Funding and Operating an Airport
Funding and Operating an Airport
The funding of essential infrastructure is necessary for the economic development of any country. In the formative years of the United States, the establishment of airports was not expensive since they were constructed in areas where there were vast and affordable tracks of land. Accordingly, air terminals were normally in areas that were far from cities. However, the realization of their importance in facilitating economic growth coupled with an increase in commercial air travel has made cities to be developed around airports. Consequently, their construction costs have significantly risen, which has necessitated both Federal, state, and private funding.
All users of air transportation systems contribute to the development of America’s National Airspace System (NAS). Most of the funding for America’s air transport infrastructure is collect through taxation of all aviation fuels. Therefore, people and parcels flown using commercial flights pay fuel levy as part of their ticket charges to both state and Federal governments. Local funds for airport developments are generated using the Passenger Facility Charge (PFC) program (Federal Aviation Administration [FAA], n.d.). The federal government, on the other hand, contributes to operations in air terminals through the following:
- Airport Improvement Program (AIP) and discretionary programs.
- The exemption from federal tax on interest income among holders of airport bonds (FAA, n.d.).
PFCs are form of user fees that are charged to passengers who fly through an airport. They are raised after approval from the FAA and can only be used in airports where they were collected. Currently, the ceiling for PFCs is $4.5, which is insufficient to cater for all the infrastructural needs of an airport. As a result, most airports are of the view that these ceiling should be raised.
The Airport and Airway Trust Fund
This fund was established by the United States Department of the Treasury in 1971 with the aim of improving the country’s air transportation systems. Usually, it finances airport improvements, repair projects, movements, and modernization of air traffic control systems (Ashford, Coutu, & Beasley, 2012). The primary source of revenue for this fund is the taxation of aviation fuel, air freight shipments, domestic airline tickets, and tickets for passengers traveling overseas.
Federal and State Fuel Taxes
The federal government charges 19.3 and 21.8 cents per gallon tax on aviation gasoline fuels used by piston-powered propeller aircraft (Avgas) and jet fuel (Jet A) powered airplanes respectively. Most of this tax is directly channeled to the Airport and Airway Trust Fund, and 1/10 of one cent is used in environmental protection programs. State fuel tax is charged differently depending on the policies of each state. In California for example, a tax of 13.7 cents is paid for every gallon of aviation gasoline fuel (FAA, n.d.). Usually, the state aviation fuel taxes are used to make state contributions match those of the grant programs from the Federal government.
Airport Improvement Program (AIP)
The Federal Airport Improvement Program (AIP) is the largest contributor for airport’s developments in the country. It was established in 1982 by the Airport and Airway Improvement Act and is administered by the Federal Aviation Administration (FAA) (Graham, 2013). The primary sources of its revenues are the Airport and Airway Trust Fund and taxation to users of aviation-related services. This program has a multiyear authorization and requires annual appropriations of finances. As a result, it guarantee’s a stable source of funding and enables taxpayers to receive immediate value for what their levies.
The AIP funds public agencies and some private entities for the development of public-use airports that are included in the National Plan of Integrated Airport Systems (NPIAS). A privately owned airport must be classified as a reliever or have transported over 2,500 to qualify for this financing. The law provides that AIP funds should be apportioned to each airport using a predetermined formula for equitable allocation of resources (Price & Forrest, 2016). The available funds for each allocated airport should also remain accessible for additional fiscal years. Additionally, the program should retain some funds for use in various priority projects. AIP financing is categorized as follows:
- Apportioned funds
- Passenger entitlements: Allocated to primary airports.
- Non-primary entitlements: Issued to non-primary airports.
- Cargo entitlements: Eligible to cargo airports.
- State apportionments: Distributed to states.
- Alaska supplemental apportionment: Provided to Alaska airports (United States Government Accountability Office [GAO], 2015)
To determine the type of financing for each airport, AIP categorizes air terminals based on their size. Commercial airports are publicly owned, have more than 2,500 enplanements each year, and receive scheduled passenger service. Non-primary airports, on the other hand, have between 2,500 and 10,000 enplanements annually. These airports receive $150,000 annually from the AIP program for the establishment of various infrastructures. They also qualify to receive apportioned finances (FAA, n.d.). Primary airports have more than 10,000 enplanements each year. Normally, they receive apportionments depending on the number of passenger enplanements. At full funding, the minimum amount that is allocated to sponsors of primary airports is $1,000,000, and the maximum is $26,000,000 (FAA, n.d.). Finally, primary airports have the right to impose Passenger Facility Charges (PCF) to collect more revenue.
Cargo service airports are those that offer regular air transportation services and also provide facilities for aircrafts transporting cargo. The annual transported commodities in an air terminal must weigh more than 100 million pounds for it to qualify as a cargo service airport. These airports get 3.5% of the AIPs annual apportionment. The allocation of funds in each airport depends on the landed weight cargo (GAO, 2015). Noteworthy, the distribution of funds to any cargo service airport is limited to 8% of the total apportioned funds. Reliever airports reduce congestion in commercial service airports, and they may be publicly or privately owned. Most of the sources of their funds are apportionments and non-primary entitlements funds. Finally, general aviation airports primarily serve general aviation aircrafts. They are entitled up to $150,000 annually for eligible projects from the non-primary airport entitlement funds (FAA, n.d.). They also qualify for funding from the AIP’s apportionment funds.
Overall, the current financing of airports has enabled them to have appropriate aviation systems and necessary infrastructure that have improved their safety standards. Due to the increasing importance of airports in facilitating global trade coupled with the increased complexities of the aviation industry, there is a need for airports to have more funding. Consequently, the Federal and state governments should increase their financing of airports to make them meet the country’s transport needs.
Ashford, N., Coutu, P., & Beasley, J. (2012). Airport operations (3rd ed.). New York, NY: McGraw-Hill Education.
Graham, A. (2013). Managing airports: An international perspectives (1st ed.). Abingdon, UK: Routledge.
Price, J., & Forrest, J. (2016). Practical airport operations, safety, and emergency management: Protocols for today and the future (1st ed.). Oxford, UK: Butterworth-Heinemann.
United States Government Accountability Office [GAO]. (2015). Airport finance. Information on funding sources and planned capital development. Report to Congressional Committees, GAO-15-306, 1-79.
Federal Aviation Administration [FAA]. (n.d.). Airport Improvement Program (AIP) Airports. Retrieved from https://www.faa.gov/airports/aip/.