Module 5: Airline Use and Lease Agreements and the Airline Business Relationship

Question 1

These three grant assurances continue without limit for as long as the airport is used as a public use airport.

Answer 1

23 - Exclusive Rights

#25 - Airport Revenues
#30 - Civil Rights

Question 2

This policy provides guidance to airport sponsors with regard to setting rates, fees and charges for aeronautical use of their facilities without a negotiated agreement, with a particular focus on airline and FBO rates and charges.

Answer 2

Airport Rates and Charges Policy

Question 3

Under current FAA program guidance, if an airport sponsor has submitted a full competition plan and two updates, the FAA requires subsequent updates if only one of two special circumstances exist.

Answer 3

1) If the airport sponsor has executed a new or significantly amended airline agreement; or
2) If the airport sponsor has submitted a report of denial of access to an airline requesting the use of gates or related facilities.

Question 4

Since 1994, airlines and other aeronautical tenants such as FBOs are permitted to file formal complaints involving federal obligations incurred by an airport sponsor with relation to accepting federal property or FAA grants with the DOT under this process.

Answer 4

14 CFR, Part 16 or “Part 16 Complaint” or “Rocket Docket” (referring to the accelerated review process)

Question 5

List six typical airline rate base costs.

Answer 5

Operating Expenses, Debt Service, Debt Service Coverage, Equipment and Capital Outlays, Amortization Charges, and Fund Deposit Requirements

Question 6

What are the two basic rate-making approaches in airline rate-making methodologies?

Answer 6

Residual and Compensatory

Question 7

Under this airline rate-making methodology, the net financial requirements of the cost center are recovered in full from the airlines.

Answer 7

cost-center residual approach

Question 8

Under this “backstop” rate-making approach, also known internationally as the “single till” approach, the airport operator sets terminal rates and use fees, either by formula using a cost-center residual or other approach, or simply by adopting a rate.

Answer 8

Airport-System Residual Methodology

Question 9

Under this rate-making methodology, rates are calculated such that the airport sponsor bears the risk for the financial requirements of a cost center, either due to vacancy, underutilization or other negotiated basis. This approach is also known as the “dual till” approach.

Answer 9

Compensatory Rate-Making Methodology

Question 10

This rate-making methodology divides by rentable space to allocate the cost of public space to the space leased or occupied by terminal tenants.

Answer 10

Commercial Compensatory Rate-Making Methodology

Question 11

Under this rate-making methodology, usable space is used as the denominator in the terminal rate calculation.

Answer 11

Pure Compensatory Rate-Making Methodology

Question 12

Name five key (advanced) terminal rate-making concepts.

Answer 12

1. Rate-making for Different Terminals or Concourses (Equalized or Differential)
2. Weighted Terminal Rates
3. Airline Equipment Cost Centers
4. Rate-Making for Common-Use Facilities
5. Rate-Making for International Arrivals Facilities

Question 13

Under this type of lease, lessees have the sole right to occupy and use facilities, generally without restrictions other than the boilerplate provisions of the lease.

Answer 13

Exclusive Use Leases

Question 14

Under this type of lease, the lessee has use right to the facilities in preference and precedence above all others, but the airport sponsor has the right under certain conditions to require the airline to allow them to accommodate other airlines.

Answer 14

Preferential Use Leases

Question 15

These facilities are available for use by any airline, typically subject to operating protocols governing assignment and other provisions.

Answer 15

Common Use Facilities

Question 16

What are the key provisions in airline agreements?

Answer 16

Lease Basis and Use Rights, Accommodation Provisions, Recapture Provisions, Term and Termination Provisions, Capital Project Consultation, Signatory Status and Treatment of Affiliates, Security Deposits, Dispute Resolution, Default Provisions, Boilerplate Provisions

Question 17

These types of provisions typically gave a de facto veto right over any project to the airline with the largest market share.

Answer 17

majority-in-interest (MII)

Question 18

“Low utilization airlines” or airlines with highly variable or seasonal service patterns, are typically classified as what?

Answer 18

ultra-low-cost-carriers (ULCCs)

Question 19

Airline negotiations typically are based on a list of major issues and key negotiating points that form the business deal for the agreement. Before the agreement is drafted, these issues are usually negotiated as part of a what?

Answer 19

Term Sheet

Question 20

Airport sponsors are not required to have airline agreements and instead establish rates and charges to airlines by resolution, tariff or other legal action in a scenario known as what?

Answer 20

rates by ordinance