“When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”
— Henry Ford
As a community grows, its need for transportation options changes, and its citizens often seek expanded access to air travel. In communities with general aviation (GA) airports, the owner (usually a public entity, such as a city, county or airport authority) might consider pursuing scheduled commercial airline service. Commercial service has many advantages, including more convenient air travel, enhanced airport facilities and economic benefits for the community. But the transition also may require additional airport or community revenues, significantly impacting an airport’s operating budget and capital development funding program.
Generally, the Federal Aviation Administration (FAA) classifies airports without scheduled airline service as GA airports. The FAA system of categorizing public airports calls an airport with 10,000 enplanements or more a primary commercial service (CS) airport. At this level, the airport is eligible for $1 million in Airport Improvement Program (AIP) entitlement funds (an increase of $850,000 per year), but its federal funding percentage remains at the GA level. For large and medium primary-hub airports, the FAA grant covers up to 75% of eligible costs. For small primary, reliever and general aviation airports, the grant covers a range of 90%–95% of eligible costs, based on statutory requirements. For GA to medium-hub CS airports, the federal grant percentage remains the same and does not reduce until the airport reaches medium-hub activity levels. The FAA program, therefore, allows an emerging commercial service airport to have enough financial support during its growth to reach a level of revenue generation (from passenger facility charge programs, rental car income, parking revenue, concessions, transportation fees, security fees, etc.) to offset the airport’s eventual reduction of federal grant funding from 90% to 75% upon achieving medium hub status.
However, some state grant agencies do not equally recognize the inherent costs of moving to the CS category, categorizing their GA airports as primary CS airports as soon as they reach the FAA enplanement level of 10,000 and immediately reducing state funding. Unfortunately, some state agencies may assume the emerging airport is able to fund its capital projects, leaving an airport sponsor in a fiscal bind. Although the airport receives additional FAA entitlement funding, the funds are still AIP funds that must be spent only on federally eligible projects, limiting how the small airport can use those new funds. With a five-year capital program planned to support commercial airline service, along with structured FAA funding and reduced state grant funding, the growing public airport might find itself lacking financial support when it needs it the most.
On top of this, GA airports transitioning to CS face significant operational costs under 14 CFR Part 139 and security costs under 49 CFR Part 1542. The emerging CS airport will be required to cover additional security personnel under Transportation Security Administration guidelines, new or upgraded aircraft rescue and firefighting equipment, local law enforcement personnel time and training costs and many other expenses. Maintenance and inspection costs also increase, as do marketing, public outreach and terminal building staffing and customer care improvements. Accordingly, there must be a collaboration between the community and the airport for the new service to succeed as the airport grows. Often, a local chamber of commerce, tourism or economic development board will offer significant funds to at least support the airport’s marketing and outreach efforts, knowing that tourism brings economic benefits to the area. In the case of one emerging commercial service airport in Florida, operating and maintenance costs increased nearly $100,000 the first year, including marketing and additional part-time and overtime work for staff, reducing surplus revenues available for matching capital grants by nearly 30%. Without continued support from grant agencies and the local community, the airport found itself with a dilemma – retain commercial service and defer needed capital improvements or move away from scheduled passenger service entirely.
The transition from GA to CS is possible if the community strongly supports the airport and the airline can maximize growth within a few years, using new revenue sources to offset the loss of grant funding. However, if the airline grows slowly or not at all and the airport’s enplanements remain low, it will be difficult for the airport to raise enough money from airline-related fees and charges to make up the difference in lost state grant funds. It is a good idea to work with a potential incoming airline and the community to secure financial support when considering a transition from general aviation to commercial service. While the rewards are worth the effort, be ready for headwinds during takeoff.
For more information, contact Eric Menger at emenger@hanson-inc.com.