers should check state laws and availability of this coverage from the airport sponsor. Public officialsâ errors and omissions insurance is a type of liability insurance that provides risk mitigation for airports owned and operated by local governments. The insurance provides coverage for damages or litigation costs for claims against public employees. Within certain policies, it provides coverage for volunteers providing services on behalf of the airport. The coverage is intended to mitigate financial risk on types of claims generally made in connection to wrongful acts committed by public officials in the performance of their duties to a public entity. Although local governments have some statutory immunities, public officials can be held liable for their negligent actions in the course of their duties. This coverage typically protects not only the public official or employee but the public entity itself, if it is made part of the legal proceedings. While many may not regard small airports as business entities, aviation facilities large and small rely heavily on revenue from rents, fuel sales and profit sharing with on-airport businesses to meet their needs and expenses in the short- and long-term future. As such, business inter- ruption insurance is intended to mitigate the risk of income losses that may occur as a result of a natural or man-made disaster. Because of a variety of policy coverages and ranges, these types of policies should be evaluated on an airport-by-airport basis.
BusinessâFinancial and Administrative Management 67 In the construction contract, airport owners should consider requiring the contractor to name the owner and engineer as an additional insured on their construction policy. This typically can be added at a low or no cost. For certain airport construction projects, airport managers should consider procuring a builderâs risk or owner-controlled insurance program, which is most commonly used at large airports. This type of insurance is a focused policy package that is held by and covers the airport during the project construction. The policy usually contains general liability, workersâ compensation, employersâ liability, and in certain cases, excess insur- ance. Depending on the size and scope of the project, the policy package will vary and should be evaluated on a case-by-case basis. The insurance types and coverages just described are intended to mitigate the risk of normal airport operations. For special events, such as airshows, separate insurance is typically obtained, based on the type of event. Minimizing the Insurance Expense If the small airportâs insurance coverage is not included as part of its sponsor agencyâs coverage, the cost of individual airport coverage may become financially prohibitive or impact other expense categories. When trying to minimize the expense and cost of the airport insurance policy, consider the following suggested best practices: â¢ Check for coverage eligibility with your airport sponsor or your state aeronautics agency. In certain locations, airport insurance can be purchased from the state, which in turn is a self-insured entity. â¢ Evaluate and increase deductible levels, because deductible costs are easier to raise than that of the entire liability. â¢ Work closely with the insurance agent or broker to identify all pertinent steps your airport sponsor can take to reduce risks that would be reflected in the rates. â¢ Shop for coverage each year to evaluate the cost of the existing policy versus competition. â¢ Strengthen the risk managerâs role to allow your staff members more leverage and leeway in evaluating the various areas of risk, conducting risk assessments and recommending appropriate coverage types and levels. â¢ Closely examine and evaluate the risks that your facility is exposed to, the likelihood and severity of damage and the need for various coverage types. As disclosed in ACRP Synthesis 30, small airports typically tend to be coverage heavy, with too many coverage types. Generally, small airports do not have the fiscal assets or leverage to be self-insured, so an insurance policy becomes a necessity.
68 Guidebook for Managing Small Airports 3.10 Grants and Capital Improvement Funding Key Insights Reach out to the FAA or state block grant staff to establish a connection to help the airport with the grant process. Various sources of federal and state grants are available to assist small airports in addressing their planning, development and safety needs. You need to be highly familiar with the various types of federal grants and the key requirements for each of the funding sources in order to maximize your share of the funds. Annually, airports in the NPIAS submit a capital improvement program (or similarly titled document) with the AIP and/or state or local funding requests for the next 5 years. For nonprimary airports to receive the full $150,000 nonprimary airport entitlement, there must be at least $750,000 of AIP-eligible needs in the 5-year program, and the AIP funding level must meet the minimum appropriation level. The FAA uses a numerical national priority rating as a tool for prioritizing airport development. This numerical rating takes into account the type of airport, project purpose and type of project. State airport grant programs vary. You must closely coordinate with your state aeronautics agency to identify potential additional sources of capital improvement program funding, because nontraditional sources of funding for specific projects (such as airport security) may be available. Early planning and coordination with the granting agency increases the opportunity for success- fully having a project funded, especially when validated with an independent fee estimate. Key Definitions Airport Improvement Program (AIP): A program that provides financial grants to primarily public agencies for the planning and development of public-use airports that are included in the National Plan of Integrated Airport Systems. Airport layout plan (ALP): A set of drawings that provide a graphic representation of the sponsorâs long-term development plan for an airport, including property boundaries, existing and proposed airport facilities and structures, and the location of existing and proposed non- aeronautical areas. Airports Capital Improvement Plan (ACIP): A document prepared by the airport sponsor on an annual basis that represents the airport sponsorâs 5-year program for capital development at the airport. Also referred to as a capital improvement program or transportation improve- ment program. Bond: A debt investment in which an investor loans money to an entity that borrows the funds for a defined period of time at a specified interest rate. Common forms used by government entities to borrow money to finance a project include general obligation and revenue bonds. Discretionary funds: Airport Improvement Program funds remaining within the obligation limitation, after entitlement calculation, subject to restrictions in legislation and available for distribution at the FAAâs discretion, per the FAA priority system. Entitlement funds: A set minimum level of Airport Improvement Program funding for an airport, based on the FAAâs criteria. The minimum differs for primary and nonprimary airports
BusinessâFinancial and Administrative Management 69 based on enplanement levels for primary air carrier airports and standard allocation for each nonprimary airport. Grant assurances: Obligations undertaken by the airport sponsor when it accepts funds from the FAA-administered airport financial assistance program. National Plan of Integrated Airport Systems (NPIAS): Public-use airports considered necessary to provide a safe, efficient and integrated system of airports to meet the needs of United States civil aviation, national defense and the U.S. Postal Service. Set-aside funding: Minimum percentages or amounts that represent requirements for dedicated AIP funding, including funding of noise-compatibility projects, military airport programs, certain reliever airports and projects for capacity, safety and security. State apportionment: Available for all airports within a state, excluding primary airports but including reliever and nonprimary commercial service airports, with the available funds being apportioned for airports within that state, on the basis of the stateâs proportional population to the total population of the eligible states and the stateâs proportional area to the total area of the eligible states. Only in block grant states are the state apportionment funds apportioned to the state. In nonâblock grant states, FAA Airports programs and disburses the funds, but the state may provide input into programming, along with using the FAA priority system. AIP Grant Funding For small airports within the NPIAS, AIP funds are an important funding source for capital improvements. AIP is a federal grant-in-aid program, which serves as a key source of funding for airport development and planning projects. The program was originally put in place in 1982 under the provisions of the Airport and Airway Improvement Act. The program funds originate from the Airport and Airway Trust Fund, which draws funding support from fuel taxes, user taxes (fees) and other revenue sources. The intent of the program is to cover airport improvement expenses related to enhancing airport safety, capacity and security and addressing environmental concerns. The FAA refers to recipients of AIP grants as âsponsors.â Airport sponsors may use AIP funds for eligible airport capital improvements, justified land acquisitions and the acquisition of approved safety equipment. The program provides funding for up to 90 percent of eligible expenses at smaller airports and 75 percent at medium- and large-hub airports. At airports with essential air service and in economically distressed areas, the federal share of the allowable costs can be increased from 90 percent to 95 percent. The communities that qualify for this increase are identified on the FAA Economically Distressed Communities Special Rule web page. The federal share can also be greater than 90 percent in states that have larger amounts of public land, as identified in Table 4-8: Federal Shares by Airport Classification in Public Land States of FAA Order 5100.38: Airport Improvement Program Handbook. The FAA must have authorization and appropriation to award grants. FAA Order 5100.38 provides the guidance to implement the AIP grant program. It defines the eligible projects, eligible costs and associated processes. While written for FAA staff to implement the AIP grant program, it is useful to airports and their consultants to appropriately formulate eligible projects. Table 7 identifies eligible and ineligible categories of projects for all NPIAS airports. The FAA Central Region has an AIP Sponsor Guide web page that contains information and tools to help an airport sponsor navigate through the AIP grant process. One of those useful tools is a Checklist for Typical AIP Development Projects that identifies all the steps in the multiple
70 Guidebook for Managing Small Airports phases of obtaining and executing a project under the AIP. To assist FAA staff and airport sponsors in executing a project within the AIP program, FAA Airports has developed standard operating procedures (SOPs) and fillable tools related to the SOPs. Formula and Discretional Funds AIP grants are distributed as two types of funds: formula and discretionary. Formula funds, often referred to as entitlements, include the major entitlement categoriesâsuch as primary, cargo, state apportionment and nonprimaryâand Alaska supplemental funds: â¢ Primary entitlement: Based on the enplaned passengers at primary airports, less turnback by large- and medium-hub airports with passenger facility charges. Minimum annual entitle- ment is $1 million, based on AIP meeting minimum appropriation level. â¢ Cargo entitlement: Based on landed cargo. â¢ State apportionment: Available for all airports within a state, excluding primary airports but including reliever and nonprimary commercial service airports, with the available funds being apportioned for airports within that state, on the basis of the stateâs proportional population to the total population of the eligible states and the stateâs proportional area to the total area of the eligible states. Only in block grant states are the state apportionment funds apportioned to the state. In nonâblock grant states, FAA Airports programs the funds, but the state may provide input into programming, along with using the FAA priority system. â¢ Nonprimary entitlement: The nonprimary entitlement category was introduced in 2012 as a part of the Wendell H. Ford Aviation Investment and Reform Act, specifically to assist NPIAS-listed nonprimary (mostly GA) airports with needed airport improvements. The program provides airports up to $150,000 annually, based on the AIP meeting minimum appropriation level, to fund eligible projects, providing the airport sponsor demonstrates the need for at least an average of $150,000 in capital needs over a 5-year capital improvement program (CIP) submittal. The airport sponsors are able to delay drawing their entitlement until the fourth year the funding becomes available, in order to accumulate funds for larger projects. The unused funds expire after 4 years, unless obligated by a sponsor to an eligible project or transferred to another NPIAS airport. There are some additional projects that are AIP eligible at nonprimary airports, and some of them are also eligible at nonhub commercial service airports, as shown in Table 8. An unclassified airport does not receive nonprimary entitlement funds; and airport managers of unclassified airports should contact their FAA ADO regarding AIP funding eligibility. Eligible Projects Ineligible Projects Airfield drainage Artwork Airfield lighting Development that exceeds FAA standards Apron construction/rehabilitation Development for exclusive use Environmental studies Improvements for commercial enterprises General aviation terminal buildings Industrial park development Land acquisition Landscaping Certain navigational aids (e.g., REILs, PAPIs) Maintenance equipment (e.g., mowers) Planning studies Marketing plans Runway construction/rehabilitation Office equipment Safety area improvements Training Taxiway construction/rehabilitation Airport operations costs Weather observation stations (e.g., AWOS) FBO support areas Airport vehicles Source: FAA Airports Division Central Region, AIP Sponsor Guide-100, June 28, 2013 Table 7. AIP-eligible and AIP-ineligible projects for all airports.
BusinessâFinancial and Administrative Management 71 The formula funds are first taken from the AIP appropriation. Then, the discretionary programs are funded. The discretionary funds include mandatory set-aside requirements for noise miti- gation, military airports and reliever airports. The remaining funds are divided to fund safety, security, capacity and noise projects and pure discretionary funding. Discretionary funding also comes from PFC turnbacks (returned funds) from large- and medium-hub airports and from rollover funds, which are entitlement grant monies that an airport elects to roll over for use in a future year. There is also a formula to ensure that a specific percentage of the returned passenger entitlement funds from large- and medium-hub airports goes to small airports. State Block Grant Program The FAA began the State Block Grant Program (SBGP) in 1989, following the 1987 Congress authorization, and continues to implement it, per FAA Advisory Circular 150/5100-21: State Block Grant Program. The purpose of the program is to allow states to prioritize, select and fund AIP projects at other-than-primary airports. The current participants in the SBGP are as follows: â¢ Georgia â¢ Illinois â¢ Michigan â¢ Missouri â¢ New Hampshire â¢ North Carolina â¢ Pennsylvania â¢ Tennessee â¢ Texas â¢ Wisconsin FAA National Priority Ratings To ensure that the AIP program is consistently applied across the country and in a manner to provide the most benefit to the NAS, the FAA developed a national priority rating system, as detailed in FAA Order 5100.39: Airports Capital Improvement Plan. The national priority rating system is a numerical system that is the tool for prioritizing airport development. It is a formula using airport size, category of project and type of project that results in a numerical rating for a project, as shown in Figure 7. The formula was developed to align with the agencyâs goals and objectives. While the formula can be used to calculate a Project Type Airport Type Runway, taxiway or apron pavement maintenance Nonprimary and nonhub (excludes turf runway) Terminal building Nonhub and nonprimary public-use space Nonrevenue public parking lot Nonhub if associated with commercial service terminal building Nonprimary if associated with general aviation terminal building Aircraft hangars, fixed-base operator building or aircraft maintenance building* Nonprimary (using only nonprimary entitlements) Fuel farms* Nonprimary (using only nonprimary entitlements) Wash rack Nonprimary *Airport sponsor must demonstrate to the FAA that airside needs within the next 3 years will be accommodated through local or nonprimary entitlement funds. Source: FAA Order 5100.38D: Airport Improvement Handbook, September 30, 2014 Table 8. Additional eligible projects at nonprimary and/or nonhub airports.
72 Guidebook for Managing Small Airports Source: FAA Order 5100.39A: Airports Capital Improvement Plan, August 22, 2000 Priority Number = .25P(A+1.4P+C+1.2T) Figure 7. AIP priority equation.
BusinessâFinancial and Administrative Management 73 projectâs ranking, the FAA has also developed tables that provide the numerical rating for each type of eligible project at each size of airport, which are included in FAA Order 5100.39. Safety and security receive the highest priority, followed by the preservation of assets, with capacity- enhancement projects at a lower rating. Larger airports also have higher ratings. Five-Year CIP Submittal Each year, NPIAS airport sponsors submit a 5-year CIP, the title of which may vary by state (e.g., capital improvement program, airport capital improvement program or transportation improvement program). Whatever the title, it provides the airport sponsor with the opportunity to demonstrate an average of at least $150,000 per year of AIP capital improvement needs over the next 5-year period. ACRP Report 120: Airport Capital Improvements: A Business Planning and Decision-Making Approach provides a cost estimation model for capital projects regularly included in a CIP and an accompanying spreadsheet model. The CIP funding request is the tool to communicate the airportâs plans to the state agency or FAA. To assist in preparing the CIP, the airport sponsor should use the airportâs master plan or layout plan, environmental mitigation commitments, pavement management plans and prior yearâs submission. The AIP priority rating of a project should also be considered. Usually, an airport sponsor should first request funding for its highest-priority projects. Grant Assurance and Compliance All FAA and state grants are subject to a set of underlying assurances and required assurance compliance. The grant assurances are used to promote national objectives by transferring associated requirements to the local community. The airport sponsor is required to commit to the grant assurances before receiving the grant. The FAA web page on grant assurances lists all 39 current sponsor grant assurances. Some of the key grant assurances that tie directly to the AIP funding and capital projects include the following: â¢ The sponsor must comply with all federal laws, orders and advisory circulars. â¢ The sponsor meets property ownership, title and sponsor grant authority. â¢ The sponsor will not act to deprive itself of any rights or power to meet the conditions of the assurances. â¢ The project will be consistent with local plans, consider local users and interests, conform to plans and specifications, and meet minimum-wage and veterans preference requirements. â¢ The sponsor will act to the maximum extent feasible to promote airport land-use compatibility and remove airport hazards. Capital Project Scheduling To maximize the opportunity for AIP funding, a methodical approach to capital improve- ment planning is needed. A methodical approach allows the airport sponsor to fulfill the FAA requirements in preparation of receiving a grant. It is a multi-stage process that involves financial and facility planning. Additional information on project implementation is included in Section 5.10: Project Implementation. Capital improvement planning starts as part of the airport master plan or ALP process. This allows for a big-picture view and for capital projects to be prioritized. The master plan can also identify if there are enabling projects that must occur before the primary project. For example, to extend a runway, land acquisition and removal of obstructions such as roads, power lines or
74 Guidebook for Managing Small Airports structures must occur first before the runway extension is constructed. The planning process can identify the grant eligibility and sequencing to accomplish the overall development goal. Because a master plan or ALP update is typically a 20-year planning document, it also should identify the triggers for the implementation of proposed improve- ments. These triggers should be connected with the justification of need that the airport sponsor will be required to demonstrate to the FAA. The FAA typically programs projects about 3 years in advance of execution. Therefore, changes to a capital plan in the next 3 years, especially for large capital projects, may be difficult for the FAA or state (for state block grants) to accommodate. This may mean a project needs to be delayed in order to be accomplished. Even after a project is programmed by the FAA or state, it is essential that the airport sponsor obtain full airspace and environmental approval. A project needs to be shown on the ALP before it can be funded. The FAA review-and- approval process for an ALP typically provides the airspace approval for the development. Most ALPs are conditionally approved, meaning the development on the ALP has received airspace approval but it may have neither environmental approval nor sufficient justification of need to be eligible for grants. As part of the process of preparing the CIP, the national priority ranking of the project should be identified. The environmental approval for a project must be completed a year before the anticipated funding for the construction of the project. Thus, preparation of the environmental documentation for a project should be programmed at least a couple years in advance. Environmental documentation typically is considered to have a âshelf lifeâ of about 5 years. Therefore, it is important to do it in advance, but not too far in advance. Identifying the national priority ranking of a project is important to know what type of AIP funding may be available for the project. Large projects with a high priority rating may compete well for discretionary funding. If a project receives discretionary funding, the FAA also expects the airport sponsor to apply its entitlement funding (nonprimary or primary) toward the project because it is a high priority. If a project does not have a high priority rating, then potentially, state apportionment or entitlement AIP funding will likely need to be used. Entitlement funding is first applied to the highest-priority proj- ect shown on the CIP for that year. Thus, it may be important to strategically order the CIP to accomplish the airport sponsorâs goals. Using a consultant that understands the AIP can assist in this process. Close communication with the airportâs FAA ADO representative, or state representative in block grant states, is important in capital project planning. After the capital plan is submitted, the state aeronautics agency, or state aeronautics agency in coordination with the FAA, develops an overall state capital plan. This is done by using the national priority ranking and, for projects with similar national priority ranking, by considering other factors such as airspace and envi- ronmental approvals and justification of need, design-plan status, and financial readiness of the airport sponsor to fund the local share. An airport sponsor is typically more successful in accomplishing a project by aligning its capital plan with the overall state plan. Through this coordination, an airport sponsor can identify its projectâs priority within the overall state capital plan. AIP SPONSOR GRANT ASSURANCES 1. General Federal Requirements 2. Responsibility and Authority of Sponsor 3. Sponsor Fund Availability 4. Good Title 5. Preserving Rights and Powers 6. Consistency with Local Plans 7. Consideration of Local Interest 8. Consultation with Users 9. Public Hearings 10. Metropolitan Planning Organization 11. Pavement Preventive Maintenance 12. Terminal Development Prerequisites 13. Accounting System, Audit and Record Keeping Requirements 14. Minimum Wage Rate 15. Veterans Preference 16. Conformity to Plans and Specifications 17. Construction Inspection and Approval 18. Planning Projects 19. Operation and Maintenance 20. Hazard Removal and Mitigation 21. Compatible Land Use 22. Economic Nondiscrimination 23. Exclusive Rights 24. Fee and Rental Structure 25. Airport Revenue 26. Reports and Inspections 27. Use by Government Aircraft 28. Land for Federal Facilities 29. Airport Layout Plan 30. Civil Rights 31. Disposal of Land 32. Engineering and Design Services 33. Foreign Market Restrictions 34. Policies, Standards and Specifications 35. Relocation and Real Property Acquisition 36. Access by Intercity Buses 37. Disadvantaged Business Enterprises 38. Hangar Construction 39. Competitive Access Source: FAA Airports Assurances: Airport Sponsors
BusinessâFinancial and Administrative Management 75 The FAA programs a list of projects for potential discretionary funding each year. The amount of discretionary funding available for each year drives how many projects can get funding and the lowest priority rating that is potentially eligible for discretionary funding. If a project has a priority rating that would allow it to compete for discretionary funding, using local fundingâ or programming the design a year or two in advance of the anticipated construction grantâ may enable a project to get on the discretionary list sooner. Obtaining discretionary funding for a project has become increasingly difficult. While the AIP funding level has remained essentially unchanged, with inflation over time, project costs have increased in this same time period. With a fixed grant funding level, this results in the ability to fund fewer projects. State Grant Programs State airport capital funding programs vary greatly from state to state in terms of program size, proportionate-share requirements, eligibility of projects and costs and much more. Some states provide operating budget funding, whereas the vast majority of other improvement programs only permit eligible capital improvement projects to be funded at public-use airports. Airport managers should coordinate closely with their state aeronautics agencies regarding program eligibility, phasing and proportionate-share requirements. State Loan Programs Some states also have available a state loan program either specific for airports or for which airports are eligible. Loan programs can be useful to develop revenue-producing assets, because the revenue generated can be used to repay the loan. Many of these programs operate as revolving loan programs, meaning that as funds including interest are repaid, the monies are used to issue new loans. Bond Funding While most small airports rely on AIP funding for capital development, some may have a sufficient revenue stream to also use bond funding for projects, or for the local share of large projects. There are several common types of bonds: â¢ General obligation bonds: General obligation bonds are issued by a governmental entity. These bonds are backed by the taxing authority of the sponsoring governmental entity. â¢ Revenue bonds: Revenue bonds are also issued by a governmental entity. These bonds are backed by a dedicated revenue stream, typically related to the type of project being funded, such as airport revenue for an airport project. Some revenue bonds are a hybrid, being under- written by airport revenue but backed by sponsoring governmental entity tax revenue in the event of a shortfall. â¢ Special facility revenue bonds: Special facility revenue bonds are issued by a governmental entity and backed by revenue solely from the revenues of a facility constructed with the proceeds of those bonds. â¢ Industrial development revenue bonds: Industrial development revenue bonds are a private- purpose municipal bond, the proceeds of which are used to build a facility that is leased to a corporation. The proceeds of the lease payments by the corporation are used to pay the debt on the bonds. When considering bonds, the cost of issuing bonds must be included in the financial planning. Some states have a state bond bank or other program that allows small governmental entities to
76 Guidebook for Managing Small Airports issue bonds as a group to obtain more favorable rates. When an airport has outstanding bonds, it is required to budget for and maintain the required bond coverage, typically the amount of the annual debt service plus 25 percent. While focused primarily on commercial service airports, ACRP Synthesis 1: Innovative Finance and Alternative Sources of Revenue for Airports includes a detailed discussion on the various types of bonds. It also includes a summary of state grants and loans for aviation (as of the time of its publication) that can be a starting point for airport sponsors researching opportunities available in their state. Nontraditional Funding Sources Nontraditional funding sources are also available to supplement or replace capital improve- ment funds in the event that the airport project meets requirements specific to the particular funding source. The following list is not all-inclusive: â¢ Tax increment financing (TIF): If the airport is in a TIF district, it may be able to access TIF funds to carry out landside projects. The TIF funds are sourced from business taxes in an identified tax district as a set-aside percentage of those taxes and allocated into a fund that is used for other development projects in the district. â¢ U.S. Department of Agricultureâs Office of Rural Development: For airports in rural areas, grants and loan guarantees may be available to public bodies to enhance economic opportunities. â¢ U.S. Department of Commerce grants: These are job-growth-associated grants. Therefore, if the airport is building a project to secure new, local jobs, it may be eligible for these funds. â¢ Revolving loan funds: State or local loan funds may be available for items such as multimodal or infrastructure projects. The criteria are usually very specific to the purpose of that loan fund. â¢ State economic development funding: This funding could be available to improve the facility to attract new businesses or help employers grow their businesses to add jobs. Usually, those grants are targeting specific industries, such as high-tech or skilled job sectors. The best resource to identify whether nontraditional funding sources are available and appli- cable for projects at your airport is to reach out to your state and local economic development agency. Many of these programs have specific requirements and may need an upfront investment to meet the program requirements.
BusinessâFinancial and Administrative Management 77 3.11 Consultant Selection Key Insights Sponsors of small airports typically do not have the in-house expertise to accomplish an airport development project, so they hire consultants. There are two common types of professional services: planning and design/construction. For professional services to be eligible for FAA funding or reimbursement, they need to be qualification-based for FAA requirements, with fee negotiations after selection. FAA Advisory Circular 150/5100-14: Architectural, Engineering and Planning Consultant Services for Airport Grant Projects provides the requirements for consultant selection for an AIP project. All qualification-based selection processes must be conducted in a manner providing full and open competition. If a project is being funded with local monies, the selection must also meet local procurement requirements. Key Definitions Consultant: A firm, individual, partnership, corporation or joint venture that performs architectural, engineering or planning services. Independent fee estimate (IFE): A process in which an airport sponsor requests cost estimates for professional services from sources other than the consultant selected for the work, to ensure the proposed fee for the work is reasonable. Qualifications-based selection: A fair and open selection process based on the qualifications and experience of the firms. It is required for architectural, engineering and planning services for Airport Improvement Program grant-funded projects and may be required for nonâAirport Improvement Program projects based on state procurement laws. Qualifications-Based Selection Process In a qualifications-based selection, the airport sponsor selects a consultant based on qualifi- cations and experience, without consideration of cost. The airport sponsor issues a request for qualifications identifying the project or projects for which the selection is occurring and the criteria that will be used to evaluate the submittals. After the consultant is selected, the fee for the project is negotiated, or in the case of multiple-year and multiple-project selections, the fee is negotiated on a project-by-project basis. ACRP WebResource 6 includes a sample request for proposals. Figure 8 is a flow chart for a typical qualifications-based selection process at a small air- port. For larger projects, a prequalification of consultants can also occur, as shown on Figure 2-2: Consultant Selection Process for a Single Project in FAA Advisory Circular 150/5100-14. ACRP Legal Research Digest 16: Procurement of Airport Development and Planning Contracts provides guidance on how to determine the procurement process requirements. ACRP Report 87: Procuring and Managing Professional Services for Airports offers information on the procurement process, negotiating for professional services and managing the professional-service providers. The scope and fee for a project are relatedâa change in one usually initiates a change in the other. The FAA provides sample project scopes in Appendix C of FAA Advisory Circular 150/5100-14.
78 Guidebook for Managing Small Airports Source: Adapted from FAA Advisory Circular 150/5100-14E: Architectural, Engineering and Planning Consultant Services for Airport Grant Projects, Figures 2-1 and 2-2, September 30, 2014. Figure 8. Qualifications-based selection process.
BusinessâFinancial and Administrative Management 79 When negotiating a project scope and fee, the airport sponsor needs to keep a record of the negotiation. A sample record is provided in Appendix F of FAA Advisory Circular 150/5100-14. The FAA also has a consultant selection certification form. The Wyoming Department of Transportation has an Airport Consultant Selection Process Document that summarizes the process and includes example forms for documenting the process. Neutralization of Competitive Advantages When conducting a qualifications-based selection, the airport sponsor must take steps to neutralize any competitive advantages, as described in FAA Advisory Circular 150/5100-14. FAA Advisory Circular 150/1500-14 provides the guidance for airport sponsors in the selection and hiring of architectural, engineering and planning consultants. In the 2015 update of this advisory circular, new guidance on fair and open competition was provided. Some of the requirements to ensure a fair and open competition include that any consultants that have developed or drafted specifications or statements of work for a procurement process must be excluded from com- peting for such procurements. Also, if some consultants competing for a project have access to documents such as a master plan or CIP, full and open disclosure to all proposers of the infor- mation should be made to neutralize the advantage. The FAA identifies that objectivity of the planning consultantâs performance may be com- promised if the firm is in a position to establish development goals for which the same firm will be tasked with the engineering design services. Sponsors can mitigate these apparent concerns by separating the procurement of a planning consultant from that of an engineering design consultant. A firm that performs planning services may compete for follow-on engineering, provided the sponsor properly mitigates any situation of unfair competitive advantage. A firm that prepared an environmental impact statement (EIS) may not compete for future work that the EIS addresses until the FAA has issued a record of decision (ROD). Informal Selection Process Informal qualifications selection procedures may be used for consultant selection, when the services are estimated to be less than $100,000. Sponsors must consult with FAA Airports per- sonnel before using the informal process to ensure the use is appropriate. Under the informal procedure, a sponsor must contact at least three firms and discuss their qualifications to perform the work. Negotiations must be conducted with the best-qualified firm to arrive at a fee. The sponsor must document the process used and the reasonableness of the fee. Multiple-Services Contract Many small airports select a general consultant for projects anticipated in the next 5 years. Such a selection reduces the workload of managing the selection processes for each project. Also at smaller airports with fewer projects, it is more attractive for consultants to submit qualifica- tions, because they are being selected for a larger pool of projects. It is acceptable for a sponsor to procure a consultant for several projects through one procurement, provided that the following conditions are met: â¢ The consultant is selected using a qualifications-based selection process. â¢ The parties are informed that the work may be accomplished over multiple grants, and the statement of work and required services are defined. â¢ The parties are advised that some of the services may not be required and that the sponsor reserves the right to initiate additional procurement actions for any services included.
80 Guidebook for Managing Small Airports â¢ The services are limited to those specific projects that the sponsor expects to initiate within 5 years. Projects initiated within 5 years may continue beyond the duration of the initial contract, but no new projects should be initiated without a new procurement. Independent Fee Estimate For AIP-funded projects, the airport sponsor is required to obtain an independent fee estimate (IFE), even if using an informal selection process. The IFE requirements are detailed in Section 2.12 of FAA Advisory Circular 150/5100-14. For contracts with an anticipated value less than $100,000, the airport sponsor can meet the IFE requirement by comparing the proposed contract to previous contracts of a similar project or by preparation of an IFE. For contracts with an anticipated value greater than $100,000, a detailed fee or cost analysis is required. This can be accomplished by having another consultant prepare an estimate for the service. The cost of obtaining an IFE is an AIP-eligible cost. The sponsor may engage a consultant on retainer to prepare the IFE, provided the consultant has experience with the services involved and is not being considered for the project. A consultant can also be hired to prepare the IFE, provided that the consultant has experience with recent similar work and was not on the pre- selection short list. State aviation personnel who have experience with the services involved may also prepare the IFE for the sponsorâs use. An IFE can be prepared by the sponsor, if the sponsor has staff with experience in estimating the professional services and negotiating contracts. The sponsor may hire a consultant to prepare an IFE using informal or noncompetitive qualifications-based procedures; however, the IFE consultant will not be eligible to perform work on the project and should not have been part of the project selection short list. When requesting preparation of the IFE, the firm preparing the estimate is typically provided with the scope of work, to ensure that the fee estimates are based on the same level of effort. The firm preparing the fee estimate will be informed that the request is for an IFE and not the actual work. Contracting Methods and Allowable Costs While a sponsor may use a standardized contract, it is often necessary to modify the specific terms for the project and to include the mandatory contract provisions. All federally funded contracts must include the required contract provisions, as detailed on the FAA Procurement and Contracting Under AIP web page. The contracts typically address four types of allowable costs per FAA Advisory Circular 150/5100-14: â¢ Direct: The actual cost of the labor, i.e., the staff time at the hourly pay rate. â¢ Overhead: Added to the direct costs is the allowable overhead rate. For consultants that per- form work for state or federal agencies, there is an audit process through which the allowable overhead rate is approved. The overhead rate includes payroll burdenâsuch as the employer share of taxes, workersâ compensation insurance and employee benefits such as insurance, paid time off, and retirement benefitsâand general overhead such as indirect salaries for support staff (accounting, legal, administrative), facility ownership or rental, office supplies and equipment, professional development and taxes. â¢ Profit: The consulting firms that provide services to airports are for-profit companies. An allowable profit rate is included as part of the contract and may not be applied to expenses or pass-through costs. Typical profit rates are 10 to 15 percent. â¢ Direct nonsalary expenses: Expenses are the nonhourly costs on a project, such as travel, printing and shipping. Expenses are typically identified separately when negotiating the
BusinessâFinancial and Administrative Management 81 contract. Some contracts include a separate cap on expenses and some, especially on lump-sum projects, include project expenses within the overall contract amount. Subconsultant and outside-services costs may include administrative costs related to managing the service. Per FAA Advisory Circular 150/5100-14, there are four types of allowable contracts for AIP projects: â¢ Direct personal services: Based on a per diem charge with a ceiling price. Best suited for legal work or intermittent personnel service. â¢ Retainer: Assures the sponsor of having the desired services available for future work. The terms of a retainer vary widely, from a fixed sum to a mutually agreeable basis with per diem or hourly rates. â¢ Cost plus fixed fee (not to exceed): Frequently used when a consultant is required to start work before the cost and scope of the project can be accurately determined. This contract provides reimbursement for allowable salary, overhead and expenses, plus a fixed fee. The fee is fixed and does not vary with the costs. There should be an upper limit on the allowable costs, which should include an allowance for contingencies. Costs are not to exceed the upper limit without prior approval from the sponsor and, if federal, participation from the FAA. Expenses and pass-through costs may not be included when applying the profit to the price. â¢ Fixed lump-sum payment: Typically used when the scope of work can be clearly and fully defined at the time of the agreements. The lump-sum payment is based on the allowable costs for salary, overhead and expenses, plus a reasonable margin of profit. The lump-sum proposal should include a detailed estimate of the labor costs, categories of employees, work hours, hourly rate, overhead, expenses and profit. A cost-plus-a-percentage-of-cost contract is prohibited for federally funded projects. This method is defined as a payment formula based on a predetermined percentage rate of actual performance costs, by which the sum of the consultantâs entitlement, uncertain at the time of agreement, increases commensurately with increased performance costs. Specific rates of compensation (not to exceed) are allowable but should only be used when it is not possible at the time of procurement to estimate the extent or duration of the work or properly estimate costs with any reasonable degree of accuracy. Sponsors need advance approval from the FAA to use this method. Specific rates of compensation are allowable, in that with this contracting method, the indirect costs and fees must be recovered as a part of the established, fixed hourly billing rates for labor hours worked. Design projects may be negotiated to be performed in phases and may use different compensation methods in different phases.
82 Guidebook for Managing Small Airports 3.12 Administrative Tasks Key Insights If an airport has staff other than the airport manager, the airport manager must understand and be able to address a full range of human resources issues. When there are human resources issues, before any discussions are held with the employee, the airport manager should first consult with the internal or airport sponsor human resources professionals for policy and direction. Staff dedicated to airport rescue and firefighting, police/security and maintenance may calcu- late hours worked differently from other staff, as dictated by their respective collective bargaining agreements. Key Definitions Enterprise operating system: Refers to a standard, enterprise-wide collection of business processes used in diversified companies or public agencies. An enterprise system definition can also include in a common structure: financial/reporting, maintenance/asset management, information technology backbone/communications, properties management, procurement and operational modules necessary to drive the wider organization. Human resources (HR): The department of a business or organization that deals with the hiring, administration and training of personnel. Occupational Safety and Health Administration (OSHA): An agency within the United States Department of Labor, responsible for assurance of âsafe and healthful working conditionsâ through setting and enforcing labor standards and educational and training outreach on work- place safety. Stand-alone financial system: An off-the-shelf financial module that can be used for accounting and bill processing to support airport operations but that would not be tied to a larger, all-inclusive enterprise operating system. Employee Recruitment and Retention If there are other staff at your airport and they report to you, HR functions may become part of your responsibilities. To the extent available, you should work with the HR professionals in the sponsoring governing agency for assistance and guidance. In addition to more routine management tasks, such as assigning work and evaluating performance, you may need to address: hiring, multiple generations in the workforce, succession planning, managing conflicts and terminating employees. Hiring Hiring practices are largely dictated by the established policies of the sponsoring governing agency. For professional employees, it is best to cast a wide net regionally or nationally through the various professional association newsletters to find the right candidates. In some cases, the search can be conducted by a recruiting company (head hunter); however, fees for such can add up to 25 percent of the employeeâs first year of salary and should be balanced against the benefits provided by the recruiting company. Blue collar and high-skill employees are usually best chosen from a local or regional pool of candidates who would have the appropriate licensure and experience with local regulations.
BusinessâFinancial and Administrative Management 83 The goal usually is to hire new staff who show the potential to stay and grow with the airport over time. With succession in mind, it is important to recruit and manage by the old adage âhire slowly, fire quickly.â In other words, take a long time in due diligence to make sure that your intended hire is exactly who and what you need for the long term. And, as soon as it is very clear that a certain individual will not work out for your organization, make the decision to terminate quickly, rather than hoping that something will change. Alternatives to Hiring Permanent Employees Many airports use either an intern or volunteer program, or a combination of both, to offset the need to hire full- or part-time employees; they do so primarily because of budget constraints. These programs are especially effective to enable completion of tasks that are temporary or augmentation of the airportâs staff during times of special need, such as special events, airline operations or seasonal requirements. The program that will be the most effective will depend on each organizationâs specialized needs. ACRP Synthesis 18: Aviation Workforce Development Practices includes a discussion on intern and university partnership programs. Intern Programs. An alternative to hiring full-time employees may be the institution of an intern program. An internship is a paid or unpaid position that is part of an official program offered by an employer to potential employees. Interns work either part time or full time at a company for a certain period of time. Internships are most popular with undergraduates or graduate students who have a goal of gaining practical work or research-related experience. Interns are typically enrolled in a college major that will provide added value to the organization without it having to invest in an extensive training period. The term of employment for interns usually ranges from 1 month up to 1 year and will depend on the amount of college credit to be earned and the complexity of the tasks to be completed. Internships can also provide the employer with an opportunity to find qualified and talented individuals for continued full-time employment. Internships can provide a cost-effective method of increasing productivity, completing one-time or short-term projects, or fulfilling a short-term staffing need that may arise because of prolonged absences, such as medical or military service. Paid intern programs are generally more successful than unpaid ones because they can attract candidates from a larger geographical area, thus producing a wider variety of skill sets from the applicants, because the salary will help offset costs the intern may encounter, including travel, housing and meals. Even with a paid program, the salary is generally much lower than that of a full-time employee and does not require benefits to be paid. Pay for the intern can be calculated on an hourly, weekly or lump-sum basis. It may also be supplemented or reduced by the employer, providing benefits such as housing, transportation or attendance at a related conference during the internship. Programs that do not provide payment to the intern may only be successful if the participat- ing academic institute gives college credits for successful service as an intern. Even then, some form of payment may be necessary. In some instances, national or state associations and colleges offer scholarships for qualified students that can further reduce the employerâs financial contribution. When contemplating an intern program, you should be sure that there is a meaningful task or set of tasks with a defined, desired outcome that must be completed. Many of the programs center on the airport operations area but can include specific areas, such as the preparation of planning, security or operations documents. Coordination with the academic institutes should be undertaken early in the process to ensure that the program being offered will qualify for college credits. Because of their educational background with specialized knowledge areas, interns will devote the time required to accomplish their assignments with minimal supervision, allowing time for the airportâs employees to concentrate on their assigned duties.
84 Guidebook for Managing Small Airports Volunteers in the Workplace. The most obvious advantage of a volunteer program is free helpâor the minimal cost of running the program and the provision of some training and small tokens of appreciation to the volunteers. Using unpaid workers is a cost-effective way to complete tasks for which you may not have the time or resources. Volunteers allow your staff to dedicate time to ongoing projects and new initiatives. The use of a volunteer program can require some staff time to provide an adequate amount of training, resources and oversight for these workers, depending on the tasks they are assigned to perform. Volunteers can be utilized to help with tasks as simple as greeting the public and providing information about topics, such as tenant contact information, hours of operation and meeting dates and agendas. Assignments could include more technical work, such as recording fuel sales or operational data and logging income receipts. Often, the volunteers can prepare a guide for the duties they perform, thus assisting future volunteers in quickly adapting to the position. Some airports are operated by a volunteer board or have volunteers serving in an advisory capacity to the governing authority. Additionally, pilotâs associations will often provide volunteer labor to complete specialized tasks, such as cleanup projects or assistance with special events. In many cases, volunteers can be motivated to help an organizationâs cause and are happy to devote their time to the organization. Volunteers may exhibit a true passion, contribute fresh ideas and show a willingness to go above and beyond. Volunteers are likely to exhibit genuine excitement about getting involved and taking on new projects. However, if you fail to provide meaningful tasks or do not explain how the volunteerâs contributions help the organization, you may negatively affect the volunteerâs motivation and morale. Care should also be used to match volunteersâ tasks to their abilities. Although volunteers can provide a ready workforce, there are some key negative aspects to consider when using airport volunteers: â¢ Accountability. Because the volunteer is not paid, there is no incentive to complete the assigned tasks at a high levelâexcept for the personâs ethics and desireâi.e., volunteers can be undependable, for example, not showing up on time or not completing assignments. â¢ The amount of training volunteers will be required to have so that they can be helpful. Also, liability may be an issue if they are not properly trained. â¢ The amount of exposure an airport volunteer may have to the operational area of the airfield. â¢ Passion. Although they may volunteer to be close to aviation, they may not have passion for the work. If the airportâs employees are covered by a labor agreement, care must be taken to ensure the volunteers do not work on something that was part of a bargaining unitâs agreement. Volunteers should be used to augment and not replace airport staff. The success of any intern or volunteer program will depend on a well-thought-out plan including a clear, precisely defined and well-communicated set of tasks and desired outcomes. Equally important will be a thorough and complete screening and interview process for the candidates. Employee Evaluation The current best practice for evaluating employee performance is to meet with the employee at several points throughout the year, rather than once at the end of the year. This practice comes from the consideration that several meetings will aid the employeeâs performance by keeping the employee aligned with established goals throughout the year. In this way, minor course corrections can be made throughout the year, rather than a look back at the end of the year, when it is too late to affect any needed change. This practice is more beneficial for the employee and employer in helping to ensure favorable outcomes regarding performance to goals in any given year.
BusinessâFinancial and Administrative Management 85 Regardless of the number and cycles of meetings with the employee, performance to a set of established goals is essential. The goals should be established at the top level in the organization and delegated to staff in a quantitative way that will allow employees to take responsibility for their contributions to the airportâs success. These goals should also be tied to quantitative outcomes, which are usually a function of the KPIs that the airport management previously established. Aligning each employee to the established airport strategy, goals and KPIs is a process that will greatly improve airport performance and help to ensure fully committed and positively engaged employees. Generations in the Workplace The topic of generations in the workplace warrants attention by airport managers. Todayâs workplace is staffed by people from generations that may have different values and workplace outlooks and require different motivational and organizational approaches. The traditional generation (also known as the silent generation) of employees born in the late 1920s through mid-1940s has mostly exited the workplace over the past 10 to 15 years but still maintains a workplace presence. This generation embraces institutional values and organiza- tional structure and possesses high levels of skill and experience, coupled with the ability not to get bogged down by minutiae. Baby boomers, born in the late 1940s through mid-1960s, are characterized by a strong work ethic, discipline, competitiveness and self-reliance. In 2015, when the traditional generation made up slightly more than 2 percent of the U.S. labor force (according to the Pew Research Center), baby boomers commanded nearly 29 percent of the workforce. As a generation that thrives in a structured environment, this generation brings not only the value of their experience and work ethic, but also workplace efficiency and leadership for newer generations. However, this generation is rapidly exiting or modifying its role within the workplace. Generation X employees born between 1965 and approximately 1984 compose a substantial share of the current working population: 34 percent. The representatives of this generation combine elements of the baby boomer generation (such as self-reliance and a preference for structure and direction) with a more balanced approach to work and a fair amount of skepticism toward the ways that the traditionalists and baby boomers have done business. While their focus on results instead of the process may be frustrating to management, the same approach brings substantial efficiency, entrepreneurship and innovation to the workplace dynamic. They best serve in connecting the ethics and ideas of the previous workplace generations with the dynamics of the Generation Y (millennials) and emerging Generation Z. Millennials, born mid-1980s to early 2000s, are the largest and still-growing segment of the working population, comprising approximately 35 percent of the current workforce. While the characteristics and dynamics of this generation often have been disparaged, airport managers should remain wise to the benefits that this generation brings to the workforce, as well as the best way to motivate the representatives of this generation and help them flourish within the organization. Millennials not only bring the ubiquitous connectivity to sources of information and others but also are highly resourceful and capable of independent learn- ing and development, when given the correct incentives. Those incentives include frequent and constructive feedback from management, meaningful and fulfilling work assignments, team-oriented work environments and schedule flexibility. Millennials place the work-life balance, and making a difference in the workplace and the world, above all other goals. Striking a balance in the way that the millennials integrate into the workplace stands to bring managers substantial benefits in productivity, workforce motivation and the flow of ideas and solutions.
86 Guidebook for Managing Small Airports Generation Z, born in the late 1990s and later, has the newest representatives in the workforce. They double-down on the professional and social connectivity of their older millennial peers and add the qualities of compassion, understanding and collaboration, forged in their formative years spent during the Great Recession. It is yet to be seen how this generation will affect the future workforce of small airports. Regardless of the generational role, the representatives of the last three generations must be keenly understood by their management, not only as employees with differing motivators and strengths or weaknesses but also as the future of airport industry leadership. Succession Planning Succession planning is fundamentally important to an effective transition to new leadership, preserving organizational continuity and promoting the retention of institutional knowledge. Airport managers should aim to recruit new employees with the goal of eventually transitioning to more advanced roles. In the process of employment and career growth, airport leadership should evaluate the knowledge, skills, abilities and leadership potential of existing staff to fill key roles as they become available through voluntary attrition or because of airport growth and organizational expansion. Succession planning has a benefit beyond continuity and knowledge retention. The ability to fill key roles from within the organization improves organizational morale and employee retention and reduces the costs of new employee recruitment. Moreover, succession planning and cross-training of new leadership promote organizational soft resiliency, giving airports the ability to retain flexibility and functionality in the event that management is not available to perform its duties. At small airports where the staffing is too limited for succession planning, it may be necessary for current airport staff to document their responsibilities. This can take the form of SOPs. The documentation of responsibilities then provides a conduit for knowledge transfer. Conflict Management Airports, like any other workplace, are subject to differences in personalities and opinions. While it is natural for humans to avoid interpersonal conflict, allowing conflicts to fester unre- solved beneath the surface may have grave consequences and even result in legal repercussions for the airport or airport sponsor. Workplace conflicts that become emotionally charged or personal create an unhealthy work environment, which results in reduced productivity and a potential loss of valuable employees due to workforce attrition. Hence, it is important for airport managers to be aware of the workplace dynamics and address any disagreements in a timely, professional and productive manner. Any workplace differences should be resolved in a timely manner, in accordance with the HR policies and procedures set by the airport sponsor. At any point in the progress of the conflict, when the disagreements escalate to a personal level or may result in staff dismissal or voluntary resignation, airport management should involve the airport sponsorâs HR professionals to assist in conflict mitigation. In the event that workplace conflict may result in potential legal issues or becomes abusive, outside assistance, in the form of a mediator or an attorney specializing in conflict resolution, should be used. Finally, workplace conflicts can be altogether minimized by fostering an environment that values differences in opinion, where employees feel empowered and safe to share those dif- ferences with management and other colleagues, and by recognizing how different workforce generations interact with each other.
BusinessâFinancial and Administrative Management 87 Termination Employee terminations are a fact of life for any business. Terminations can be tied to perfor- mance, policy or rules infractions, criminal activity, ethics violations or shifts in organizational priorities. In each state or locality, there are very objective rules and laws that must be used to guide the process of progressive discipline and termination. Because of this, it is of paramount importance for the airport manager to reach out to the respective local HR partners very early in any situation that arises in the normal course of business. In the case of a possible sexual harassment or hostile work environment claim, to avoid further challenges, the airport man- ager should consult with HR or legal services prior to any communications verbally or written, including email. Terminations for cause should follow the established, progressive discipline guidelines for the locality. In cases of probationary period terminations, or terminations due to shifts in organizational priorities, it is in the best interest of the employer and employee to quickly make and execute these decisions, so that each party can move on in a positive manner. Occupational Safety and Health Act Regulations The Occupational Safety and Health (OSH) Act covers most private-sector employers and their workers, in addition to some state and local government employers and their workers in the 50 states and certain territories and jurisdictions under federal authority. Jobs in the airport environment have the potential to be exposed to more hazards than other occupations. While the safety culture of aviation has a positive impact on the promotion of less hazardous work environments and conditions, airport sponsors may still be subject to OSH Act requirements. The OSH Act encourages states to develop and operate their own job safety and health programs and precludes state enforcement of OSHA standards unless the state has an OSHA-approved state plan; the states with OSHA-approved state plans are listed on the OSHA State Plans web page. An airport sponsor should be aware of OSHA requirements, especially if there are specific training requirements based on work responsibilities. The airportâs sponsoring agency may be a resource to help identify OSHA-related requirements. The other area in which an airport may experience OSHA regulations is during on-airport construction or other project work in which private companies are involved. Nearly all private employers are subject to OSHA regulations, with the exception of industries regulated by other agencies and their respective regulations. On-airport construction projects are subject to not only the regulations but also OSHA inspections, and any workplace injury or inci- dent on the project site may be the subject of an OSHA investigation. While the assurance of workplace safety and OSHA compliance is the responsibility of the company performing the task (whether as a prime contractor or subcontractor), the fallout of a workplace injury or death resulting from an OSHA violation will affect the airport and airport sponsor. An investigation by OSHA will halt the project for its duration, and any findings of fault by the contractor or its subcontractor may prevent them from continuing work on the project. As a result, the airport sponsor may need to re-bid the project and select a new contractor to perform the task. This will delay the project and bring possible grant implications and cost overruns. Moreover, such an event may have public relations consequences that tarnish the airportâs public image and the communityâs goodwill toward the facility. Even when the air- port is not in an OSHA-obligated state, awareness of the OSH Actâs requirements and airport managementâs focus on regulatory compliance are in the airportâs best interests. Additional information on OSHA regulations and how to obtain further information is located on the OSHA website.
88 Guidebook for Managing Small Airports Administrative Operating and Reporting Systems Proper accounting and financial controls are essential to managing an airport as a function- ing business entity. It is a best practice to establish and manage from KPIs for airport operations and finance. Without a proper financial database, KPIs cannot be validly established or tracked. Most medium- and large-hub airports operate from enterprise operating system platforms internally or as a part of their municipalities. This type of system allows these airports to have standard modules that can handle their financial, administrative, procurement and technical needs, all in one common platform. Most municipalities of reasonable size also operate from common enterprise platforms. However, many small airports are not connected to their municipal enterprise systems, because it is not technically feasible or one does not exist. In these cases, the airport usually employs an off-the-shelf, stand-alone financial management system to keep its books and handle billing. Many of these off-the-shelf systems are very limited in what they can do and what they can provide to airport management. Administrative Best Practices It is very important for airports of all sizes to operate from a set of well-thought-out and developed key performance indicators. These KPIs can help guide management to make deci- sions that will ultimately improve the airportâs financial and operational sustainability. In order to have viable financial and operational performance goals, it is essential that the airport is operated on an administrative system that is capable of quantifying the real costs associated with running the business. In short, running an airport business requires a certain amount of data mining. This data must be reliable and verifiable. Most patchwork, off-the-shelf operating systems are usually not capable of supporting the data needs for an airport because of their typical inability to interface with a larger, local enter- prise system. These stand-alone, off-the-shelf systems are usually purchased to handle a single administrative function very well, but their potential to add modules that are worthwhile and robust are typically limited. The best practice for a single airport operated independently of a local municipality would be to purchase a stand-alone airport operating system that has the potential for additional management modules to be added as needed. This operating system should be capable of supporting the entire airport enterprise with a full range of capabilities to include finance/ accounting, procurement, maintenance/asset management, operational/regulatory, property management, dashboards and reporting, etc. The best practice for a single airport operated as a dependent entity of a local municipality would be to tie into the overall enterprise operating system of the host municipality. In this way, the airport and municipality can work to fine-tune their joint administrative processes, while mining valid data relevant to the airport operating as a stand-alone business entity. This also serves to solidify the goal of following similar processes, financial reporting and regulatory guidelines, as defined by the municipal management. If there is no enterprise operating system in place for the municipality, a stand-alone operating system should be considered, with a long- term goal of migrating to a future enterprise system serving the entire municipality. In either case, it is essential that the airport have the best possible information regarding its true costs and revenues, including any system subsidies and cross-charges that may exist in its locality. The best case for most airports is to operate to the greatest extent as a true stand- alone business entity from a profit-and-loss standpoint. This will allow the airport to establish independent goals and performance measures that would enable it, over time, to operate to whatever extent possible in a long-term, financially sustainable manner.