8 Financial Plan. 8.1 Airport s Financial Structure. MASTER PLAN UPDATE Nashville International Airport

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1 8 Financial Plan This section presents financial projections for BNA based on the Capital Improvement Program (CIP) and the aviation activity forecasts presented in Chapter 2. Financial projections were developed for two planning activity levels (PALs) used for the CIP: PAL 1 (FY 2012 FY 2016) and PAL 2 (FY 2017 FY 2021). The 2012 numbers included in this chapter are as presented in the 2012 Comprehensive Annual Financial Report (2012 CAFR), while the 2013 amounts are estimates based on 12 months of actual data and the 2014 amounts are as presented in the 2014 budget (2014 Budget) approved on June 19, The Airport s Fiscal Year ends June Airport s Financial Structure The MNAA is a metropolitan airport authority created on February 9, 1970, pursuant to state statute and is an independent political subdivision of the State of Tennessee. The major purposes of the MNAA are the operation, financing and development of BNA and JWN. The MNAA also owns MNAA Properties Corporation (MPC), a Tennessee nonprofit corporation, whose purpose is to support and facilitate the operations of the MNAA and to help the economic development of the surrounding area. The MNAA has all the powers of a governmental entity necessary to accomplish its purpose, such as acquiring land and constructing airport facilities, issuing revenue bonds and other tax exempt indebtedness, maintaining its own police and aircraft rescue and firefighting (ARFF), and setting rates, charges and rentals for activities on airport properties. Based upon the criteria set forth in Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity, it has been determined that the MNAA is a component unit of the Metropolitan Government of Nashville and Davidson County, Tennessee. The MNAA s Board of Commissioners consists of 10 members (the Board) who serve without compensation, nine of whom are appointed by the Metropolitan Government Mayor and approved by the Metropolitan Government Council, with the 10th being the Mayor (or his designee). All appointments to the Board are for a term of four years. The terms are staggered to provide for continuity of MNAA development and management. The Board legally adopts MNAA operating and capital budgets. In the case of BNA, the annual capital and operating budgets are additionally reviewed and approved by the signatory airlines, which are the seven airlines that have committed to the residual lease agreement. Although the Board approves budget programs, individual expenditures for capital or operating purposes must comply with the MNAA s bylaws and policies and procedures for competitive acquisition. FINANCIAL PLAN 8 1

2 8.1.1 Authority Accounting The MNAA distinguishes operating revenues and operating expenses from non operating items. Operating revenues and expenses generally result from providing services in connection with the principal ongoing operations. Revenues from space rental and fees, landing fees, parking and other miscellaneous income are reported as operating revenues. Transactions that are capital, financing or investment related, are reported as non operating revenues. Such nonoperating revenues include passenger facility charges (PFCs) and customer facility charges (CFCs). Expenses from employee wages and benefits, purchases of services, materials and supplies and other miscellaneous expenses are reported as operating expenses. Interest expense and financing costs are reported as non operating expenses Airline Agreements In 1975, the Authority entered into long term lease agreements with some of the airlines (signatory airlines) serving BNA. Signatory airlines as of June 30, 2012, include American Airlines, American Eagle, Continental Express doing business as ExpressJet, Delta Air Lines, Inc., Frontier Airlines, Republic, Southwest Airlines, United Airlines, and US Airways. Under the terms of the airline agreements, terminal rents and landing fees charged to the signatory airlines are residual cost in nature, which takes into account all eligible revenues, expenses and debt service of the MNAA. This residual cost agreement is designed to minimize the landing fees and terminal rents of the signatory airlines while assuring the payment of all net operating costs and debt service relating to the MNAA. Costs recovered through rentals and fees include expenses of operating and maintaining the airport plus 110% of debt service on all bonds outstanding. In 1987, the lease agreements were amended and restated for a 30 year period through September 30, 2017, which terminates during the projection period. The methodologies outlined in the current airline agreements were assumed to be in place throughout the projection period. However, management believes it will be successful at negotiating new airline lease agreements with a shorter duration and more favorable terms than the current long term lease agreements General Resolution All of the MNAA s bonds, except for the Series 2003 PFC Bonds, were issued under the Airport Improvement Revenue Bond Resolution adopted by the Board on August 15, 1991 (as amended and supplemented from time to time) (General Resolution). The 2003 PFC Bonds were issued under the PFC Resolution and were secured by an additional pledge of and lien on PFC revenues less operating expenses. The MNAA is also using PFC revenues that were approved under PFC FINANCIAL PLAN 8 2

3 Program Application for its annual debt service costs on the 2009A bonds and the Series 2010A bonds. Although the Consolidated Rental Car (CONRAC) Facility Series 2010 Bonds were issued under the General Resolution, the CFCs are not part of airport revenues or net revenues as defined in the General Bond Resolution. Therefore, airport revenues derived by the MNAA from the operation of BNA are not pledged for payment of and do not constitute security for the CONRAC Series 2010 Bonds. All other bonds are secured by a pledge of and lien on net revenues derived by the MNAA from the operation of the airports 8.2 Funding Sources of the CIP All airports receiving federal AIP funding are required to maintain a current Capital Improvement Program (CIP) with the FAA, which identifies projects to be undertaken at an airport over a specified period of time. This plan further estimates the order of implementation as well as total project costs and funding sources. It incorporates all projects recommended as part of this Master Plan Update from FY 2012 through FY The recommended CIP for PAL 1 and its corresponding cost estimates are based on a planning level of detail and are presented in Table 8 1. While accurate for master planning purposes, actual project costs will likely vary from these planning estimates once project design and engineering estimates are developed. The cost estimates presented in the table are in 2012 dollars inflated at 3.2% annually, which reflects the 5 year average ( ) of Engineering News Record s Construction Cost Index, and also include contingencies, design costs, and construction management costs. As shown in the table, the CIP for PAL 1 is estimated to cost approximately $151.2 million in 2012 dollars and approximately $161.7 million in inflated dollars. FINANCIAL PLAN 8 3

4 Table 8 1 Capital Improvement Program for PAL 1 (Page 1 of 2) Project Costs Project Costs Funding Sources Year Project 2012 Dollars Inflated 1 Federal 2 State PFC CFC Other MNAA 2012 Total $19,946,000 $19,946,000 $7,762,500 $1,210,200 $2,450,000 $0 $6,050,000 $2,473,300 Improve Stormwater Collection & Treatment System $7,000,000 $7,000,000 $5,250,000 $875,000 $875,000 $0 $0 $0 Hydrant System Valve Replacement #5 & #6 240, , , ,000 ERP Systems Implementation 1,400,000 1,400, ,400,000 MNAA Data Center Relocation (Construction) 1,200,000 1,200, ,200,000 Reconstruct Taxiways B & T3 6,500,000 6,500,000 4,875, ,625, HVAC Improvements (AHUs) 575, , ,500 57,500 Switchgear Upgrade (Phase 2) 1,500,000 1,500, ,350, ,000 Replace Concourse Roof (Phase 3) 1,440,000 1,440, ,296, ,000 Lightning Protection System for Terminal/Concourses 960, , , ,000 Energy Phase 2 (Chiller, Lighting, Quarry Design) 1,500,000 1,500, ,500,000 0 Express Parking location within Economy Parking Lot 975, , ,000 0 Directtional Signage 200, , ,000 0 Kiosks for Group Arrivals 70,000 70, ,000 VOIP Integration with Network 250, , ,000 Land Acquisition East of Runway 2R 20L (Phase 1) 500, , , Build Out Space for Business Center 60,000 60, ,000 Westside Cargo Building Utilities Metering 75,000 75, ,000 Outbound Baggage and Check In Counter Replacement 350, , , CSF Build Out (Phase I) 800, , , Murfreesboro Pike Renovatio Customer Waiting Area Parking Lot 40,000 40, ,000 New License Plate Inventory Sytstem 80,000 80, ,000 PDC Survey SUV (MEQ 6367) 40,000 40, ,000 Operations Vehicle (MEQ 6469) 35,000 35, ,000 IT Vehicle (MEQ 6371) 30,000 30, ,000 Maintenance Pick Up (Airfield Electric) (MEQ 6374) 46,000 46, ,000 Maintenance Pick Up (Grounds) MEQ ,000 40, ,000 DPS Sedan (2) (MEQ 6464, MEQ 6465) 50,000 50, ,000 DPS K 9 Vehicles (1) (MEQ 6462) 45,000 45, ,000 Tractor (MEQ 6386) 85,000 85, ,000 ERP Systems Implementation 1,400,000 1,491, ,491,000 MNAA Data Center Relocation 1,200,000 1,278, ,278,000 Reconstruct West 12,300,000 13,100,000 9,825, ,275, Radio Systems Replacement 1,820,000 1,938, ,744, ,800 Computer Aided Dispatch AOC 400, , , ,600 Parking Lot Revenue Control System Replacement (Phase 1 1,625,000 1,731, ,557, ,100 Construct New Triturator 95, , ,000 Operations Part 139 Online Training Program and CFR , , , Upgrade GPS Survey Equipment 60,000 64, , ,400 Cargo Apron Slab Replacement (Phase 1) 500, , , , Office Reconfiguration 400, , , ,600 CSF Build Out, PH 1 400, , , ,600 Security Checkpoint Timing 185, , ,000 Pedestrian Pathway Landscaping 375, , ,000 Alternative Energy Project CONRAC (Design) 200, , , Replace Skylight Over Checkpoint 500, , ,000 0 Multi Purpose Truck Tractor Snow Plow 365, , ,000 Airport Monument Sign 300, , ,000 Donelson Pike Digital Signage 350, , ,000 TDEC Sustainability Grant 400, , , ,000 0 FINANCIAL PLAN 8 4

5 Table 8 1 Capital Improvement Program for PAL 1 (Page 2 of 2) Project Costs Project Costs Funding Sources Year Project 2012 Dollars Inflated 1 Federal 2 State PFC CFC Other MNAA Relocate Airport Operations Center 1,000,000 1,099, , ,900 Reconstruct Taxiways T1, T2 & Connector 7,000,000 7,694,000 5,770, , , Taxiway Lima & Juliet East 7,300,000 8,023,000 6,017,250 1,002,875 1,002, Camera System Upgrade (Phase 2) 1,050,000 1,154, ,038, ,400 Replace Outbound Baggage System & Ticket Counters 15,025,000 16,514, ,211, ,302,800 Switchgear Upgrade (Phase 3), Units 6 & 7 1,600,000 1,759, ,759,000 Parking Lot Revenue Control System Replacement (Phase II 3,000,000 3,297, ,967, ,700 Land Acquisition East of R/W 2R 20L 500, , ,000 Replace T 2 Elevator 500, , , Replace Columns Apron Level 300, , , ,000 Terminal Generator Replacement (Phase 1) 925,000 1,017, , ,700 Hydrant System Valve Replacement 240, , , ,400 CFS Build Out Phase 2 400, , , ,000 Cargo Apron Slab Replacement (Phase 2) 600, , , ,900 Quarry Geothermal Water Project (Energy) 10,500,000 11,541, ,541,000 0 Alternative Energy Project Construction 2,750,000 3,023, ,023, Excavator (MEQ 6297) 225, , , ,700 Sweeper (MEQ 6383) 125, , , ,700 Moving Sidewalks to CONRAC 2,400,000 2,638, ,638, Taxiway Sierra South & November 4,400,000 4,991,000 3,743, ,247, Taxiway Lima Reconstruction 10,000,000 11,343,000 8,507, ,835, Switchgear Phase IV Units 4 & 5 1,500,000 1,701, ,530, ,100 Terminal Door Replacements 400, , , ,400 Replace Moving Sidewalks ST Garage (Levels 2&3) 700, , , ,400 Terminal Generator Replacement (Phase 2) 925,000 1,049, , ,900 Hydrant System Valve Replacement 11 & , , , , Crane Truck (MEQ 6244) 200, , , ,700 FIDS Replacement 2,500,000 2,836, ,552, ,600 Upgrade of Terminal Wide PA Server & Visual Paging 1,550,000 1,758, ,582, ,800 CSF Build Out Phase 3 400, , , ,400 Cargo Apron Slab Replacement (Phase 3) 750, , , ,100 CONRAC Lighting Improvements 2,500,000 2,836, ,836, Extreme Duty Dump Truck Snow Plow 300, , , ,000 Total CIP for PAL 1 $151,192,000 $161,749,000 $51,750,750 $43,631,625 $15,134,125 $8,710,000 $22,829,500 $19,693,000 1 Project costs were inflated at 3.2% which reflects the 5 year average ( ) of Engineering News Record s Construction Cost Index. 2 Federal funds include funds from FAA AIP (entitlement and discretionary). Source: RW Armstrong MNAA Table 8 2 presents the CIP s estimated funding sources for PAL 1 and PAL 2. Potential funding sources for any proposed improvements at BNA can be found at a variety of agencies, both federal and state. Many of the available funds come in the form of grants, should the project meet eligibility requirements. Additional financing options are available, such as PFCs, CFCs, other funds, and MNAA funds. FINANCIAL PLAN 8 5

6 Table 8 2 Funding Sources of the CIP Project Costs Project Costs Funding Sources 2012 Dollars Inflated 1 Federal 2 State PFC CFC Other MNAA PAL $19,946,000 $19,946,000 $7,762,500 $1,210,200 $2,450,000 $0 $6,050,000 $2,473, ,086,000 26,086,000 10,125,000 4,601,000 2,850, ,492,500 4,017, ,355,000 24,875,000 9,825,000 5,202,600 3,786, , ,000 5,102, ,440,000 60,936,000 11,787,750 22,955,425 1,964,625 5,661,000 11,541,000 7,026, ,365,000 29,906,000 12,250,500 9,662,400 4,083,500 2,836, ,073,600 $151,192,000 $161,749,000 $51,750,750 $43,631,625 $15,134,125 $8,710,000 $22,829,500 $19,693,000 PAL $120,968,783 $151,036,000 $53,907,250 $27,193,575 $28,179,375 $0 $0 $41,755,800 Total CIP $272,160,783 $312,785,000 $105,658,000 $70,825,200 $43,313,500 $8,710,000 $22,829,500 $61,448,800 1 Project costs were inflated at 3.2% which reflects the 5 year average ( ) of Engineering News Record s Construction Cost Index. 2 Federal funds include funds from FAA AIP (entitlement and discretionary). Source: RW Armstrong MNAA The following sections will list available sources and detail the eligibility requirements for each. The amount of funding available from these sources will depend primarily on future levels of aviation activity at BNA and future federal reauthorizations Federal Grants Grants administered by the FAA through the AIP represent a critical capital funding source to implement the projects recommended in this Master Plan Update. Although the future status of the AIP is currently uncertain, for the purpose of this Master Plan Update, it is assumed that the AIP will continue to be authorized and appropriated at levels consistent with H.R. 658, the FAA Modernization and Reform Act of The U.S. DOT classifies BNA as a medium hub primary airport; therefore, the AIP formula stipulates that BNA is entitled to receive 75% in federal funding for AIP eligible projects. AIP funds can be used for most airport improvement needs but not operating costs. Note, however, that AIP funds are not available for revenue generating projects at primary airports. The PFC legislation, which is further described later in this chapter, stipulates that if a mediumto large hub airport institutes a PFC of $1.00, $2.00, or $3.00, they must forego 50% of their AIP entitlement funds and if the PFC is $4.00 or $4.50, they must forego 75% of their AIP entitlement funds. Depending on the PFC application number, the MNAA has approval to assess a $3.00 or a $4.50 PFC through August As a result, the 50% or 75% reduction applies to BNA s entitlement grants. As shown on Table 8 2, federal grants are estimated to be approximately $105.7 million from FY 2012 through FY Of this amount, approximately $43.5 million is funded with entitlement FINANCIAL PLAN 8 6

7 grants and approximately $62.2 million with discretionary grants, both of which are described below. Entitlement Grants: The FAA s AIP consists of entitlement funds and discretionary funds. Entitlement funds are distributed through grants by a formula currently based on the number of enplanements and the amount of landed weight of arriving cargo at individual airports for the most recent calendar year. In cases where entitlement funds are not used during the current federal fiscal year, these funds are redistributed to other airport sponsors as discretionary funds and become protected entitlement funding in the next federal fiscal year. Table 8 3 presents the AIP entitlement calculation for BNA based on the aviation activity forecasts presented in Table 3 38 of the Master Plan Update. As shown in the table, it is estimated that the Airport will receive approximately $20.9 million in entitlement AIP grants during PAL 1 and approximately $22.6 during PAL 2. Table 8 3 AIP Entitlement Calculation PAL 1 PAL Enplanements for Entitlement 4,883,000 5,207,600 5,422,300 5,635,600 5,835,700 32,397,800 FAA Formula 1 $7.80 for 1st 50,000 Enplanements $390,000 $390,000 $390,000 $390,000 $390,000 $1,950,000 $5.20 for next 50,000 Enplanements 260, , , , ,000 1,300,000 $2.60 for next 400,000 Enplanements 1,040,000 1,040,000 1,040,000 1,040,000 1,040,000 5,200,000 $0.65 for next 500,000 Enplanements 325, , , , ,000 1,625,000 $0.50 for the remaining Enplanements 1,942,000 2,104,000 2,211,000 2,318,000 2,418,000 13,700,000 Total Calculated Entitlements $3,957,000 $4,119,000 $4,226,000 $4,333,000 $4,433,000 $23,775,000 Total Calculated Entitlements x 2 $7,914,000 $8,238,000 $8,452,000 $8,666,000 $8,866,000 $47,550,000 50% reduction for $3.00 PFC 2 (3,957,000) (4,119,000) (4,226,000) (4,333,000) (4,433,000) (23,775,000) Additional 25% reduction for $4.50 PFC (3,649,250) Cargo Entitlements 195, , , , ,000 1,098,000 Total Entitlements $4,152,000 $4,287,000 $4,425,000 $4,536,000 $4,640,000 $21,223,750 2 Year Lag in Receipt of Grants 3 $3,933,276 $4,077,000 $4,152,000 $4,287,000 $4,425,000 $22,563,000 Cumulative AIP Entitlement Grants $8,010,276 $12,162,276 $16,449,276 $20,874,276 $43,437,276 1 The FAA formula is defined in 49 United States Code MNAA is assessing a $3.00 PFC through FY 2017 and a $4.50 PFC beginning FY As a result, the 50% and 75% reduction applies to BNA s entitlement grants. 3 The FY 2012 grant amount represents the amounts received from the FAA in Discretionary Grants: At the beginning of each federal fiscal year, the FAA sets aside the amount of discretionary funds to cover the Letter of Intent (LOI) payment schedules. The total of discretionary funds in all LOIs subject to future obligation is limited to approximately 50% of the forecast discretionary funds available for that purpose. The authorizing statute directs the FAA to allocate certain discretionary funding to specific airport types and set aside categories FINANCIAL PLAN 8 7

8 such as noise, reliever airports, military airport program, and projects relating to capacity, safety, security, and noise. However, the FAA has some discretion in funding specific projects within these discretionary funding set aside categories. The FAA approves discretionary funds for use on specific projects after consideration of project priority and other selection criteria. The recommended CIP projects include taxiway and apron reconstruction and related improvements, which meet the eligibility requirements for discretionary funding. As previously mentioned, BNA currently estimates receiving approximately $62.2 million in discretionary funding from FY 2012 through FY Table 8 4 presents the federal grants that are assumed to fund the eligible portions of the CIP. As shown in the table, available entitlement and discretionary grants are sufficient to fund the eligible portions of the CIP in total; however, annual grant collections in certain years may not be sufficient to fund certain project costs requiring short term funding until the project costs can be reimbursed. Table 8 4 Application of Federal Grants PAL 1 PAL Total Available AIP Grants Entitlement Grants $3,933,276 $4,077,000 $4,152,000 $4,287,000 $4,425,000 $22,563,000 $43,437,276 Discretionary Grants 6,100,000 5,825,000 5,351,829 7,116,393 7,372,950 30,454,552 62,220,724 Total Available AIP Grants $10,033,276 $9,902,000 $9,503,829 $11,403,393 $11,797,950 $53,017,552 $105,658,000 Federally Eligible Portion of CIP 1 $7,762,500 $10,125,000 $9,825,000 $11,787,750 $12,250,500 $53,907,250 $105,658,000 Annual Difference $2,270,776 ($223,000) ($321,171) ($384,357) ($452,550) ($889,698) $0 Cumulative Difference $2,270,776 $2,047,776 $1,726,605 $1,342,248 $889,698 $0 1 Represents federally eligible portion of the CIP as presented in Table State Grants The Tennessee Department of Transportation (TDOT) Aeronautics Division administers federal and state funding to assist in the location, design, construction and maintenance of Tennessee's public aviation system. In 1986, the Tennessee General Assembly adopted legislation that created the State Transportation Equity Fund. This fund allocates receipts from taxes collected from transportation fuels for distribution to airports, rail and waterways based upon their contribution to the fund. For aviation, these funds are used for statewide grants to Tennessee air carrier and general aviation airports. Certain items are covered up to 95% of the total cost of airport projects, depending on the type of project. Projects eligible for state funding and the percentage of the state matching participation are summarized below. FINANCIAL PLAN 8 8

9 Safety and Security Projects (95% state) Airside Improvements and Enhancements (75% state) Landside Improvements and Enhancements (50% state) Each request for funding is evaluated on the basis of demonstrated need, consistency with state and local plans, compliance with state licensing standards, availability of funds and any unique circumstances. Airports have a maximum time to secure Transportation Equity Funding against a project the fiscal year the project is proposed plus two additional fiscal years. A project must be started within the above time frame, or dollars will revert back to the Transportation Equity Fund and made available for other aviation approved projects. As shown on Table 8 2, approximately $43.6 million of the CIP is funded with TDOT grants for PAL 1 and approximately $27.2 million for PAL Passenger Facility Charges PFCs are authorized by Title 14 of the Code of Federal Regulations, Part 158 and are administered by the FAA. PFCs collected from qualified enplaned passengers are used to fund eligible projects. An airport operator can impose a PFC of $1.00, $2.00, $3.00, $4.00, or $4.50 per eligible enplaned passenger. Once a PFC is imposed, it is included as part of the ticket price paid by passengers enplaning at the airport, collected by the airlines, and remitted to the airport operator, less an allowance for airline processing expenses. The PFC legislation stipulates that if a medium to large hub airport institutes a PFC of $1.00, $2.00, or $3.00, they must forego 50% of their AIP entitlement funds. This increases to 75% if they charge a $4.00 or $4.50 PFC. Projects that are eligible for PFC funding are those that preserve or enhance the capacity, safety, or security of the air transportation system; reduce noise or mitigate noise effects; or furnish opportunities for enhanced competition between or among air carriers. PFCs cannot be used for revenue generating facilities at airports, such as restaurants and other concession space, rental car facilities, public parking facilities, or construction of exclusively leased space or facilities or other non public areas of the terminal. The MNAA currently has seven open PFC applications (PFC Application 11 and PFC Application 14 through PFC Application 19) with PFC Application 19 expiring November 1, Table 8 5 presents the outstanding approved PFC applications. FINANCIAL PLAN 8 9

10 Application Number Table 8 5 Open PFC Applications Charge Effective Date Expiration Date PFC Rate Amount PFC Application /1/03 8/1/09 $3.00 $75,086,772 PFC Application 14 4/1/11 6/1/16 $3.00 $66,013,179 PFC Application 15 6/1/16 9/1/16 $4.50 $6,196,434 PFC Application 16 9/1/16 1/1/17 $4.50 $5,502,500 PFC Application 17 1/1/17 6/1/17 $3.00 $3,084,605 PFC Application 18 6/1/17 8/1/17 $4.50 $1,975,000 PFC Application 19 8/1/17 11/1/17 $4.50 $4,430,000 1 Under PFC Application 11, debt service on the Series 2010A Bonds is eligible to be paid from PFC revenues. As a result, PFC Application 11 will remain open until the Series 2010A Bonds are fully matured. Source: MNAA financial records Table 8 6 presents the PFC calculation for BNA based on the aviation activity forecasts presented in Table 3 38 of the Master Plan Update. As shown in the table, BNA is estimated to collect approximately $74.0 million in PFCs for PAL 1 and is projected to collect approximately $123.1 million in PFCs during PAL 2. Of these amounts, $64.5 million in PAL 1 and $50.7 million in PAL 2 are required to fund the PFC eligible portion of the CIP and the PFC eligible portion of debt service. The PFC revenue projections are sufficient to fund the PFC eligible portions of the CIP and debt service; however, annual PFC collections in certain years may not be sufficient requiring short term funding until the project costs can be reimbursed. FINANCIAL PLAN 8 10

11 Table 8 6 Application of PFCs PAL 1 PAL Total Enplanements 5,635,600 5,835,700 Enplanements for PFC (92%) 1 5,184,752 5,368,844 PFC per Enplanement 2 $3.00 $3.00 $4.50 Annual PFCs $15,554,000 $16,107,000 $125,789,000 LESS: Carrier Compensation ($570,000) ($591,000) ($3,278,000) PLUS: Investment Earnings $75,000 $78,000 $612,000 Total Calculated PFC Revenue 3 $16,962,227 $12,947,213 $13,437,545 $15,059,000 $15,594,000 $123,123,000 Cumulative PFC Revenue $16,962,227 $29,909,440 $43,346,985 $58,405,985 $73,999,985 $197,122,985 Total Calculated PFC Revenue $16,962,227 $12,947,213 $13,437,545 $15,059,000 $15,594,000 $123,123,000 $197,122,985 PFC Eligible Portion of CIP 4 $2,450,000 $2,850,000 $3,786,000 $1,964,625 $4,083,500 $28,179,375 $43,313,500 PFC Eligible Portion of Debt Service 5 $13,136,364 $9,080,495 $9,144,600 $9,030,981 $8,988,456 $22,566,650 $71,947,546 Difference $1,375,863 $1,016,718 $506,945 $4,063,394 $2,522,044 $72,376,975 $81,861,939 1 Historically, approximately 8% of the enplanements at BNA are nonrevenue generating; and therefore, do not pay a PFC. As a result, it is assumed that approximately 92% of the enplanements are PFC revenue generating. 2 Beginning January 1, 2016, MNAA will assess a $4.50 PFC through January 1, 2017 (PFC Applications 15 and 16). At that time, MNAA will assess a $3.00 PFC through June 1, 2017 (PFC Application 17). Beginning June 1, 2017 (PFC Application 18), MNAA will assess a $4.50 PFC, and it is assumed MNAA will continue assessing a $4.50 PFC through PAL 4. 3 The FY 2012 amount represents the PFC revenue plus various transfers related to Record of Decision 11 presented in the 2012 CAFR. The FY 2013 amount represents MNAA's estimate, and the FY 2014 amount represents the amount included in the 2014 Budget. 4 Represents PFC eligible portion of the CIP as presented in Table Under PFC Application 11, debt service on the Series 2010A Bonds, is eligible to be paid from PFC revenues. Under PFC Application 14, debt service on the Series 2009A Bonds is eligible to be paid from PFC revenues. The FY 2012 eligible debt service also includes debt service on the Series 2003 PFC Bonds which mature in Source: PFC formula as defined in 49 United States Code Customer Facility Charges On January 1, 2008, the MNAA began requiring the rental car companies at BNA to charge a CFC to be used to pay, or to reimburse the MNAA, for costs, fees and expenses associated with the planning, design, construction, financing, maintenance and operation of the CONRAC and other costs, fees and expenses that may be paid from CFC proceeds. The CFC was initially $4.00, with the most recent rate increase to $4.50 effective January 1, The $4.50 CFC is a per transaction daily fee and is collected by the on airport rental car companies from each of their customers and subsequently remitted to the MNAA. The MNAA has pledged the CFC proceeds as collateral security for the payment of the CONRAC Series 2010 bonds issued in February Additionally, in accordance with the terms of the CONRAC Series 2010 bond agreements, CFCs must be used to establish bond principal, interest, and reserve funds, as well as various other funds for the operation and maintenance of the CONRAC facility. CFCs collected in excess of the various refunded funds can be used by the MNAA for any lawful purpose. FINANCIAL PLAN 8 11

12 Upon substantial completion of the CONRAC facility, which occurred in November 2011, the MNAA began leasing the facility to MPC CONRAC LLC under a lease agreement and leasingback the facility from MPC CONRAC LLC under a sublease agreement. In turn, the MNAA will lease the CONRAC facility to the on airport rental car companies under the consolidated rental car lease agreements. Under these lease agreements, the on airport rental car companies have agreed to collect the CFC on all vehicle rental transactions as specifically set forth in the CFC enabling resolution and the related lease agreements. Table 8 7 presents the CFC calculation for BNA based on the terms in the lease agreement with the rental cars. As shown in the table, BNA is estimated to collect approximately $53.6 million in CFCs for PAL 1 and is projected to collect approximately $64.1 million in CFCs during PAL 2. Of these amounts, $37.5 million in PAL 1 and $31.0 million in PAL 2 are required to fund the CFC eligible portion of the CIP and the CFC eligible portion of debt service. As shown in the table, CFCs are sufficient to fund the eligible portions of the CIP and debt service through PAL 2; however, collections in certain years may not be sufficient to fund certain project costs requiring short term funding until the project costs can be reimbursed. FINANCIAL PLAN 8 12

13 Table 8 7 Application of CFCs PAL 1 PAL Total Enplanements 5,635,600 5,835,700 Transaction Days 1 2,478,705 2,566,715 Rate per Transaction Day 2 $4.50 $4.50 Annual CFCs 3 $10,090,579 $10,307,062 $10,500,000 $11,154,000 $11,550,000 $64,123,000 Cumulative CFC Revenue $10,090,579 $20,397,641 $30,897,641 $42,051,641 $53,601,641 $117,724,641 Annual CFCs 3 $10,090,579 $10,307,062 $10,500,000 $11,154,000 $11,550,000 $64,123,000 $117,724,641 CFC Eligible Portion of CIP 4 $0 $0 $213,000 $5,661,000 $2,836,000 $0 $8,710,000 CFC Eligible Portion of Debt Service $5,501,170 $5,648,419 $5,763,010 $5,884,843 $6,001,196 $31,019,398 $59,818,036 Difference $4,589,409 $4,658,643 $4,523,990 ($391,843) $2,712,804 $33,103,602 $49,196,605 1 Based on historical number of transaction days as a percentage of enplanements. 2 MNAA annually reviews the level of the CFC to determine if CONRAC expenditures have increased; therefore, requiring an increase in the CFC rate. The CFC was initially $4.00 in 2008, with the most recent rate increase to $4.50 effective January 1, The FY 2012 amount represents the amount presented in the 2012 CAFR; the FY 2013 amount represents MNAA's estimate; and the FY 2014 amount represents the amount included in the 2014 Budget. 4 Represents CFC eligible portion of the CIP as presented in Table Other Funds The quarry geothermal water project and the Tennessee Department of Environment and Conservation sustainability grant are anticipated to be bid under a performance contract. As a result, the savings in expenses resulting from undertaking the project are assumed to fund the cost of the project. As shown on Table 8 2, approximately $22.8 million of the CIP is funded with other funds for PAL MNAA Funds BNA generates revenue through airline charges, terminal concessions, ground and facility leases, fuel flowage fees, landing fees, ramp fees, and parking revenue. Typically, such revenues are used to cover operations and maintenance expenses along with debt service obligations. However, any surplus revenues can be applied directly to the CIP. As shown on Table 8 2, approximately $19.7 million in MNAA funding is required to fund the CIP for PAL 1 and approximately $41.8 million for PAL 2. This analysis assumes that all of the local funding requirement will be funded from BNA revenues; however, the MNAA may consider issuing bonds to distribute the costs over multiple years. FINANCIAL PLAN 8 13

14 8.3 Financial Feasibility This section of the financial analysis presents the existing debt service, projected operating expenses, and projected revenues resulting from the daily operation of BNA. In addition, the expense and revenue increases resulting from the implementation of the CIP are layered into the projections to determine if it is feasible for BNA to undertake the program within the planning period Debt Service All of the MNAA s bonds, except for the Series 2003 PFC Bonds, were issued under the Airport Improvement Revenue Bond Resolution adopted by the Board of Commissioners of the Authority on August 15, 1991 (as amended and supplemented from time to time). The 2003 PFC Bonds were issued under the PFC Resolution and were secured by an additional pledge of and lien on PFC revenues less operating expenses. The MNAA is also using PFC revenues that were approved under a PFC Program Application for its annual debt service costs on the 2009A bonds and the Series 2010A bonds. Although the CONRAC Series 2010 Bonds were issued under the General Resolution, the CFCs are not part of airport revenues or net revenues as defined in the General Bond Resolution. Therefore, airport revenues derived by the MNAA from the operation of BNA are not pledged for payment of and do not constitute security for the CONRAC Series 2010 Bonds. All other bonds are secured by a pledge of and lien on net revenues derived by the MNAA from the operation of the airports created by the MNAA. Table 8 8 presents the Airport s debt service requirements for the planning period. As shown in the table, all of the Bonds with the exception of the Series 2003B (Pension) Bonds and the Series 2010 CONRAC Bonds are due to mature during the planning period. According to Section 8.2, the funding sources identified for the CIP are sufficient to fund the project costs. Management expects additional bonds may be necessary in 2016 and later to fund unspecified capital projects and business development activities not included in the CIP. FINANCIAL PLAN 8 14

15 Table 8 8 Debt Service Requirements PAL 1 PAL Series 2003 PFC Bonds $3,955,939 $2,195 $0 $0 $0 $0 Series 2003B (Pension) 2,109,842 1,383,871 1,380,519 1,368,043 1,369,515 7,014,153 Series 2008A Bonds 665, , , ,780 1,738,800 11,787,800 Series 2009A Bonds 4,789,488 4,834,088 4,867,688 4,844,050 4,837,656 18,351,775 Series 2010A Bonds 4,390,937 4,244,212 4,276,913 4,186,931 4,150,800 4,214,875 Series 2010B Bonds 16,292,600 16,649,775 17,351,800 17,443, ,500 0 Series 2010C Bonds 3,737,175 3,446,950 3,193,800 2,812,300 1,844,200 26,100 Series 2010 CONRAC 5,501,170 5,648,419 5,763,010 5,884,843 6,001,196 31,019,398 Total Existing $41,442,891 $36,870,760 $37,193,703 $37,287,747 $20,271,667 $72,414,101 Additional Bonds ,516, ,524,000 Total Debt Service $41,442,891 $36,870,760 $37,193,703 $37,287,747 $39,787,667 $198,938,101 1 Revenue bonds are assumed to be issued in 2016 to fund unspecified capital projects and business development activities not included in the CIP Source: MNAA financial records MAC Consulting, LLC., additional debt service Operating Expenses The FY 2012 operating expenses reflect the actual expenses presented in the 2012 CAFR. The FY 2013 operating expenses reflect estimates based on 12 months of actuals and the FY 2014 operating expenses are from the 2014 Budget. Table 8 9 presents historical and projected operating expenses by line item and cost center for PAL 1 and PAL 2. FINANCIAL PLAN 8 15

16 Table 8 9 Operating Expenses PAL 1 PAL 2 Actual Estimated Budgeted Projected Projected Projected FY By Line Item Salaries and wages $30,492,172 $30,504,537 $34,535,230 $35,399,000 $36,282,000 $196,189,000 Contractual services 23,137,291 24,578,264 26,886,883 27,557,000 28,246, ,983,000 Materials and supplies 3,099,569 3,351,201 3,982,314 4,081,000 4,183,000 22,768,000 Utilities 5,715,803 5,546,393 7,493,471 7,681,000 7,874,000 43,158,000 Other 2,793,221 3,452,035 4,952,387 5,077,000 5,205,000 28,082,000 Total $65,238,056 $67,432,430 $77,850,285 $79,795,000 $81,790,000 $443,180,000 By Cost Center Airfield $6,790,500 $7,743,259 $7,461,257 $8,507,000 $8,719,000 $46,968,000 Ramp 424, , , , ,000 2,581,000 Main Terminal 7,723,407 6,782,490 8,926,263 7,712,000 7,904,000 43,911,000 North Concourse 2,063,800 2,116,282 2,317,649 2,456,000 2,518,000 14,797,000 South Concourse 6,705,900 6,738,211 7,530,155 7,967,000 8,165,000 43,987,000 Non Rate Settling Cost Center 41,529,750 43,610,822 51,119,316 52,686,000 54,005, ,936,000 Total $65,238,056 $67,432,430 $77,850,285 $79,795,000 $81,790,000 $443,180,000 Percent Increase 3.4% 15.4% 2.5% 2.5% CAGR FY 2014 FY % CAGR FY 2014 FY % Source: MNAA Financial Records, FY 2012 FY 2014 MAC Consulting, LLC, FY 2015 FY 2021 As shown in the table, operating expenses are budgeted to be approximately $77.9 million in FY 2014 and are forecast to be approximately $81.8 million in FY 2016, reflecting a compound annual growth rate of 2.5%. FY 2014 budgeted operating expenses increased primarily as a result of increases in salaries and wages in administration (primarily due to other postemployment benefits), maintenance, planning, design, and construction (PDC), and department of public safety; and contractual services in PDC and operations. FY 2015 through FY 2021 operating expenses are projected based on the following: Estimates of future operating expenses are based on a review of historical trends. The anticipated effects of inflation assumed at 2.5% annually, reflecting a 10 year average of the Consumer Price Index. Increase in operating expenses in the north concourse (concourses A and B) by an additional 10% in FY 2017 due to the completion of additional concession space. The percent increase was based on the increase in space anticipated in that year. FINANCIAL PLAN 8 16

17 Increase in operating expenses in the terminal by an additional 5% in FY 2019 due to the completion of the international arrivals building. The percent increase was based on the increase in space anticipated in that year Operating Revenues Major sources of revenue at BNA are derived from non airline and airline sources. Non airline revenues account for 65.0% of total revenue in the 2014 Budget and include items such as the operation of public parking facilities; terminal concession revenues generated from fees paid by concessionaires such as rental car, restaurant, news/gift shop, and advertising; ground rentals; and cargo and hangar rentals. A summary of major non airline tenant leases is presented in Table FINANCIAL PLAN 8 17

18 Table 8 10 Major Non airline Tenants Vehicle Parking Central Parking Systems First Transit, Inc. (airport shuttle) Ground Transportation Hotel Shuttles Taxi Cab Companies Limousine Companies Ground Handlers Dynair/Swissport Non airline Terminal Tenants 24 Hour Flower A T & T CareHere Medical Clinic Clear Channel Airports Country Western Tours/Grayline Tours CTN Superior Shine Delaware North (Food & Beverage) Fifth Third Bank First Class Seats Graycliff Green Bean Coffee Company HMSHost (Food & Beverage) Hudson Group (News & Gift) i Tech/Edge 1 Cellular Jarmon Limousine Massage Bar Inc Nashville Nails New Zoom Systems Opryland Hotel Security Point Media Smarte Carte SunTrust Bank TSA Wright Travel Business Center Rental Car Avis Advantage Car Rental Budget Burgner (Thrifty) Dollar Enterprise Hertz Vanguard (Alamo/National) Fixed Base Operators Atlantic Aviation Signature Flight Support Private Hangar Rentals Nashville Hangar Owl Hill Holdings SATA Inc. Other Airport Tenants 118th Airlift Wing Aeronautical Radio Aircraft Services International Embraer Aircraft Maintenance Federal FAA Marisol Metro Air Services Metro Government Monells Dining State of Tennessee TN Aeronautics Commission TN Dept of Transportation Tower Group International US Customs US Govt Weather Service US Postal Service US DEA Source: MNAA Airline revenues account for 35.0% of total FY 2014 budgeted revenues and include revenues generated from ramp fees, main terminal rentals, north concourse (concourses A and B), south concourse (Concourse C) rentals, and landing fees. While the signatory rates are based on a residual formula, the non signatory rates are based on a compensatory formula. The existing airline agreements expire September 30, 2017, which occurs during the planning period. For purposes of this analysis, it was assumed that similar methodologies for calculating airline rates and charges would be used by BNA following the expiration of the leases. However, management believes it will be successful in negotiating new airline lease agreements with a FINANCIAL PLAN 8 18

19 shorter duration and more favorable terms than the current long term airline lease agreements. Table 8 11 presents historical and projected operating revenues for PAL 1 and PAL 2. FINANCIAL PLAN 8 19

20 Table 8 11 Operating Revenues PAL 1 PAL 2 Actual Estimated Budgeted Projected Projected Projected Signatory Airline Ramp Rental Signatory $562,790 $872,359 $1,031,200 $914,000 $576,000 $3,695,000 Main Terminal Rent Signatory 5,327,924 8,541,879 10,599,450 9,686,000 7,812,000 57,141,000 North Concourse Rent Signatory 1,849,131 3,201,309 3,822,300 3,659,000 2,662,000 18,469,000 South Concourse Rent Signatory 5,824,781 8,936,285 10,848,800 10,437,000 8,364,000 53,524,000 Landing Fees Signatory 2,567,472 7,821,389 8,778,825 8,314,000 10,745,000 77,460,000 Subtotal $16,132,098 $29,373,221 $35,080,575 $33,010,000 $30,159,000 $210,289,000 Percent Increase 82.1% 19.4% 5.9% 8.6% Parking $32,467,763 $34,020,204 $32,152,000 $33,421,000 $34,611,000 $192,204,000 Percent Increase 4.8% 5.5% 3.9% 3.6% Concession Car Rental Companies $9,846,729 $10,616,122 $10,200,000 $10,601,000 $10,977,000 $60,942,000 Terminal Restaurant 3,107,900 3,393,233 3,350,000 3,482,000 3,606,000 20,014,000 News & Gift Shop 2,348,950 2,348,950 2,348,950 2,441,000 2,528,000 14,034,000 Advertising 689, , , , ,000 3,764,000 Other Terminal 681, , , , ,000 4,405,000 New Concessions ,994,000 Ground Transportation Ground Transportation 554, , , , ,000 4,775,000 Parking Decals 476, , , , ,000 2,628,000 Taxi Cab 420, , , , ,000 2,642,000 Ground Transportation Permits 90, ,119 92,400 96,000 99, ,000 Air Cargo Ground Handling 20,640 5,894 11,400 12,000 12,000 60,000 Subtotal $18,237,726 $19,522,980 $19,088,754 $19,830,000 $20,526,000 $117,808,000 Percent Increase 7.0% 2.2% 3.9% 3.5% Space Rental Land/Building Rental $2,618,652 $3,004,117 $2,912,600 $2,971,000 $3,031,000 $16,090,000 Other Terminal Tenants Rent 1,059,831 1,073,537 1,064,000 1,085,000 1,107,000 5,878,000 Main Terminal Rent Non Signatory 746,187 1,312,644 1,932,103 1,721,000 1,591,000 6,855,000 Cargo Rentals 713, , , , ,000 3,787,000 Fixed Base Operators Rent 665, , , , ,000 3,731,000 Rental Car 592, , , , ,000 1,305,000 Hangar Rent South GA Area 170, , , , ,000 1,121,000 Overnight Parking 139,200 92,800 96,000 98, , ,000 Signatory Undeveloped Terminal Rent 60,868 60,868 60,000 61,000 62, ,000 Subtotal $6,768,327 $7,348,978 $7,866,003 $7,774,000 $7,766,000 $39,622,000 Percent Increase 8.6% 7.0% 1.2% 0.1% Other Landing Fees Non Signatory $1,771,057 $1,943,115 $2,300,252 $3,086,000 $3,968,000 $20,807,000 Reimbursable Services Rendered 1,573,430 1,273,453 1,350,000 1,377,000 1,405,000 7,458,000 Non Signatory Cargo Landing Fees 1,007, , ,000 1,006,000 1,321,000 7,360,000 Fixed Base Operators Fuel Sales 382, , , , ,000 2,191,000 Concession CAM Fees 322, , , , ,000 1,856,000 MPC & CFC Intercompany Revenue 220, , , , , ,000 Canine Reimbursement 159, , , , ,000 1,671,000 LEO Reimbursement 161, , , , , ,000 IPB Intercompany Revenue 109, , , , , ,000 Other 879, , , , ,000 1,640,000 Subtotal $6,585,717 $6,460,216 $6,117,022 $7,181,000 $8,439,000 $44,873,000 Percent Increase 1.9% 5.3% 17.4% 17.5% Total $80,191,631 $96,725,599 $100,304,354 $101,216,000 $101,501,000 $604,796,000 Percent Increase 20.6% 3.7% 0.9% 0.3% CAGR FY 2014 FY % CAGR FY 2014 FY % Source: MNAA Financial Records, FY 2012 FY 2014, MAC Consulting, LLC, FY 2015 FY 2021 FINANCIAL PLAN 8 20

21 As shown in the table, operating revenues are budgeted to be approximately $100.3 million in FY 2014 and are forecast to be approximately $101.5 million in FY 2016, reflecting a compound annual growth rate of 0.6%. FY 2014 operating revenues are budgeted to increase approximately 3.7% over FY 2013 estimates, primarily as a result of increases in signatory airline rentals. According to Table 8 9, FY 2014 operating expenses are budgeted to increase 15.4% over FY 2013 estimates; therefore, airline revenues also increase. FY 2015 through FY 2021 operating revenues are projected based on the following: Historical trends, lease provisions, and inflation. FY 2016 airline revenues decrease over FY 2015 as a result of the Series 2010B Bonds maturing in 2015 with a final interest payment in Revenues from parking, terminal concessions, and rental cars are projected to increase with prospective enplanement growth. It was assumed that BNA would renegotiate concession leases that expire during the planning period with terms and conditions that would implement changes in rate structures and business practices, as necessary, to maintain positive financial performance. Terminal concession revenues were increased by 3.5% in FY 2017 due to a CIP project that will provide additional concession space. The percent increase was based on the increase in concession space anticipated in that year adjusted to account for possible decreases in existing concessions. 8.4 Pro Forma Cash Flow Table 8 12 presents the pro forma cash flow of BNA for PAL 1 and PAL 2 based on the projection of operating revenues and operating expenses discussed above, as well as the MNAA s share of the CIP. As a result of the analysis discussed herein, net income remains positive during the planning period, providing BNA sufficient funds for its share of the CIP as presented in Table 8 2. FINANCIAL PLAN 8 21

22 Table 8 12 Net Income PAL 1 PAL 2 Actual Estimated Budgeted Projected Projected Projected FY 2012 FY 2013 FY 2014 FY 2015 FY Operating Revenue $80,191,631 $96,725,599 $100,304,354 $101,216,000 $101,501,000 $604,796,000 LESS: Operating Expenses (65,238,056) (67,432,430) (77,850,285) (79,795,000) (81,790,000) (443,180,000) PLUS: Other postemployment benefits 5,178,081 1,000,000 1,000,000 1,000,000 1,000,000 8,500,000 PLUS: Pension Benefits 2,953,508 3,500,000 3,000,000 5,000,000 5,000,000 0 Adjusted Operating Expenses ($57,106,467) ($62,932,430) ($73,850,285) ($73,795,000) ($75,790,000) ($434,680,000) Net Revenues $23,085,164 $33,793,169 $26,454,069 $27,421,000 $25,711,000 $170,116,000 LESS: CIP Funded with MNAA Revenues (2,473,300) (4,017,500) (5,102,400) (7,026,200) (1,073,600) (41,755,800) Change in Working Capital & Other Items (723,000) PLUS: Interest Income 330, , , , , ,000 PFCs 12,522,227 12,947,213 13,437,545 15,059,000 15,594, ,123,000 CFCs 10,090,579 10,307,062 10,500,000 11,154,000 11,550,000 64,123,000 Cash Various Transfers 4,440,000 3,000, ,000,000 1,300,000 0 Transfer from Capital Items Funded 3,205,000 (2,478,320) 2,513,729 (1) 0 0 Net Income $50,476,670 $53,860,824 $47,982,944 $49,789,799 $53,264,400 $316,548,200 Debt Service $41,442,891 $36,870,760 $37,193,703 $37,287,747 $39,787,667 $198,938,101 Debt Service Coverage Ratio 121.8% 146.1% 129.0% 133.5% 133.9% The table also presents the estimated debt service coverage ratio. According to the General Resolution, the MNAA is obligated to impose rates, rentals, fees and charges sufficient to produce revenues after deducting operating expenses (net revenue), which, together with other available funds, will at least equal 110% of debt service on all bonds outstanding. As shown on the table, the debt service coverage ratio exceeds the requirements of the General Resolution. 8.5 Summary The financial feasibility of future projects will be determined by the provisions of existing and future leases, funding levels and participation rates of federal grant programs, the availability of PFC and CFC revenues, bonding capacity, and the ability to generate internal cash flow from operations at BNA. The financial projections for PAL 1 and PAL 2 were prepared on the basis of available information and assumptions set forth in this chapter. It is believed that such information and assumptions provide a reasonable basis for the projections to the level of detail appropriate for an airport master plan. Based on these assumptions, the CIP could be financed in the future by BNA and result in key financial indicators that are consistent with the historical results of BNA and industry comparables. However, some of the assumptions used to develop the projections may not be realized, and unanticipated events or circumstances may occur. Therefore, the actual results will vary from those projected, and such variations could be material. The FINANCIAL PLAN 8 22