Guidebook for Evaluating Terminal Renewal Versus Replacement Options (2012)

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A I R P O R T C O O P E R A T I V E R E S E A R C H P R O G R A M ACRP REPORT 68 TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2012 www.TRB.org Research sponsored by the Federal Aviation Administration Subscriber Categories Aviation  •  Terminals and Facilities  •  Finance Guidebook for Evaluating Terminal Renewal Versus Replacement Options Ricondo & AssociAtes, inc. Chicago, Illinois i n a s s o c i a t i o n w i t h FAith GRoup, LLc St. Louis, Missouri Kohnen-stARKey, inc. Marshall, Virginia

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ACRP REPORT 68 Project 07­07 ISSN 1935­9802 ISBN 978­0­309­25819­7 Library of Congress Control Number 2012939362 © 2012 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not­for­profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB or FAA endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not­for­profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. 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C O O P E R A T I V E R E S E A R C H P R O G R A M S CRP STAFF FOR ACRP REPORT 68 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Michael R. Salamone, ACRP Manager Theresia H. Schatz, Senior Program Officer Tiana Barnes, Senior Program Assistant Eileen P. Delaney, Director of Publications Scott E. Hitchcock, Editor ACRP PROJECT 07-07 PANEL Field of Design Angela R. Newland, Broward County (FL) Aviation Department, Ft. Lauderdale, FL (Chair) Roddy L. Boggus, Parsons Brinckerhoff, Dallas, TX Kenneth A. Bower, American Airlines, Inc., Dallas Fort Worth Airport, TX Jon A. Cimperman, Port of Oakland, Oakland, CA Kiran Merchant, The Port Authority of New York & New Jersey, New York, NY Gregory Wellman, GRW Consulting, Elk Grove, IL Elisha Novak, FAA Liaison Matthew J. Griffin, Airports Council International-North America Liaison Christine Gerencher, TRB Liaison

ACRP Report 68: Guidebook for Evaluating Terminal Renewal Versus Replacement Options provides a guidebook for airport professionals, policy makers, and industry professionals with a step­by­step process for conducting a business­driven evaluation of competing options to renew or replace airport terminal facilities. Some of the contributing factors of these decision­making tools include life­cycle cost, airside/landside or terminal capacity in relation to passenger demand, facilities obsolescence and condition, development risk, development schedule, changes in regulatory requirements, airline needs, operational constraints, tenant make­up, and airport business model. The process is repeatable and scalable to airports of different sizes. Furthermore, the guidebook is intended to assist airports in identifying the need for terminal redevelopment and selecting among com­ peting options for renewing versus replacing existing terminal facilities. The guidebook promotes a sequential four­step process wherein the need for terminal redevelopment is determined, options are developed, evaluations are performed, and recommendations are documented. Many airport terminal facilities (e.g., terminal buildings, parking garages, and termi­ nal roadways) are nearing the end of their design lives and/or are becoming functionally obsolete. In addition, airline industry changes have reduced the need for demand­driven expansion. These changes, as well as the financial state of most airlines, put an additional financial burden on airport operators to maintain current rates and charges. Very often, components of terminal facilities reach the end of their useful life or become significantly outdated long before the structural integrity of the facility reaches the end of its useful life. However, these components, such as mechanical and information technology systems, can be very difficult and costly to replace without major impacts to the facility and disruption to ongoing operations. Further compounding the issue is the lack of space available at many airports to simply construct replacement facilities and avoid much of the complexity of renovating existing facilities without significant disruptions. Airports with adequate space face tough scrutiny from the airlines to provide significant justification that new facilities are a more financially feasible solution than renewing the current facilities. Thorough analysis of the myriad relevant factors is required in order to decide whether to renew existing facilities or construct replacement facilities, particularly when the new facili­ ties are not demand­driven. This detailed analysis is typically not included at the Master Plan level but should occur before facility programming and schematic design services are commissioned. Nor can this analysis be conducted by simply comparing the initial capital cost of multiple options, but rather must provide a total life­cycle cost outcome perspective. These issues can be further compounded by multiple, competing and conflicting interests of F O R E W O R D By Theresia H. Schatz Staff Officer Transportation Research Board

the various stakeholders. Achieving consensus on the most effective solution can be difficult without a set of decision­making tools. This report was developed from the research conducted for Project 07­07, “Evaluating Terminal Renewal versus Replacement Options” and includes a variety of airport inter­ views with representatives from U.S. airports who recently completed similar evaluations to decide whether to renew or replace their aging terminal facilities over the period of 2006 to 2011. A case study example referred to as City Airport is included as a terminal redevelopment case to facilitate user understanding of techniques to evaluate competing options. The City Airport example is intended to enhance user recognition of the general process, techniques, and specific tools used in the evaluation. More importantly, the City Airport example will facilitate user understanding of the sources of data needed to conduct an evaluation, synthesize separate analyses that may be undertaken by different groups involved in the evaluation, and interpret the analyses in terms of an airport’s Strategic Plan or Master Plan. Appendix A provides the definitions of the key terms used within the context of the Guidebook. Appendix B provides additional quantitative information related to the City Airport example application. Appendix C provides documentation for the Excel­based analysis templates that reflect the unique operating and business environment of a par­ ticular airport. The templates themselves can be found on the accompanying CD (CRP­ CD­112). Appendix D provides references to additional literature related to the concepts discussed in the Guidebook. A separate report, which provides background to the research conducted in support of the Guidebook, has been posted on the ACRP Project 07­07 web page at http://apps.trb.org/cmsfeed/TRBNetProjectDisplay.asp?ProjectID=2807.

P A R T 1 Introduction to, Need for, and Organization of the Guidebook 1-1 Chapter 1 Introduction 2-1 Chapter 2 Purpose of and Need for the Guidebook 3-1 Chapter 3 Organization of the Guidebook P A R T 2 Conditions and Environment for Terminal Redevelopment 4-1 Chapter 4 Common Motivations 4­1 Building Age and Physical Condition 4­2 Air Service Changes 4­5 Functional Obsolescence 4­6 Optimal Use of Multiple Terminal Buildings 4­6 Related Airport Development and Airport Master Plan 4­6 Civic Aspirations 4­6 Availability of Funding 4­6 Airline Agreements 5-1 Chapter 5 Contributing Factors and Guiding Principles that  Influence the Evaluation Process 5­1 Business Conditions 5­1 Governance 5­1 Historical/Current Market Conditions 5­2 Aviation Activity Forecasts 5­2 Strategic Plan 5­2 Financial Capacity 5­3 Revenue Growth and Diversification 5­3 Facility Conditions 5­3 Inventory of Facility Conditions 5­4 Functionality 5­4 Capital Improvement Program P A R T 3 Evaluation Process and Organization 6-1 Chapter 6 Overview of the Evaluation Process 6­1 When to Conduct an Evaluation 6­1 Basic Principles for Conducting an Evaluation C O N T E N T S

6­2 Airport Operator and Stakeholder Roles 6­4 Policy Makers/Board of Directors/Executive Management 6­4 Facilities Engineering and Maintenance 6­4 Business and Finance 6­4 Airline Consultation 6­5 Other Stakeholders 6­5 Four­Step Evaluation Process 6­5 Sample Case—City Airport 7-1 Chapter 7 Step 1: Determine Need  for a Terminal Redevelopment 7­3 Strategic Plan 7­4 Facility Condition Assessment 7­4 Terminal System Description 7­4 Useful Life 7­4 Age and Age Factor 7­4 Building System Condition 7­7 Building System Performance 7­7 Facility Condition Index 7­9 Life­Cycle Cost and Benefit­Cost Analyses 7­12 Gap Analysis 7­13 Terminal Performance Statistics 7­13 Planning Parameters, Priorities, and Expectations 7­13 Terminal Facility Requirements 7­14 Financial Capacity Analysis 7­14 Funding Availability Analysis 7­18 PFC Capacity Analysis 7­21 Cash Flow Analysis 7­23 Borrowing Capacity Calculation 7­25 Total Funds Available for Future Terminal Project 7­26 Importance of Passenger Activity Forecasting to Financial Analyses 8-1 Chapter 8 Step 2: Refine Terminal Redevelopment Objectives  and Generate Options 9-1 Chapter 9 Step 3: Evaluate Options 9­1 Qualitative Evaluations 9­1 Program Compliance Evaluation 9­3 Comparative Performance Evaluation 9­4 Program Cost Estimates 9­7 Detailed Financial Analysis 9­8 Airport Aviation Activity Forecasts 9­9 Terminal Space Projections 9­11 Capital Improvement Program 9­18 Key Financial Metrics 9­21 Use of Financial Metrics 9­21 Sensitivity Analyses 9­23 Summary 9­23 Capital Justification 9­23 Examples of Quantifiable Justification 9­24 Examples of Qualitative Justification

10-1 Chapter 10 Step 4: Document Results from the Analyses A-1 Appendix A  Glossary and Acronyms B-1 Appendix B  Sample Case Data Tables C-1 Appendix C  Analysis Templates D-1 Appendix D  Relevant ACRP Studies and Other Publications Note: Many of the photographs, figures, and tables in this report have been converted from color to grayscale for printing. The electronic version of the report (posted on the Web at www.trb.org) retains the color versions.