Manage the Future: Planning CIPs in Times of Accelerated Change and Uncertainty ACI Webinar Airport Capital Investment CIP Financial Planning Don Arthur Principal Unison Consulting, Inc. 0
Agenda Affordability Analysis Airline rates and charges Sample airline rates and charges calculations Financial Feasibility Analysis 1
CIP Financial Analysis FAA Circular: The financial feasibility analysis should take place concurrently with the development of the CIP and the facilities implementation plan. Waiting to do financial evaluation = risk of having a program that s not affordable Affordability analysis could drive changes to timing and/or magnitude of costs 2
Affordability Analysis What amount of capital cost is affordable? Can the airport meet its financial obligations while funding its capital program? Amount of capital costs an airport can afford depends in part on Rates & charges methodology Cash flow capacity Debt capacity 3
Rates and Charges Methodologies Residual Compensatory Hybrid Customized methodologies 4
Residual Airlines are responsible for paying the residual amount i.e., the amount left over after nonairline revenues have been applied to expenses Residual for entire airport, or residual for individual cost centers Airlines assume risk of covering any operating deficits Usually contains a strong MII provision 5
Sample Residual Calculation Terminal Cost Center O&M Expenses $25,000,000 Roadway and Parking Costs $15,000,000 Debt Service $6,000,000 Debt Service Coverage $1,500,000 Total Terminal Costs $47,500,000 Less Nonairline Revenue: Parking Revenue $20,000,000 Rental Car Concession Revenue $9,000,000 Food & Beverage Concession Revenue $3,000,000 Retail Concession Revenue $2,800,000 Other Terminal Concession Revenue $3,000,000 Total Nonairline Revenue $37,800,000 Net Airline Requirement $9,700,000 Divided by total leasable square footage 200,000 Rate per square foot $48.50 6
Sample Residual Calculation Airfield Cost Center O&M Expenses $10,000,000 Debt Service $500,000 Debt Service Coverage $125,000 Apron Costs $2,500,000 Other Cost Center Costs $10,000,000 Total Airfield Costs $23,125,000 Less Nonairline Revenue: General Aviation Revenue $1,000,000 Apron Fees $2,500,000 Other Nonairline Revenues $500,000 Total Credits $4,000,000 Net Airline Requirement $19,125,000 Divided by airline landed weight (thousand pounds) 6,500,000 Landing Fee (per thousand pounds) $2.94 7
Compensatory Airlines pay for the percentage of costs based on their usage of the facilities Airport assumes risk of generating sufficient nonairline revenues to pay costs not covered by airline revenues Public parking revenues Rental car revenues Terminal concession revenues Other revenues 8
Sample Compensatory Calculation Terminal O&M Expenses $25,000,000 Debt Service $6,000,000 Total Terminal Costs $31,000,000 Total Usable Space (square feet) 250,000 Terminal Rental Rate $124.00 Airline Rented Space (square feet) 175,000 Airline Rent $21,700,000 Airfield O&M Expenses $10,000,000 Debt Service $500,000 Total Airfield Costs $10,500,000 Landed Weight (thousand pound units) 6,500,000 Landing Fee Rate (per thousand pound unit) $1.62 9
Sample Hybrid Calculation Terminal Total Terminal Costs $46,000,000 Less 50% of Nonairline Revenues: $17,400,000 Net Leased Space Requirement $28,600,000 Divided by leasable square footage 250,000 Rate per square foot $114.40 Airline Rented Space (square feet) 175,000 Airline Rent $20,020,000 Airfield Total Airfield Costs $10,500,000 Less Credits (50%): $750,000 Net Airfield Requirement $9,750,000 Total Landed Weight (thousand pound units) 6,500,000 Landing Fee Rate (per thousand pound unit) $1.50 10
Summary of Methodologies Residual Compensatory Hybrid Airline Revenue Airline Terminal Rent $9,700,000 $21,700,000 $20,020,000 Signatory Landing Fees $19,125,000 $10,500,000 $9,750,000 Apron Fees $2,500,000 $2,500,000 $2,500,000 Total Airline Revenue $31,325,000 $34,700,000 $32,270,000 Total Nonairline Revenue $39,300,000 $39,300,000 $39,300,000 Total Revenues $70,625,000 $74,000,000 $71,570,000 Total O&M Expenses $57,500,000 $57,500,000 $57,500,000 Net Revenues $13,125,000 $16,500,000 $14,070,000 Debt Service $10,500,000 $10,500,000 $10,500,000 Net Cash Flow $2,625,000 $6,000,000 $3,570,000 Airline Revenue $31,325,000 $34,700,000 $32,270,000 Enplanements 4,000,000 4,000,000 4,000,000 Airline Cost per Enplanement $7.83 $8.68 $8.07 Terminal Rental Rate $48.50 $124.00 $114.40 Landing Fee $2.94 $1.62 $1.50 Debt service coverage 1.25 1.57 1.34 11
Example Customized Methodology Landing fee: modified cost center residual Airfield costs minus all non-airline airfield revenues Terminal rent: modified cost center compensatory Terminal costs minus certain nonairline rents Estimated shortfall in revenues is split 50/50 between airfield and terminals 12
Example Customized Methodology Cost center residual (airfield, terminal, & apron) Effectively an airport-wide residual method All airport costs and nonairline revenues are allocated to the 3 airline cost centers Change in calculation 90% of nonairline revenues allocated to terminal are credited to rate base (vs. 100%) Airport generates cash for capital costs Higher rental rate and CPE in short-term, but in long-term Airport will need to borrow less 13
Financial Feasibility Analysis Performed when an airport is ready to issue bonds Can the airport generate sufficient pledged revenues to pay debt service and the airport s other financial obligations? Financial feasibility report contains information essential to interested parties to make an informed decision 14
Don Arthur Principal Unison Consulting, Inc. (949) 282-6702 donaldarthur@unison-ucg.com 15