Annual Airport Finance and Administration Conference Innovative Funding Strategies March 4, 2013 Destin, Florida Bonnie Deger Ossege
OVERVIEW Trends- Capital Improvement Programs Determine Your Airport s Financial Boundaries CIP Planning Process Methodology Affordability of CIP Available Funding Sources Strategic Considerations Airport Revenues Innovative AIP Financing Innovative Debt Financing 2
Trends Capital Improvement Programs Finite level of Airport AIP grants and PFCs Concerns about federal funding TSA-Mandated Projects and Equipment continues Airports are still in need of basic infrastructure and capacity improvements Airlines strive to keep costs low Airline consolidations may impact operations Air service recalibration More focus on Sustainability Projects
Determine Your Airport s Financial Boundaries Terms of the Airline Agreement - Airline MII Approval Strength of nonairline revenues Existing debt burden Airline support for Capital Projects Importance / Priority of Capital Projects Timing of Capital Projects Importance of Flexibility
Determine Your Airport s Financial Boundaries (continued) Proactive CIP Planning: Develop and maintain a Strategic Business Plan Continuous identification of funding sources Prioritization of Capital Projects Monitor activity projections
CIP Planning Process
Affordability of CIP Financial Assessment Criteria: Acceptable Fund Reserves and Cash Flow Specific Airline Rate Targets (Landing Fees, Terminal Rental Rates) Current and Future Cost Per Enplaned Passenger Current and Future Total Debt And Debt Per Enplaned Passenger Benchmarking Peer Airports Debt Capacity Analysis
Affordability of CIP (continued) Debt Capacity Analysis: A comprehensive analysis of debt capacity provides assurance that the amount of debt anticipated for CIP will be affordable. Provides an order-of-magnitude estimate for planners, architects, and designers. Ensures that an appropriate balance is maintained between: An airport s capital needs and An airport s ability to pay for capital projects and Affordability to the airlines
Available Funding Sources Federal Funding FAA Airport Improvement Program (AIP) grants Entitlement (passenger, cargo) Discretionary Noise, Military Airport Program, Relievers Letters of Intent (LOI) TSA grants TIFIA (Transportation Infrastructure Finance and Innovation Act) TIGER (Transportation Investment Generating Economic Recovery) U.S. Department of Transportation (DOT) discretionary earmarks American Infrastructure Investment Fund Act 2013 - establish a $5 billion fund to help private, state and regional entities cover the cost of transportation projects nationwide (airports?)
Available Funding Sources (continued) State and Local Government Funding / Grants Passenger Facility Charges (PFCs) Rental Car Customer Facility Charges (CFCs) Airport Funds Airline Rates & Charges Nonairline Revenues Nonairline Revenues Third Party Funding Private Sector Investment Manufacturer Leaseback
Available Funding Sources (continued) Debt / Bonds General Airport Revenue Bonds (GARBs) PFC- / CFC- Backed Bonds TIFIA Loans Special Facility Bonds General Obligation / Other Bonds Commercial Paper or Bond Anticipation Notes Bank loans Florida State Infrastructure Bank Loans
Strategic Considerations FAA Grants Project eligibility FAA prioritization for discretionary funded projects Benefit-cost for LOI discretionary Timing TSA Funds TSA's Priority of Project State / County / Local Government grants Be proactive TIFIA / Transportation Grants Limited applications; primarily intermodal projects
Strategic Considerations (continued) PFC Revenues $3.00 or $4.50 level; Can Significant Contribution be demonstrated, if required. Capacity Availability Pay-As-You-Go versus Leveraged PFC Bonds minimize capitalized interest incurred with Airport Revenue Bonds CFC Revenues Rental Car projects Regulatory Restrictions Third Party Funding Used for projects like cargo buildings, hangars, FBO facilities; Airport still get land rent and may share in rental revenues Balance Control with Funding
Strategic Considerations (continued) Airport Funds Requirements in Bond Indenture Uses permitted in use and lease agreement Minimum fund balance goals Amortization impact Local match amount for FAA grants Debt Determination of Appropriate Debt Type - GARBS, CP, Special Facility, GO, TIFIA, etc. Determination of Appropriate Debt Structure - Timing, Sizing, Variable vs Fixed, etc. Commercial Paper / Bond Anticipation Notes relatively inexpensive, bridge financing Resulting cost per enplaned passenger; Total debt and debt per enplaned passenger
Airport Revenues Airline Revenues Balance between keeping airport cost low versus need for capital investment MII considerations Involve Airlines early in significant capital projects partnership Nonairline Revenues Higher percentage of nonairline revenues, stronger the financial strength Look for nontraditional opportunities for revenue generation
Airline vs. Nonairline Revenues Airline Revenues Landing Fees Terminal Rentals Apron Fees Fuel Flowage GA / FBO Revenues Cargo Building Rent Hangar Revenues Airport Revenues Nonairline Revenues Passenger Related Auto Parking Terminal Concessions Rental Car Non-Passenger Related Commercial, Industrial, Retail Development Building / Land Leases Natural Resources Recreational Facilities 16
Examples of Nontraditional Nonairline Revenues Passenger Concessions Sell passengers time wait times can be used for many services customers want / need Auto parking enhancements valet, oil changes, car wash, dry cleaning, groceries Airport kennels Gas stations / convenience store Full-service banking Flower shop Health clinics / drug stores Personal care manicures, massages, hair care Mini hotel rooms Fitness clubs 17
Examples of Nontraditional Nonairline Revenues Real Estate Identify excess property that may not be needed for airline purposes Typically a longer-term strategy can take time for growth to occur Development needs are different for every airport, and depend on: Land use compatibility Demand, growth, and needs in vicinity of airport Timing FAA requirements Fair market value, grant assurances, revenue diversion Capitalize on an airport s core services passengers and cargo Hotels, meeting and conference space, warehousing Look beyond the typical: Commercial, industrial, retail development Natural Resources Oil, natural gas, farming, timber Recreational / Sports Complexes - Golf courses, soccer fields, parks, bike/running trails, etc. 18
Conclusion Key to successful implementation of CIP is planning, planning and more planning Stay flexible as possible Stay on top of funding sources 19
Innovative Debt Financing Presented by: Kenneth D. Fullerton Managing Director Public Financial Management, Inc.
THANK YOU! CONTACT INFORMATION: Bonnie Deger Ossege Director Ricondo & Associates, Inc. Phone: 513-651-4700 x211 Email: b_deger@ricondo.com 21