No Easy Answers

Author: 
Paula Hochstetler
Published in: 
November-December
2008

The seismic shocks to the global economy and their impacts on the airport community are becoming increasingly apparent. Fortunately, the price of oil has fallen below $100 a barrel, but the airlines are still cutting capacity, and additional service reductions are expected next year in an effort to trim costs. Meanwhile, consultants are helping their airport clients to determine what's ahead and how to respond to the remarkable set of circumstances that we collectively face. Although there are no easy answers, asking the right series of questions is critical to a successful outcome.

What is Most at Risk?

The recent upheaval in the airport bond market is one of the most dramatic events impacting the ability of airports to proceed with airport development projects. The general reduction in air service has affected airport management's ability to issue new bonds, which are based on forecasted revenues from future landing fees, passenger facility charges (PFCs) and other revenue sources. In some cases airports are having problems meeting commitments on existing bonds because they have experienced substantial reductions in their revenues. This has left some airport sponsors without a reliable source of revenue for capital projects.

Airports and their consultants are grappling with these new realities, and they are uncertain how long these funding and service trends will continue. A key question to ask is - What is most at risk at a particular airport? Is it an old terminal building that will discourage airlines from continuing to serve the airport or new ones from establishing service? Is it an airfield safety or capacity issue? Or is it a high percentage of transfer passengers that place the airport 'at risk?'

How Can High-Priority Risks be Minimized?

The next step is to determine how to shore up and protect airports from these vulnerabilities. Does the airport need to cut capital improvement programs back? Perhaps, perhaps not. Former FAA Administrator Marion Blakey once indicated that Chicago is one of those airports where if it were to sneeze, airports across the country would catch colds. Major capital improvements programs at these key locations need to proceed without delay. Other airports that are losing scheduled service may need to defer capacity projects until the future is better understood, and instead focus on important, but lower priority projects.

Third party financing and public-private partnerships are other means of minimizing risk at some airports. Although they are not new concepts globally, they are increasingly being considered by airports in the U.S.

When Will the FAA Reauthorization Bill Pass?

When passed, a new Federal Aviation Administration (FAA) reauthorization bill will likely provide Airport Improvement Program (AIP) and other aviation funding for three to four years. Such federal programs are clearly not intended to bail out airports that are financially stressed. AIP funds are, however, crucial to hundreds of small and mid-sized airports whose capital improvements remain essential to the integrity of the air transportation system in the U.S. Passage of the bill will enable these smaller airports to embark on larger-scale projects with the certainty that federal funding would be available in the years ahead.




Paula Hochstetler is president of the Airport Consultants Council (ACC), the international trade association that represents consultant firms and related business that provide airport development and operations expertise. Prior to joining ACC, Hochstetler advised the leadership of major hub and general aviation airports on airfield, terminal, landside, environmental, capacity, forecast and funding issues.

For larger airports, a new bill could increase PFCs. If the Senate adopts the new $7.00 PFC cap included in the House bill (compared to the current $4.50 cap), airports could realize an additional $100 million per month in funding.

Unfortunately, Congress has been unable to resolve the controversial issues hovering over the bill for over a year. During fiscal year 2008, five short-term extensions were passed. Many airports kept projects going, but in some cases had to fund lower priority projects, administer multiple bids and contracts to complete a project, or defer their programs to the following fiscal year. One clear solution to reducing some of the industry's current turmoil is for Congress to pass a multi-year FAA reauthorization bill as soon as possible.

Conclusion

These are unprecedented times. I must confess to a certain curiosity about the future. Perhaps it conveys that I am fundamentally optimistic that the ultimate outcome will be positive. No, it won't be easy in the foreseeable future and many of us will likely have to tighten our belts, but as long as we remain focused on asking the right questions, the not so easy answers should become evident.

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