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172 Aeronautical: Aeronautical use includes services provided by air carriers related directly and substantially to the movement of passengers, baggage, mail, and cargo on the airport and any activity which involves, makes possible, or is required for the operation of aircraft, or which contributes to or is required for the safety of such operations. Airport and Airway Trust Fund (AATF): A fund established by the Airport and Airway Revenue Act of 1970 (the Act) that provides the revenues used to fund AIP projects and the administra- tion of AIP. The Act, as amended, authorizes the use of funds from the AATF to make grants under AIP on a fiscal year basis. The U.S. Congress authorizes obligation authority to distribute AATF revenues to U.S. airports. Revenues for the AATF are derived from passenger ticket taxes and other excise taxes. The AATF provides multiyear capital for aviation system infrastructure such as facilities and equipment and AIP and has helped fuel predictable growth in aviation infrastructure. Because the AATF is funded with user money, it keeps reliance on taxpayers to a minimum. Airport Compliance Manual: Order 5190.6B that was released in September 2006 and sets forth policies and procedures for the FAA Airport Compliance Program. It provides basic information for FAA personnel in interpreting and administering the various continuing commitments airport owners make to the United States as a condition for the grant of federal funds or the conveyance of federal property for airport purposes. Order 5190.6B discusses the obligations set forth in the standard airport sponsor assurances, addresses the application of the assurances in the operation of public-use airports, and facilitates interpretation of the assurances by FAA personnel. Airport Improvement Program (AIP): The federal grants in-aid program that provides grants to public agenciesâand, in some cases, to private owners and entitiesâfor the planning and development of public-use airports that are included in the National Plan of Integrated Airport Systems (NPIAS). Eligible projects include those improvements related to enhancing airport safety, capacity, security, and environmental concerns. For large and medium primary hub air- ports, the grant covers 75% of eligible costs (or 80% for noise program implementation). For small primary, reliever, and general aviation airports, the grant covers 95% of eligible costs. Airport Improvement Program Discretionary Grants: AIP funds remaining after entitlement funds are determined. FAA approves discretionary funds for use on specific projects after con- sideration of project priority and other selection criteria. The FAA allocates discretionary funds to high priority project needs in a manner that best advances statutory goals and objectives to enhance the national airport system. Investment decisions are made using structured selection criteria that include a variety of factors that help identify critical annual development needs within associated AIP funding levels. Glossary
Glossary 173 Airport Improvement Program Entitlement Grants: AIP funds that must be apportioned by formula each year to specific airport sponsors, types of airports, or states under statutory provisions. Airport Investment Partnership Program or AIPP (Formerly Airport Privatization Pilot Program or APPP): A program under the category of long-term lease or sale called the Airport Privatization Pilot Program (49 U.S.C. Section 47134), which was enacted by the U.S. Congress in 1996 and amended in 2003 and 2012 to allow up to five airports to be leased or sold under specific conditions as approved by the Secretary of Transportation. The AIPP was created to address barriers to privatization in the United States by permitting the U.S. DOT to grant exemptions from certain federal obligations that historically discouraged full privatization by requiring the airport owner and private operators to satisfy rigorous conditions in exchange for the exemptions and approvals. Airport Master Plan: A long-range plan for the development of an airport, including descrip- tions of the data and alternative analyses on which the plan is based. Airport Owner or Sponsor: A public agency or tax-supported organization, such as an airport authority, city, county, or state or federal government that is authorized to own and operate an airport; to obtain property interests; to obtain funds; and to be legally, financially, and otherwise able to meet all applicable requirements of the current laws and regulations. Airport Privatization: Airport privatization is when full control and/or operation of an entire airport are vested with a private entity, including the long-term lease or sale, whether through the AIPP or otherwise. Full control is vested in the private operator except for certain residual powers retained by the airport owner. For this guidebook, airport privatization means full and permanent control of airport opera- tions by the private sector. Airport privatization differs from long-term lease or concession, under which the airport reverts to public operation at the conclusion of the agreement term. Amortization: The repayment of principal through scheduled mortgage payments. The sched- uled payment, less the interest, equals amortization. Anti-Head Tax Act or AHTA: The act passed in 1973 (49 U.S.C. Section 40116) that allows a publicly owned airport authority to collect only reasonable landing fees and charges from airlines using airport facilities. Brownfield: An agreement on land that has been previously developed. Build America Bonds or BABs: State or local government bonds that could be issued as tax- exempt bonds, but which the issuer elects to treat as BABs. Interest on BABs is taxable to the bondholder, but a federal income tax credit (of 35% of the interest paid on the bond in each tax year) is provided in place of the tax exemption. BABs were included in the American Recovery and Reinvestment Act of 2009 and were available for bonds issued between February 17, 2009, and December 31, 2010. Building Blocks: Within a CPI-X approach to regulation, a methodology where costs are defined as operating costs, and return of and on capital. Build-Operate-Transfer (BOT): An approach where the private partner builds a facility to the specifications set by the airport owner, operates the facility for a specified period, and then transfers the facility to the agency at the end of the contract. In most cases, the private partner will also provide some, or all, of the financing for the facility. Therefore, the term of the contract must be sufficient to enable the private partner to realize a reasonable return on its investment through user fees.
174 Evaluating and Implementing Airport Privatization and Public-Private Partnerships Build-Transfer-Operate (BTO): An approach that is like the BOT model except that the transfer to the airport owner takes place at the time construction is completed, rather than at the end of the lease period. CapEx: Capital expenditure. Commercialization: Refers to the application of business-like approaches to the management and operation of airports by shifting aviation management and operations from a government department to a business-focused entity to allow market forces, incentives, and mechanisms to drive the delivery of services. It is a shift in management not ownership of the airport. Commercial Service Airports: Public airports receiving scheduled passenger service and having 2,500 or more enplaned passengers (also referred to as boardings) per year. There were 501 commercial service airports in calendar year 2010. Committee on Foreign Investment in the United States (CFIUS): The interagency committee of the U.S. government that reviews the national security implications of foreign investments in U.S. companies or operations. Chaired by the Secretary of the Treasury, CFIUS includes representatives from 16 U.S. departments and agencies, including the Commerce, Defense, Homeland Security, and State departments. Concession: Contract to transfer rights to manage and/or operate a property for a certain period, usually without property rights. Concessionaire: The private holder of a contract to operate a facility for a certain period under a concession. Construction Manager at Risk (CM at Risk): A project delivery method where the construc- tion manager commits to deliver the project within a Guaranteed Maximum Price (GMP). The construction manager acts as a consultant to the airport owner in the development and design phases and as a general contractor during the construction phase. Due to the financial commit- ment, the CM at risk has an incentive to manage and control construction costs to not exceed the GMP. Consumer Price Index (CPI): Measures inflation by calculating the change in the price of a âfixed market basket of goods and services,â purchased by a specified population during a âbaseâ period of time. CPI bears little direct relationship to actual costs of building operation or the value of real estate. Nevertheless, it is commonly used to periodically increase the base rental, as a means of protecting the landlordâs rental stream against inflation, in place of the landlord undertaking the record-keeping necessary to determine the true change in operating expenses. Contracting Services or Outsourcing: Airport owners routinely contract out to the private sector certain airport services traditionally provided by government or internal employees to (1) achieve operating efficiencies through outsourcing the operation of functions that are readily available through the private sector (e.g., janitorial, escalator/elevator repair, non-police security, parking operations), (2) enhance nonairline revenue (e.g., terminal concessions), or (3) provide project design and delivery (e.g., construction management and program manage- ment) for capital improvements. Corporatization: The process by which an airport previously subsumed within a govern- ment agency is transformed into a government-controlled corporation to introduce corporate management culture and efficiency. Cost Per Enplanement (CPE): A standard metric in the United States to compare total airline payments (including landing fees and terminal rentals) expressed on a per enplaned passenger basis.
Glossary 175 CPI-X: A regulatory regime in which aeronautical prices increase by inflation (the consumer price index) less a specified percentage (X). Customer Facility Charge (CFC): A rental car customer facility charge (CFC) is a per-transaction day or a per-transaction charge imposed on the rental car customer by the airport, collected by the rental car companies, and remitted by the rental car companies to the airport. The imposition of a CFC has been key to the financing of consolidated rental car facilities. Depreciation: Spreading out the cost of a capital asset over its estimated useful life or a decrease in the usefulness, and therefore value, of real property improvements or other assets caused by deterioration or obsolescence. Design-Build-Finance-Operate-Maintain (DBFOM): An approach where the contractor also is responsible for financing the project. Most examples of airport project finance transactions in the United States involve special purpose facilities for single or multi-tenant use, typically an airline, one or more cargo tenants, or rental car companies. The revenues from such special purpose facilities are pledged to pay debt service on the obligations incurred for such special purpose facilities and are not included in general airport revenues. Project finance is also used on behalf of private, third parties that are not tenants of the facilities. Design-Build-Operate-Maintain (DBOM): An approach where a single contractor is respon- sible for designing, constructing, operating, and maintaining a facility with financing secured by the airport owner. The owner maintains ownership and retains a significant level of oversight of the operations (as set forth in the contract). Under this model, the risk for construction cost overruns and responsibility for annual operating expenses belongs to the private contractor. Design-Build-Operate-Transfer (DBOT): An approach where a private partner designs, con- structs, and operates a facility and hands over ownership of the facility to the airport owner after operating it for a specified period. Under this model, the responsibility for construction cost overruns and annual operating expenses belongs to the private contractor. Developers (also known as Financial Investors): Providers of equity, including private equity funds, infrastructure funds, and pension funds. The entity that provides the greatest share of private equity in the transaction is the primary developer. Developer Financing: A form of project financing that is distinguished by the private sector putting its own equity capital at risk as well as managing and operating the facility. Earnest Money: The monetary advance, by a buyer, of a portion of the purchase price in a real estate transaction, to indicate the intention and ability of the buyer to carry out the contract. EBITDA multiple: The implied enterprise value divided by the airportâs EBITDA (earnings before interest, tax, and depreciation). It should be noted that in some cases this multiple is specified publicly for a sale even though the assumptions on EBITDA and enterprise value are not themselves directly stated. Fair Market Value (FMV): The sale price at which a property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts. Federal Aviation Administration (FAA): The United States government agency responsible for ensuring the safe and efficient use of the nationâs airports and airspace. Federal Aviation Administration Order 5190.6B: The order released in September 2010 also called the Airport Compliance Manual, which sets forth policies and procedures for the FAA Airport Compliance Program. It provides basic information for FAA personnel in interpreting
176 Evaluating and Implementing Airport Privatization and Public-Private Partnerships and administering the various continuing commitments airport owners make to the United States as a condition for the grant of federal funds or the conveyance of federal property for air- port purposes. Order 5190.6B discusses the obligations set forth in the standard airport sponsor assurances, addresses the application of the assurances in the operation of public-use airports, and facilitates interpretation of the assurances by FAA personnel. Federal Aviation Regulation (FAR): Regulations established by the FAA to govern the operation of aircraft, airways, and airmen. Fee Simple Ownership: The full purchase of land and improvements. Fixed Base Operator (FBO): Provides aviation services to the general public, including, but not limited to, the sale of fuel and oil; aircraft sales, rental, maintenance, and repair; parking and tie-down or storage of aircraft; flight training; air taxi/charter operations; and specialty services such as instrument and avionics maintenance, painting, overhaul, aerial application, aerial photo graphy, aerial hoists, and pipeline patrol. Freehold Sale: An estate in land, a form of fee simple ownership. General Aviation (GA): That portion of civil aviation that encompasses all facets of aviation, except air carriers. Governmental Bonds or Non-AMT Bonds: Bonds as defined in Section 141 of the Code where interest is fully free of taxation for bondholders. Grant Assurances: Obligations attached to FAA-administered airport financial assistance programs that require the recipients to maintain and operate their facilities safely and efficiently and in accordance with specified conditions. Greenfield: An agreement on land that has not been developed or does not have constraints from prior work. Lease: An agreement whereby the owner of real property (landlord or lessor) gives the right of possession to another (tenant or lessee) for a specified period (term) and for a specified consid- eration (rent). Lease Agreement (also known as Concession): Contract to transfer rights to manage and/or operate a property for a certain period, usually without property rights. Lease Term: A fixed, non-cancellable period of time for which a lease agreement is in force. This terminology refers to the lease period. Lenders: Providers of debt financing to support an acquisition or as ongoing lenders, including lending bankers, infrastructure funds, and the bond market. Many airports are financed by a mix of equity, bank debt, and bond debt. Light-Handed Regulation: An approach to regulation of aeronautical charges where price approval is set with minimal regulatory intervention, potentially through reserve powers regu- lation. Reserve powers regulation is an approach to regulation of aeronautical charges where price approval is set by agreement between airports and airlines, with an independent regulator deployed if an agreement is not reached. Long-Term Lease or Sale: A long-term lease, long-term concession, sale, or other transfer of an entire airport to private operation and/or ownership (e.g., BAA in the United Kingdom, Australian airports). Management Contract: An approach where a private entity manages an airport or certain air- port facilities for a specified period of time and typically provides little or no capital investment.
Glossary 177 The private managerâs objective is to improve the financial and operational efficiency of the facility, for which the manager is paid a fee and is reimbursed for its expenses, subject to a budget that is usually set by the manager and approved by the airport owner. Most airports operate their public parking facilities using a management contract, and some use a management contract for the operation of individual terminals or master terminal concessions, hangars, warehouses, or, in a few cases, for the entire airport. Master Terminal Concession Developer: An approach where the developer acts as the airport ownerâs master lessee and is responsible for developing and managing terminal concession and retail activities, including merchandising, retail, food and beverage, and sometimes advertising services. Typically, the concession developer is not authorized to operate terminal concessions except in the case of a vacancy. The airport owner and developer share in the revenues under various formulas. Often, the developer is required to contribute to a repair and replacement fund to cover certain repair and replacement costs. National Plan of Integrated Airport Systems (NPIAS): A document that is prepared and pub- lished every 2 years by the FAA, which identifies public-use airports that are important to public transportation and contribute to the needs of civil aviation, national defense, and postal service. Airports under the NPIAS are eligible for AIP grants. Non-Aeronautical: Uses and services that are not related to the movement of aircraft, passengers, baggage, mail, and cargo. Nonprimary Airports: Airports with fewer than 10,000 annual passenger enplanements (board- ings), of which there were 125 in calendar year 2010. One-Step Procurement: A procurement structure under which there is a single submittal by proponents that includes qualifications and financial/business terms. OpEx: Operating expenses. Organizational Capacity: the airport ownerâs internal resources, policies, and procedures that constitute the project planning and selection process. Outsourcing: The delegation of operations from the public sector to a private entity that specializes in the operation, maintenance, or management of that activity. Parking Concession Agreements: An approach where the private operator is typically respon- sible for all aspects of day-to-day parking operations, including shuttle buses, facility mainte- nance, and fee collections. As payment for its services, the concessionaire receives a percentage of the gross revenues from parking operations but is required to pay the greater of this percentage amount or a minimum annual guaranteed amount to the airport owner. Therefore, the conces- sionaire assumes most of the risk for potential downturns in parking revenues, but also receives greater rewards if there is an unexpected increase in airline passenger traffic. Partial Privatization: Partial privatization refers to all other strategies where partial control and full ownership of an airport remains vested with the public owner. Passenger Facility Charges (PFCs): A charge per eligible enplaned passenger in the United States authorized by 49 U.S.C. 40117 and regulated by 14 CFR Part 158 for FAA-approved capital improvements. PFCs are an exemption from the Anti-Head Tax Act. Primary Airports: Airports with more than 10,000 annual passenger enplanements (boardings), of which there were 375 in calendar year 2010. Private Activity Bonds or AMT Bonds: Bonds that are generally excluded from the taxable income of the holder, is an item of tax preference under the alternative minimum tax provisions
178 Evaluating and Implementing Airport Privatization and Public-Private Partnerships Section 142 of the Internal Revenue Code of 1986 (as amended) and Treasury Regulations. AMT Bonds are issued for facilities that will have excessive use by private users (e.g., terminal buildings). Private Airport Development: Development of an entire airport without the aid of federal or state grants by private investors to be operated as a for-profit business. It should be noted that private airport development without government support is not considered to be airport privatization for purposes of this guidebook since it does not involve the transfer of control or owner ship from the public sector to the private sector. For example, Branson Airport, which was developed without government funding, is not considered a form of airport privatization. Private Airport Operators: Participants in full airport privatization that do not have an equity interest in the transaction but operate the facility. Private Developer: An external entity contracted to develop, operate, and/or manage a project. A private developer may or may not invest private equity into the transaction, depending on the structure of the project agreement. Privatization: The sale of a public asset to a private party. This is differentiated from a public- private partnership (P3) in that under privatization there is no reversion to public control. Project Financing: Project financing is the most common way to channel private sector invest- ment into public sector infrastructure. Money is borrowed (often through a tax-exempt conduit issuer of municipal bonds) for the specific purpose of financing a project, and lenders are repaid only from the cash flow generated by the project or, in the event the project fails, in some cases, from the value of the project assets. Thus, if project revenues never materialize because the project is abandoned during construction, or if project revenues are disrupted because of opera tional problems, there is no alternative source of cash flow to meet debt service require- ments. Most examples of airport project finance transactions in the United States involve special purpose facilities for single or multi-tenant use, typically an airline (e.g., unit passenger terminal, terminal equipment, or fuel storage and distribution systems), one or more cargo tenants (cargo buildings), or rental car companies (consolidated rental car facilities). Public-Private Partnerships (P3): P3s are strategies in which a public agency (federal, state, or municipal) grants a private entity the right to design, build, maintain, operate, or finance airport infrastructure (e.g., terminal building, cargo building, entire airport) for a contracted period while the public agency maintains rights or obligations during the contract period and maintains ownership of the asset. P3s can confer a wide range of options in terms of capital allocation and respective levels of participation, ranging from a design/build contracting process to innovative approaches where a private operator takes charge of the construction, financing, and manage- ment of an asset over a long-term concession. Public Sponsor (also called Airport Owner): A governmental agency that has the right and obligation to manage infrastructure assets. Public-Use Airport: An airport open to the public that also meets the following criteria: (1) publicly owned, (2) privately owned but designated by FAA as a reliever, or (3) privately owned but having scheduled service and at least 2,500 annual enplanements. Regulatory Asset Base (RAB): The investment base upon which the operator is permitted to earn a reasonable return. Surplus Property Act: An act of the U.S. Congress enacted October 3, 1944, to provide for the disposal of surplus government property to âa State, political subdivision of a State, or tax- supported organizationâ that puts limitations on the sale, lease, encumbrance, transfer, or dis- posal of any part of the airport ownerâs title or other interests in such property.
Glossary 179 Tax-Exempt Debt: Instruments such as governmental bonds, private activity bonds, and other debt obligations, which are exempt from certain federal taxes and sometimes state taxes. Interest on âPrivate Activity Bondsâ or âAMT Bonds,â although generally excluded from taxable income of the holder, is an item of tax preference under the alternative minimum tax provisions of Section 142 of the Internal Revenue Code of 1986 (as amended) and Treasury Regulations. Interest on âGovernmental Bondsâ or ânon AMT Bondsâ as defined in Section 141 of the Code is fully free of taxation for bondholders. AMT Bonds are issued for facilities that will have excessive use by private users (e.g., terminal buildings). Non-AMT Bonds are used for facilities that do not have an excessive level of use by private users (e.g., roadways and some- times parking and airfield facilities). The federal subsidies for AMT and non-AMT bonds result in lower interest costs on long-term debt, which provide a comparative advantage for public entities financing infrastructure improvements. Traditional Contracting Agreement: Design-bid-build agreements where the owner contracts an external developer to oversee, manage, or implement a project while the owner maintains full possession and tenure. Two-Step Procurement: A procurement method in which proponents first respond to a request for qualifications (RFQ). Respondents who meet the RFQ criteria are then invited to respond to a request for proposals (RFP) that contains their proposed development plan and business terms. Value for Money (VfM) Study: A term that can refer to the overall monetary value that trans- ferring risk to a private party may bring to the public sector or can refer to a formal study that quantifies the cost of risk transferred to a private party.