Guidebook for Managing Small Airports - Second Edition (2019) / Chapter Skim
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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.
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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: • 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 • 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)
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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.
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• General economic development • Payments in lieu of taxes or other assessments that exceed the value of services provided • Payment to compensate nonsponsoring governmental bodies for lost tax revenues exceeding stated tax rates • Direct subsidies of air carrier operating costs • 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.
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Business -- Financial 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.
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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.
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Passenger facility charge 8. Customer facility charge (rental cars)
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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.
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Business -- Financial 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.
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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.
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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 policies on topics such as rates and charges, aeronautical business incentives, minimum development standards, leasing for ground and buildings, broker or developer arrangements for nonaeronautical property development, return on investment and unrestricted cash on hand (monetary reserves not dedicated to a particular use)
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Some examples of typical performance indicators include the following: • Fuel sale dollars per itinerant operation, or per based aircraft • Monthly fuel flow revenue • Monthly or quarterly airport revenue per operation • Monthly or quarterly operating expense per operation • Monthly or quarterly fuel sale ticket per aircraft • Monthly or quarterly number of maintenance work orders closed • Monthly or quarterly complaints received airport-wide • Monthly or quarterly T-hangar or storage hangar lease revenue • Monthly or quarterly return on airport facility investment versus goal • 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)
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From page 35... ...
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 aeronautical 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.
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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.
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Business -- Financial 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.
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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 macrolevel steps are recommended: • Initiate an airport master plan or business plan to identify goals, opportunities, investment required and policy requirements.
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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.
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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.
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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.
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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 nonaeronautical or off-airport property market analysis; these markets operate separately. Nonaeronautical properties must be appraised according to the local real estate market.
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Airport Compliance with Establishing Rates and Charges Rates and charges must maintain compliance with the airport's grant assurances, particularly the following: • Grant Assurance 22: Economic Nondiscrimination • Grant Assurance 23: Exclusive Rights • Grant Assurance 24: Fee and Rental Structure • Grant Assurance 25: Airport Revenues • 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.
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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.
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From page 45... ...
Business -- Financial 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 landlord–tenant relationship.
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From page 46... ...
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.
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From page 47... ...
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 airport's policymaking board. The leasing policy establishes standard terms and requirements to serve as a leasing and airport development guide and provides a fallback position to aid in lease negotiation.
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• 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.
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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.
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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.
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Business -- Financial 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.
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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.
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Business -- Financial 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.
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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.
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Business -- Financial 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.
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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 airport's minimum standards provide a "level playing field" for businesses to operate and compete at an airport.
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FAA Advisory Circular 150/5190-7: Minimum Standards for Commercial Aeronautical Activities provides basic information about the FAA's 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.
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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: • Public parking areas • Smoking and nonsmoking areas • Abandoned vehicles and aircraft • Security badging requirements • Operation of vehicles on the airport and driver training requirements • Aircraft operations (although these cannot conflict with federal regulations)
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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.
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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.
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Business -- Financial 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: • Clearly identify the airport sponsor against which the allegations are made; • Clearly identify the assurance(s)
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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.
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Business -- Financial 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.
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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.
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Business -- Financial and Administrative Management 65 3.9 Insurance Key Insights Insurance is a risk management tool. Aeronautical activities may not be covered by your airport sponsor's insurance.
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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 interruption insurance is intended to mitigate the risk of income losses that may occur as a result of a natural or man-made disaster.
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Business -- Financial 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.
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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.
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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.
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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)
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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.
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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.
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To assist in preparing the CIP, the airport sponsor should use the airport's master plan or layout plan, environmental mitigation commitments, pavement management plans and prior year's submission. The AIP priority rating of a project should also be considered.
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Hangar Construction 39. Competitive Access Source: FAA Airports Assurances: Airport Sponsors
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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.
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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.
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It is required for architectural, engineering and planning services for Airport Improvement Program grant-funded projects and may be required for non–Airport 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 qualifications and experience, without consideration of cost.
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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.
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Sponsors must consult with FAA Airports personnel 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.
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80 Guidebook for Managing Small Airports • 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.
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Business -- Financial 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.
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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.
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Business -- Financial 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 "hire slowly, fire quickly." 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.
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84 Guidebook for Managing Small Airports Volunteers in the Workplace. The most obvious advantage of a volunteer program is free help -- or the minimal cost of running the program and the provision of some training and small tokens of appreciation to the volunteers.
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Business -- Financial 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 airport's success.
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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.
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Business -- Financial and Administrative Management 87 Termination Employee terminations are a fact of life for any business. Terminations can be tied to performance, policy or rules infractions, criminal activity, ethics violations or shifts in organizational priorities.
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In short, running an airport business requires a certain amount of data mining. This data must be reliable and verifiable.
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