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232 Amortization Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources. Amortization roughly matches an assetâs expense with the revenue it generates. Average Margin Average margin is the amount of money made by a fuel operator after total revenues are divided by total costs of the fuel, including operating costs for the fuel facility. Average margin takes into account that different customers pay different prices for fuel and the cost to provide the service averages in self-service, assisted-service, and full-service methods of delivery. Contract Fuel Contract fuel involves an agreement between a customer and a fuel supplier that establishes a specific rate above the wholesale price of fuel plus taxes. The contract price can be a fixed price or a base price scaled according to a given formula. Delivered Cost Delivered cost of fuel for airports includes the wholesale price, transportation costs, applicable taxes, and supplierâs markup. Design-Bid-Build In design-bid-build projects the engineering team designs the system and it is made available for construction contractors to bid competitively. Design-Build Sometimes referred to as turnkey projects, design-build projects are designed and built by a single responsible group. Downstream Industry The downstream industry refers to oil refineries, petrochemical plants, petroleum product distributors, and retail outlets. Fuel Swaps Fuel swaps are contracts in which one party exchanges their exposure to a floating fuel price for a fixed price, over a specified period of time. Futures Contract A futures contract is a binding legal agreement between a buyer and a seller for delivery of a particular quantity of a commodity at a specific time, place, and price. Unlike a spot price which is tied to a physical market, a futures contract is an investment tool traded on regulated exchanges such as the New York Mercantile Exchange (NYMEX). Hedge A hedge is an investment to reduce the risk of adverse price movement in an asset. A hedge consists of covering an anticipated purchase by taking an offsetting position through a futures contract, swap, or option. Into-Plane Fee Sometimes called an upload fee, into-plane fee is a charge made to customers that takes into account the cost of storage of the fuel and fueling the aircraft. Midstream Industry Midstream functions are the transportation link between petroleum- producing areas and cities where airports and consumers are located. Definitions
Definitions 233 Pro Forma Pro forma is the assumed, forecasted, or informal information presented in advance of the actual or formal information. The common objective of a pro forma docu- ment is to give a fair idea of the cash outlay for a shipment or an anticipated occurrence. Pro forma financial statements give an idea of how the actual statement will look if the underlying assumptions hold true. Rack Rack is a petroleum product terminal where fuel distributors take custody of product and transport it to distribution centers or directly to customers. Retail Margin Retail margin is the markup added to a product after delivered costs and oper- ating costs are taken into account. Retail Price The retail price of aviation fuels is set by the airport fuel operator and takes into account the delivered cost of fuel, the cost to provide the fuel service at the airport, and a profit margin. Return on Investment Return on investment is the financial analyses that determine whether an investment will pay for itself over a given period of time that it is in service. Spot Price Spot markets are physical markets that accurately reflect the current price of a com- modity at a particular location. Tankering Fuel tankering involves carrying more fuel than is needed to optimize fuel burn, fuel costs, and en route fuel stops. Upload Fee Sometimes called an into-plane fee, upload fee is a charge made to customers that takes into account the cost of storage of the fuel and fueling the aircraft. Upstream Industries Upstream industries include companies that explore for crude oil, locate reserves, drill the wells, and extract the oil and gas.
