Airports in the United States are designed to be self-sustaining entities. The origins of civil aviation in the US laid the foundation for users of aviation would pay for aviation. In the near 100 years since the formation of the US Civil aviation system, little has changed in terms of that philosophy. Typically, airports are considered an Enterprise Fund. According to AccountingTools.com, an Enterprise Fund is a self-supporting government fund that sells goods or services to the public for a fee. Public utility companies are also Enterprise Funds.
From a finance perspective, Generally Accepted Accounting Principles (GAAP) apply. The Governmental Accounting Standards Board (GASB) establishes accounting and financial reporting standards for U.S. state and local governments that follow Generally Accepted Accounting Principles (GAAP). Check with your finance department to determine what standards apply for your situation.
Maintaining a safe, secure, and efficient airport is the core component of the airport sponsor. Proper accounting and financial controls help to ensure the money is appropriately accounted for and spent in accordance with policies, procedures, and budgetary systems. Whether the airport is a municipal, authority, or state owned system, the finances of the airport are typically restricted for use by the airport. Consideration of applicable Grant Assurances should be conducted by airport management.
Basic Finance
Money in, money out. Finance at its most basic. Managing an airport is more complicated than that. There is aeronautical revenue and non aeronautical revenue. Financial reporting and auditing requirements must comply with state, local, and federal regulations and statutes. As a public entity, the airport may be subject to the budgetary process of a municipality. Understanding how the budget process works is important. The last thing an airport wants is Revenue Diversion. We’ll talk about that more later.
Revenues and Expenses
Airport Revenue
Airports generate revenue to continue their existence. The operating revenue consists of aeronautical and non-aeronautical revenue. The third category of revenue for airports is non-operating revenue. Revenue generated from operating revenue is regulated by the FAA and must be and includes landing fees, concessions, fuel flowage fees, parking, rental cars, ground transportation, and leased spaces.
Operating Revenues | Non-Operating Revenues |
Landing Fees | Government grants |
Fuel Flowage Fees | Passenger Facility Charges (PFCs) |
Lease and Rent Agreements | Customer Facility Charges (CFCs) |
Concessions | Property Taxes |
Rental Cars | Property sales |
Ground Transportation Operations | Interest |
Parking Operations | Investment income |
Aeronautical Revenue
To better understand what is classified as aeronautical revenue let’s take a look at how the FAA defines aeronautical activity. According to the FAA Airport Compliance Manual, Aeronautical Activity is “any activity that involves, makes possible, or is required for the operation of aircraft or that contributes to or is required for the safety of such operations.” This includes, general and corporate aviation, charter operations, air carrier operations, pilot training, crop dusting, or aircraft maintenance. Essentially, any activity that directly has a relationship to the operation of an aircraft. [1] FAA Airport Compliance Manual 5190.6B. (2009, September 30). Retrieved January 25, 2021, from https://www.faa.gov/documentLibrary/media/Order/5190_6b.pdf
Aeronautical revenue is generated from aeronautical activity. Therefore, the services provided in support of aeronautical activity are also aeronautical revenue. This includes lease spaces, landing fees, aircraft parking fees, and certain lease agreements.
Common Aeronautical Revenue Sources
Landing Fees
Landing fees are assessed on the airlines for the use of the airfield, runway, and taxiway. It also accounts for services such as snow removal, aircraft rescue firefighting (ARFF), security, and maintenance of the airfield. Landing fees may be charged on a per-operation or per-weight basis. Regardless of how the landing fee is assessed it must be fair and reasonable. [2]FAA Airport Compliance Manual 5190.6B, Chapter 18. (2009, September 30). Retrieved January 25, 2021, from … Continue reading
Fuel Flowage Fees
Fuel providers can be and typically are regulated by the airport sponsor. The nature of fueling an aircraft is aeronautical activity in itself, which allows the sponsor more control over it. One method that is used to generate revenue for airports is the use of a Fuel Flowage Fee. A Fuel Flowage Fee is a small percentage charged on the total amount of fuel sold on the airport. The Fixed Based Operator (FBO), corporate flight department, or air carrier may pay the pre-determined amount as outlined in their lease and use agreement. [3]United States, Federal Aviation Administration. (n.d.). Advisory Circular 150/5100-19C: GUIDE FOR AIRPORT FINANCIAL REPORTS FILED BY AIRPORT SPONSORS.
Lease and Rent Agreements
Lease and rent agreements can be tricky. Not all are classified as Aeronautical Revenue and care should be made to ensure the appropriate classifications are made. Examples of aeronautical lease agreements include office space, ticket counters, gates, baggage claims, and areas that aeronautical activity occurs. [4]Use and Lease Agreements. (n.d.). Retrieved January 25, 2021, from https://www.kaplankirsch.com/Practices/Airports/Use-and-Lease-Agreements
Non-Aeronautical Revenue
Some revenues generated from areas that are not directly related to aviation can be non-aeronautical. This includes revenues from a source that is not required for aviation to continue. For example, a bank in an airport is a benefit to your passengers, but it is not required for the passengers to depart or arrive. [5]ICAO: State of Airport Economics. (n.d.). Retrieved January 25, 2021, from https://www.icao.int/sustainability/Airport_Economics/State of Airport Economics.pdf A key note for non-aeronautical revenue is the guide on setting rates is simply what the Fair Market Value (FMV) is for the area.
Common Non-Aeronautical Revenue Sources
Sources of non-aeronautical revenue include terminal lease agreements, parking operations, concessions fees, rental car agreements, and advertising. Similar to the caveat for lease agreements in aeronautical revenue, lease agreements require further clarification. The retail, concessions, and other incidental operations that are not related or required for aviation to occur most likely fit into non-aeronautical revenue. [6]ICAO: State of Airport Economics. (n.d.). Retrieved January 25, 2021, from https://www.icao.int/sustainability/Airport_Economics/State of Airport Economics.pdf
Non-Operating Revenue
When it comes to non-operating revenue, it includes interest income, grants, Passenger Facility Charges (PFCs) and Customer Facility Charges (CFCs). [7]https://www.cutr.usf.edu/wp-content/uploads/2014/06/CUTR-Webcast-Handout-6.26.14.pdf
Common Non-Operating Revenue Sources
Non-operating sources come from personal property taxes, possessory interest taxes, the sale of some property (non aviation related), Passenger Facility Charges (PFCs), and Customer Facility Charges (CFCs). A PFC is fee that can be charged on each enplaned passenger as set by the airport sponsor up to the Congressionally allowed amount ($4.50 currently) to fund approved projects that enhance the safety, security, capacity, noise reduction, or increased airline competition. [8] FAA: Passenger Facility Charge (PFC) Program (n.d.). Retrieved January 25, 2021, from https://www.faa.gov/airports/pfc/
A note on rental car and ground transportation operations. Some revenue is classified as non-aeronautical while some may be non-operating. If a rental car company or ground transportation operator leases space such as parking spaces or office space, that is non-aeronautical revenue. Fees charged for access to the airport, such as to ground transportation operators or on car rental fees could be classified as a Customer Facility Charge (CFC) and be considered non-operating revenue. [9]DWU Consulting, LLC (February 28, 2016) Retrieved January 25, 2021, from https://dwuconsulting.com/airport-finance/articles/customer-facility-charge
Expenses
Expenses are also divided into Operating and Non-Operating categories.
Operating Expenses | Non-Operating Expenses |
Personnel | Depreciation |
Advertising | Debt Service |
Services | Captial Improvement |
Maintenance | Interest |
Supplies and Materials | Licenses |
Utilities | Losses or damages |
Insurance | Government contribution |
Airport Revenue Diversion
Revenue diversion is a huge no no in aviation. It is prohibited by 49 U.S.C. § § 47107(b)(1), 47133 and promulgated by the FAA in Grant Assurance 25, Airport Revenues. As the founding principle of civil aviation in the United States, the users of aviation pay for aviation. To ensure the aviation system is self-sustaining, Congress and the FAA has instituted policies to ensure that revenue generated by the airport is reinvested in the airport. The revenue must be used for operating and capital costs of the airport. As with everything, there are a few exemptions, but they are rare. [10]https://www.faa.gov/airports/new_england/airport_compliance/media/revenue-diversion.pdf
Airport sponsors must submit an annual report to the FAA on financials as a result of the Single Audit Act of 1984. Failure to comply with the stipulations of the Grant Assurance may result in suspension from the grant program or monetary civil penalties. Financials are discussed in greater detail below.
Financial reporting, budget preparation, and rate and charges will be discussed in separate posts.
References
↑1 | FAA Airport Compliance Manual 5190.6B. (2009, September 30). Retrieved January 25, 2021, from https://www.faa.gov/documentLibrary/media/Order/5190_6b.pdf |
↑2 | FAA Airport Compliance Manual 5190.6B, Chapter 18. (2009, September 30). Retrieved January 25, 2021, from https://www.faa.gov/airports/resources/publications/orders/compliance_5190_6/media/5190_6b_chap18.pdf |
↑3 | United States, Federal Aviation Administration. (n.d.). Advisory Circular 150/5100-19C: GUIDE FOR AIRPORT FINANCIAL REPORTS FILED BY AIRPORT SPONSORS. |
↑4 | Use and Lease Agreements. (n.d.). Retrieved January 25, 2021, from https://www.kaplankirsch.com/Practices/Airports/Use-and-Lease-Agreements |
↑5, ↑6 | ICAO: State of Airport Economics. (n.d.). Retrieved January 25, 2021, from https://www.icao.int/sustainability/Airport_Economics/State of Airport Economics.pdf |
↑7 | https://www.cutr.usf.edu/wp-content/uploads/2014/06/CUTR-Webcast-Handout-6.26.14.pdf |
↑8 | FAA: Passenger Facility Charge (PFC) Program (n.d.). Retrieved January 25, 2021, from https://www.faa.gov/airports/pfc/ |
↑9 | DWU Consulting, LLC (February 28, 2016) Retrieved January 25, 2021, from https://dwuconsulting.com/airport-finance/articles/customer-facility-charge |
↑10 | https://www.faa.gov/airports/new_england/airport_compliance/media/revenue-diversion.pdf |
2 thoughts on “Airport Finances”