Airport/Airline Agreements—Practices and Characteristics (2010)

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Appendices A, C, and F are available on the TRB website at www.TRB.org by searching for “ACRP Report 36.” Titles of the appendices are as follows: Appendix A: Annotated Bibliography Appendix C: CIP Primer Appendix F: Airport Online Survey 93 A P P E N D I C E S A , C , and F

I. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Effective Date and Transition Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Cancellation of Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Airline Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Terminal Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Employee Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Federal Inspection Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Transfer of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Use of the Airport and Related Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Airline Rights and Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Exclusions and Reservations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Operation and Maintenance of the Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Designation of Operation and Maintenance Responsibilities . . . . . . . . . . . . . . . . . 6.2 Airport Operator Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 Airline Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII. Rentals, Fees, and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Landing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 Terminal Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Extraordinary Service Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Aircraft Parking Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 Other Fees and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Information to be Supplied by Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 Security for Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 No Further Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII. Changes in Rates for Rentals, Fees, and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 Annual Rate Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 Other Rate Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3 Incorporation of Exhibit F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 Use of Airport Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 A P P E N D I X B Sample of Table of Contents for Typical Agreement

Sample of Table of Contents for Typical Agreement 95 8.6 Revenue Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 Airport Operator Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Need for Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 Expenditures Subject to Signatory Airline Consideration . . . . . . . . . . . . . . . . . . . . 9.3 Capital Expenditures Not Subject to Signatory Airline Consideration . . . . . . . . . 9.4 Alterations and Improvements by Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Partial Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 Substantial Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Damage Caused by Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 Airport Operator’s Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI. Indemnification and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XII. Cancellation by Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 Continuing Responsibilities of Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3 Airport Operator’s Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4 Remedies Under Federal Bankruptcy Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIII. Cancellation by Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 Airline’s Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XIV. Surrender of Airline Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 Surrender and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2 Removal of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XV. Assignment, Subletting, and Handling Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 Assignment and Subletting by Airline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 Handling Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVI. Availability of Adequate Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1 Declaration of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 Accommodation on Preferential Use Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.3 Reassignment of Preferential Use Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4 Accommodation on Exclusive Ticket Counter and Baggage Makeup . . . . . . . . . . 16.5 Competitive Access to PFC-Funded Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.6 Regional/Commuter Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVII. Government Inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.1 Government Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2 Federal Government’s Emergency Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.3 Nondiscrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.4 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XVIII. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Subordination to Bond Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2 Nonwaiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.3 Passenger Facility Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 Rights Non-Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.5 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 Aviation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 Rules and Regulations and Operating Directives . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.9 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.10 No Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.11 Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.12 Capacity to Execute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.13 Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.14 Successors and Assigns Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.15 Incorporation of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.16 Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.17 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.18 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.19 Most Favored Nation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.21 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.22 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.23 Agent for Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.24 Governing Law and Legal Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.25 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.26 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . List of Exhibits Exhibit A Airport Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit B Airline Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit C Summary of Terminal Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D Responsibilities of Airport Operator and Airline for Operation and . . . . . . . . Maintenance of the Terminal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit E Sample Reporting Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit F Changes in Rates for Rentals, Fees, and Charges . . . . . . . . . . . . . . . . . . . . . . . . . 96 Airport/Airline Agreements—Practices and Characteristics

Report Sections I. Introduction and Need for a Revised Business Deal II. Financial Structure of the Airport Operator III. Aviation Activity Projections IV. Capital Improvement Program V. Terminal Space VI. Debt Service and Coverage Projections VII. Operating Expense Projections VIII. Non-Airline Revenue Projections IX. Airline Rates and Charges Calculations X. Signatory Airline Cost per Enplanement XI. Airport Cash Flow and Flow of Funds Sample List of Tables Table 1A Enplaned Passenger Projections Table 1B Landed Weight Projections Table 2 Capital Improvement Program—Plan of Finance Table 3 Terminal Space Table 4 Debt Service and Coverage Projections Table 5 Operating Expense Projections Table 6 Non-Airline Revenue Projections Table 7 Landing Fee Rate Calculation Table 8 Terminal Rental Rate Calculation Table 9 Signatory Airline Cost per Enplaned Passenger Projections Table 10 Airport Cash Flow 97 A P P E N D I X D Sample Items Generally Included in Rates and Charges Negotiation Documents

Additional Bonds Test: A bond resolution requirement pursuant to which an airport can issue revenue bonds that have a claim on revenues which is equal to that of the already issued outstanding revenue bonds. Typically, the test is based on coverage of maximum annual debt service by historical or projected net revenues. Affiliate: Provisions in an Agreement that establish the relationship between an airport, regional airlines and their associated mainline airlines. Airfield: Those portions of an airport, excluding both the terminal aircraft apron and cargo aircraft apron, provided for the landing, taking off, and taxiing of aircraft. Airline-Airport Affairs Committee (AAAC): Composed of authorized representatives of each signatory airline which meet periodically with senior representatives of airport management to receive information and provide input with regard to selected operation, financial, and develop- ment matters of the airport. Airport/Airline Use and Lease Agreement (“Agreement”): Agreement that specifies the financial obligations, terms of use, and other responsibilities that each party assumes with respect to the use of the airport’s facilities. The Agreement sets the commencement and ter- mination dates for the use of airport facilities, identifies the facilities to be used and the degree of use, the rate-making methodology, and defines the approved uses of the facility. Airport Revenues: Income accrued by an airport or airport system in accordance with gen- erally accepted accounting practices, including investment earnings, from or in connection with the ownership or operation of the airport or airport system or any part thereof, or the leasing or use thereof. Amortization: The repayment of airport funds invested in capital projects over a defined term at an imputed interest rate. Apron: A paved area on the airside of the terminal (or cargo) building that is designated for the parking of aircraft and support vehicles, and the loading and unloading of aircraft. Bond Resolution: Authorizes the issuance of airport revenue bonds and assures bondholders that the airport is a viable concern, able to continue operating and to fulfill its obligation to pay bond interest and principal. The bond resolution establishes the airport’s “flow of funds” and deposit requirements. Capital Improvement Program (CIP): An airport’s planned capital program which typically covers a 5-year period. The CIP usually includes project descriptions, estimated project costs, and funding sources such as federal grants, PFCs, and proposed bond funding. 98 A P P E N D I X E Glossary of Key Terms

Commercial Compensatory Methodology: Under this type of methodology for determining terminal building rental rates, the square foot divisor would comprise all airline rentable space in the terminal and all other space that is identified as rentable to non-airline tenants and users (e.g., concessions, rental cars, etc.). While not the standard approach, there are circumstances where the divisor may be “rented” or “leased,” rather than rentable or leasable due to specific circumstances at a particular airport. Common Use Passenger Processing Systems (CUPPS): A standardized technology platform rec- ommended by IATA (and other trade associations) that is recently being implemented by airports to enable multiple airlines and service providers the ability to share physical check-in or gate podium positions. This set of standards replaces the older Common Use Terminal Equipment standards. Common Use Space: Non-exclusive areas of an airport used in common by airlines, along with other authorized users of the airport. Compensatory Methodology: Under this methodology, an airport operator charges its air- line tenants fees and rental charges in an amount necessary to recover the actual cost of operat- ing and maintaining the facilities being leased and/or used by the airline parties. Cost Centers: Those areas or functional activities of an airport or airport system used for the purposes of accounting for revenues, O&M expenses, amortization, and debt service. Coverage: A premium in excess of the annual debt service requirement established in the rate covenant of a bond resolution designed to provide liquidity and bondholder protection in the event of a short-term decline in revenues. Customer Facility Charge: CFCs are a charge imposed by a car rental company upon a car rental customer arriving at an airport and renting a vehicle at an airport. The CFC is collected by the car rental company generally to assist in the funding of facility development and expan- sion for car rental companies. Debt Service: Any principal, interest, premium, and other fees and amounts either paid or accrued for bonds, and other accounts which may be established for payment of principal, inter- est, premium and other fees and amounts associated with financing instruments subordinated to the bonds. Differential Rental Rate: A terminal rental rate methodology in which rates are calculated based on the specific investment in the space. The user of a newer space generally pays a higher rate than the user of older space. Equalized Rental Rate: A terminal rental rate methodology in which the same rental rate is applied to all users for the same class of space regardless of the age and condition of the space. Exclusive Use Space: An area rented to an airline for its sole use. Ticket counters, airline oper- ational and administrative offices, and airline club rooms are commonly designated as exclusive use space in many Agreements. Exclusive use space is also typically associated with special facility leases (i.e., space built by and dedicated to one airline). Extraordinary Coverage Protection: Payments required in the rentals, fees, and charges for signatory airlines at an airport in any fiscal year in which the amount of revenues, less O&M expenses is projected to be less than the amount required by the rate covenant in the bond resolution. Funded Coverage: This method calculates and recovers the coverage amount each year. Any built-up amounts are generally treated by establishing a fund to support airport capital improve- ments or the excess funds may be split between the airport and airlines. Glossary of Key Terms 99

General Airport Revenue Bonds: Municipal bonds secured by the revenues generated by the airport (e.g., landing fees, terminal rents, concession revenues, etc.). Hybrid Agreement: An Agreement where the terminal buildings and other cost centers are compensatory and the airfield is governed by a residual methodology. Hybrid Agreements may also include net revenue sharing. Joint (or Common) Use Formula: A formula that allocates the cost of a space between the air- lines where some portion (e.g., 0%, 10%, or 20%) is divided equally between users and the remainder (e.g., 100%, 90%, or 80%) is allocated based on activity (e.g., enplaned passengers or landed weight). Joint Use Space: Terminal areas which may be assigned to two or more airlines. Landing Fee: A per plane charge for use of the airfield, typically assessed based on the 1000-lb maximum gross landed weight of the aircraft. Majority-in-Interest Clause (MII): A clause found in some Agreements that provides signa- tory airlines the opportunity to review and, by a prescribed percentage of airlines, approve or veto capital projects that would be funded through the airline rate base. Negative MII: A provision found in certain Agreements whereby a proposal is approved unless a majority of the signatory airlines disapprove. Certain MII clauses assume that a non- response is an affirmative vote. Non-Airline Revenues: All sources of airport revenue not paid by the airlines. These will include automobile parking; concessions; car rentals; other building and land rentals, etc. Non-Signatory Airline: An airline that has not executed an Agreement with a particular air- port. These airlines may pay higher rates and charges than signatory airlines in exchange for the flexibility of not having a long-term contractual commitment. Operating Expenses (O&M Expenses): The current expenses, paid or accrued, for operation, maintenance, and ordinary current repairs of an airport or airport system. O&M expenses typ- ically do not include any allowance for depreciation or renewals or replacements or obsolescence of capital assets, or any operating expenses of special purpose facilities buildings where the lessees are obligated to pay such operating expenses. Ordinance Methodology: Local government legislation which specifies the terms and condi- tions under which airlines will operate at an airport in the absence of an Agreement. Unless chal- lenged on the grounds of being unreasonable or unduly discriminatory, the rates and charges must be paid as stated. Passenger Facility Charges: PFCs are imposed by public airport operators to supplement funds available from federal AIP grants to assist in airport development and expansion. They are approved by the FAA and are collected by the airlines through an addition to the price of the ticket for each enplaned passenger. PFC revenue can be used to fund only specific capital improvement projects that will preserve or enhance safety, capacity or security; reduce noise; or increase airline competition. PFC Backed Bonds: These municipal bonds are generally of two types: (1) stand-alone PFC backed bonds secured only by PFC revenue and (2) double-barrel bonds backed by both PFCs and airport revenue. Preferential Use Space: Space rented to an airline in which it has preferred, but not exclu- sive, use of the space and may be required to share the space if a certain level of activity is not maintained. 100 Airport/Airline Agreements—Practices and Characteristics

Rate Covenant: A pledge to bondholders that an airport will set rates and charges sufficient to generate net revenues (revenues less O&M expenses) equal to at least the annual debt service requirement plus the coverage requirement. Reserve Requirements: Cushions designed to give bondholders extra security to ensure that airport will meet debt requirements. The three most common reserve requirements are (1) debt service reserves (typically one year of debt service payments); (2) O&M reserves; and (3) renewal and replacement reserves. Residual Methodology: Under this methodology, signatory airlines agree to pay any costs of operating the airport system, airport, or a specific cost center that are not allocated to other users or covered by non-airline revenues. Signatory airlines assume the risk of overall revenue short- fall and receive the benefit from any revenue surpluses. Revenue Sharing: Agreement provisions that indicate how surplus revenues will be split between the airport and the airlines. Revenue sharing can be cost-center specific or airport-wide depending on the Agreement. Rolling Coverage: A one time payment of the coverage amount that is “rolled over” from year-to-year to meet the coverage requirement. Security Deposit: A particular period of time’s rentals, fees, and charges (typically three months) that airlines are required to post by certain airport operators in accordance with their Agreement. Often there are provisions allowing the airport operator to exempt airlines from this requirement if they can show that they have promptly paid rentals, fees, and charges at similar- sized airports over a particular period of time. Signatory Airline: An airline that executes an Agreement with a particular airport. At many airports these airlines pay lower rates and charges than non-signatory airlines. In some Agree- ments, signatory airlines may also be granted MII rights. Special Facility Revenue Bonds: These municipal bonds are used to finance airport projects or improvements (e.g., terminal) that are for the benefit of a particular airline. The bonds are issued through the airport sponsor, but are backed entirely by the airline’s lease payments to use the facility. Issuance has declined since airlines have contested their lease payments on facilities backed by these bonds in bankruptcy court. Term Sheet: An abbreviated document that outlines the material terms and conditions of a business agreement. These are generally used to formalize the specific business arrangement in an Agreement. “Use-or-Lose Provision”: An Agreement provision applicable to preferential use gates that typically requires an airline to maintain a certain number of departures at a gate each day or else the airport is given the right to reassign the airline’s gate to another signatory airline. Glossary of Key Terms 101