Module 5 - Airline Use and Lease Agreements and the Airline Business Relationship - Module Flashcards
In what year was a Former New York City official cited?
1946
In a 1940 study of 650 airports how many were not paying their own way?
Less than 15%
A profitable airport which obtains sufficient income to exceed operation expenses will incure what?
NO taxpayer animosity.
What was the effect of the Airline Deregulation Act of 1978?
Shorter agreements with the airlines.
What are some Key AIP Grant Assurances for Airport Financial Managers?
- Economic Nondiscrimination (Grant 22)
- Exclusive Rights (Grant 23)
- Fee and Rental Structure (Grant 24)
- Airport Revenues (Grant 25)
When was the Policy Regarding Airport Rates and Charges (Airport Rates and Charges Policy) published initially? When was the amendment?
1996, and 2013
What are the Key Principles of the Airport Rates and Charges Policy?
- Direct Negotiation and Resolution
- Fair and Reasonable Fees
- No Unjustly Discriminatory Rates
- Self-Sustaining Rate Structure
- No Revenue Diversion
What policy defines the key concepts concerning the allowable uses of airport revenue?
The Policy and Procedures Concerning the Use of Airport Revenues.
What are the Key Provisions of the Airport Revenue Use Policy?
- Definitions of Airport Revenue
- Definition of Revenue Diversion
- Specifically Prohibited Uses
- Allowable Marketing Expenses (Including Air Service Development)
- Allowable Indirect Costs
- Charges below FMV for Community and Nonprofit Use
What did the Wendell H. Ford Aviation Investment and Reform Act if the 21st Century (AIR-21)require?
Certain airport sponsors receiving AIP grants or imposing a PFC have to submit “competition plans” in support of improved airline access to terminal facilities.
What is the FORMAL complaint known as?
Part 16 aka “Rocket Docket”
What needs to happen prior to filing a Part 16 complaint?
There needs to have been good faith efforts to mitigate the complaint thru mediation, arbitration of use of the dispute resolution processes provided for by the agreement made.
What is the maximum length of time allowed for filing a Part 16 complaint?
Up to 60 days past the notification of the rate increase by the airport.
What is the timeline for the Part 16 complaint process?
Day 1 - Part 16 complaint is filed with Department of Transportation (DOT)
Day 14 Airport Sponsor response due to the DOT
Day 30 DOT Determines significance of the dispute and determines whether to dismiss or proceed
Days 30-90 DOT Administrative law judge (ALJ) holds a hearing on the matter
Day 990 ALJ issues recommended decision
Day 120 DOT issues final decision
What are some of the Key “Rocket Docket” Decisions?
- Los Angeles International Airport 1995 - aka LAX I
- Miami International Airport 1996
- Los Angeles International Airport 1997 aka LAX II
- Los Angeles International Airport 2007 aka LAX III
- Newark Liberty International Airport 2018
What is statutorily required in a competition plan?
- A description of the gates and related facilities at the airport
- A discussion of the process used by the airport sponsor for accommodating new service, including service by a new-entrant airline.
- A description of any policies and procedures affecting gate use
- Documentation of recent history, if any, of responding to airline requests for gates and related facilities, including any instances in which requests could not be accommodated.
- A summary of leasing and subleasing arrangements
an analysis of the patterns and competitive dynamics of air service at the airport - An analysis of airfares at the airport as they compare to benchmark airports
A description of the airports’ gate use requirements - A summary of financial and legal constraints, if any, affecting the airport sponsor’s ability to deliver new gate and related facility capacity
- A description of any plans to deliver new gate and related facility capacity
What are some typical Rate Base Costs?
- Operating expenses (O&M)
- Debt Service
- Debt Service Charge
- Equipment and Capital Outlays
- Amortization Charges
- Fund Deposit Requirements
What are some Common Airport Rates and Charges Cost Centers?
- Airfield
- Terminal
- Non-Airline
- Indirect and Overhead
What is allocating Costs to Cost Centers and Rate Bases?
Allocating expenses by budgetary departments in an effort to fairly connect costs with beneficial use.
What are Common Methodologies for Allocating Operating Expenses from Indirect Budgetary Departments?
- By primary responsibility
- By staffing analysis
- by workload (hours charged, work order location, or call data)
- By budgetary line item
- By management judgement
What are Common Methodologies for Allocating Costs Other Than Operating Expenses?
- Debt Service
- Debt Service Coverage
- Equipment and Capital Outlays
- Amortization Charges
- Other Requirements
Airline Rate-Making Methodologies.
- Understand the main “ingredients” – What are the costs? How are they being divided to produce the rate? How is the use of a facility connected to the costs?
- Understand the calculation from a revenue perspective – What revenues result from the rate calculation?
- Understand the balance of risk and reward – What are the key trade-offs?
- Understand the cost center and rate base – Why do some rate-making approaches make more sense for one cost center versus another?
- Understand the background “noise’ – What is the purpose of the other “ingredients” in the rate calculation? Is there consensus among the airport and airlines on the objectives to be achieved?
How often are airline rates and charges calculated?
Usually twice a year.
What is entailed in the annual meetings?
- Annual Airline Consultation Meetings - signatory airlines and airport sponsors meet to discuss rates and charges and carry out other responsibilities as required by the agreement.
- Rate-Making Models and Exhibits - Airport sponsors typically maintain a spreadsheet-based model to calculate annual rates and charges in compliance with the provisions of the airline agreement.
- Rates and Charges Adjustments - some airline agreements allow for an adjustment to rates and charges during the fiscal year if certain conditions are met.
What is entailed in the Facility Use Provision in the Airline Agreement(s)?
- Lease Basis and Use Rights
- Accommodation Provisions
- Recapture Provisions
What are some other Key Provisions inn Airline Agreemennts?
- Term and Termination Provisions
- CApital Project Consultation
- Signatory Status and Treatment of Affiliates
- Security Deposits
- Dispute Resolution
- Default Provisions
- Boilerplate Provisions
What are the steps in the Negotiation Process?
- Pre-Negotiations Planning
- Formal Negotiations Process
Is the airport sponsor required to have an airline agreement?
NO, but there needs to be a requirement for airline consultation.
If there is no airline agreement how are rates and charges set?
- By Ordinance
- By resolution
- By Tariff
- By other legal action
