PENSACOLA INTERNATIONAL AIRPORT MASTER PLAN UPDATE WORKING PAPER 8 FINANCIAL PLAN

Transcription

1 PENSACOLA INTERNATIONAL AIRPORT MASTER PLAN UPDATE WORKING PAPER 8 FINANCIAL PLAN OCTOBER 2018

2 T A B L E O F C O N T E N T S Table of Contents Chapter 8 Financial Plan 8.1 Introduction Enplanement Forecast Airport s Financial Structure Regulations and Requirements Bond Resolution Rate Covenant Provision Airline Agreements Operating Budget Airport Cost Centers Non-Airline Revenue Maintenance and Operation Expenses Project Costs Capital Improvement Program Airfield Pavement Maintenance Requirements Integrating Airport s Capital Improvement Programs Cost Center Allocation Financial Plan AIP Grants FDOT Grants Passenger Facility Charge (PFC) Revenue Tenant/Third-Party Financing Airport Capital Improvement Funds Customer Facility Charges Debt Financing Airport Revenue Bonds Financial Feasibility Analysis Revenue Maintenance and Operations Expenses Debt Service Airline Cost Per Enplaned Passenger Debt Service Coverage Master Plan Update Phases 2 and Pensacola International Airport Master Plan Update-Working Paper 8 i

3 T A B L E O F C O N T E N T S LIST OF TABLES Table 8-1 Forecast Used in the Financial Plan Table 8-2 Airline Charges and Charge Basis Table 8-3 Airfield Pavement Rehabilitation Requirements Table 8-4 Phase 1 Capital Improvement Program Pavement Projects Table 8-5 Removed/Deferred Pavement Projects Table 8-6 Pavement Rehabilitation to be Accomplished FY Table 8-7 Remaining Debt Service Table 8-8 Upper Gulf Coast Airports Comparison of Airline Cost Per Enplaned Passenger Table 8-9 Capital Improvement Project Costs 2025 Program Table 8-10 Funding Project Cost and Cost Center Allocations 2025 Program Table Program Finance Plan Table 8-12 Financial Feasibility Analysis Summary Pensacola International Airport Master Plan Update-Working Paper 8 ii

4 CHAPTER 8 FINANCIAL PLAN

5 8.1 INTRODUCTION Projected development at Pensacola International Airport (Airport) has been broken into three phases, roughly spanning the first five years, years six through 10, and from 10 to 20 years. This section describes a financial analysis that determined the effect that the project costs would have on the Airport s cash flow and airline rates and charges. A preliminary financial plan for implementation of Phase 1 of the Master Plan Update was also prepared. The costs related to Planning Phases 2 and 3 are briefly addressed at the end of this Working Paper. The Master Plan Update presents the recommendations in three phases. The following is the phasing of the Master Plan Update:» Phase 1 projects are to be constructed over the next five years. Phase 1 projects are estimated to cost $109,331,000 in 2018 dollars. These projects are known collectively as Project 2025.» Phase 2 projects are to be constructed by the end of 10 years. Phase 2 projects are estimated to cost $15,900,000 in 2018 dollars.» Phase 3 projects are to be constructed by the end of 20 years. Phase 3 projects are estimated to cost $88,100,000 in 2018 dollars. To perform this analysis, some of assumptions have been made and are outlined in each of the relevant sections. The forecast period for this analysis is FY 2015 through FY Also, the enplanement forecast used for the financial analysis differs slightly from the enplanement forecast approved by the FAA and used as a basis for the facility requirements described elsewhere in the Airport Master Plan. The primary difference is that the actual enplanements in recent fiscal periods have exceeded the approved aviation forecasts, which were developed earlier. This Working Paper contains the following major components:» Airport s financial structure (bond ordinance, airline agreements, etc.)» Project costs discussion and analysis» Planning to resolve $52,895,000 of airfield pavement rehabilitation requirements identified by the Florida Department of Transportation for the 2015 through 2024 period» Financial Plan for funding the implementation of the Program 2025 (as later defined)» Preliminary Financial feasibility analysis o Airline costs o Debt service coverage ratio As in any financial analysis that requires some assumptions, the underlying assumptions provide a reasonable basis for the forecasts. However, any forecast is subject to uncertainties. Inevitably, some assumptions will not be realized, and unanticipated events and circumstances may occur. Therefore, there will be differences between the forecast and actual results, and those differences may be material. Pensacola International Airport Master Plan Update-Working Paper 8 8-1

6 8.2 ENPLANEMENT FORECAST For financial analytical purposes, the enplanement forecast has been adjusted to reflect the higher level of passengers the Airport experienced in FY As shown in the table below, the level of enplaned passengers used as an underlying assumption throughout the financial analysis shows a somewhat higher average passenger growth in rate than the Airport has experienced in recent years. The Airport experienced unprecedented growth of 14.4 percent in FY This growth was generated from three sources:» A new entrant carrier, Frontier Airlines, began offering service to Chicago and Denver» American Airlines began offering service to Philadelphia» An overall increase in air carrier capacity Increases in airline scheduled capacity into FY 2019 exceeded expectations significantly, with capacity increasing by more than 12 percent, and even more increases have been announced by carriers. As a result of the FY 2018/FY 2019 capacity increases and the accompanying FY 2018 increase in traffic, the Airport believed a re-examination of future enplanement levels was warranted. This reexamination was completed in conjunction with the financial analysis of the Capital Improvement Program. In order to remain in line with the FAA s forecasting approach, the FY 2017 TAF was reviewed to determine how its results compared to actual enplanements at PNS. The FAA recognized recent growth trends at PNS during FY 2018 in its FY 2017 Terminal Area Forecast. After reviewing the FY2017 TAF and using the PNS actuals for FY 2017 and an estimate of enplanement levels for FY 2018, the growth rate from the FY 2017 TAF was applied to future years beginning in FY 2019 to assess how the enplanements under that scenario tracked against the approved forecast. The results of this reexamination showed that while the growth in the near term was greater than previously projected, over the term of the forecast through 2030 there was a minimal difference in the enplanement levels in the out years. The new enplaned passenger forecast was used to project future passenger facility charge (PFC) revenue, Airport Improvement Program (AIP) entitlement grants, and certain non-airline revenue sources such as parking, rental car, and terminal concession revenue. Enplaned passengers are projected to increase from the actual 835,000 in FY 2017 and to continue to increase to 1,376,000 in FY 2035, which represents an average annual growth rate of 2.8 percent over the forecast period. Table 8-1 shows the forecast used in the financial plan and compares it to the approved forecast. Pensacola International Airport Master Plan Update-Working Paper 8 8-2

7 TABLE 8-1 FORECAST USED IN THE FINANCIAL PLAN Year Enplanements %Growth 2017 Actual 835, Estimated 850, % , % , % , % , % ,021, % ,046, % ,073, % ,100, % ,128, % ,156, % ,185, % ,215, % ,246, % ,277, % ,309, % ,342, % ,376, % Average Annual Growth Rates % % % % Source: Intervistas Consulting, Inc. 8.3 AIRPORT S FINANCIAL STRUCTURE Regulations and Requirements The Airport must comply with a series of regulations and requirements in areas such as Accounting, Financial Reporting, and Federal Regulation of Rents, Fees, and Charges. The City of Pensacola (the City) accounts for the financial operations of the Airport as an enterprise fund. Financial statements for the Airport are prepared according to generally accepted accounting principles for governmental entities and are included in the Enterprise Funds section of the City s annual financial report. Furthermore, the Airport is subject to FAA accounting and financial reporting requirements. Airport rents, fees, and charges are calculated in a manner that is consistent with federal regulations. The Airport and Airway Improvement Act forbids Airport revenue diversion. Airport revenues must be expended by the Airport sponsor for Airport purposes. Additionally, when an Airport sponsor receives a grant from the federal government, the FAA requires that the Airport sponsor agree to various grant assurances, including Assurance 25 on Airport revenues. The FAA monitors compliance through Airport Pensacola International Airport Master Plan Update-Working Paper 8 8-3

8 self-certification, audits, and third-party complaints. Penalties for revenue diversion include withholding of grants and civil penalties Bond Resolution To date, most major capital improvements have been financed with internal capital funds, PFC revenue, state and federal grants, and Airport revenue bonds, notes, and loans. The bonds are issued under the City s Bond Resolution No (Resolution) and are payable as a first lien on the Net Revenues (Gross Revenues less Maintenance and Operation Expenses) of the Airport. As part of this analysis, it is assumed that any revenue bond, note, or loan issuance would be done in accordance with the terms and conditions of the Resolution and on a parity basis with the Airport s bank loans and notes Rate Covenant Provision One of the major provisions in the Resolution is the rate covenant in which the City guarantees that it will at all times fix, charge, impose and collect rentals, rates, fees and other charges for the use of the Airport such that in each fiscal year the net revenues will be at least equal to an amount (together with other available funds) not less than 125 percent of the debt service requirements for the parity bonds for that fiscal year. Depicted in the financial results at the end of this Working Paper is the rate covenant calculation that identifies the ratio of Net Revenues to total Debt Service Requirements, including any future debt service for the Program 2025 project costs, plus the project cost associated with projects that are not included in the Master Plan Update Airline Agreements Most commercial airlines operate as signatory airlines at the Airport, which means they operate under a five-year airport use and lease agreement with the City that terminates on September 30, 2022, unless it is extended. Table 8-2 shows the agreement and charge basis that determine what the airlines must pay. TABLE 8-2 AIRLINE CHARGES AND CHARGE BASIS Airline agreement rents, fees, and charges Charge Basis Terminal Building Rent The Terminal building rents are calculated using a cost center residual formula. BHS Use Fee The BHS Use Fee is established under a compensatory rate setting methodology Loading Bridge Use Fee The Loading Bridge Use Fee is established under a compensatory rate setting methodology Apron Area Use Fee The Apron Area Use Fee is established under a compensatory rate setting methodology Cargo Apron Area Use Fee The Cargo Apron Area Use Fee is established under a compensatory rate setting methodology. Landing Fees The Signatory Airline landing fees are calculated according to a total airport residual cost methodology. Source: Pensacola International Airport Pensacola International Airport Master Plan Update-Working Paper 8 8-4

9 As discussed later in this section, the Master Plan Update project costs are allocated to the Airport s various cost centers so that the effect on airline rates and charges can be determined. The financial results at the end of this Working Paper identify the total airline cost per enplaned passenger, which is frequently used in the industry as a basis for comparing costs among various airports from the airline perspective Operating Budget Like most local government agencies, the Airport has an operating budget and a capital improvement program (CIP). Operating revenues and expenses are collected in a series of cost centers Airport Cost Centers The Airline Agreements establish certain direct cost centers to be used for Airport management purposes and the calculating rents, fees, and charges as follows:» Terminal Building: The Terminal Building serving the airlines» Terminal Area: The access roads and parking areas surrounding the Terminal Building» Airfield Area: Those areas of the Airport that provide for landing, takeoff, taxiing, parking, or other operations of aircraft» Apron Area: The area dedicated to parking and ground handling of aircraft at the Terminal Building» Cargo Apron Area: The area dedicated to parking, and ground handling of cargo aircraft» Loading Bridges: The loading bridges serving the airlines» BHS System: The baggage handling system serving the passenger airlines in the Terminal Building» Other Buildings and Areas: Those portions of the Airport not included in the previous Airport cost centers Airport management has established certain indirect cost centers to be used for Airport management purposes and the calculating rents, fees, and charges as follows:» Administration» Aircraft Rescue and Firefighting» City Administrative Allocation» Maintenance and Operations» Security Costs from these indirect cost centers are allocated based on management analysis to direct cost centers for inclusion in the calculation of Airport rents, fees, and charges Non-Airline Revenue Besides airline revenue, the Airport obtains significant income from other sources such as public parking, rental car concessions, terminal concessions, and building and ground rental from its tenants. Non-airline revenue has been increasing in recent years due to the increasing passenger enplanements, growing amounts of land coming under lease, improvement in the quality of in-terminal concessionaires, and Pensacola International Airport Master Plan Update-Working Paper 8 8-5

10 Terminal Advertising. Most other concession-type revenue sources are also increasing along with passenger growth, whereas the building and ground rentals are fixed with modest increases where allowable per the agreement with the tenant Maintenance and Operation Expenses The major Maintenance and Operation Expenses at the Airport include building maintenance, pavement maintenance, utilities, police and security, airport rescue and fire-fighting, parking management, and custodial services. Maintenance and Operation encompasses an array of services, competencies, processes, and tools required to ensure the Airport facilities will perform the functions for which they were designed and constructed. Operations and maintenance typically include the day-to-day activities necessary for the facilities to continue to perform with a high level of reliability. 8.4 PROJECT COSTS Capital Improvement Program In addition to an operating budget, the City maintains an Airport CIP and funds capital projects. Generally, the Airport can pay for capital improvements using grants, PFCs, Customer Facility Charges (CFCs), debt financing (e.g., notes, loans, bond) proceeds, Airport cash (from internal cash flow), and/or tenant or thirdparty financing, subject to various requirements and restrictions that vary from project to project Airfield Pavement Maintenance Requirements The Florida Department of Transportation (FDOT) has issued a Pavement Evaluation Report that shows the need for $52,895,000 in major pavement rehabilitation through The requirements are not included in the recommended 5-Year Future CIP in this Master Plan Update. Table 8-3 shows the projects FDOT is advocating. Pensacola International Airport Master Plan Update-Working Paper 8 8-6

11 TABLE 8-3 AIRFIELD PAVEMENT REHABILITATION REQUIREMENTS Year Branch ID Section ID Major M&R Costs* PCI Before M&R M&R Activity PCI After M&R 2015 AP E 4405 $ 4,594, Mill and Overlay AP S 4510 $ 6,088, Mill and Overlay AP TERM 4230 $ 546, Reconstruction TW A1 120 $ 1,090, Reconstruction TW B7 270 $ 276, Mill and Overlay AP S 4515 $ 4,183, Mill and Overlay TW A7 215 $ 1,377, Mill and Overlay AP S 4505 $ 2,279, Mill and Overlay AP W 4605 $ 4,444, Mill and Overlay RW $ 2,041, Mill and Overlay RW $ 3,653, Mill and Overlay RW $ 859, Mill and Overlay TW C 252 $ 353, Mill and Overlay RW $ 1,992, Mill and Overlay RW $ 1,328, Mill and Overlay TW A 115 $ 6,594, Mill and Overlay RW $ 1,197, Mill and Overlay RW $ 2,964, Mill and Overlay TW A2 160 $ 854, Mill and Overlay TW B7 217 $ 250, Mill and Overlay TW B8 280 $ 303, Mill and Overlay TW C 505 $ 299, Mill and Overlay TW D 140 $ 995, Mill and Overlay TW D 410 $ 459, Mill and Overlay RW $ 1,526, Mill and Overlay RW $ 1,115, Mill and Overlay TW B 210 $ 1,220, Mill and Overlay 100 Total= $ 52,894, *Costs are adjusted for inflation at 3% Source: FDOT Pavement Evaluation Report-Pensacola International Airport, (Table F-1: Airfield Pavement 10-Year Major Rehabilitation) The Airport has determined any pavement with a reported pavement condition index (PCI) of less than 60 will be included in the Phase 1 CIP for early action. Table 8-4 shows the two projects that have been added to the Airport s CIP. TABLE 8-4 PHASE 1 CAPITAL IMPROVEMENT PROGRAM PAVEMENT PROJECTS Year Branch ID PCI Section ID FDOT Project Cost 2015 APS $ 6,088, TW A $ 1,090,177 Total $ 7,178,965 Source: FDOT Pensacola International Airport Master Plan Update-Working Paper 8 8-7

12 Upon review, Airport management determined the projects shown in Table 8-5 could be removed from the future project list or deferred. TABLE 8-5 REMOVED/DEFERRED PAVEMENT PROJECTS FDOT Year Branch ID Section ID FDOT Project Cost Reason 2015 APE 4405 $ 4,594,320 Being completed this year 2016 APTERM 4230 $ 546,503 Already completed as part of cargo apron project 2019 TW B7 270 $ 276,227 To be completed when helicopter ramp is repurposed 2019 APS 4505 $ 2,279,966 Will look at this some other time 2019 APW 4605 $ 4,444,292 To be completed when helicopter ramp is repurposed 2023 TW A2 160 $ 854,910 Already completed as part of the cargo apron project 2023 TW B8 280 $ 303,652 To be completed when helicopter ramp is repurposed Total $ 13,299,870 Source: Airport Management Table 8-6 shows the remaining projects to be accomplished FY These projects have been determined to be less of a priority than the airfield projects shown in the recommended Airport Master Plan CIP, and pavement rehabilitation could be deferred until after FY The City plans to fund the projects in the FY 2025 FY 2030 period with federal and state grants and annual deposits to the Airport s Capital Improvement Account. Pensacola International Airport Master Plan Update-Working Paper 8 8-8

13 TABLE 8-6 PAVEMENT REHABILITATION TO BE ACCOMPLISHED FY FDOT Year Branch ID Section ID Current PCI FDOT Cost Projections 2017 APS $ 4,183, TW A $ 1,377, RW $ 2,041, RW $ 3,653, RW $ 859, TW C $ 353, RW $ 1,992, RW $ 1,328, TW A $ 6,594, RW $ 1,197, RW $ 2,964, TW B $ 250, TW C $ 299, TW D $ 995, TW D $ 459, RW $ 1,526, RW $ 1,115, TW B $ 1,220,845 Total $32,415,616 Source: FDOT Integrating Airport s Capital Improvement Programs The City has said it intends to implement Airport capital improvements that have been combined with the Master Plan Update recommended improvements. The combined list of CIP (Program 2025) consists of the following projects.» Master Planning recommended Phase 1 projects» Terminal Building HVAC system replacement» TRACON building removal and RON Construction» Parking Structure Construction» Airfield Pavement Rehabilitation o APS Section Identification 4510 o TW A1 Section Identification 120 The costs of these projects are considered in this financial analysis and are listed on Table 8-9 (presented at the end of this Working Paper) in 2018 dollars and in inflated dollars. The costs are inflated at 2.5 percent per year until the project s construction start date to ensure that an adequate amount is being funded. To determine the start dates, it was assumed that the City immediately proceeds with project definition and obtains independent cost estimates of projects. It was further assumed that the City would Pensacola International Airport Master Plan Update-Working Paper 8 8-9

14 proceed with an Airport revenue financing of Program 2025 in FY 2021, with most construction to be completed within two years Cost Center Allocation On Table 8-10 (presented at the end of this Working Paper) project costs are assigned to Airport cost centers, which serves as the basis for allocating costs to the various airline rents, fees, and charges, including landing fees, terminal building rents, loading bridge fees, cargo apron fees, and terminal building apron fees, and baggage handling system fees. Most of the Program 2025 costs are for Airfield Area, Apron Area, Terminal Building, and Terminal Area projects. 8.5 FINANCIAL PLAN A number of funding sources have been identified to fund these project costs, including AIP federal grants, FDOT grants, PFC revenue, CFC revenue, Airport Capital Improvement Account deposits, and general obligation airport revenue bonds. The Master Plan Update has also identified projects that are to be funded with third-party funds in Phase 1, which should not have any adverse financial implications for the Airport and instead could result in incremental revenue from sources such as ground rentals. It is assumed that no Airport funding will be used toward projects funded by third parties. Table 8-10 (presented at the end of this Working Paper) outlines the proposed funding plan for Program 2025 project costs. Each funding source and the underlying assumptions that accompany it is described in the following narrative AIP Grants AIP grants include amounts received from entitlement grants and discretionary grants. Over the past five years, the Airport has received $12,719,000 in grants from FAA AIP 38-AIP 42. In the past, the City has been successful in obtaining discretionary grants primarily for airfield projects. For purposes of this analysis, it is assumed that the $18,241,000 of entitlements to be received in the time frame are to be used toward airfield projects, and that an additional $6,000,000 of discretionary grants will also be received for airfield projects, as shown on Table The AIP entitlement grant amount is based on passenger traffic according to a pre-established formula set by the FAA FDOT Grants The FDOT Aviation and Spaceports Office operates the Aviation Grant Program to provide for a safe, costeffective, and efficient statewide aviation transportation system. The Aviation Grant Program provides financial assistance to Florida s airports in the areas of safety, security, preservation, capacity improvement, land acquisition, planning, and economic development. Program funds assist local governments and airport authorities in planning, designing, constructing, and maintaining public-use aviation facilities. The Aviation Grant Program is funded from the State Transportation Trust Fund. Florida s aviation industry is a major contributor to this fund through the state s aviation fuel tax. An excise tax is applied to aviation fuels at a rate of 6.9 cents per gallon. This aviation fuel tax is not tied to an inflation index and therefore will remain at its current rate until changed by legislative action. Pensacola International Airport Master Plan Update-Working Paper

15 From FY 2014 through FY 2018, the City received $27.7 million in FDOT grant funding for a variety of Airport projects excluding the special purpose ST Aerospace MRO Hangar grants. The FDOT funds are distributed as a grant, that is, they are reimbursed as funds are expended by the Airport owner/operator. FDOT may provide up to 50 percent of the local share of commercial service Airport project costs when federal funding is available. For example, FDOT provides up to 12.5 percent of project costs when the Federal Aviation Administration (FAA) provides 75 percent funding. When no federal funding is available, FDOT provides up to 50 percent of project costs. For purposes of this analysis, it is assumed that the $7,135,000 of FDOT grant proceeds in the time frame are to be used toward Airfield Area and Terminal Area projects s as shown on Table Passenger Facility Charge (PFC) Revenue Currently, the Airport levies a $4.50 per enplaned passenger PFC that is used to pay debt service related to eligible Airport projects. This charge is collected by the airlines as a tax on airline tickets. As shown on Table 8-10, by continuing to leverage its PFC revenue, the City may be able to fund approximately $32,163,000 of Program 2025 project cost with airport revenue bonds, the debt service for which would be paid by PFC revenue. Most of the bond proceeds from the leveraged PFC are to be used to pay Terminal Building, Airfield Area, and Apron Area debt service. By using PFC revenue to fund most of the debt service allocable to the Terminal Building, Airfield Area, and Apron, the amount of debt service to be included in the airline rate base, and thus paid by the airlines, is significantly reduced. PFCs are collected by the airlines when passengers purchase tickets and the funds are forwarded to the Airport owner/operator, less a handling charge. PFCs are not collected on airline tickets purchased with frequent flyer miles. To be eligible for PFC funding, a project must (1) preserve or enhance capacity, safety, or security, (2) reduce noise or mitigate noise impacts, or (3) enhance airline competition. PFCs are considered local (not federal) funds, but the FAA still approves the imposition and use of PFCs, and PFCfunded projects require consultation with the airlines. Like AIP grants, PFCs may be used to construct nonexclusive use terminals and related facilities but may not be used to construct certain revenue-producing portions, such as concessions, parking facilities, and rental car facilities Tenant/Third-Party Financing This Financial Plan assumes that tenant or third-party financing will be used to fund non-airport tenant improvements in the plan. As shown on Table 8-10, among these improvements are the construction of general aviation T-hangars, a general aviation fuel farm, and a general aviation self-service fuel station Airport Capital Improvement Funds Monies from this fund represent cash that the Airport has deposited to the Capital Improvement Account from the Capital Improvement Factor charged to the airlines. As shown on Table 8-10, it is assumed that $13,548,000 from the Capital Improvement Account is to be used to fund Program 2025 projects. Capital Improvement Account money was allocated to fund Airfield Area, Terminal Area, and Other Buildings and Areas costs. By using Capital Improvement Account revenue to fund most of the Airfield Pensacola International Airport Master Plan Update-Working Paper

16 Area, Terminal Area, and Other Buildings and Areas, the amount to be included in the airline rate base and thus paid by the airlines, is significantly reduced Customer Facility Charges All on-airport rental car companies that lease space at the Airport and all off-airport rental car companies that obtain customers from the Airport must collect a daily CFC. The City of Pensacola Code Section and the rental car concession agreement require rental car operators to collect a CFC of $4.25 per transaction day per vehicle from all Airport customers. A transaction day means a car rented for 24 or fewer hours for the first transaction day, and every 24 hours for each transaction day after that. CFC revenues are to be used only to finance the design, construction, operation, maintenance and financing of Airport rental car facilities at the Airport. In FY 2017, CFCs generated approximately $3.4 million in revenue. Rental car concessionaire s participation in the cost of the new parking structure is assumed. Currently, the rental car companies pay 25 percent of the debt service of the existing parking structure and one-seventh of the costs the Terminal Area cost center. Since the proposed parking structure will involve an increase in the size of the rental car ready/return area, it is assumed that the rental car concessionaires will continue to collect CFCs to support parking facility debt service and continue to participate in the cost of the Terminal Area. For purposes of this analysis, in addition to paying a portion of annual debt service, it is assumed that $3,000,000 of CFC proceeds in the timeframe are to be used toward paying some capital costs to reduce the amount of debt service allocated to the rental car concessionaires after the date of beneficial occupancy of parking facilities, as shown on Table Debt Financing The Airport can finance capital projects by borrowing money and incurring either short-term or long-term debt. Financing options currently available to the Airport include airport revenue bonds and long-, medium-, and short-term debt in the form of bank loans and notes. Table 8-7 shows a summary of the Airport s existing debt obligations. TABLE 8-7 REMAINING DEBT SERVICE Notes Remaining Obligation/Debt Service 9/30/2018 End Date Airport Taxable CFC Note $ 5,800, Airport Revenue Note $ 1,300, Airport Refunding Note $ 12,036, Grant Anticipation Note VTMAE $ 6,300, Refunding Airport Note $ 6,300, Refunding Airport Loan $ 43,488, Total $ 75,224,000 Source: Airport Management Pensacola International Airport Master Plan Update-Working Paper

17 8.5.8 Airport Revenue Bonds As shown on Table 8-10, all remaining project costs are to be funded with Airport Revenue Bonds. The debt service costs related to these bond proceeds is allocable to Airport cost centers, thus recoverable through annual airline rents, fees, and charges. Table 8-11 (presented at the end of this Working Paper) shows estimated Program 2025 financing, identifying the anticipated sources and uses of funds necessary to finance Program The table shows the estimated sources of funds for Program 2025 are projected to be (1) proceeds from the sales of proposed Series 2021 bonds, ($67,929,000); (2) Airport pay-as-you-go funds ($13,548,000), (3) CFC payas-you-go funds ($3,000,000 ), federal AIP grants funds ($24,241,000), FDOT grants ($7,135,000); and (7) interest earnings allowances ($3,324,000). Table 8-10 shows total uses of funds of $119,177,000 for Program Also, Table 8-11 shows the estimated uses of funds are (1) Program 2025 costs ($109,122,000); (2) deposit to the Bond Fund for capitalized interest on the non PFC eligible portion of the Program 2025 Bonds debt service, ($3,398,000); (3) deposit to the Debt Service Reserve Fund ($4,418,000); (4) costs of Bond original issue discount ($1,019,000); and costs of bond issuance ($1,220,000). Table 8-11 shows total uses of funds of $119,177,000. During the construction, period debt service on the PFC eligible portion of Program 2025 will be paid with current PFC revenue. As shown on Table 8-11, to calculate the annual debt service on non-pfc eligible bonds ($33,979,000), some assumptions were made including the capitalized interest period on Non-PFC eligible bonds (equal to 24-months), bond interest rate (5.0 percent), and the amortization of the bond principal over 30 years. The new debt service is added to the Airport s cash flow requirements and the airline rate base as projects are completed. Table 8-11 shows that $33,950,000 in PFC eligible bonds are issued to fund PFC eligible projects. These bonds are to be repaid with annual PFC revenue collections and therefore should not require direct funding from the Airport or its tenants. To the extent the debt service for these bonds are paid with annual PFC revenue collections, the debt service for these bonds will not require any coverage funding for the related annual debt service amounts because the payments are from annual PFC revenue collections and are dedicated to the payment of the annual PFC debt service requirement. 8.6 FINANCIAL FEASIBILITY ANALYSIS Table 8-12 presents a summary of the financial results from this financial feasibility analysis, with specific years selected to highlight the results based on five-year increments. Most of the projects are assumed to be operational by the end of FY periods, and the associated costs are shown in the FY periods and beyond. Discussed below are the financial results for each of the major areas Revenue Airline revenues are expected to increase from $5,587,000 in FY 2019 budget to $8,087,000 in FY 2035 as shown on Table 8-12, which represents a 2.3 percent annual average growth rate. There are a few Pensacola International Airport Master Plan Update-Working Paper

18 increases in certain years based upon completion of the projects. Defining these costs in terms of cost per enplaned passengers is discussed in a subsequent section. Non-airline revenues are projected to increase from $22,327,000 million in FY 2019 Budget to $31,397,000 in FY 2035 as shown on Table 8-12, an average annual increase of 2.2 percent. With the additional parking constructed under the Program 2025, it is assumed that parking revenue would not be facilityconstrained Maintenance and Operations Expenses Maintenance and Operations expenses are projected based on the budget for FY 2019 as the baseline and then increased using a 2.0 percent annual growth rate throughout the forecast period. In addition, adjustments are made to account for facilities expansion. Maintenance and Operations expenses are expected to increase from $16,738,000 in FY 2019 (budget) to $23,142,000 in FY Debt Service The allocation of the annual debt service requirements to cost centers is based on the percentage allocation of the 2021 series bonds to each Airport cost center. Debt service on the proposed 2021 series bonds is allocated to the Airfield Area, Terminal Building, Terminal Area, Apron Area and Other Building and Areas cost centers Airline Cost Per Enplaned Passenger A common way to examine total airline rents and fees is on a cost per enplaned passenger basis. Cost per enplaned passenger (CPE), is the average passenger airline payments per enplaned passenger at a given Airport. The CPE is considered a key metric to evaluate the financial operations and the competitiveness of an Airport, as well as the financial feasibility of an airport capital improvement program Computing Airline cost per enplaned passenger. The cost (all rents, fees, and charges) to the passenger airlines for operating at the Airport can be divided by the number of enplaned passengers to compute the average airline cost per enplaned passenger. That is, the airline cost per enplaned passenger is the total amount the passenger airlines pay the Airport on average for each enplaning airline passenger. It is important to note that the passenger airlines do not pay the Airport based on cost per enplaned passenger; the airlines pay rents, fees, and charges that are used in the calculation of the CPE. Airline CPE is a calculated number that is useful for various analyses and comparisons. The airline CPE can be compared to industry averages, competing airports, other airline costs, and airfares, and can be used to evaluate the financial impact on airlines of increasing (or decreasing) Airport operating expenses. When comparing an Airport s airline cost per enplaned passenger to industry averages or other airports, it is often difficult to get an apples to apples comparison because each Airport collects costs in different cost centers and those cost centers may or may not be in the airline rate base. Pensacola International Airport Master Plan Update-Working Paper

19 Upper Gulf Coast Airline Cost Per Enplaned Passenger Survey. By utilizing the PFC capacity to fund eligible element of Program 2025, the airline cost per enplaned passenger amounts (shown in Table 8-8) did not significantly increase. The cost per enplaned passenger increasing from $7.07 in FY 2017 to $8.38 in FY 2025 (due to the completion of Program 2025) then decreasing to $5.50 in FY 2035, is competitive with competing airports. Table 8-8 shows the Airport s cost per passenger in FY 2025 ($8.38) is less than it was in Mobile Regional Airport in FY 2016 ($14.07). Also, the CPEs for Destin-Fort Walton Beach Airport and Northwest Florida Beaches International Airport (Panama City Bay-County) are trending up. It should also be noted that the Airport s CPE averages $6.99 for the period FY 2019 through the end of the forecast period in FY By maintaining a comparatively reasonable CPE, the Airport will continue to be competitive in retaining air service and recruiting new service Debt Service Coverage In all fiscal years during the forecast period, the debt service coverage ratio (bond, note, and loan debt service as a percentage of Net Revenues) never falls below 1.57, which is more than sufficient to meet the rate covenant requirement of 1.25 per the Bond Resolution. As expected, FY 2023 has the lowest ratio during the forecast period of 1.57 because of adding the new debt service used to fund the Master Plan Update CIP. Pensacola International Airport Master Plan Update-Working Paper

20 TABLE 8-8 UPPER GULF COAST AIRPORTS COMPARISON OF AIRLINE COST PER ENPLANED PASSENGER Pensacola International Airport Airline Revenue $ 4,548,085 $ 5,162,991 $ 5,182,294 $ 5,956,490 $ 5,372,199 $ 6,592,494 $ 7,072,379 Enplaned Passengers 713, , , , , , ,517 PNS Cost Per Enplaned Passenger $6.37 $6.84 $7.02 $8.00 $7.11 $8.49 $8.97 Mobile Regional Airport Airline Revenue $ 4,267,418 $ 3,312,126 $ 4,324,557 $ 4,324,557 $ 4,249,063 $ 4,020,844 $ 3,985,091 Enplaned Passengers 276, , , , , , ,309 MOB Cost Per Enplaned Passenger $15.46 $11.56 $15.53 $15.08 $14.77 $14.44 $14.07 Destin-Fort Walton Beach Airport Airline Revenue $ 1,992,367 $ 2,101,323 $ 2,337,130 $ 1,761,022 $ 1,897,670 $ 1,922,032 $ 2,229,828 Enplaned Passengers 348, , , , , , ,858 VPS Cost Per Enplaned Passenger $5.72 $4.86 $6.30 $4.91 $5.32 $5.20 $5.34 Northwest Florida Beaches International Airport (Panama City-Bay County, Florida) Airline Revenue $ 845,782 $ 836,584 $ 2,894,314 $ 2,787,949 $ 2,922,030 $ 2,451,524 $ 2,837,142 Enplaned Passengers 248, , , , , , ,339 ECP Cost Per Enplaned Passenger $3.40 $2.01 $6.71 $7.00 $7.46 $5.84 $6.61 Source: Airline Revenue - FAA Home Airports Airport Compliance CATS - Operating and Financial Summary Report 127 Enplaned Passengers - FAA APO Terminal Area Forecast Detail Report Pensacola International Airport Master Plan Update-Working Paper

21 TABLE 8-9 CAPITAL IMPROVEMENT PROJECT COSTS 2025 PROGRAM Project Description *Project Cost Escalation Escalated Project Cost Airfield Cost Center Projects APS 1 $ 6,089,000 $ 468,000 $ 6,557,000 TW A1 1 $ 1,090,000 $ 84,000 $ 1,174,000 Runway Extension to 7,700 ft. $ 2,900,000 $ 223,000 $ 3,123,000 New Parallel Taxiway Construction $ 17,500,000 $ 1,346,000 $ 18,846,000 Taxiway A Extension $ 1,600,000 $ 123,000 $ 1,723,000 Taxiway D Upgrade (East of Runway 17-35) $ 5,500,000 $ 423,000 $ 5,923,000 Taxiway A Connectors Replacement $ 2,200,000 $ 169,000 $ 2,369,000 Taxiway/Apron Removal $ 900,000 $ 69,000 $ 969,000 Runway 26 MALSR Installation $ 2,650,000 $ 204,000 $ 2,854,000 Runway 35 MALSR Installation $ 2,650,000 $ 204,000 $ 2,854,000 PBN/RNAV Commissioning $ 100,000 $ 8,000 $ 108,000 Paved Airside Perimeter Road $ 700,000 $ 54,000 $ 754,000 Subtotal $ 43,879,000 $ 3,375,000 $ 47,254,000 Apron Area Cost Center TRACON building removal and RON Construction 1 $ 5,000,000 $ - $ 5,000,000 Subtotal $ 5,000,000 $ - $ 5,000,000 Terminal Area Cost Center Curbside: Center Median Demolition $ 100,000 $ 8,000 $ 108,000 Center Median Reconstruction $ 100,000 $ 8,000 $ 108,000 Crosswalk Median Canopy Demolition $ 100,000 $ 8,000 $ 108,000 Crosswalk Median Canopy Reconstruction $ 600,000 $ 46,000 $ 646,000 North Crosswalk Canopy Demolition $ 100,000 $ 8,000 $ 108,000 North Crosswalk Canopy Reconstruction $ 100,000 $ 8,000 $ 108,000 Center Median to Traffic Lane $ 100,000 $ 8,000 $ 108,000 Outer Curb Demolition $ 100,000 $ 8,000 $ 108,000 Subtotal $ 1,300,000 $ 102,000 $ 1,402,000 Pensacola International Airport Master Plan Update-Working Paper

22 Project Description *Project Cost Escalation Escalated Project Cost Terminal Area Cost Center cont. Parking: Parking Structure Construction - allowance 2 $ 30,000,000 $ - $ 30,000,000 Heliworks Buildings Demolition $ 20,000 $ 2,000 $ 22,000 Helicopter Apron to Parking Lot Conversion $ 150,000 $ 12,000 $ 162,000 Subtotal $ 30,170,000 $ 14,000 $ 30,184,000 Terminal Building Cost Center HVAC Redevelopment 1 $ 9,932,000 $ - $ 9,932,000 Bag Claim Lobby Expansion $ 2,600,000 $ 200,000 $ 2,800,000 Inbound Bag Room Relocation $ 7,400,000 $ 569,000 $ 7,969,000 Subtotal $ 19,932,000 $ 769,000 $ 20,701,000 Buildings and Other Areas Cost Center Jet A Fuel Farm Construction 3 $ 1,250,000 $ - $ 1,250,000 Existing Fuel Farm Demolition 3 $ 100,000 $ - $ 100,000 Subtotal $ 1,350,000 $ - $ 1,350,000 General Aviation Cost Center Taxiway Removal $ 200,000 $ 15,000 $ 215,000 Helicopter Hard Stand Construction $ 100,000 $ 8,000 $ 108,000 GA Fuel Farm Construction $ 600,000 $ 46,000 $ 646,000 GA Self-Service Fuel Station $ 200,000 $ 15,000 $ 215,000 T Hangar Construction $ 3,900,000 $ 300,000 $ 4,200,000 T Hangar Taxilane Construction $ 700,000 $ 54,000 $ 754,000 GA CBP Facility Construction $ 2,000,000 $ 154,000 $ 2,154,000 Subtotal $ 7,700,000 $ 592,000 $ 8,292,000 Total $ 109,331,000 $ 4,852,000 $ 114,183,000 Notes: *Project costs in $ City added project, 2-City allowance for parking structure development, 3-City advanced implementation Source: Except as noted - RS&H, 2018 Pensacola International Airport Master Plan Update-Working Paper

23 TABLE 8-10 FUNDING PROJECT COST AND COST CENTER ALLOCATIONS 2025 PROGRAM Project Description Escalated Project Cost AIP Grants FDOT Grants PFC Funding Tenant Financed Improvements Airport/CFC PayGo Funding Bond Proceeds Airfield Cost Center Projects APS 1 $ 6,557,000 $ - $ 1,639,000 $ - $ - $ 4,918,000 $ - $ 6,557,000 TW A1 1 $ 1,174,000 $ - $ 294,000 $ - $ - $ 880,000 $ - $ 1,174,000 Runway Extension to 7,700 ft. $ 3,123,000 $ 2,811,000 $ 156,000 $ - $ - $ 156,000 $ - $ 3,123,000 New Parallel Taxiway Construction $ 18,846,000 $ 16,961,000 $ 942,000 $ - $ - $ 943,000 $ - $ 18,846,000 Taxiway A Extension $ 1,723,000 $ - $ 862,000 $ - $ - $ 861,000 $ - $ 1,723,000 Taxiway D Upgrade (East of Runway 17-35) $ 5,923,000 $ 4,469,000 $ 727,000 $ - $ - $ 727,000 $ - $ 5,923,000 Taxiway A Connectors Replacement $ 2,369,000 $ - $ 1,184,000 $ - $ - $ 1,185,000 $ - $ 2,369,000 Taxiway/Apron Removal $ 969,000 $ - $ 484,000 $ - $ - $ - $ 485,000 $ 969,000 Runway 26 MALSR Installation $ 2,854,000 $ - $ - $ 2,854,000 $ - $ - $ - $ 2,854,000 Runway 35 MALSR Installation $ 2,854,000 $ - $ - $ 2,854,000 $ - $ - $ - $ 2,854,000 PBN/RNAV Commissioning $ 108,000 $ - $ - $ - $ - $ - $ 108,000 $ 108,000 Paved Airside Perimeter Road $ 754,000 $ - $ - $ 754,000 $ - $ - $ - $ 754,000 Subtotal $ 47,254,000 $ 24,241,000 $ 6,288,000 $ 6,462,000 $ - $ 9,670,000 $ 593,000 $ 47,254,000 Apron Area Cost Center TRACON building removal and RON Construction 1 $ 5,000,000 $ - $ - $ 5,000,000 $ - $ - $ - $ 5,000,000 Subtotal $ 5,000,000 $ - $ - $ 5,000,000 $ - $ - $ - $ 5,000,000 Terminal Area Cost Center Curbside: Center Median Demolition $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 Center Median Reconstruction $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 Crosswalk Median Canopy Demolition $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 Crosswalk Median Canopy Reconstruction $ 646,000 $ - $ 323,000 $ - $ - $ 323,000 $ - $ 646,000 North Crosswalk Canopy Demolition $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 North Crosswalk Canopy Reconstruction $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 Center Median to Traffic Lane $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 Outer Curb Demolition $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 Subtotal $ 1,402,000 $ - $ 701,000 $ - $ - $ 701,000 $ - $ 1,402,000 Parking: Parking Structure Construction allowance 2 $ 30,000,000 $ - $ - $ - $ - $ 3,000,000 $ 27,000,000 $ 0,000,000 Heliworks Buildings Demolition $ 22,000 $ - $ 11,000 $ - $ - $ - $ 11,000 $ 22,000 Helicopter Apron to Parking Lot Conversion $ 162,000 $ - $ 81,000 $ - $ - $ - $ 81,000 $ 162,000 $ 30,184,000 $ - $ 92,000 $ - $ - $ 3,000,000 $ 27,092,000 $ 30,184,000 Terminal Building Cost Center HVAC Redevelopment 1 $ 9,932,000 $ - $ - $ 9,932,000 $ - $ - $ - $ 9,932,000 Bag Claim Lobby Expansion $ 2,800,000 $ - $ - $ 2,800,000 $ - $ - $ - $ 2,800,000 Inbound Bag Room Relocation $ 7,969,000 $ - $ - $ 7,969,000 $ - $ - $ - $ 7,969,000 Subtotal $ 20,701,000 $ - $ - $ 20,701,000 $ - $ - $ - $ 20,701,000 Total Table continued on following page Pensacola International Airport Master Plan Update-Working Paper

24 Project Description Escalated Project Cost AIP Grants FDOT Grants PFC Funding Tenant Financed Improvements Airport/CFC PayGo Funding Bond Proceeds Buildings and Other Areas Cost Center Jet A Fuel Farm Construction 3 $ 1,250,000 $ - $ - $ - $ - $ - $ 1,250,000 $ 1,250,000 Existing Fuel Farm Demolition 3 $ 100,000 $ - $ - $ - $ - $ - $ 100,000 $ 100,000 Subtotal $ 1,350,000 $ - $ - $ - $ - $ - $ 1,350,000 $ 1,350,000 General Aviation Cost Center Taxiway Removal $ 215,000 $ - $ - $ - $ - $ 215,000 $ - $ 215,000 Helicopter Hard Stand Construction $ 108,000 $ - $ 54,000 $ - $ - $ 54,000 $ - $ 108,000 GA Fuel Farm Construction $ 646,000 $ - $ - $ - $ 646,000 $ - $ - $ 646,000 GA Self-Service Fuel Station $ 215,000 $ - $ - $ - $ 215,000 $ - $ - $ 215,000 T Hangar Construction $ 4,200,000 $ - $ - $ - $ 4,200,000 $ - $ - $ 4,200,000 T Hangar Taxilane Construction $ 754,000 $ - $ - $ - $ - $ 754,000 $ - $ 754,000 GA CBP Facility Construction $ 2,154,000 $ - $ - $ - $ - $ 2,154,000 $ - $ 2,154,000 Subtotal $ 8,292,000 $ - $ 54,000 $ - $ 5,061,000 $ 3,177,000 $ - $ 8,292,000 Total $ 114,183,000 $ 24,241,000 $ 7,135,000 $ 32,163,000 $ 5,061,000 $ 16,548,000 $ 29,035,000 $ 114,183,000 Notes: 1-City added project, 2-City allowance for parking structure development, 3-City advanced implementation Source: Except as noted - RS&H, 2018 Total Pensacola International Airport Master Plan Update-Working Paper

25 TABLE PROGRAM FINANCE PLAN PFC Eligible Non PFC Eligible Total Sources of Funds Bond Proceeds--Par Amount 1 $ 33,950,000 $ 33,979,000 $ 67,929,000 Airport PFC PayGo Funds $ - $ - $ - Airport PayGo Funds $ - $ 13,548,000 $ 13,548,000 CFC PayGo Funds $ - $ 3,000,000 $ 3,000,000 Federal Grants 2 $ - $ 24,241,000 $ 24,241,000 FDOT Grants $ - $ 7,135,000 $ 7,135,000 Interest Earnings Allowances 3 $ - $ - $ - Reserve Fund $ 180,000 $ 180,000 $ 360,000 Construction Fund $ 1,360,000 $ 1,400,000 $ 2,760,000 Capitalize Interest Account $ - $ 204,000 $ 204,000 Total Sources of Funds $ 35,490,000 $ 83,687,000 $ 119,177,000 Uses of Funds Elements Airfield $ 6,462,000 $ 40,792,000 $ 47,254,000 Apron $ 5,000,000 $ - $ 5,000,000 Terminal Area $ - $ 1,402,000 $ 1,402,000 Parking $ - $ 30,184,000 $ 30,184,000 Terminal Building $ 20,701,000 $ - $ 20,701,000 Buildings and Other Areas $ - $ 1,350,000 $ 1,350,000 General Aviation $ - $ 3,231,000 $ 3,231,000 Project Costs $ 32,163,000 $ 76,959,000 $109,122,000 Capitalized Interest Allowance 4 $ - $ 3,398,000 $ 3,398,000 Debt Service Reserve 5 $ 2,208,000 $ 2,210,000 $ 4,418,000 Original Issue Discount Allowance 6 $ 509,000 $ 510,000 $ 1,019,000 Bond Issuance Expenses 7 $ 610,000 $ 610,000 $ 1,220,000 Total Uses of Funds $ 35,490,000 $ 83,687,000 $ 119,177,000 Notes: 1- Assumes Airport Revenue Bonds are sold at 5% with twenty-four months of capitalized interest on GARBs and a 30 year amortization period, 2- City Projection of State Grants-in-Aid, 3- Interest earnings are assumed at an average annual rate of 4% on available balances in the PFC Construction Fund and Capitalized Interest Account, 4- Interest is capitalized 24 months on GARBs, 5- Assumes a Debt Service Reserve requirement will be funded from bond proceeds, 6- Assumes a 1.5% original issue discount allowance, 7- Assumes underwriter and issuance expenses equal 1.5% of bond proceeds. Source: Mike Moroney & Associates, Inc., 2018; City of Pensacola, 2018 Pensacola International Airport Master Plan Update-Working Paper