KCI Terminal Advisory Group Frequently Asked Questions February, 2014 1. How can I learn about and stay current on the important considerations of the latest discussions and developments related to the terminal building at KCI? The City's website (www.kcmo.gov/airportterminaladvisorygroup) provides access to the Advisory Group s meeting agendas and copies of any presentations therein as well as videos of the regular meetings including a back of the house tour of KCI. In addition, the website also allows the public to submit comments and questions which can also be viewed at the site. 2. When were the terminal facilities at KCI designed and built? KCI was conceived nearly a half-century ago when aircraft, travel patterns, technology and security were entirely different than present day. The airport was designed to maximize passenger convenience by decentralizing functions such as parking, ticketing and baggage handling and by minimizing the walk from ground transportation to aircraft. The terminals, roadways, and terminal A&B parking garages at KCI were completed in 1972, over forty years ago, and have undergone many changes to accommodate advances in technology, the aviation industry, security and travelers patterns and needs. 3. How is KCI owned and controlled? Any airport is a complex operation system with many voices involved in governance, control and security. The City of Kansas City owns the airport and the underlying land. The Kansas City Aviation Department operates and manages the airport. The Federal Aviation Association (FAA) regulates what goes on at the airport and provides partial funding for capital improvements. The airlines provide the air service to the passengers and pay landing fees and terminal space rent to operate at the airport. The Transportation Security Administration (TSA), funded by the Department of Homeland Security, provides security to the passengers. Thus, the City, FAA, TSA, the airlines and the Aviation Department necessarily collaborate on airport matters. 4. How is the operation of KCI funded and managed? Revenues and expenses at the airport are collected through the Kansas City Airports Fund, which is a separate enterprise fund of the City of Kansas City, and is supported wholly by airport user charges. The Aviation Department retains all funds/revenue after meeting expenses and debt service obligations. Major revenue sources include: airport landing fees and terminal rental income collected from the airlines, parking revenue, rental car revenue, Passenger Facility Charge (PFC) revenue, revenue collected from airport retail vendors (terminal concessions), and Customer Facility Charge (CFC) revenue and other transportation charges. Major expenses include: salaries and benefits, contractual services, materials and supplies, and annual debt service. 1
5. How are airport landing fees and terminal rent income arrangements contracted with the airlines? Landing fees and terminal rental rates are negotiated with the airlines as part of the use and lease agreements between the airport and the airlines. Airline rates are determined on a costrecovery basis, in which airline rates and charges are calculated to recover the airlines share of airport operating expenses, debt service, and other costs. 6. What is Passenger Facility Charges (PFC s) revenue and how is it collected? The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century established by Congress authorized public agencies controlling commercial service airports to charge eligible enplaning passengers at an airport a $1, $2, $3, $4 or $4.50 Passenger Facility Charge (PFC). Revenues from PFCs may be used to finance eligible, approved airport-related project costs, subject to FAA regulation. Airport-related projects eligible for PFCs are those that preserve or enhance safety, capacity, or security of the national air transportation system, reduce noise from an airport that is part of such system, or furnish opportunities for enhanced competition between or among air carriers. Eligible airport-related projects also include airport development or planning, terminal development, airport noise compatibility measures and planning and construction of gates and related areas for the movement of passengers and baggage. PFCs are imposed by authorized public agencies and collected by the air carriers serving the airports and remitted to the airport operator. PFCs are imposed by the Airport and collected and remitted to the Airport by the Collecting Carriers serving KCI for eligible enplaned passengers at KCI. The annual amount of PFC Revenues collected by the Airport depends upon the PFC level, the number of eligible passenger enplanements at KCI, the amount of the airline handling fee, and the timely remittance of PFCs by the Collecting Carriers. Since the Airport implemented its PFC program in 1995, KCI has obtained FAA authorizations to impose and use approximately $400 million of PFC Revenues for various projects, including a portion of the projects that were financed with bond proceeds. The Airport has current FAA approval to impose a PFC of $4.50 per paying enplaned passenger for previously approved projects until August 2014, at which time it will revert to $3.00 per passenger through April 1, 2018. 7. How is the airport s share of the parking and rental car revenue determined and collected? Parking: At KCI, the parking facilities are managed by a contractor who collects and remits the parking revenue to the airport. The Aviation Department retains all parking revenue generated at the airport and ultimately uses this revenue for any lawful purpose at the airport. Rental Car: Rental car revenue received by the airport is determined through a contractual arrangement with the rental car companies serving the airport, and is based on a percentage of gross car rental revenue earned by the rental car companies. 2
8. How is the airport s share of the airport retail vendors determined and collected? Terminal concession and vendor revenue is determined through a contractual arrangement with the vendor and is based on a percentage of gross vendor revenues. 9. Can revenue earned by the Aviation Department (legally organized and maintained as a Kansas City Enterprise Fund) be remitted or relinquished to the City of Kansas City to fund other municipal purposes unrelated to airport operation? No. The Aviation Department is required under federal law (regulated by the FAA) to retain all funds within the Airports Enterprise Fund. No airport revenues can be used for general Kansas City municipal services or capital expenditures. Thus, the City s financial needs related to public safety, sewers, hotels, neighborhood development, unfunded pension obligations et.al, cannot be funded by airport revenues. There are instances where direct and administrative or overhead costs associated with routine goods and services provided to the airport (e.g., legal, human resources, etc.) by the City are reimbursed by the Aviation Department, however, these reimbursements are closely scrutinized by the FAA to ensure such services relate to appropriate airport matters only. Diversion of airport revenue to other entities outside of the airport is strictly forbidden by the FAA. 10. Are taxpayer monies used to fund the ongoing operation of the airport or fund airport capital expenditures now or in the future? No. The users of the airport (airlines, other tenants, and passengers) pay for the costs of operating and maintaining the airport, NOT the voters/taxpayers of Kansas City, Missouri. Virtually no City monies (taxpayer-generated revenue or otherwise) have historically been used to support the airport, nor are they planned to be used in the future. This would include, but not be limited to, any funds raised by the City for utility taxes, earnings taxes, property taxes, occupational licenses, sales taxes or other fees assessed. In other words, there is no historical occurrence of virtually any taxes collected by the City being diverted to the airport. Although there is no prohibition of such transfer from the City to the airport, the chances of such are so remote given current City budgetary constraints, we give no credence to that possibility. 3
11. What are the primary funding sources for airport capital improvement projects? The primary funding sources for airport capital improvement projects include: Airport Revenue Bonds, Passenger Facility Charge-backed Revenue Bonds, Customer Facility Charge-backed Revenue Bonds, and Airport Improvement Program (AIP) Grants. Airport Revenue Bonds are issued by the Aviation Department via the City. Revenue Bonds are supported solely from revenues generated at the airport, and essentially monetize the future earning stream of the Aviation Department revenue over the life of the bonds. In accordance with Missouri state law, the issuance of airport revenue bonds must be approved by the voters of the City of Kansas City. Revenue bonds that are secured by Passenger Facility Charges and Customer Facility Charges are essentially monetized by the future earning stream of the airport s PFC and CFC revenue collected annually from enplaned passengers and rental car customers at KCI. Airport Improvement Program (AIP) Grants are provided through the FAA to airports for the planning and development of certain eligible projects. The availability of FAA AIP funds to the FAA is subject to an annual appropriation by the federal government for appropriate dissemination to airports by the FAA. Some of the AIP funds (annual entitlement funds) are provided annually for eligible airport projects, while larger discretionary funds are provided on a priority basis according to major needs nationally at airports for larger eligible capacity enhancement and safety related projects. 12. How is the debt service (interest and principle) on the Airport Revenue Bonds, Passenger Facility Charge-backed Revenue Bonds, and Customer Facility Chargebacked Revenue Bonds paid for by the airport (Aviation Department)? Any project costs that are not paid from other funding sources such as FAA AIP grants or PFCs are typically funded from the issuance of airport revenue bonds. Revenue bond debt service is supported entirely from the net revenues of the airport system. Through the terms of the airport s operating agreement with the airlines, it is normal practice for the airlines to contractually agree to increase their airport landing fees and terminal rental fees paid to the airport to allow the airport to pay for the required debt service. For this reason, it is important that the airport and the airlines work together through a collaborative process in anticipation of any upcoming major capital expenditures. The airlines landing fees and terminal rental fees negotiated with an airport can often increase in the early periods of major airport capital expenditures and then level off or actually decrease in subsequent periods over time as debt service cash needs are reduced or paid down and as other airport revenues increase. 4
13. KCI is a publicly owned airport (as contrasted with a privately owned airport). Has there ever been a default on Airport Revenue Bonds issued by a city or county related to a public airport? What impact, if any, will the issuance of Airport Revenue Bonds have on the debt capacity (general obligation bonds or other) of the City of Kansas City for other purposes not related to the airport? There have been no such defaults of General Airport Revenue Bonds at a publicly owned airport across the United States to our knowledge, and that of others with whom we have consulted. Additionally, under existing law, there is no guarantor tie to the City of Kansas City for any airport revenue bonds and likewise, there is no guarantor tie to the airport for any non-airport related revenue or general obligation bonds issued by the City of Kansas City. Thus, the issuance of airport revenue bonds, which are by law limited to airport-related matters, will not diminish the debt capacity of the City of Kansas City for other purposes. 14. When was the last time KCI undertook significant capital expenditures? The airport continually maintains all aspects of the airport under their jurisdiction including, but not limited to: the terminal, aircraft runways, access roadways, and the parking and rental car facilities. The most recent major terminal improvement, the Terminal Improvement Project (TIP), occurred during the period of 1995-2004. The improvements were primarily for cosmetic and interior improvements within the terminal buildings at ground level and above. This work was accomplished by closing sections (wedges) of each of the three separate terminals. However, some critical structural upgrades and repairs could not be accomplished because they would have required significant additional funding and also necessitated the closing of an entire terminal in order to repair foundation walls and all underground utilities. 15. Is there a current need for major capital expenditures at KCI? Yes. Much of the airport terminal area facilities are over forty years old and showing significant signs of wear and tear and are otherwise outdated. A partial list of the major terminal rehabilitation and improvement projects needed at the airport include: Replacement and rehabilitation of Landside and Airside Infrastructure (including the building foundation, terminal shell, and roadways) Replacement and rehabilitation of the Central Utility Plant and Terminal Utilities (including water, sewer, electrical, communications/it, and HVAC systems) Improvements to Checked Baggage Screening Improvements to De-icing Runoff Collection Systems Increased Capacity of Terminal Parking Garages Continuation of Preventative Maintenance and Monitoring Programs on Systems (Terminal Chillers, Boilers and Roofing) 5
16. What is the rush to make the kinds of capital improvements listed above? Why can t we wait for the area to break down and fix things as we go and only when we need to? In other words, why does the airport have to replace or repair major aspects when they appear to be functioning fine now and have some remaining useful life? Airports are an essential form of transportation that must function 24/7. Unanticipated breakdowns are very expensive and disruptive to travelers and airlines alike. Recurring risk of such breakdowns and interruptions would be devastating to an airport from an operational and reputational standpoint. Much of the airport is over forty years old and is operating with aspects that have never been replaced and that has reached, or soon will be reaching their expected useful life. While most of the airport is functioning at an acceptable level, time moves on and the risk of breakdown is increasing. To accomplish the kinds of major capital improvements currently needed, or that will be needed in the foreseeable future, an entire terminal must be shut down. This allows major rehabilitation of landside and airside aspects of the terminal. This intrusive process must be staged in order to minimize disruption. Many aspects can be repaired or replaced all at once much more efficiently if a terminal is entirely shut down free from vehicle and passenger traffic. As a result, certain aspects may be replaced prior to the full utilization of their complete useful life to take advantage of the timing of the terminal closure. In other words, some parts of any project may come under the category of since we already have this road torn up, we might as well repair/replace/maintain other aspects that we might have to do some time later, but would be too expensive or disruptive to have to tear up the roads a second time to redo. The process of planning and undertaking airport capital improvements, from preliminary assessment, to approval, and ultimately through construction, takes several years, thus it is timely to address the airport s needs now before unanticipated events occur. 17. If some major capital improvements are made to the airport and the airlines agree to increase their landing fees and terminal space rent accordingly to fund the debt service, will my airline ticket prices go up as a result? As we have heard during out ATAG meetings, the airlines, the Aviation Department, and our consultants agree that there is not a direct relationship between airline fees and rent paid to the airport versus airline ticket prices at that airport. Air fares at an airport are more dependent on demand and competition than on airline or airport costs. On a national basis, air fares during the period 2009 to 2013 have grown nearly four percent per annum. The airlines have become much more disciplined at managing their seat capacity during that period in order to maintain high load factors. At the same time, the airlines have instituted new charges for checked baggage, preferred seating, inflight WiFi and entertainment, express security lanes, and inflight food. This seat capacity discipline and additional fees have accounted for as a primary reason in recent airline record profits. 6
18. Could the Aviation Department increase the Passenger Facility Charge (PFC) that appears on my ticket to help fund additional airport cash needs? No. The PFC maximum is set by Congress and has been at $4.50 per enplanement for many years. The Kansas City airport has no authority to increase the PFC. 19. If the airport and airlines agree to make some major capital improvements to the airport terminal with a new configuration, will that result in new air service in the form of more domestic direct or non-stop flights or more international flight options? As we have heard from the airlines and our consultant, an improved terminal is not expected to directly generate new non-stop domestic or international air service at the airport. Future growth at the airport, and nationwide, is expected to be incremental and increase as the airport s market area population and economy grows over time. However, while an airport s terminal building by itself does not attract new air service, a new or expanded terminal can address certain deficiencies and open up new air service opportunities that may otherwise not be accommodated today. 20. One of the most common rationales that I hear for improving the terminal is for new retail amenities like shops, restaurants and bar lounges. I only go to the airport to fly somewhere. Why do we need new retail establishments? There are many passenger experiences and needs at the airport depending on your personal situation, timing and travel pattern. As a result, there are many different amenities and services needed at the airport to accommodate this diverse traveling passenger base. However, one fact is consistently apparent in the KCI situation relative to airport terminal concession revenue - KCI ranks last in airport terminal concession revenue in its peer group of similarly sized airports. As a result, this lost revenue opportunity is therefore not currently available to help fund airport operations or airport capital expenditures. In other words, KCI is at a disadvantage to most if not all other airports in having additional funds to meet the needs of its passengers in the most cost-effective manner. 21. Why can t the airport just expand as needed to give more room for retail establishments, restrooms, baggage handling, security checkpoints and waiting room areas? Adaptations for demands on security, baggage handling, restrooms, retail establishments and waiting room areas is limited due to the configuration of the terminals and permanent constraints on both the landside and airside of the terminal. The permanent cement terminal boundaries have been expanded about as much as possible by additional add-ons (bumpouts). There is limited space available for incremental add-ons without further impeding aircraft size and aircraft traffic on the airside or without further congesting arriving and departing passenger traffic on the roads and passenger drop-off curbs on the landside. The location of the parking garages adjacent to Terminals A, B, and C also limits further widening of the terminal roadways and curbs. 7