Airport Infrastructure: Information on Funding and Financing for Planned Projects

U.S. airports are important contributors to the U.S. economy, providing mobility for people and goods, both domestically and internationally. About 3,300 airports in the United States are part of the national airport system and eligible to receive federal AIP grants to fund infrastructure projects. To help fund these projects, certain categories of airports are also authorized by federal law to collect PFCs, which passengers pay when buying tickets.

GAO was asked to examine airport- funding sources and planned infrastructure projects. This report examines, among other issues: (1) levels of federal and other funding that U.S. airports received from fiscal years 2013 through 2017 for infrastructure projects, (2) projected costs of planned infrastructure investments at U.S. airports from fiscal years 2019 through 2023, and (3) any challenges selected airports identified in obtaining projects' funding and financing.

GAO analyzed airport-funding data for AIP grants, PFCs, airport-generated revenue, and other sources for fiscal years 2013–2017—the most recent years for which data were available—and FAA's and Airports Council – North America's cost estimates of airports' planned infrastructure projects for fiscal years 2019–2023. GAO also interviewed FAA officials; representatives from airline and airport associations, and bond-rating agencies; officials from 19 selected airports representing airports of different sizes and with the highest planned development costs, among other things; and representatives from eight selected airlines, selected based on factors such as passenger traffic.

From fiscal years 2013 through 2017, U.S. airports received an average of over $14 billion annually for infrastructure projects. The three largest funding sources are below:

Funding from federal Airport Improvement Program (AIP) grants has remained relatively constant, at an annual average of $3.2 billion. Smaller airports (small hub, non-hub, and general aviation) collectively received more AIP funding compared to larger airports (large and medium hub).

Revenue from federally authorized passenger-facility charges (PFC), a per-passenger fee charged at the ticket's point of purchase, increased by 9 percent, with an annual average of $3.1 billion. Increases in passengers and PFC revenue at larger airports contributed to this increase.

Airport-generated revenue (e.g., concessions and airline landing fees) increased by 18 percent, with an annual average of $7.7 billion. While both larger and smaller airports experienced increases in these revenues, the larger airports made up 92 percent ($7.1 billion) of these revenues.

In addition to these sources, some airports obtained financing by issuing bonds, secured by airport revenue or PFCs. According to Federal Aviation Administration (FAA) data, larger airports were able to generate more bond proceeds than smaller airports in part because larger airports are more likely to have a greater, more certain revenue stream to repay debt.

Airports' planned infrastructure costs for fiscal years 2019 through 2023 are estimated to average $22 billion annually (in 2017 dollars)—a 19 percent increase over prior estimates for fiscal years 2017 through 2021. These costs are expected to increase in part because airports are planning to invest in more terminal projects. For example, cost estimates for AIP-eligible terminal projects increased about 51 percent when compared to FAA's prior 5-year estimate. FAA and airport association representatives stated that terminal projects can be more expensive than other projects because of the scale of the improvements, which can include renovating terminals to repair aging facilities and accommodate larger aircraft and growth in passengers.

Officials from GAO's 19 selected airports cited several challenges to funding infrastructure projects. For example, officials stated that the funding and revenue they receive from combined sources may not be sufficient to cover the costs of planned infrastructure projects. The officials also raised concerns about being able to finance future airport-infrastructure projects because they have already obligated their current and future PFCs to service debt on completed and ongoing infrastructure projects. According to FAA data, in fiscal years 2013 through 2017, airports paid a total of $12 billion—or 78 percent of total PFC revenues collected—for debt service. Bond-rating agencies, however, continue to give airports high or stable ratings, and rating agencies' representatives stated that airports' access to capital markets continues to remain favorable. Some airport officials stated that to address funding challenges, they have deferred some needed infrastructure investments or completed projects in phases, steps that increased construction times and costs.

U.S airports are important contributors to our economy and fulfill a variety  of vital roles, from supporting scheduled commercial air service for the  traveling public, to supporting freight transportation and disaster relief.  Since 1998, we have reported on airport funding and financing. Our 2003  and 2014 reports highlighted challenges to airport funding and financing  during a time when aviation activity was slowing or even declining at  many airports. However, in recent years the financial outlook of U.S  airports has improved, due in part to increased demand for air travel and  the improved economy following the 2007 through 2009 recession.  According to Federal Aviation Administration (FAA) data, the number of  people boarding planes—known as passenger “enplanements”—has  increased from 829 million passengers in 2016 to 900 million passengers  in 2018 (an increase of 8 percent) and is expected to continue to grow  over the next 20 years.

Maintaining and improving infrastructure at U.S. airports is critical to help  ensure safety and security and to meet increasing passenger demand.  Currently, airports in the National Plan of Integrated Airport Systems  (NPIAS) are eligible to receive federal Airport Improvement Program  (AIP) grants to help fund airport infrastructure projects. Commercial  service airports—if they choose and subject to federal approval—are also  authorized to collect a local passenger facility charge (PFC) from each  passenger. PFC revenues can be used for many of the same types of  projects as AIP grants, but can also be used for debt service to finance  infrastructure projects. There are varying perspectives on whether  airports have the funding needed to address planned infrastructure  needs. According to the Airports Council International—North America  (ACI-NA)—an airport industry association—U.S. airports lack the  necessary funding to modernize and expand outdated infrastructure.  However, according to Airlines for America—the U.S. airline trade  association—U.S. airports currently have adequate access to funding  sources for their infrastructure needs.

You asked us to examine airport-funding sources, planned infrastructure  projects, and funding mechanisms in other countries. This report  discusses  levels of federal and other funding that U.S. airports received from  fiscal years 2013 through 2017 for infrastructure investments, projected costs of planned infrastructure investments at U.S. airports  from fiscal years 2019 through 2023, and any challenges selected airports face in obtaining airport infrastructure  funding and financing.

We also examined how selected airports in other countries fund and  finance airport infrastructure investments. This information is presented in  appendix I.

To determine how much federal and other funding airports received from  fiscal years 2013 through 2017 for infrastructure investments, we  obtained and analyzed information on the main sources of airport funding,  which include funding from federal grants and state grants, revenue from  PFCs, airport-generated net income, capital contributions, and amounts  of financing airports received from bond proceeds and other debt  financing. All dollar amounts calculated from multiple years are presented  in adjusted 2017 dollars. For data on airport-generated net income and  capital contributions, we obtained and analyzed airport financial data from  FAA’s Certification Activity Tracking System (CATS) for fiscal years 2013  through 2017. For AIP grants, we analyzed information from FAA’s  System of Airports Reporting (SOAR) database on AIP grants awarded  by FAA from fiscal years 2013 through 2017. For PFCs, we obtained and  analyzed data from the SOAR database on PFC collection amounts at all  airports that collected PFCs from fiscal year 2013 through fiscal year  2017. We assessed the reliability of FAA’s CATS data on airport financial  information and FAA’s SOAR data on AIP grants and PFC collection  amounts by reviewing existing information about the data and the system  that produced them, and consulting with agency officials who are  knowledgeable about the data. We determined that the data were  sufficiently reliable for the purposes of this report. For information on state  grants, we used data from a survey that we conducted in 2014, with the  assistance of the National Association of State Aviation Officials  (NASAO); these data included all U.S. states and the territory of Guam.  Results from this survey were reported in our 2015 report and in  NASAO’s August 2015 report, NASAO State Aviation Funding and  Organizational Data Report. We also spoke with NASAO officials about  more recent trends in state funding.

To determine projected costs of planned infrastructure investments at  U.S. airports from fiscal years 2019 through 2023, we reviewed data from  FAA’s Report to Congress National Plan of Integrated Airport Systems  (NPIAS) 2019–2023. We also examined ACI-NA’s report on airports’  capital development needs for 2019–2023, which was released in  February 2019. In this report, planned infrastructure investments refers  to development needs that airports have identified for the 2019–2023  period and that are reflected in FAA’s and ACI-NA’s reports. Consistent  with how we present information about the sources of funding that  airports received, projected cost dollar amounts calculated from multiple  years are presented in adjusted 2017 dollars. To identify changes over  time in airport’s project costs of planned infrastructure investments, we  also reviewed FAA’s NPIAS report for fiscal years 2017–2021 and ACI- NA’s report on airports’ capital development needs for 2017–2021 and  compared the estimates in those reports to the fiscal years 2019–2023  estimates. ACI-NA’s estimates of U.S. airport infrastructure project costs  differ from the FAA’s due to scope, methodology, and other reasons. For  both the FAA’s and ACI-NA’s estimates, we assessed the methodologies  for estimating the costs of airport planned development by reviewing  FAA’s and ACI-NA’s documents and interviewing FAA officials and ACI- NA representatives. We found the FAA and ACI-NA estimates to be  sufficiently reliable for estimating planned capital development.

To identify any challenges airports face in obtaining infrastructure funding  and financing, we reviewed documents and interviewed officials from  FAA, 19 selected U.S. airports, and airport industry representatives to  obtain information about infrastructure funding sources, planned  infrastructure investments, and challenges to obtaining airport funding  and financing. We selected airports representing different hub sizes,  airports with the highest planned infrastructure costs, and airports with  increasing and decreasing enplanements in calendar years 2013 through  2017. We also interviewed an airline association and eight selected U.S.  airlines to obtain their views on airport infrastructure funding and financing  issues. We selected airlines with the highest passenger traffic, as  measured by revenue passenger miles; legacy and low cost carriers; and  domestic airlines that provide service outside the United States. The  information gathered from selected airport and airline interviews is not  generalizable to the airport and airline population.

We also examined how foreign airports fund and finance infrastructure  development. Foreign airports’ ownership, regulatory, and funding  structures are different from U.S. airports. As a result, benchmarking of  airline rates and charges, passenger fees, and other sources of  infrastructure funding is not possible due to these differences. To provide  illustrative examples of the range of approaches to funding infrastructure  at foreign airports, we obtained documents from and interviewed  international airport associations, international aviation industry  stakeholders, and representatives from four out of the five foreign airports  that we selected as case studies. These airports included: Toronto  Pearson International Airport (Canada), Frankfurt Airport (Germany),  Heathrow Airport (United Kingdom), Helsinki Airport (Finland), and  Changi Airport (Singapore). Representatives from Frankfurt Airport  provided written responses and documents for our review. We selected  foreign airports that had different airport ownership structures, that had  the highest international passenger traffic, and that U.S. carriers serviced.  The information gathered from these case studies is not generalizable to  all foreign airports. See appendix I for summary information about funding  and financing of airport infrastructure in our case studies of foreign  airports. More detailed information on our scope and methodology is  presented in appendix II.

We conducted this performance audit from September 2018 to February  2020 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

The United States has more than 19,000 airports, which vary substantially  in size and the type of aviation services they support. Of these, roughly  3,300 airports are designated by FAA as part of the national airport  system and are therefore eligible for federal assistance for airport capital  projects. The national airport system consists of two primary types of  airports—”commercial service” airports—which are publicly owned, have  scheduled service, and board at least 2,500 or more passengers per  year—and “general aviation” airports—which have no scheduled service  and board fewer than 2,500 passengers. Federal law divides  commercial service airports into various categories of airports, based on  the number of passenger boardings, ranging from large hub airports to  commercial service non-primary airports (see fig. 1).

Consistent with our prior work, we have grouped airports into two broader  categories: larger airports, which includes large and medium hubs, and  smaller airports, which includes small hubs, non-hubs (also referred to as  “non-hub primary”), and non-primary commercial service airports as well  as reliever airports, general aviation airports, and new airports. The  majority of passenger traffic is at larger airports, which accounted for 88  percent of all commercial airport enplanements in 2017. From 2013 to  2017, enplanements have increased at airports of all hub sizes.  Specifically, commercial airport enplanements at larger and smaller  airports increased by 16 percent and 15 percent, respectively, during this  time period.

National system airports are eligible to receive federal funding from AIP  grants for infrastructure development. AIP funds are first authorized in  FAA reauthorization acts, and Congress then appropriates funds for AIP  grants from the Airport and Airway Trust Fund, which is supported by a  variety of aviation-related taxes, such as taxes on tickets, cargo, general  aviation gasoline, and jet fuel. While AIP grants are an important source  for airports’ infrastructure funding, the amount of funding authorized for  the AIP grant program has not changed since 2012. In 2018, Congress  passed the FAA Reauthorization Act of 2018, which authorized annual  AIP grant levels at $3.35 billion annually through fiscal year 2023 and  authorized additional amounts for supplemental discretionary funding  each year from 2019 through 2023, starting at $1.02 billion and increasing  each year thereafter. In addition, the Consolidated Appropriations Act of  2018 appropriated $1 billion in supplemental annual funding from the  general fund for the AIP discretionary grant program. Subsequently, in  February 2019, the Consolidated Appropriations Act of 2019 provided  $500 million from the general fund to the AIP discretionary grant program.

The distribution of federal AIP grants is complex. It is based on a  combination of formula funds—also referred to as entitlement funds—that are available to national system airports, and discretionary funds that FAA  awards for selected eligible projects. Entitlement funds are apportioned  by formula to airports and may generally be used for any eligible airport  improvement or planning project. Discretionary funds are approved by  FAA based on FAA selection criteria and a priority system, which FAA  uses to rank projects based on the extent to which they reflect FAA’s  nationally identified priorities. AIP grants must be used for eligible and  justified projects, which are planned and prioritized by airports, included in  their capital improvement plans, and reviewed and approved by FAA staff  and the Secretary of Transportation. Generally, most types of airfield  improvements—such as runways, lighting, navigational aids, and land  acquisition—are eligible for AIP funding. AIP-eligible projects for airport  areas serving travelers and the general public—called “landside  development”—include entrance roadways, pedestrian walkways and  movers, and common space within terminal buildings, such as waiting  areas. See figures 2 and 3 for more information about the types of  projects eligible for AIP funding. For all AIP-funded projects, the airport  must provide a share of matching funds. The federal share is from 75 to  95 percent depending on the size of the airport or type of project.

Revenue from PFCs is another means of support for airport infrastructure  projects. PFCs are federally authorized fees which were established in  1990 to help pay for infrastructure at commercial service airports.  Although PFCs are local funds subject to the airport’s control, FAA  oversees the PFC program and approves applications by airports to  collect PFC revenues. PFCs are currently capped at $4.50 per flight  segment with a maximum of two PFCs charged on a one-way trip or four  PFCs on a round trip, for a maximum of $18 total. On behalf of the  airports, airlines collect the PFC at the time of the ticket purchase and  remit the PFC, minus an administrative fee, to the airport. To meet future  planned infrastructure costs, airports have sought an increase in the cap  on PFCs. However, airlines oppose a PFC increase because they believe  airports already receive sufficient PFC revenues and that higher ticket  prices could reduce passenger demand and airline revenues. We have  previously reported that increasing the PFC cap would significantly  increase PFC collections available to airports under three scenarios GAO  modeled but could also marginally slow passenger growth and growth in  revenues to the Airport and Airway Trust Fund (AATF).

Airports have more flexibility in using PFCs to fund infrastructure projects  as compared to AIP funding. Airport infrastructure projects eligible for  PFC funding must meet one or more of the following: preserve or enhance safety, security, or capacity;  reduce noise or mitigate noise impacts; or  increase air carrier competition.

Airports are able to fund projects with PFC revenues that might not be  eligible for AIP funding, such as passenger terminal projects and  development at gates, airline ticketing areas, and passenger check-in  facilities at hub airports. In addition to being applied to FAA approved  eligible projects, PFCs can be used as a match for AIP grants or to  finance the debt on approved projects.

Airports’ Costs for Planned Infrastructure Projects

FAA and ACI-NA each produce reports summarizing 5-year estimates of  U.S. airports’ infrastructure project costs. More specifically, FAA is  required to publish a 5-year estimate of AIP-eligible development every 2  years. FAA provides this information in its NPIAS report. FAA relies on  airports, through their planning processes, to identify individual AIP- eligible projects for funding consideration and inclusion in the NPIAS. The  ACI-NA also collects data on all proposed capital development projects at  U.S. airports and every 2 years publishes a report of U.S. airports’ 5-year  infrastructure cost estimates.

Airports Received an Average of about $15 Billion Annually for Infrastructure Development from a Variety of Sources, Including Grants and Revenue

From fiscal years 2013 through 2017, national system airports received  an annual average of about $15 billion in funding from a variety of  sources for infrastructure development projects, including:  federal AIP grants (about $3.2 billion annually); airport revenue from passenger charges (about $3.1 billion annually),  and airport-generated revenue (about $7.7 billion annually); and  capital contributions (about $715 million annually).

These figures, however, do not represent the full amount of funding that is  available to airports for infrastructure development. For example, some  airports also received funding from state grants and bond proceeds  through debt financing to fund airport infrastructure investments. In  addition, the proportion of funding that larger and smaller airports  received from these sources varies.

Federal AIP and State Grant Funding Has Remained Relatively Constant

From fiscal years 2013 through 2017, the total amount of AIP grants that  national system airports received has generally remained constant. As  shown in figure 4 below, the amount of AIP grant funding that airports  received ranged from $3.1 billion to $3.3 billion annually for fiscal years  2013 through 2017. Overall, airports received an average of $3.2 billion  annually in AIP grants. The total amount of AIP grant funding that FAA  allocates to airports may vary slightly year to year for many reasons. For  example, according to FAA, each year a small amount of AIP funding is  returned from prior-year grants and the FAA is permitted to re-obligate  those funds on either existing or new grants.

Collectively, smaller airports received more AIP grant funding compared  to larger airports during this time period. As shown in figure 4, from fiscal  years 2013 through 2017, smaller airports received the largest share of  AIP grant funding, approximately 75 percent, (an annual average of $2.4  billion), compared to 25 percent received by larger airports (an annual  average of $812 million). Larger airports are generally able to rely on  other sources of revenue generated from airport-generated revenue and  PFCs due to higher enplanements compared to smaller airports. In  addition, the amount of AIP grants’ funding that smaller hub airports  received increased by about 10 percent between fiscal years 2013  through 2017, while the amount of AIP’s funding for larger airports  decreased by 3 percent in the same time period. However, smaller  airports receive less funding per AIP grant compared to larger airports.  For example, smaller airports received an average of $897,000 per grant,  while larger airports received an average of $5 million per AIP grant.

Some airports also received state funding, primarily in the form of grants  used as matching funds for federal AIP grants. Data for fiscal years 2013  through 2017 on states’ grant funding are not available. However, in  2015, we conducted a survey of airports, in collaboration with NASAO, for  fiscal years 2009 through 2013, and reported that states provide an  annual average of $477 million to national system airports. According to  NASAO officials we interviewed for our current work, states’ grant-funding  levels have remained unchanged.

Airport Revenue—the Largest Source of Funding for Larger Airports—Has Gradually Increased

From fiscal years 2013 through 2017, airports collected revenue from a  variety of sources, including PFC charges and airport-generated revenue  (both aeronautical and non-aeronautical), which have both increased  during our 5-year time period. Some airports also received funding from  capital contributions, but that amount has decreased from fiscal year  2013 through 2017. Airport revenue is the largest source of funding for  larger airports. Specifically, larger airports generated an annual average  of $10.4 billion in airport revenue (or 90 percent of all airport revenue)  during our 5-year time period. Smaller airports generated less airport  revenue, with an annual average of $1.2 billion (or 10 percent of all airport  revenue), compared to larger airports. Larger airports’ ability to generate  more airport revenue reflects that PFCs and airport-generated revenue  could be driven by the higher levels of passenger enplanements and  airline activity associated with current economic conditions. According to  FAA officials, while total airport revenue has increased over this time  frame, it does not necessarily mean that airports have more revenue  available for new capital expenditures. For example, airport revenue is  also used to pay for existing debt service and operating costs, which  according to FAA officials, has also increased during this time period.

Overall, from fiscal years 2013 through 2017, U.S. airports collected an  annual average of $3.1 billion in PFC revenue. As shown in figure 5,  during this period, the annual average for PFC collections for all airports  increased by 9 percent from $3 billion to $3.3 billion. Because PFCs are  generated by the number of enplaned passengers, this increase was  mostly driven by a 16 percent increase in passenger enplanements  during this period for both smaller and larger airports.

As shown in figure 5, larger airports collected most (89 percent) of the  PFC revenues in fiscal years 2013 through 2017. In addition, although  both larger airports and smaller airports experienced an increase in  passenger enplanements in fiscal years 2013 through 2017, larger  airports experienced a 10 percent increase in PFC revenue while smaller  airports experienced an overall decrease in PFC revenue during this  period of about 3 percent. According to FAA officials, smaller airports may  have experienced an overall decrease in PFC revenues because airports’  PFC collections may cease when they have fully collected the approved  amount for a project. According to FAA, this cessation is particularly true  for smaller airports that do not have multiple projects for which PFC  collections have been approved for a long period of time. In addition, if an  airport has approved collections but one or more airlines make significant  reductions in activity levels, this factor can also slow the rate of  collections at airports. Larger airports hold a larger market share of flights,  representing 88 percent of enplanements. Ratings agency  representatives said that larger airports rely more on PFCs and bonding  to fund infrastructure projects.

From fiscal years 2013 through 2017, U.S. airports generated an annual  average of $7.7 billion in airport-generated revenue. During this period,  airport-generated revenue increased 18 percent, from $7.1 billion to $8.4  billion for all airports. Overall, both larger and smaller airports generated  more income over this time period, with larger airports generating  substantially more revenue compared to smaller airports. Specifically,  from fiscal years 2013 through 2017, larger airports generated an annual  average of $7.1 billion in revenue, and smaller airports generated an  annual average of $567 million in revenue.

Airport-generated revenue consists of both “airside” aeronautical  revenues derived from the operation and landing of aircraft, passengers,  or freight, as well as “landside” non-aeronautical revenues derived from  terminal concessions and parking fees. Of the $103 billion in airport- generated revenue over our 5-year time period, 54 percent came from  aeronautical revenues and 46 percent came from non-aeronautical  revenues (see fig. 6). Commercial service airline rates and charges— which include passenger airline’s landing fees and passenger arrival fees,  rents, and utilities—made up 75 percent of the total $55.9 billion in  aeronautical revenue. The remainder came from a variety of other fees  and taxes paid by airlines, general aviation, the military, and other  aeronautical sources. Of the non-aeronautical revenues, parking and  ground transportation accounted for the greatest portion (41 percent),  followed by rental cars operations revenue (19 percent). Aeronautical  revenues increased by 11 percent and non-aeronautical revenues  increased by 16 percent over the time period.

Capital contributions for airport infrastructure projects make up a small  amount of funding in comparison to other sources, such as airport- generated revenue and AIP funding. These contributions—made on an  individual project basis—may be provided by an airport’s sponsor (often a  state or municipality) or by other sources such as an airline. According to  FAA data on commercial airports’ annual financial reports for fiscal years  2013 through 2017, commercial airports received an annual average of  $715 million in capital contributions. Of this amount, $471 million, or 66  percent, went to larger airports, and $244 million, or 34 percent, went to  smaller airports. The amount of capital contributions varies by year and  by hub size. According to FAA officials, the sources of capital  contributions funding (i.e., airport sponsor, state, air carriers, or other  airport users) vary depending on the type of project and funds available.

Some Airports Also Received Bond Proceeds through Debt Financing for Airport Infrastructure Investments

Airports can also obtain financing for airport infrastructure projects by  issuing bonds. Airport bonds entail leveraging future funding to pay for  projects. This financing mechanism enables airport authorities to borrow  money up front to finance infrastructure projects; this money can then be  paid back with interest over a longer time period. U.S. airports may qualify  for tax-exempt bonds to support airport projects for federal tax purposes  because the airports are owned by states, counties, cities, or public  authorities. The tax-exempt status enables airports to issue bonds at  lower interest rates than taxable bonds, thus reducing a project’s  financing costs. FAA officials said that because airports use some PFCs  and airport-generated revenue to pay off debt service, not all revenue  generated from these two sources is available for additional infrastructure  investment.

FAA collects data in its financial reporting database of an airport’s total  indebtedness. Based on our analysis of this data, from fiscal years 2013  through 2017, airports had averaged $84.6 billion in total bond debt per  year. The total indebtedness measure provides an overall aggregate of  the level of long-term bond debt held by airports for the year. FAA’s data  do not differentiate indebtedness for each type of bond, nor do its data  differentiate between existing, new, or refinanced bonds. As a result, we  were not able to analyze how much airports obtained on average for new  projects by issuing bonds from fiscal years 2013 through 2017. In  addition, we were not able to determine whether U.S. airports borrowed  increasing amounts of new bond proceeds from fiscal years 2013 through  2017 to meet infrastructure needs. Moreover, FAA does not collect data  on the time frame that airports anticipate to pay back bonds, as FAA  officials said that airports have the latitude to determine their own debt- payment schedules.

During fiscal years 2013 through 2017, larger airports received the vast  majority of bond proceeds, representing 95 percent of the total (see fig.  7). This amount includes debt from all long-term bonds. We previously  reported that bond financing has traditionally been an option more  commonly exercised by larger rather than smaller airports because they  are more likely to have a greater and more certain revenue stream to  support debt repayment. We have also reported that when smaller airports issue bonds, they make greater use of general obligation bonds  that are backed by tax revenues of the airport sponsor, which is often a  state or municipal government. FAA officials added that larger airports  tend to issue airport revenue bonds, which are backed solely by airport  revenue, while some smaller airports may be able to benefit from bond  proceeds issued by the broader county or municipal government and  backed by that entity's taxing authority.

Projected Planned Airport-Infrastructure Costs Have Increased to an Average of $22 Billion Annually and Include More Investments in Terminal Projects

We Estimated Average Annual Costs of $22 Billion for Planned Airport- Infrastructure Investments for Fiscal Years 2019 through 2023

Based on our analysis, airports’ planned infrastructure costs are projected  to average $22 billion annually for fiscal years 2019 through 2023. To  arrive at this estimate, we combined FAA’s $7 billion estimate of AIP- eligible planned infrastructure costs and ACI-NA’s $15 billion estimate of  planned infrastructure costs for projects that are not eligible for AIP  grants. Our $22 billion estimate would represent an increase of 19  percent from FAA’s and ACI-NA’s fiscal years 2017 through 2021  infrastructure cost estimates. This increase is largely driven by an  increase in ACI-NA’s estimate of AIP-ineligible planned projects.  Specifically, ACI-NA’s annual average of about $15 billion in planned AIP- ineligible costs reflects an increase of $3.3 billion or 28 percent when  compared to the annual average estimate of AIP-ineligible projects from  ACI-NA’s fiscal year 2017–2021 estimates. Similarly, FAA’s annual  average of $7 billion in planned AIP-eligible costs reflects an increase of  $289 million or 4 percent from FAA’s fiscal year 2017–2021 estimates.

A variety of factors may be contributing to the increase in FAA’s and ACI- NA’s cost estimates, factors that we will discuss later in the report.

Overall, larger airports (large and medium hub) accounted for 75 percent  of the $22 billion annual cost estimate and make up a greater percentage  of the estimated increase in planned development costs when comparing  the fiscal years 2017 through 2021 and fiscal years 2019 through 2023  estimates. For example:

Among planned AIP-eligible projects, estimated annual planned- development costs increased from $1.4 to $1.7 billion (an 18 percent  increase) for large hub airports and from $641 to $735 million (a 15  percent increase) for medium hub airports, according to FAA’s cost  estimates. By comparison, estimated planned development costs for  small hub and non-hub airports decreased by 3 and 2 percent  respectively over the same time period.

Among AIP-ineligible projects, ACI-NA estimates show that annual  planned development costs increased more significantly for medium  hub airports. Specifically, ACI-NA’s report shows that annual planned  development costs for AIP-ineligible projects increased by 22 percent  for large hub airports, 71 percent for medium hub airports, and 29  percent for small hub airports.

ACI-NA representatives stated that the increase in medium hub airport’s  planned development (for both AIP-eligible and AIP–ineligible projects) is  due to the underinvestment at medium hub airports in prior years.  Specifically, ACI-NA representatives stated that in response to the loss of  air service immediately following the 2007–2009 recession, some medium  hub airports scaled back their capital investments. ACI-NA  representatives stated that as passenger traffic has recovered with  economic growth, medium hub airports are now investing in previously  deferred improvements. According to ACI-NA’s report on airports’ capital  development needs for 2019–2023, medium hub airports–such as Austin- Bergstrom International Airport (Austin airport), Norman Y. Mineta San  Jose International Airport, and Dallas Love Field Airport–are undertaking  major infrastructure improvement programs. According to officials from  Austin airport, the airport recently completed a 10-year plan for its capital  development program, with an estimated cost of $3.5 billion, for a new  terminal, concourse, airfield improvements, runway improvements, and  improved landside access. Austin airport officials stated that the airport is  20 years old and nearing the end of its lifecycle, and airport officials are  trying to manage aggressive growth while rebuilding the airport.

The sources of funding and types of infrastructure projects that smaller  and larger airports have planned also differ. For example, smaller airports  have more AIP-eligible planned costs compared to larger airports,  according to FAA cost estimates. Specifically, smaller airports accounted  for about $4.6 billion (or 66 percent) of AIP-eligible project costs for all  airports but, according to ACI-NA cost estimates, only $878 million (6  percent) of AIP-ineligible projects. In addition, among AIP-eligible  projects, while the top four types of infrastructure projects that larger and  smaller airports have planned are similar (see table 1), estimated costs  are more concentrated among the top two project-type categories for  smaller airports. Specifically, reconstruction projects, which are projects  to replace or rehabilitate airport facilities such as runways, and projects to  meet FAA standards for airport design represented about 79 percent of  smaller airports’ AIP-eligible estimated project costs.

ACI-NA’s data do not break out AIP-ineligible project costs by project  type. As a result, we were not able to determine what types of projects  constitute the largest shares for AIP-ineligible project costs. However,  ACI-NA does provide information about project type across all the  projects in its cost estimate. According to ACI-NA’s representatives, the  types of projects that are generally not funded with AIP grants that  airports need to fund include landside projects, such as terminal projects;  rental car and parking facility projects; concession redesign projects; and  airport access projects.

Total Planned Infrastructure-Project Costs Have Increased in Part due to Terminal Projects

The increase in planned infrastructure costs for fiscal years 2019 through  2023 can be attributed in part to an increase in planned terminal projects  during this 5-year time period. Specifically, both FAA’s and ACI-NA’s cost  estimates show an increase in planned terminal projects. For example,  according to FAA’s estimates of planned projects funded by AIP grants,  terminal projects now represent the third largest share of total estimated  costs from fiscal years 2019 through 2023 and experienced the greatest  percentage increase over the previous 5-year period. As shown in table 2,  overall annual average cost estimates for terminal projects increased by  51 percent between the two periods. Environmental projects was the only  other project category that had significant increases (about 38 percent),  while estimated costs for many other types of projects decreased.  According to FAA officials, the increase in environmental projects is due  to increases in environmental-related NPIAS costs (such as mitigation of  development impacts and costs for environmental studies) at large and  medium hub airports and additional noise mitigation at hub airports.

Similarly, according to ACI-NA’s analysis, for fiscal years 2019 through  2023, terminal projects represented 53 percent of the total infrastructure- development costs among both AIP-eligible and AIP-ineligible projects.  Terminal projects included terminal building projects (37 percent) and  projects to provide access to the terminal (16 percent). FAA and ACI-NA  representatives stated that terminal projects can be more expensive than  other types of projects because of the scale of these improvements. For  example, terminal projects may involve complex vertical construction, an  array of special systems such as baggage and passenger screening  systems, and integration of security and access control systems, all of  which can contribute to the overall higher cost of these projects. In  contrast, runway and airfield infrastructure generally rely on common  design standards and standard construction methods according to ACI- NA representatives.

Additionally, officials from most (16 out of 19) of the airports that we  spoke to stated that they are planning terminal improvement projects over  the next 5 years. Officials from these airports told us they are focused on  making terminal improvements because existing terminals are aging and  in need of repairs and to accommodate an increase in passenger  enplanements due in part to airlines using larger aircraft holding more  passengers. Examples of planned terminal projects at selected airports  and factors contributing to these investments are below.

Large hub airport terminal project. Officials from a large hub airport  that we spoke to stated that they have two ongoing major terminal  projects. The first project will expand and renovate the airport’s north  terminal. The 468,000-square-feet facility will include a new upper- level mezzanine, seismic upgrades, and an upgraded baggage- handling system, among other improvements. According to airport  officials, capacity constraints and the age of the terminal were factors  for renovating the terminal. Phase 1 of the project began in February  2017 and was completed in mid-2019. As of July 2019, nine gates are  operational. The second phase of construction is expected to be  completed in mid- 2021. The estimated cost of the project is projected  at $658 million. The airport is also developing a new international  arrivals facility at its airport. According to airport officials, this facility is  intended to significantly enhance the international passenger  experience, and improve the arrival process for international  passengers without adding new gates. Airport officials stated that the  current facility is not able accommodate the city’s growing demand for  international travel. The facility is estimated to cost about $968 million  and is expected to open in the fall of 2020.

Medium hub airport terminal project. According to officials from a  medium hub airport, growth in passenger traffic is driving the need for  a new terminal at that airport. International traffic at the airport has  tripled between 2012 and 2017, with airlines adding three new service  destinations to Europe. According to airport officials, the existing  terminal will soon reach its capacity to handle international arrivals,  and the first phase of the terminal project was substantially completed  in 2019 and cost about $350 million.

Small hub airport terminal project. Officials from a small hub airport  stated that airlines have started replacing existing aircraft with larger  aircraft, and this process has placed capacity constraints at their  terminal. The terminal was built in 1948, and the passenger waiting  area was built in the 1960s when airlines providing service to the  airport were using aircraft with 100 seats. Now, however, airlines are  using larger aircraft, which can accommodate up to 180 seats. Airport  officials stated that they are beginning construction of a new terminal,  which will expand passenger capacity at the airport. The overall  estimated costs of the terminal project are $513 million, and the  project is expected to be completed in 2028, pending additional  funding.

FAA officials and ACI-NA representatives agreed that the increased focus  on terminal projects is due in part to airlines changing their business  models and aircraft fleets and an increase in passenger traffic. The  officials stated that as part of the industry’s fleet rationalization efforts,  airlines are eliminating some smaller aircraft and replacing them with  larger aircraft to increase passenger-seating capacity. FAA officials added  that passenger growth at large and medium hub airports is also  contributing to the increase of AIP-eligible terminal costs, as airports need  to expand terminals to add capacity. According to FAA, terminal projects  at large and medium hubs are generally funded through PFCs and other  funding sources rather than through AIP funding. For its 2019–2023  NPIAS report, however, FAA officials said they asked airports to provide  information about AIP-eligible projects regardless of whether they were  planning to apply for AIP funding for the projects. According to FAA  officials, this factor may also have contributed to the apparent increase in  AIP-eligible terminal costs. According to FAA, another factor driving the  increase in terminal costs is that seven airports have planned major  terminal projects over the next 5 years. The costs of these projects are  reflected in FAA’s AIP-eligible cost estimate.

In addition to an increased focus on terminal projects, FAA officials, ACI- NA representatives, and selected airports cited other factors that are  contributing to an increase in infrastructure costs estimates, such as  increased construction costs, an overall healthier economy, increased  traffic, airline consolidation, and airlines’ strategic shift to focus on hub  operations. For example, according to Nashville International Airport’s  officials, a growing economy has resulted in more competition for  construction materials and skilled workers, competition that has increased  construction costs in the Nashville area and has resulted in higher airport  development costs. According to ACI-NA representatives, other larger  cities such as Salt Lake City, Los Angeles, and Seattle have also reported  cost escalation in their construction markets.

Selected Airports Cited Challenges Related to Funding Sources, AIP Eligibility Criteria, and Competing Airport and Airline Priorities

Selected Airports Stated That Insufficient Funding Is a Challenge and That They Are Taking Steps to Address These Challenges

Selected Airports Stated That Planned Infrastructure Costs Exceed Current Funding

Officials from most (18 out of 19) selected airports we interviewed stated  that the funding and revenue available to them from existing funding  sources—such as AIP grants and PFC revenues—may not be sufficient  to cover the costs of future and planned infrastructure projects. For  example, 14 airport officials we spoke to stated that the amount of funding  that they have received in the past and that they anticipate receiving in  the future from AIP formula or discretionary grants will not be sufficient to  cover the costs of their future planned AIP-eligible projects. Airports may  use a variety of other funding sources to pay for AIP-eligible projects. As  such, differences between available AIP funding and AIP-eligible cost  estimates do not necessarily reflect a funding shortfall. In addition, the  NPIAS estimates represent planned AIP-eligible project costs and do not  reflect actual expenditures.

Below are some examples of AIP-eligible projects that airport officials  stated will be a challenge to complete without additional funding:

Airfield safety projects. Officials from a small hub airport stated that  they have two major airfield-safety projects planned that are intended  to align their airport’s current runway and taxiway to FAA safety  standards. According to airport officials, their airport has been on the  FAA’s top-10 list of airports with highest “incursions” for 4 consecutive  years, and officials stated these airfield improvements would help  them mitigate runway incursions at their airport. According to airport  officials, these projects are expected to cost about $230 million, which  they stated is a significant cost for an airport of their size. Their  primary source of funding is AIP funding and PFC revenues; however,  their current AIP formula funding and PFC revenues are not sufficient  to cover the cost of the projects. Without additional funding, officials  said that they will need to complete the project in phases, which could  lead to a multi-year project ranging from 4 to 12 years to complete.  Airport officials stated that a multi-year project of this length would  significantly affect their airport operations and increase overall costs.  They also stated that ideally, it would be most efficient to execute the  project in fewer phases to reduce costs and to benefit airport users,  as construction may negatively affect airport operations.

Runway rehabilitation project. Similarly, officials from another small  hub airport said their airport receives about $5 million annually in AIP  formula funding, which they said is not sufficient to cover the costs of  their planned runway pavement rehabilitation and reconstruction  project. The total cost of the project is about $20 million. According to  airport officials, if they are unable to find alternate sources of funding  for the project, they will have to postpone the runway project, and  such a postponement would have a significant effect on their airport  operations.

Runway replacement project. Officials from a medium hub airport  are planning to invest in a new runway project that is expected to cost  about $350 million. The existing runway is nearing the end of its  useful life and needs to be replaced. They anticipate receiving  approximately $4.5 million annually in AIP formula funding and plan to  apply for discretionary AIP funding as well. They stated that currently,  this airport’s PFC revenues have been obligated until 2032 and that  therefore, they are not able to use this funding source to pay for the  runway. According to airport officials, without these funding sources  the airport will be required to use their existing bonding capacity to  pay for this critical infrastructure, a move that would reduce their  future bonding capacity for future critical infrastructure improvements.

Fourteen airport officials also stated that revenue generated from PFCs is  also not sufficient to cover the costs of planned infrastructure. For  example, officials from one large hub airport stated that they have been  successful in being able to keep up with the pace of growth at their  airport, but based on their forecasts, they anticipate that they would be  unable to meet infrastructure demands without an increase in PFC  funding. Officials from six airports stated that because the PFC cap has  remained at $4.50 since 2000 and has not been adjusted for inflation, the  value of the PFC has decreased. In 2015, we reported that an inflation  adjusted PFC cap would be $6.46. Representatives from eight airlines  that we spoke to, however, disagree that the PFC cap should be  increased citing increases in passenger traffic, increases in PFC  revenues, and availability of other adequate sources of funding.  According to FAA officials, increases in passenger traffic and other  changes have also increased the need for capital facility investments.

About Half of the Selected Airports We Spoke to Identified Challenges with Taking on Additional Debt for Infrastructure Investments

Officials from about half of the airports (nine out of 19) that we spoke to— including a mix of smaller and larger airports—stated that that the  revenue their airport generates from PFCs are already obligated toward  current infrastructure projects, which they stated could affect their ability  to use debt financing for future infrastructure projects. An additional three  airports we spoke to stated that they plan to use PFC revenues to finance  planned infrastructure projects and that they anticipate that these  revenues will be obligated over a long term period—about 30 years— limiting their ability to use debt financing for other projects.

FAA’s financial data show that airports committed a significant share of  their PFCs to debt service during fiscal years 2013 through 2017.  Specifically, of the $16 billion in PFC revenues (or an annual average of  $3.1 billion) collected in fiscal years 2013 through 2017, airports paid a  total of $12 billion for debt service (or an annual average of $2.5 billion)— which is about 78 percent of total PFC revenues generated during this  time period. The debt service includes payments on new bonds, existing  bonds, and refinanced bonds which, as previously noted, are collectively  tracked in FAA’s database. As shown in figure 8, over our 5-year time  period, larger airports accounted for the vast majority (over 90 percent) of  the PFCs dedicated to debt service.

According to ACI-NA’s report on airports’ capital development needs for  2019–2023 and some selected airport officials, because airports have  already committed a significant portion of their current and future PFCs to  servicing debt on current or completed projects, airports will have less  PFC funding available for future projects. According to ACI-NA’s report on  airports’ capital development needs for 2019–2023, the entire national  airport system is carrying a combined debt of $91.6 billion from past  projects and may be unable to pay for future needed projects unless the  existing cap on PFCs is increased. Officials from three small hub airports  stated that they are currently facing challenges obtaining financing for  infrastructure projects, because they are already fully leveraged and have  pledged their PFCs over the mid- to long-term. For example, officials from  a small hub airport said that they obtained $120 million in financing, which  will be carried until 2040, to build a parking garage and concourse. They  said that because the airport is at capacity for debt issuance, they cannot  take on any new debt for additional infrastructure projects. FAA data  show that as of August 2019, 117 airports (about 30 percent) have  obligated their PFCs past 2030 and that 30 airports (about 8 percent)  have obligated their PFCs past 2040. One airport has obligated its PFCs  through 2070.

While some airports we spoke to raised concerns about being able to use  debt financing for future airport-infrastructure projects, representatives  from two rating agencies that we spoke to stated that for the airports they  rate, the bond market is currently favorable, allowing for easier and  economical access to financing. Rating representatives stated that  currently, the outlook for domestic airports is either stable or positive due  to the fact that airport passenger traffic growth has exceeded the gross  domestic product’s growth, and airport ratings have remained consistent.  For example, according to one rating agency, since 2012, its airport  ratings have remained consistent and the annual airport outlook in those  years has been “stable” or “stable to positive.” FAA officials added that  while the perspective of rating agencies, bond insurers, and underwriters  are important, a favorable credit rating does not mean that an airport  should make the decision to take on additional debt. Moreover, according  to FAA officials, for airports that need airline approval to issue debt, a  favorable credit rating may not be sufficient to persuade the airlines of the  need for the additional investment.

Selected Airports Are Taking Steps to Address Funding Challenges

Officials from 13 airports we spoke to stated that they are taking several  actions to address funding challenges. These airport officials stated that  they have deferred or delayed infrastructure investments, completed  projects in phases in order to be able to fund projects in stages, or are  looking for other ways to generate airport revenues from passenger  services or leases. For example, officials from one airport we spoke to  stated that their airport has developed a strategy of breaking up  infrastructure projects into phases so as to utilize available FAA funding.  According to these airport officials, this strategy lengthens the  construction time and results in higher construction costs, but helps the  airport to align its project needs with available FAA funding. Another  airport official we spoke with said that the airport is introducing a dynamic- pricing parking program to generate additional parking revenue and that  the program is expected to bring in an additional 5 to 15 percent in  parking revenue.

Several Airports Said Eligibility Criteria for AIP Grants Do Not Always Align with an Airport’s Priorities

Officials from about half (11 out of 19) of our selected airports stated that  AIP’s eligibility funding criteria are too narrow and do not allow airports to  fund the infrastructure projects that they currently need, such as terminal  projects. FAA’s AIP handbook provides guidance on the criteria to  determine which components of a project are eligible for AIP funding.  AIP-eligible projects, outlined in statute, include airport planning, airport  development, noise compatibility planning, and noise compatibility  projects. Certain airport projects, such as revenue-producing parking  facilities, hangars, revenue portions of terminals, off-airport roads, and  off-airport transit facilities are not eligible for AIP funding. Some terminal  projects, however, are eligible for AIP funding, such as a terminal  structure shell’s development and development of public use areas  directly related to the movement of passengers and baggage in terminal  facilities within an airport. This eligibility includes public use spaces that  passengers may need to occupy as part of their air travel or utility support  space needed to make the public space operational, including the  mechanical and electrical rooms.

Four airport officials we spoke to stated that they have infrastructure  projects planned that are eligible for AIP discretionary funding, but that  due to FAA’s criteria for AIP discretionary funding and FAA’s process for  prioritizing projects, it is difficult for airports to receive discretionary  funding for these projects. According to FAA officials, the eligibility criteria  for AIP projects funded through entitlement and discretionary funding are  the same. Discretionary funding, however, has some additional  restrictions. For example, large, medium, and small hub airports are not  eligible to use discretionary funding for terminal building projects. General  aviation airports, however, may use discretionary funding for some airport  terminal projects. In addition, unlike with entitlement funding, discretionary  funding is not reimbursable and airports cannot apply for discretionary  funding for projects that have already begun construction.

In addition, unlike entitlement funding, not all airports receive  discretionary funding. Airports must compete for the limited amount of  discretionary funding available each year based on FAA’s AIP  prioritization. According to FAA officials, while discretionary funding  criteria do not change year to year, FAA may fund projects with  discretionary funding one year, but a similar project may not receive  discretionary funding a different year due to the project mix that year. FAA  officials also stated that in September 2019, FAA updated its Formulation  of the NPIAS and Airports Capital Improvement Plan order, which lays out  the criteria and prioritization process for selecting projects for  discretionary funding. According to FAA officials, projects with the  highest priority include safety- and runway-related projects, such as  runway signage or resolving complex geometry causing runway  incursions. FAA officials stated that other projects have lower priority and  ranking in the AIP discretionary-funding prioritization process. Below are  examples from airport officials that stated they have certain projects  planned that are eligible for AIP discretionary funding but that they believe  will likely not rank high in FAA’s prioritization:

Non-airfield projects. According to officials from a large hub airport  we interviewed, the airport has made several investments in their  airfield in the last few years and does not have any major airfield  projects planned. These officials stated that they do have several non- airfield projects planned that are AIP-eligible, such as renovating gate  holding areas in the terminal. However, airport officials stated that  non-airfield projects do not compete well for AIP discretionary funding  based on FAA’s prioritization process. As a result, they do not  anticipate that they will receive AIP funding for these projects.

Airfield projects. Similarly, airport officials from one medium hub  airport explained that some of the airfield projects that they have  planned, are eligible for AIP discretionary funding, but are not  considered “high priority” projects according to FAA prioritization  criteria. For example, they currently have a taxiway and apron  upgrade project planned, but this project may not compete well  against other projects when considering FAA’s AIP prioritization  process. According to this airport official, runways are the highest  priority and almost always get AIP funding. The official added,  however, that the farther away you get from the runway, the less likely  it is that you will be able to get AIP funding for the project.

In addition, five airport officials noted that while overall AIP grant-funding  levels have remained relatively constant in recent years, demand for  discretionary AIP grant funding has increased, thereby increasing  competition for this funding. According to FAA officials, the amount of  funding that FAA has available for discretionary grants changes year-to- year. For example, the amount of discretionary funding allocated to  airports annually can vary based on an airport’s decisions to carry  entitlement funding over multiple years, as entitlement funding that is  carried over becomes discretionary. According to FAA officials, because a  very high percentage of discretionary funding comes from funding that  has been carried over, it is difficult for airports to plan for or count on this  funding being available in any given year. Between fiscal years 2013  through 2017, the amount of discretionary funding that was awarded  averaged $1.6 billion annually. Of this amount, the amount representing  “pure” discretionary funding averaged $56 million annually or about 4  percent of total AIP discretionary funding. Pure discretionary funding  refers to the amount remaining after discretionary set-asides have been  funded. FAA distributes pure discretionary funding to eligible projects at  any airport on a competitive basis.

As previously discussed, an additional $1 billion in supplemental  discretionary AIP funding was appropriated in 2018, and an additional  $500 million was appropriated in discretionary AIP funding in 2019.  However, according to FAA officials, the number of applications they  received for this funding exceeded the amount of funding that was  available. Specifically, according to officials, FAA received more than  2,500 funding requests totaling more than $10 billion in 2018 for the $1  billion authorized as supplemental discretionary AIP grant funding. As of  May 2019, FAA has awarded or anticipates awarding $985 million in  supplemental discretionary AIP grant funding to 164 airports in 50 states,  the District of Columbia, and Puerto Rico. The supplemental grants fund  projects ranging from runway reconstruction and rehabilitation, to the  construction of taxiways, aprons, and terminals.

Competing Airport and Airline Priorities May Affect Airport Infrastructure Investments

About half (12 out of 19) of the airport officials we spoke to stated that  competing airport and airline priorities for capital infrastructure  investments can pose challenges to funding infrastructure projects and  can delay projects. For example, some of these officials stated that if an  airline does not agree that there is a business case or that an  infrastructure project is justified, then that lack of agreement can affect  the airport’s ability to fund the project or delay the project altogether. The  extent to which airlines are involved in the decision-making of airport  infrastructure investments varies by airport and depends on the type of  “use-and-lease” agreement between the airport and the airline. These  agreements set forth the terms and conditions for establishing airline  rates and charges and investing in capital improvements. Some  agreements have a “majority-in-interest” (MII) provision, which requires  airports to obtain airlines’ approval for certain infrastructure investments.  One large hub airport stated that they have an MII agreement, requiring  airlines’ approval of certain projects and project financing strategies. They  further explained that debt financing would affect their airline rates and  charges and would therefore require the airport to obtain approval from  airlines before using general airport-revenue bonds on a project. While  airport officials would like to add more gates to the airport and finance  that project with general airport revenue bonds, these officials stated that  some airlines may not support unassigned gate additions because it  could increase competition. According to FAA officials we spoke with,  some airports have been able to move toward shorter-term agreements  with greater flexibility to adapt to changing needs; however, many  agreements still include some form of MII provisions.

According to officials from four smaller airports, airlines are less likely to  support infrastructure-related increases in airline rates and charges at  smaller airports than at larger airports. For example, a non-hub airport  stated that smaller airports have a more difficult time negotiating higher  rates and charges with airlines because of competition from other nearby  airports. ACI-NA representatives also stated that medium hub airports  that are not connecting hubs for the three large U.S. network airlines have  less of an opportunity to receive capital investments from network airlines  compared to larger airports.

Representatives from all eight airlines that we spoke to stated that the  types of airport infrastructure projects that they see a need for are  demand-driven infrastructure development projects that expand airfield  capacity, increase the number of gates at an airport, or address safety. Of  these airlines, six also stated that they see a need for infrastructure  development at larger airports in particular. For example, representatives  from one airline stated that they want to collaborate with airports on  capital development projects that are scalable and where passenger  enplanements are increasing. In addition, representatives from five  airlines that we spoke to said that they would like to have more input on  airport infrastructure investment decisions. In addition, representatives  from five airlines raised concerns that airlines do not have a role in  decisions on how airports can invest PFC revenues. According to our  prior work, PFCs provide airports a source of funding for airport  development over which they have greater local control and airlines have  more limited say in their use as compared to the use of airport terminal  rents or landing fees.

In addition, representatives from two airlines we spoke to said that FAA  exercises limited oversight of infrastructure projects funded by PFCs, and  that this limited oversight results in airports’ using PFC funding for  projects that airlines do not see a need for. The representatives stated  that FAA largely approves most PFC applications for projects and that  they believe FAA should do more to ensure that airports are not using  PFC revenues for unnecessary capital development not supported by  airlines. For example, one airline objected to the use of over $1.5 billion of  PFC funds for the multi-phase construction of the Phoenix Sky Train  linking light rail, parking, and terminals, as representatives believed that  there was not an adequate business case to justify the construction of the  Sky Train. According to these airline officials, because the airport used  PFC revenues for the project, other necessary terminal improvements  have been largely debt funded. According to FAA officials, when  reviewing PFC applications, they assess the extent to which the airport  has demonstrated a need for the project. FAA officials stated that airports  are familiar with FAA criteria and will generally not submit projects that  will not meet the criteria and that could be denied. In addition, FAA  officials stated that while it is unusual for FAA to deny an application, they  have denied individual projects.

We provided a draft of this report to the Department of Transportation  (DOT) for review and comment. DOT provided technical comments,  which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, DOT, and other interested parties. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions concerning this report, please  contact me at (202) 512-2834 or krauseh@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix III.

Appendix I: Ownership and Infrastructure Funding and Financing of Foreign Airports

Foreign Airports’ Ownership Models and Primary Infrastructure- Funding Sources Differ from U.S. Airports

More Foreign Airports Are Privately Owned or Operated Compared to U.S. Airports

Traditionally, airports around the world were primarily owned and  managed by national governments, but that has changed over time.  Beginning in the 1980s and through the 1990s, governments outside of  the United States began shifting toward privatization and deregulation of  airports. According to the 2016 Airports Council International - World’s  (ACI-World) inventory of privatized airports worldwide, 614 commercial  service airports (14 percent) have private sector participation. Although  ACI-World estimates that a majority (86 percent) of the 4,300 airports with  scheduled traffic around the world are publicly owned by a government or  government entity, airports with private sector participation handle over  40 percent of all global air traffic.

Today, there is a range of airports’ ownership and operating models.  Through a literature review of ACI-World’s, the Airports Council  International - EUROPE’s (ACI- EUROPE), the International Civil Aviation  Organization’s, and the International Air Transport Association’s reports  and other documents, we identified five general types of airport ownership  structures outside of the United States:

Government owned and operated: The airport is fully owned and  operated by a public authority or by a mixture of public authorities at a  local, regional, national, or transnational level.

Government owned and privately operated: The airport is  government owned but the airport operator—considered as the entity  that is responsible for the day-to-day operation of airport services and  facilities—is a private company.

Partially privatized: The airport is partially privatized (e.g., mixed  public-private ownership), meaning the airports’ shares are owned by  a combination of private investor(s) and public authorities of the  country where the airport is located.

Fully privatized: The airport is fully owned and operated by a  commercial company wholly owned by private individuals or  enterprises.

Not-for-profit, private corporation: The airport has been transferred  to or leased by a not-for-profit corporation. The not-for-profit  corporation is expected to be financially self-sufficient and fully  responsible for funding all operating and infrastructure costs.

While U.S. airports are predominantly publicly owned and operated,  private participation, like private ownership or private operation contracts,  is more common at airports in other countries.

Airport Ownership in the United States  In the United States, nearly all of the 3,330 commercial-service or  general-aviation airports, designated as part of the national airport  system, are publicly owned by local and state governments, regional  airport authorities, or port authorities. Airport ownership in the United  States has evolved under a public model since the 1920s as a way to  promote the development of the U.S. aviation industry. In 1996, the  Federal Aviation Reauthorization Act of 1996 established the Airport  Privatization Pilot Program, which reduced some of the barriers to  privatizing airports, and allowed for commercial service airports to be  leased and for general aviation airports to be sold or leased. However, as  we have previously reported, 18 years following the program’s inception,  two airports have privatized, with one of these airports reverting to public  control.

While participation in the Airport Privatization Pilot Program has been  very limited, some airports have entered into public-private partnerships  with private entities through management contracts for terminals, which  may be leased or outsourced to airlines or other contractors, or for food,  rental car, and other concession agreements. For example, the Paine  Field Snohomish County Airport in Washington, previously a general  aviation airport, entered into a ground-lease agreement with a private  airport developer—Propeller Airports—to build and operate a small  passenger terminal for commercial service. The terminal was open for  commercial service in March 2019, and is depicted in figure 9. Propeller  Airports is responsible for the landside infrastructure investments and  terminal maintenance. Snohomish County is responsible for maintaining  and operating the airside infrastructure, which includes the runways and  taxiways, but leases the aprons and the terminal land to Propeller  Airports.

Airport Ownership in Other Countries  Privatized airports are more prevalent in foreign countries. According to a  2016 report by ACI-EUROPE, which examined ownership structures of  airports across Europe, about 41 percent of European airports are fully  privately owned or partially privatized. According to ACI-World, 75  percent of airports with passenger traffic in Europe have private sector  involvement through fully privatized airports or public-private partnerships.  Latin America-Caribbean airports (60 percent) and Asian airports (45  percent) have the second and third highest private sector involvement.  Industry stakeholders we interviewed said that in some Asian countries,  such as Japan and Singapore, airports that were previously government  owned have already privatized or are transitioning to privatization. In addition, while ownership models can vary by country, they can also vary  within a country. For example, according to ACI-EUROPE’s 2016 report,  the United Kingdom’s airports are 53 percent fully private, 26 percent  partially privatized, and 21 percent fully public.

As we have previously reported, different airport ownership structures,  motivations, and financing have driven airport privatization in other  countries. For example, in several countries, the national government  built, owned, and operated the country’s airports prior to privatization. We  previously reported that national ownership enables a central government  to direct the sale of its airports and can make for a more streamlined  privatization transaction, reducing transaction costs for both the public- sector owner and private-sector bidders. Foreign governments may also  be more motivated to privatize their airports than U.S. public-sector  airport owners. According to the International Civil Aviation Organization,  foreign governments’ reasons for privatizing their airports vary, including  an identified need for private-sector capital investments in existing or new  airports and a national move toward privatization of public assets or  companies. We have previously reported that airports in other countries  often have less access to public funds or tax-exempt bonds than publicly  owned and operated U.S. airports, making them more reliant on private  financing for airport improvements. Our prior work found that a key factor  that can hinder U.S. airport privatization is the loss of some federal AIP  funds and the loss of easy access to tax-exempt financing.

Selected Foreign Airports Generally Do Not Rely on Government Funding for Infrastructure Projects

Most of the five foreign airports we selected for our review do not receive  government funding. We selected and reviewed five airports in other  countries that represent each type of ownership structure previously  discussed. Representatives from our five selected foreign airports all said  that they rely on aeronautical revenue, which includes revenue from  passenger charges and airline rates and charges as the primary source  for capital development. Representatives from four of our selected  foreign airports said that they rely on debt financing for infrastructure  funding as well. Representatives from only one selected airport, Changi  Airport in Singapore, said that they have received government funding for  infrastructure projects. Table 3 below summarizes the main sources of  infrastructure funding available to these selected airports.

Representatives from the selected airports we interviewed said that they  generate infrastructure funding from various sources of aeronautical  revenue, including airline rates and charges. Some foreign airport  representatives told us that revenue from airline rates and charges are  not required to be used for aeronautical-related costs or infrastructure, or  within the airport. Some airports, such as Helsinki Airport, may operate  within a consortium network, where revenue is shared among all airports  in the network to cover costs. Additionally, some airports have regulations  for setting airline rates and charges. For example, the Civil Aviation  Authority in the United Kingdom regulates Heathrow Airport’s airline rates  and charges. Selected airport representatives we spoke with said that  they consult airlines when adjusting airline rates and charges. For  example, the Helsinki Airport official said that the airport updates its  airline charges once a year and that airlines have an opportunity for the  airlines to appeal the change.

Representatives from the International Air Transport Association and the  Steer Group Inc. said that some foreign airports may have higher airline  rates and charges compared to some airports in the United States due to  several factors, including the need to generate returns for private  financing and flexibility in setting rates and charges, as outlined below.

Generating returns for private financing. Foreign airports with  private investment or financing may have higher rates because they  need to generate returns to pay back private financing. Privately  owned airports may also be under pressure to generate returns for  investors and therefore need to further divert revenue from funding  infrastructure.

Flexibility in setting rates and charges. Foreign airports generally  have greater flexibility to set airline charges to meet airport needs, a  flexibility that may result in higher rates and charges. For example,  Canadian airports are generally able to set and adjust airline and  passenger charges as needed, and charges vary by airport. In  Singapore, Changi Airport has a passenger charge and a pre-funding  levy for its new terminal project. Airports in the United Kingdom,  including Heathrow Airport, have a regulator that sets the airline and  passenger charge cap, and adjusts it every 2 years.

In addition, foreign airports have limited airline input on determining  airport capital investments and fees charged to airlines. For example,  according to ACI-WORLD, airports consult airlines on airport charges and  on capital developments, but airport proposals can usually be  implemented even if airlines do not support them, as long as a due and  proper consultation process is held. An international airline stakeholder  said that the extent of airline input on airport capital investment and fees  charged to airlines is dependent on the country’s specific regulatory  model and the willingness of the airport operator to consult with airlines,  but that in some countries, airline consultation is limited. Representatives  from our selected foreign airports said they generally keep airlines  informed. For example, the Toronto Pearson International Airport has a  consultative committee approach with airlines on larger projects costing  over $50 million. If the airlines do not approve a project through the  consultative committee, the project must be put on hold for one year  before it can proceed.

Other sources of aeronautical revenue include passenger charges. As of  October 2019, for the foreign airports we reviewed, passenger charges  ranged from the U.S. dollar equivalent of $9.65 to $58.58 per local traffic  passenger (see table 4). Industry stakeholders and international airport  association stakeholders said that U.S. airports have a unique ownership  and funding model compared to foreign airports. U.S. airports have an  element of public control of funding through the federal Airport  Improvement Program (AIP) grants and passenger facility charges (PFC),  as projects funded through these sources must receive approval from the  Federal Aviation Administration. According to these stakeholders, U.S.  airports are subject to different regulations related to setting passenger  charges. As a result, we have determined that the comparability of these  charges is limited. In addition, differences in ownership models, private  investment, and funding between U.S. and foreign airports also limited  the comparability of these charges. Table 4 provides an overview of  passenger charges and levies at selected airports in other countries.

Selected foreign airports adjust passengers’ charges based on the  airport’s building and infrastructure needs and the cost imposed by  passengers on the airport system. How and when these airports make  adjustments varies. For example, one of our selected airports has a  government entity that regulates passenger charges. More specifically,  the Civil Aviation Authority in the United Kingdom regulates Heathrow  Airport’s passenger charges. Every 5 years, the Civil Aviation Authority  determines the maximum amount that the airport can charge based on  the costs incurred by the airport. Other selected airports consider  adjustments on an “as needed” basis, including the Toronto Pearson  International Airport. Representatives from the Toronto Pearson  International Airport said that they set and adjust passenger charges as  needed to fund infrastructure investments. The airport assesses charges  annually and only adjusts the passenger charges if there is a material  imbalance between required cost recoveries against charges. Airport  officials also stated the airport increases airline rates and passenger  charges only when needed to generate sufficient revenue to cover the  costs of planned infrastructure.

Similar to airline rates and charges, selected foreign airport  representatives told us that there generally are no restrictions on how the  airports use revenue from passenger charges for infrastructure or  operational costs. Industry stakeholders said that some airports, such as  Heathrow Airport, do not have revenue diversion limitations, so revenue  generated from passenger charges at the airport is not required to be  reinvested back into the airport. Comparatively in the United States,  airport revenue is regulated and generally speaking, revenue generated  by the airport must go toward certain costs at the airport.

Most of our selected foreign airport representatives (4 out of 5) also said  that they rely on debt financing, through private bonds or commercial  loans. Industry stakeholders said that airport debt financing internationally  is similar to that in the United States, but foreign airports generally do not  have access to the municipal bond market. Airports’ bonds are generally  tax exempt in the United States. Representatives of our selected foreign  airports said that they use various types of debt financing, including  commercial loans from financial institutions; equity or debt financing, such  as bonds in commercial capital markets; or loans from private investors.

Most of our selected foreign airports (3 out of 5) do not receive  government funding. International airport associations said that the extent  to which an airport receives government funding may depend on whether  the government owns the airport or has a role in operating the airport. For  example, Changi Airport officials said that the Singaporean government is  providing Changi’s government-owned, privately operated airport an  unspecified amount of government funding for their new Terminal 5  project. In another example, Toronto Pearson International Airport does  not receive government funding; however, in Canada, small or rural  airports can receive some funding from the Canadian Airports Capital  Assistance Program. Similarly, Finavia officials said that although the  Helsinki Airport is publicly owned and operated, it does not receive any  government funding.

To provide information about how each of the five, selected foreign  airports fund and finance infrastructure projects, we developed the  following case studies. These airports were selected based on selection  criteria of ownership models and passenger traffic. The case studies  provide information on main sources of funding and financing for the  airports’ infrastructure developments, factors considered when setting  airline and passenger charges, coordination with airlines on capital  development, and recent and planned infrastructure investments for each  selected foreign airport.

The majority of airports in Finland  are owned and operated by the  government-owned company  Finavia Corporation (Finavia), a  limited liability company wholly  owned by the Finnish government.  Specifically, Finavia operates a  network of 21 Finnish airports, of  which 19 offer commercial service  and two are military airports. Of the  remaining three airports in Finland,  two are owned by local  municipalities, and one is privately  held.

Background  Helsinki Airport is owned and operated by a government-owned  company, Finavia. Of Finavia’s airports, according to the Finavia  representative, Helsinki Airport has the most connecting international  flights and passenger boardings. For example, Helsinki Airport provides  direct service to 162 international destinations, including 22 direct flights  to Asia. Helsinki Airport has experienced strong passenger growth in  recent years. In 2018, Helsinki Airport had 21-million passenger  boardings, an increase from the prior year of about 10 percent. Most of  this increase was attributable to international traffic. The Finavia  representative said that Finavia anticipates passenger traffic to slow in  2020, due to an anticipated slowdown in Europe’s economic growth.

Main Sources of Funding and Financing for Airport  Infrastructure Investments   According to the Finavia representative, Helsinki Airport’s main sources of  funding for infrastructure improvements are (1) airline rates and charges,  (2) passenger charges, (3) other airport-generated revenue, and (4) debt financing. Helsinki Airport collects aeronautical revenue from airline rates and charges and passenger charges directly from the airlines. Helsinki Airport does not receive any public or government funding, despite being government owned, and the airport does not have any public-private partnerships.

In 2010, Finavia began operating as  a limited liability company, rather  than a government agency. The  Finnish government corporatized  Finavia to align with the European  Union (EU) principles on EU  services, movement of services, and  competition. The Finavia  representative said that the change  in corporate structure helps ensure  that the government is not  subsidizing or promoting unfair  competition practices.

Airline rates and charges: Helsinki Airport generates revenue from air carrier and other aircraft operator rates and charges such as landing, aircraft parking, and electricity charges. In 2019, Finavia raised airline charges by 2.1 percent from 2018 levels, prompted by higher service costs resulting from airport investments. The Finavia representative said that airline rates and charges make up approximately 40 percent of the airport’s total aeronautical revenue.

Under the airport network approach,  Finavia can offset losses at one  airport with revenue from a more  successful airport. The Finavia  representative said that some  airports in the network are self- sustaining and generate sufficient  revenue to cover the costs of airport  operations; other network airports  do not.  According to the Finavia  representative, Finavia applies  uniform airport charges within the  airport network to  recover  operational and infrastructure costs

Passenger charges: Helsinki Airport collects a passenger charge from airlines in order to fund infrastructure used for servicing the passengers. As of January 2019, Helsinki Airport has a euro (€) 8.60 (U.S. dollar (USD) $9.65) fee per departing passenger and a across the airport network and to  comply with EU directives on  airport charges. €4.10 (USD $4.60) fee per transferring passenger. The Finavia  representative said that passenger fees make up approximately  60 percent of the airport’s total aeronautical revenue, which  include both airline and passenger fees. According to the Finavia  representative, Helsinki Airport does not designate revenue from  airline and passenger charges for a specific use. Revenue from  airline and passenger charges has been used to cover costs from  providing services and operations within the Finavia network.

According to the Finavia representative, aeronautical charges,  including airline rates and charges and passenger charges, are  evaluated and updated once a year and Finavia sets the same  charges for all airports in the Finavia airport network.

Other airport-generated revenue: Helsinki Airport also  generates non-aeronautical revenues from sources such as  concessions, commercial services at terminals, parking services,  security control, and rental income from real estate.

Debt financing: Helsinki Airport uses debt financing from a  variety sources, including private banks, financial institutions, and  public sector sources such as the European Investment Bank, a  financing institution financed by the European Union, and the  Nordic Investment Bank. The financing that Helsinki Airport has  obtained is similar to traditional debt financing. According to the  Finavia representative, Helsinki Airport does not have any  restrictions or legal requirements on the types of loans that the  airport can take on, nor does Finavia pledge revenue from any  specific source towards the repayment of loans. However, the  Finavia representative stated that Finavia does not issue bonds.  The representative said that generally, the airport has relied on  traditional lending because it is easier to obtain and repay a bank  loan as compared to other types of debt.

Factors Considered when Setting Airline and Passenger  Charges  The representative said Finavia considers several factors when  setting airline and passenger charges. The Finnish Act on the Airport  and Network and Airport Charges requires that the pricing of airport  charges within the airport network are uniform, common, and  transparent, based on the service level offered, and are applied on  non-discriminatory and equal grounds. Finavia therefore considers  the Finavia airport network revenue; the cost of providing  aeronautical services (including operational and electricity costs);  and the costs of capital for infrastructure investment when setting the  airport’s airline rates and charges. According to the Finavia  representative, Helsinki Airport also considers the airport market to  ensure that its airline and passenger fees are competitive with  similar airports in other European countries. When Finavia makes  changes to its airline or passenger charges, the Finavia  representative said that airlines have an opportunity to appeal the  change. The Finnish Transport and Communications Agency acts as  an independent supervisory authority to process disagreements on  airport charges.

Coordination with Airlines on Capital Development  As part of the capital development process, Finavia must consult  with airlines to seek input on planned capital investments at the  airport before the airport carries out any major new infrastructure  projects. Finavia organizes these discussions to assist with  negotiations, but the Finavia representative said these discussions  are specific to the individual airport rather than the overall Finavia  network. In addition, according to the Finavia representative, when  setting airline and passenger charges, Finavia consults with airlines  and provides information about how airport charges relate to the  facilities and services at the airport.

According to the Finavia representative, the Helsinki Airport development  program, initiated in 2014 with a 2030 anticipated completion date, is the  largest expansion project in the airport’s history. It will expand Helsinki  Airport’s capacity and increase the number of gates. For example, the  airport has planned a terminal building project that will expand the  terminal by 45 percent and double the number of gates for wide-body  aircraft from eight to 16 gates.

In 2016, as seen in figure 10, Helsinki Airport opened one of the  passenger terminal expansions, which added 12 new departure gates to  the airport. On the airside, the airport will also renovate the apron area to  accommodate large aircraft. Additionally, Helsinki Airport is working on a  project to improve luggage and baggage handling capabilities to  accommodate the anticipated increase in baggage volume expected from  airlines’ use of larger aircraft.

According to the Finavia representative, Helsinki Airport planned these  capital improvements in response to expected passenger traffic growth.  The representative anticipates that between 2025 and 2030, annual  passenger boardings at Helsinki Airport will reach 30 million. A rendering  of the entrance to Helsinki Airport’s completed terminal expansion is  shown in figure 11, below. Finavia will use airport cash flows from  passenger fees, aeronautical revenue, and non-aeronautical revenue to  fund the infrastructure projects. Finavia estimates that the total cost of the  Helsinki Airport infrastructure expansion will be €1 billion (USD $1.1  billion).

Singapore has two airports that  provide commercial service—Changi  International Airport (Changi Airport)  and Seletar Airport, which is a  smaller airport that provides  commercial and general aviation  service.

Background   Changi Airport is the primary commercial airport in Singapore, located off  the eastern coast of the country. Changi Airport was built in 1981, and  according to ACI-World, was the world’s 19th busiest airport in terms of  passenger boardings in 2018. While Changi Airport is government owned,  the airport is operated by the Changi Airport Group—a private limited  company. The Changi Airport Group is responsible for the airport’s  operations and management, air hub development, commercial activities,  and airport emergency services. It is also responsible for maintaining and  investing in airport infrastructure and ensuring the airport is financially  self-sustaining.

Both airports are owned by the  Singapore Ministry of Finance and  operated by the Changi Airport  Group. The Singapore Ministry of  Finance does not have a role in the  daily operations and management of  the airports but reviews the types of  planned airport infrastructure  investments. The Changi Airport  Group’s board of directors is made  up of two representatives from the  Singapore Ministry of Finance and  other board members from the  private sector. The board has  discretion to design, budget, and  build infrastructure projects.

Changi Airport is a major hub for the region, and according to the Changi  Airport Group representative, passenger boardings have been increasing  steadily. For example, from 2005 to 2018, boardings increased by 30  percent. In 2018, the airport had 66.6-million boardings, an increase of  about 5.5 percent from the prior year. The Changi Airport representative  said that the airport is currently operating at 85 percent capacity for  passenger boardings, but anticipates reaching 100 percent capacity by  approximately 2026–2027.

The airport has made significant investments to enhance the passenger  experience at the airport. For example, the airport has enhanced terminal  features for passengers, including a butterfly garden, indoor waterfalls, a  four-story slide, 19 airport lounges, and luxury shopping (see fig. 12).   The 2019 World Airport Awards named Changi Airport the World's Best  Airport for the seventh consecutive year.

From 1984 until 2009, Singapore’s  airports were owned by the  Singaporean government, and  operated by the Civil Aviation  Authority of Singapore, under the  Ministry of Transport. In 2009, the  airports were corporatized, and the  Changi Airport Group took over  airport operations and management.

Through two companies, Temasek  Holdings and GIC Private Limited,  the Ministry of Transport owns and  invests in companies that serve  strategic national interests, such as  infrastructure. For example,  according to the Changi Airport  representative, Temasek has a 50  percent stake in much of   Singapore’s major infrastructure,  including a 54 percent stake in  Singapore Airlines, the country’s  national carrier. The Civil Aviation  Authority of Singapore continues to  economically regulate the Changi  Airport, promote the growth of the  air hub and aviation industry in  Singapore, oversee and promote  aviation safety, and provide air  navigation services.

Number of airports: 36  commercial airports which  includes 16 international airports  and 20 regional airports with  scheduled passenger service.

Background   Frankfurt Airport began operations in 1936. According to Fraport AG’s  2018 annual report, in fiscal year 2018, Frankfurt Airport was the largest  commercial service airport in Germany and the fourth largest commercial  service airport in Europe. The airport is partially privatized and is owned  and operated by Fraport AG. Frankfurt Airport was previously jointly  owned by the federal government, the State of Hesse, and the City of  Frankfurt. In June 2001, Frankfurt Airport was partially privatized, with  private entities acquiring a minority ownership stake in the airport.  Currently, the State of Hesse and City of Frankfurt own about 51 percent  of the airport, with the remaining, about 49 percent, held by private  entities.

Until the 1980s, airports in Germany  were traditionally owned and  operated by the government.  Following the 1982 creation of a  federal program to privatize airports,  several airports were partially  privatized. According to an Airports  Council International-EUROPE  survey conducted in 2015, there are  now two different airport ownership  structures in Germany.

Passenger traffic at Frankfurt Airport has increased over the last few  years. According to Fraport AG’s 2018 annual report, Frankfurt Airport  reached 69.5 million passengers in 2018—an increase of 5 million  passenger or about 8 percent over the prior year.

Partially privatized: about 47  percent of airports in Germany  are partially owned by local,  regional, or federal  governments.

Main Sources of Funding and Financing for Airport  Infrastructure Investments   Frankfurt Airport’s main source of funding for capital improvements are  (1) airline rates and charges, (2) passenger charges, (3) other airport- generated revenue, and (4) debt financing.

Airline rates and charges: Frankfurt Airport collects revenue from

Fully government owned: about  53 percent of airports in  Germany are owned by a public  authority, or by a mixture of  public authorities, at a local,  regional, national, or  transnational level. airline rates and charges paid by airlines servicing Frankfurt Airport.  These charges include airline takeoff and landing, noise, parking, and  other charges. Under German law, airports must obtain approval for  certain airline rates and charges from the regional aviation authority,  including airline takeoff and landing charges, noise charges, aircraft  movement area charges, and parking charges. The only airport  charges not subject to approval are charges for central ground-service  infrastructure facilities and ground service charges. The regional  aviation authority responsible for Frankfurt Airport is the Ministry of  Economics, Energy, Transport and Regional Development, State of  Hesse. In addition, the Airports Council International (ACI)- EUROPE’s representatives said that the majority of airports in Europe  with commercial service, including Frankfurt airport, offer discount  incentives to airlines in exchange for delivering higher volumes of  passengers.

Passenger charges: Frankfurt Airport has passenger charges that  vary depending on the destination of the passenger’s flight. As with  airline rates and charges, airports must also obtain approval for  passenger charges from the regional aviation authority. For example,  as of January 1, 2019, these charges range from euro (€)12,93 (U.S.  dollar (USD) $14.51) for transfer flights to all destinations to €25,16   (USD $28.23) for international flights initiating from Frankfurt Airport.

Other airport-generated revenue: Frankfurt Airport also generates  revenue from airport concessions, real estate leases, parking, and  other sources.

Debt financing: Frankfurt Airport also relies on debt financing to fund  infrastructure projects. However, we were unable to receive data from  Fraport AG on how much debt financing Frankfurt airport used for  capital development projects in 2018.

We were not able to confirm financial information with Fraport AG about  how much total revenue Frankfurt Airport generated from each of the  individual sources described above. Therefore, we are not able to provide  information on the total revenue generated by Frankfort Airport in 2018.

However, information is available on the total revenue for all airports in  the Fraport AG network. Specifically, according to Fraport AG’s 2018  annual report, the total revenue generated from approved airline rates  and charges, passenger charges, and passenger services combined for  the full Fraport AG group was €1,006 million (USD $1.2 million). In  addition, the total revenue generated from other airport-generated  revenue for the full Fraport AG group was €507 million (USD $599 million)  in 2018.

Fraport AG is in the process of building a new terminal—Terminal 3—at   Frankfurt Airport to provide sufficient capacity and accommodate growing  air traffic at Frankfurt airport. Construction for the project began in 2015  and is estimated to be completed in 2023. The first phase of the project  involves construction of the main terminal building, which will include the  arrival and departure levels, lounges, concession area, and a baggage  handling system. This phase of the project is expected to provide capacity  for about 14-million passengers a year. The second phase of the project  will expand the airport facility and is expected to increase passenger  capacity by up to 5-million additional passengers when completed in  2021. According to Fraport AG’s current plans, the new terminal is  expected to increase capacity by up to 21 million more passengers.

Fraport Ausbau Süd GmbH, a wholly owned subsidiary of Fraport AG, is  responsible for managing, supervising, and monitoring the construction  project. The project is being privately financed, and the estimated budget  of the project is about €3.5 billion to €4 billion (USD $4.1 billion to $4.7  billion). According to Fraport AG, this project is Fraport’s largest single  investment at Frankfurt Airport.

We were unable to confirm information with Fraport AG representatives  about factors they consider when setting airline and passenger fees or  how they coordinate with airlines on the airport’s infrastructure  development.

Background  Heathrow Airport is Europe’s busiest airport with the highest passenger  boardings, and is the United Kingdom’s hub airport. Heathrow Airport has  undergone transformation from a government-owned airport to a  privately-owned airport. Heathrow Airport was privatized in 1987 as part  of the privatization of the British Airports Authority. Currently, Heathrow  Airport Holdings Limited owns and operates Heathrow Airport.

In 1965, the Airports Authority Act  established the British Airports  Authority, an independent  government agency, which assumed  ownership and management of  airports in the United Kingdom.  Between 1966 and1987, the British  Airports Authority acquired  ownership and operation of seven of  the 22 government airports— Heathrow, Stansted, Prestwick,  Gatwick, Edinburgh, Aberdeen, and  Glasgow airports.

Although Heathrow is privatized, any airline and passenger charges the  airport collects are subject to economic regulation by the U.K.’s Civil  Aviation Authority. The Civil Aviation Authority—a government agency— regulates airport charges for U.K. airports with more than 5-million annual  passengers. Airports Council International (ACI)-EUROPE  representatives said that the Civil Aviation Authority regulates Heathrow  on the basis that Heathrow is likely to possess significant market power  for aeronautical services.

In 1987, the United Kingdom  privatized the British Airports  Authority due to limited government  funding and a need for significant  capital development at large  airports, according to Heathrow  Airport representatives and industry  stakeholders. All seven airports  owned by the authority were  privatized. The authority was  subsequently acquired in 2006 by  an international consortium led by  Ferrovial Aeropuertos S.A. of Spain  (Ferrovial S.A.) and named BAA Ltd.  This entity was later renamed  Heathrow Airport Holdings Limited.

The United Kingdom became the  first country to privatize its major  airports. According to an Airports  Council International-EUROPE  survey conducted in 2015, airports  in the United Kingdom have one of  the following three ownership  structures:

Government owned: about 21  percent of airports in the United   Kingdom are owned by local,  regional, or national  governments;  experienced increased passenger numbers as a result of airlines’ use of  larger aircraft that have more seats per aircraft.

Main Sources of Funding and Financing for Airport  Infrastructure Investments   Heathrow Airport’s main sources of funding for capital improvements are  (1) airline rates and charges, (2) passenger charges, (3) other airport- generated revenue, and (4) debt financing.

Airline rates and charges: Heathrow Airport collects revenue from

Fully privatized: about 53  percent of airports in the  United Kingdom are owned by  private entities. charges that it imposes on airlines that fly to and from Heathrow  Airport. These charges include landing, parking, and emissions  charges. Under the authority of the Civil Aviation Act of 2012, the Civil  Aviation Authority establishes a pricing formula known as the  “maximum revenue yield,” which sets limits on the airline and  passenger charges on a per-passenger basis. In 2018, Heathrow  Airport generated pounds (£) 549 million (U.S. dollar (USD) $734  million) in landing and parking charges, according to Heathrow  Airport’s 2018 financial statements.

Passenger charges: Heathrow Airport has several categories of  passenger charges, which vary in rates depending upon the time of  year of travel; whether the passenger is on a departing, transfer, or  transit flight; or whether the flight destination is inside or outside of the  European Union. For example, under the 2019 charges for Heathrow  Airport, the passenger service charge would range from £19.84 to  £46.02 (USD $25.25 to USD $58.58). In 2018, Heathrow Airport  generated £1.2 billion (USD $1.6 billion) in revenue from passenger  charges, according to Heathrow Airport’s 2018 financial statements.

Other airport-generated revenue: Heathrow Airport also generates  other revenue from retail airport concessions, parking, and other  sources. Heathrow Airport generated £656 million (USD $876 million)  from these sources in 2018, according to Heathrow Airport  representatives.

Debt financing: Heathrow airport also relies on debt financing to fund  infrastructure projects. In 2018, Heathrow (SP) Limited raised  approximately £2.3 billion (USD $3.1 billion) of debt financing to fund  infrastructure projects. According to Heathrow Airport  representatives, as of 2018, the airport has a total debt of £12 billion  (USD $16 billion), which includes shareholders’ indebted equity.

According to Heathrow Airport representatives, Heathrow Airport’s largest  source of funding is from airline rates and charges and passenger  charges, and in 2018 the airport generated £1.7 billion (USD $2.3 billion)  from airline and passenger charges combined.

Factors Considered when Setting Airline and Passenger  Charges   As previously discussed, the Civil Aviation Authority is responsible for  economic regulation of Heathrow and other airports in the United  Kingdom. Specifically, it regulates airline and passenger charges and  determines the maximum amount in fees that Heathrow Airport can  charge airlines and passengers on a 5-year basis, with adjustments every  2 years as needed. The level of airport charges that Heathrow levies each  year is in accordance with the aviation authority’s pricing formula.

Each year, Heathrow Airport publishes Conditions of Use that describes  its airport charges. According to Heathrow Airport representatives, they  have flexibility in how they categorize charges, but the charges must align  with the European Union’s and United Kingdom’s non-discrimination  principle standards and with the Civil Aviation Authority’s regulations.  According to Heathrow Airport representatives, they consider several  factors, such as the infrastructure needs at the airport and the real cost of  providing services, when setting airport charges. They also set charges to  influence and incentivize airline behavior. For example, to incentivize  airlines to replace aircraft with newer, less polluting models, the airport  charges airlines a higher fee per landing when they use older aircraft. In  addition, Heathrow’s passenger fees vary depending on the passenger’s  anticipated airport use and with the costs imposed on the airport system.  For example, passengers on domestic flights have lower charges than  passengers traveling on international flights. This differential is because  domestic passengers do not use the same facilities or the same baggage  facilities as an international passenger and the costs of those facilities are  higher than for facilities serving domestic passengers.

Coordination with Airlines on Capital Development   Heathrow Airport coordinates with airlines on capital development. For  example, the airport organized an Airport Consultative Committee  structure to obtain input on its most recent capital development plan from  the 93 airlines operating at the airport. According to representatives from  the International Air Transport Association, which is an association that  represents airlines, the airport used this committee to reach agreement  with these airlines on a capital expenditure plan related to development at  multiple terminals at the airport.

Recent and Planned Infrastructure Investments at Heathrow  Airport   According to Heathrow Airport representatives, within the last 15 years,  Heathrow Airport has completed two large capital-development projects,  and the airport is currently in a planning phase. In 2008, Heathrow Airport  opened Terminal 5, which had a total project cost of £4.3 billion (USD $8  billion). Subsequently, in 2014, Heathrow Airport renovated its passenger  terminal—Terminal 2—which cost approximately £2.5 billion (USD $4.1  billion) to complete.

Planning and design is now under way for the construction of a third  lateral runway and an associated new terminal facility at Heathrow  Airport, according to Heathrow Airport representatives (see fig. 13). The  new runway is intended to alleviate constraints on the number of available  slots for landing and takeoff. According to Heathrow Airport  representatives, the new runway is expected to add capacity for at least  an additional 260,000 flights per year, and the overall project will expand  the airport’s surface space by 50 percent. Representatives said that  according to current plans, construction of the runway and associated  terminal is expected to begin in 2022 and operations are expected to start  in 2027. The runway project is estimated to cost £14 billion (USD $18  billon) and will be funded through cash flows from operations, equity, and  debt, according to Heathrow Airport representatives.

Ownership Structure of Airports in Canada

Background   The Greater Toronto Airports Authority manages and operates the  Toronto Pearson International Airport (Toronto Pearson). According to  Statistics Canada passenger traffic data, Toronto Pearson is Canada’s  busiest airport in terms of total passenger traffic. In addition, it is North  America’s second busiest airport in terms of international traffic,  according to Toronto Pearson’s 2018 annual report. The Greater  Toronto Airports Authority is a not-for-profit corporation without share  capital, meaning it does not have any shareholders and any profits  earned are invested back into the airport.

Until the early 1990s, the Canadian  federal government owned,  operated, and maintained most  airports and air navigation facilities  in Canada. In 1994, the Canadian  federal government issued the  National Airports Policy, which  created different ownership  structures for NAS and non-NAS  airports.

The Greater Toronto Airports Authority assumed operations and  management of Toronto Pearson in 1996 through a lease arrangement  with the federal government. According to representatives from the  airports authority, because Toronto Pearson generates the most  revenues among Canadian airports, the authority pays the highest ground  lease rate for Toronto Pearson among Canadian airports.  For every  Canadian dollar (CAD) $1 (U.S. dollar (USD) $0.75) that the airport  authority earns in revenue over CAD $250 million (USD $188 million), it  pays CAD $0.12 cents (USD $.09) for the ground lease.

For NAS airports, the National  Airports Policy devolved  responsibility for the operations,  management and expenditures of  NAS airports from the federal  government to Canadian Airport  Authorities, which were set up as  not-for-profit and non-share  corporations. The Canadian  government, however, still owns  these airports. Under the law,  Canadian Airport Authorities pay  lease payments to the government  under 60-year leases that include an  option to renew for 20 years. These  airport authorities are required to  invest airport-generated revenues in  airport operation and capital  development.

Passenger traffic at Toronto Pearson has increased in recent years and  representatives from the Greater Toronto Airports Authority stated that  according to their projections, passenger traffic is expected to continue to  increase. In 2018, about 48-million passengers traveled through Toronto  Pearson—an increase of 2.4 million, or 5 percent, over the prior year.  According to these representatives, about 70 percent of this traffic is from  origin and destination passengers and 30 percent from connecting  passengers. According to the airports authority’s forecasts, passenger  traffic at Toronto Pearson is expected to increase to 85 million in 2037.

By contrast, for non-NAS airports,  the National Airports Policy  transferred ownership of these  airports from the federal government  to regional or local entities, such as   local municipalities. The  government continues to support  remote and Arctic non-NAS  airports that service isolated  communities.

Main Sources of Funding and Financing for Airport  Infrastructure Investments   Toronto Pearson’s main sources of funding for capital improvements are  (1) airline rates and charges, (2) passenger charges, (3) other airport- generated revenues, and (4) debt financing. Toronto Pearson does not  receive any government funding, although some limited government  funding is available to smaller airports through Canada’s Airports Capital  Assistance Program.

Airline rates and charges: Toronto Pearson collects revenue from  airline rates and charges, which include landing fees, terminal fees for  general use of the terminal space, apron fees, deicing facility fees,  and other airline charges. According to representatives from the  Greater Toronto Airports Authority, airline rates and charges at  Toronto Pearson have not been increased since 2012. Toronto  Pearson generated about CAD $510 million (USD $393 million) in  airline rates and charges in 2018 according to Toronto Pearson’s  2018 annual report.

Passenger charges: Passenger charges, called Airport Improvement  Fees, are fees charged at every major Canadian airport and currently  range from CAD $5 to CAD $40 (USD $3.76 to USD $30.12) per  passenger. Each airport authority sets its own passenger fees, and  there is no cap on how much each airport can charge. According to an  international industry stakeholder, airport authorities, such as the  Greater Toronto Airports Authority, set their respective fees based on  their analysis of what the market can bear. Toronto Pearson’s  passenger fee is CAD $25 (USD $18.82) for departing passengers  and CAD $4 (USD $3.01) for passengers connecting through the  airport as of January 1, 2019. The airport can only use this revenue  for aeronautical-related expenses, such as capital development. The  Greater Toronto Airports Authority has an agreement with each air  carrier that takes off from and lands at Toronto Pearson whereby air  carriers agree to collect passenger fees from each of their enplaned  passengers on behalf of the authority. The airports authority commits  in these agreements to use passenger-fee revenues for capital  programs, including associated debt service. According to  representatives from the Greater Toronto Airports Authority, the  airport has not increased its passenger fees since 2012, as the  increased volume of passengers has generated sufficient revenue for  the airport. In 2018, Toronto Pearson generated CAD $460 million  (USD $355 million) from passenger fees, in the form of Airport  Improvement Fees, according to Toronto Pearson’s 2018 annual  report.

Other airport-generated revenues: Toronto Pearson also generates  revenue from other sources such as airport concessions, rental  properties, car rentals, parking, and advertising. The Greater Toronto  Airports Authority has more flexibility in how it can use this category of  revenue, including for operating costs and for capital needs.  According to the Greater Toronto Airports Authority’s 2018 annual  report, the long-term objective is to increase the proportion of total  revenues generated through commercial streams at the airport—from  non-aeronautical sources such as parking, retail, and dining  concessions—to over 40 percent. In recent years, commercial  revenues have been the fastest growing component of the airport  authority’s revenues. In 2018, Toronto Pearson generated about CAD  $502 million (USD $387 million) in other airport-generated revenue,  according to Toronto Pearson’s 2018 annual report.

Debt financing: Canadian airports can generally use equity or raise  debt in capital markets. In 2018, Toronto Pearson obtained CAD $500  million (USD $386 million) in bond financing. According to  representatives from the Greater Toronto Airports Authority, the  authority issues bonds to fund existing bond maturities and capital  programs that exceed cash from operations. Revenue from passenger  fees, in the form of Airport Improvement Fees, are used to service  debt for infrastructure projects. Projects that cost less than CAD $400  million (USD $301 million) are funded with passenger-fee revenues,  airline rates and charges, and other airport-generated revenues,  according to these representatives.

Factors Considered when Setting Airline and Passenger  Charges  Representatives from the Greater Toronto Airports Authority stated that  the structure that Toronto Pearson has in place allows the airport to  increase airline rates and passenger charges only when needed to  generate sufficient revenue to cover the costs of planned infrastructure.  According to these representatives, charges are assessed annually, but  only change if there is a material imbalance between required cost  recoveries against charges. To establish airline rates and charges and  passenger fees, the Toronto Pearson Airport uses the “dual till” model  whereby airline and passenger charges are set to recover aeronautical  costs only. This contrasts with the “single till” model where all airport  activities (including aeronautical and non-aeronautical) are taken into  consideration when determining the level of airport charges.  Representatives from the Greater Toronto Airports Authority stated that  Toronto Pearson is unique among Canadian airports in doing so.

Coordination with Airlines on Capital Development   As part of Toronto Pearson’s passenger-fee agreements with airlines, the  Greater Toronto Airports Authority must consult with airlines and obtain  approval for certain capital projects in excess of CAD $50 million (USD  $38 million). Approval is sought through an airline consultation committee  that the airport authority established to include representatives from  airlines that provide service at Toronto Pearson. If the consultative  committee does not approve a project, the airport must put the project on  hold for 1 year. After the 1-year hold, the project may be initiated.  According to representatives from the Greater Toronto Airports Authority,  if the airport has a major capital project planned, the authority keeps the  airline community informed. In particular, the airport communicates  regularly with the two major Canadian airlines, which make up 70 percent  of the airport’s service volume, to keep them informed of planned  infrastructure improvements.

Recent and Planned Infrastructure Investments at Toronto  Pearson Airport   In 2018, the Greater Toronto Airports Authority completed several  infrastructure improvements at Toronto Pearson, according to Toronto  Pearson’s 2018 annual report (see fig. 14). Some of these improvements  relate to ongoing projects that the airport initiated in prior years. For  example, the airports authority is upgrading and expanding its capacity at  Terminal 1 to accommodate narrow-body aircraft operations in response  to increased passenger traffic. During 2018, the authority expended CAD  $16 million (USD $12 million) for this project. In addition, the airport  expended about CAD $13 million (USD $10 million) in 2018 to make  improvements at Terminal 3, which is intended to enhance passenger  experience and improve passenger flow. The Greater Toronto Airports  Authority also expended about CAD $23 million (USD $18 million) on  Phase 1 of its baggage-handling improvement project, which will add  baggage-handling capacity and is intended to improve system reliability.

According to representatives from the Greater Toronto Airports Authority,  the authority has developed a 5-year capital plan that includes several  projects intended to increase capacity and improve passenger flow at the  airport. For example, the airports authority has begun the design phase  for construction of a new concourse at Terminal 1 and an expansion  project at that terminal. The airports authority is also in the design phase  for constructing an integrated Regional Transit and Passenger Centre,  and replacement of the baggage systems. The airport also plans to add  more retail space and provide U.S. Customs and Border Protection space  in the terminal to reduce international passengers’ connecting time by  improving passenger flow. According to representatives from the Greater  Toronto Airports Authority, the estimated cost of its 5-year capital plan is  CAD $3.46 billion (USD $2.61 billion), which will allow the airport authority  to handle 65 million passengers.

Appendix II: Objectives, Scope, and Methodology

This report discusses (1) levels of federal and other funding that U.S.  airports received from fiscal years 2013 through 2017 for infrastructure  investments, (2) projected costs of planned infrastructure investments at  U.S. airports from fiscal years 2019 through 2023, and (3) any challenges  selected airports face in obtaining airports’ infrastructure funding and  financing. We also examined how selected airports in other countries fund  and finance airport infrastructure investments. This information is  presented in appendix I.

To obtain information for all objectives, we reviewed relevant literature,  including academic and industry literature on airport funding and financing  in the United States and in other countries. We also reviewed laws,  regulations, agency guidance, and prior GAO reports related to this topic.

To determine what federal and other funding U.S. airports received from  fiscal years 2013 through 2017 for infrastructure investments, we  obtained and analyzed information on the main sources of airport funding  which included: funding from federal Airport Improvement Program (AIP)  grants and state grants, revenue from passenger facility charges (PFC),  airport-generated revenue, capital contributions, and amounts of financing  airports received from bond proceeds and other debt financing. Because  comprehensive data on airport capital spending is not available, we  framed our research objective to examine funding received rather than  how much airports expended on infrastructure projects. We selected  fiscal years 2013 through 2017 because it was the most recent 5-year  period where complete data were available. For each funding source, we  determined average annual-funding amounts for fiscal years 2013  through 2017 for all U.S. national system airports, as well as separately  for larger airports and smaller airports. We defined larger airports to  include large and medium hubs, and smaller airports to include small  hubs, non-hubs, non-primary commercial service, reliever, and general  aviation airports. We also analyzed how the amounts of funding received  have changed from fiscal years 2013 through 2017. We presented all  funding amounts in 2017 dollars.

We obtained funding data from various sources, as follows:

AIP funding: To determine how much funding airports received from  federal AIP grants, we obtained and analyzed data from the Federal  Aviation Administration’s (FAA) System of Airports Reporting (SOAR)  database on AIP grants awarded by FAA during our study period. This  database includes detailed information about AIP grants and PFC  applications, approvals, and collections. We analyzed the AIP grant  data to determine total annual funding by airport type for fiscal years  2013 through 2017, as well as average annual funding by airport type  and project type over the same time period.

State grants: Data on state funding for fiscal years 2013 through  2017 are available but are not complete, and we were not able to  obtain additional information to verify the data’s reliability. As part of  our 2015 review of airports’ infrastructure funding, we conducted a  survey in 2014 with the assistance of the National Association of State  Aviation Officials (NASAO), to determine how much funding airports  received from state grants for fiscal years 2009 through 2013.  Results from this survey were reported in our 2015 report and in  NASAO’s August 2015 report, NASAO State Aviation Funding and  Organizational Data Report. For this review, we interviewed NASAO  officials and they confirmed that the level of state funding has largely  remained unchanged since the 2015 study. Therefore, we  incorporated information from the 2015 survey into our current report.

PFCs: To determine how much funding airports received from PFCs,  we obtained and analyzed data from the SOAR database on PFC  collection amounts at all airports that collected PFCs during fiscal  years 2013 through 2017. Because we were unable to obtain data on  airports’ expenditures of PFC revenues by project type from fiscal  years 2013 through 2017, we instead obtained data on airports’ FAA- approved applications from 1992 through February 2019 showing the  types of projects on which airports intended to spend their PFC  revenue.

Airport-generated revenue: For airport-generated revenue, which  we defined as revenue available for capital development, we obtained  and analyzed airport financial data from FAA’s Certification Activity  Tracking System (CATS). Examples of airport-generated revenue  include aeronautical revenue (including revenue earned from leases  with airlines and landing fees) and non-aeronautical revenue (such as  earnings from airport terminal concessions and vehicle parking fees).  We analyzed the financial data to determine the amount of airport- generated revenue that airports had available for infrastructure  investments, as well as amounts by airport type, for each fiscal year  2013 through 2017. We calculated airport-generated revenue by using  data for the total operating revenue of an airport, subtracted by the  subtotal of operating expenses, prior to subtracting depreciation,  which yields operating income plus interest income. For data  precision, we used a different methodology to calculate airport- generated revenue than that of our 2015 report on airport finance by  not subtracting an estimated amount of PFCs used to pay for interest  expense. As a result, airport-generated revenue reported here is not  comparable to airport-generated revenue in our 2015 report.

Airport capital contributions: To determine how much funding  airports received from capital contributions, we analyzed the same set  of airport financial data from CATS that we used for airport-generated  revenue, discussed above. We used the line item for capital  contributions (8.5 Capital Contributions) in CATS for our analysis.

Airport bonds: In addition to the sources of airport funding listed  above, this report also separately discusses information on airport  bonding—a common financing mechanism for some airports. We  analyzed FAA financial data from the CATS database on the amounts  of financing that airports received from bond proceeds (line item 14.1).  We also interviewed representatives at two ratings agencies—Fitch  Ratings and Moody’s Investors Service—and a representative from  Piper Sandler (formerly Piper Jaffray) to obtain their perspectives on  the availability of airport bond financing.

We assessed the reliability of FAA’s CATS data on airport financial  information and SOAR data by reviewing documentation about the data  and the systems that produced these data. We also interviewed FAA  officials knowledgeable about the collection, maintenance, and security of  these data. We also reviewed documentation that also relied on the  FAA’s CATS and SOAR data and that was collected for our prior review  of airport infrastructure funding and financing for a similar purpose. We  determined that these data were sufficiently reliable to report funding and  financing that airports received from AIP, PFCs, airport-generated  revenue, capital contributions, and bond revenue for fiscal years 2013  through 2017.

To determine the projected cost of airports’ planned capital development  from fiscal years 2019 through 2023, we combined (1) FAA’s most recent  estimate for AIP-eligible development from its Report to Congress  National Plan of Integrated Airport Systems (NPIAS) 2019-2023, released  in September 2018, and (2) Airports Council International – North  America’s (ACI-NA) most recent estimate for AIP-ineligible development  for the same time period, as reported in its February 2019 report,  Terminally Challenged: Addressing the Infrastructure Funding Shortfall of  America’s Airports. We developed estimates of infrastructure  development costs for all national system airports, as well as by airport  type. We also presented estimates of AIP-eligible development costs by  project type; these estimates were based on estimates in the NPIAS  report. We did not, however, present estimates of AIP-ineligible data by  project type because ACI-NA’s data do not readily support such a  presentation. We presented all dollar amounts in 2017 dollars. To  identify changes in airports’ project costs of planned infrastructure  investments, we also reviewed FAA’s NPIAS report for fiscal years 2017– 2021 and ACI-NA’s report on airports’ capital development needs for  fiscal years 2017–2021, and we compared the estimates in those reports  to the fiscal years 2019–2023 estimates.

ACI-NA’s estimates of U.S. airports’ infrastructure project costs differ from  those of FAA’s due to scope, methodology, and other reasons. For  example, the ACI-NA cost estimate includes estimates for AIP-eligible  and AIP-ineligible projects, while FAA only includes AIP-eligible projects  as required by statute. ACI-NA’s estimate also includes projects that have  already identified funding sources as well as those that have not. By  comparison, FAA only includes projects without identified funding. The  methodology that FAA and ACI-NA use to develop their estimates also  differs. For example, FAA developed its estimates for the fiscal year 2019  through 2023 time period by reviewing information from airport plans that  were available through 2017. According to ACI-NA’s report on airports’  capital development needs for 2019–2023, its cost estimates for fiscal  years 2019–2023 are based on a survey of 86 airports completed in  2018. This number represents the airports with 90 percent of all  enplanements in 2017. ACI-NA survey respondents were asked to report  all infrastructure costs, including interest, construction and management  costs, architectural and engineering costs, and contingency costs. FAA’s  estimate does not include interest and contingency costs. We reviewed  FAA documentation describing the methodology for producing the NPIAS  cost estimate from airport-planning documents, and interviewed FAA  officials. We determined FAA’s estimate of AIP-eligible planned  infrastructure costs to be reliable for the purposes of our report. Similarly,  we reviewed ACI-NA’s methodology for developing its report on airports’  capital development needs for 2019–2023 and interviewed ACI-NA  representatives about their methodology for developing this estimate. We  determined that ACI-NA’s response rates, shares of enplanements  represented by the airports that responded, and ACI-NA’s estimation  methodology were sufficiently reliable for the purposes of presenting an  estimate of planned infrastructure costs for AIP-ineligible projects.

To obtain information about any challenges airports face in obtaining  airport funding and financing, we reviewed documents from and  conducted interviews with representatives from ACI-NA and airport  officials from 19 selected U.S. airports. We also interviewed  representatives from the American Association of Airport Executives.  Through our document review and interviews, we obtained information  about the sources of funding and financing that airports currently receive,  planned infrastructure projects, and challenges to obtaining funding and  financing for these projects. We selected airports representing different  hub sizes, airports with the highest planned development costs as  reported in FAA’s NPIAS fiscal years 2019–2023 report, airports with  increasing and decreasing enplanements in calendar years 2013 through  2017, airports that were mentioned in our literature review and that were  recommended by FAA and other stakeholders whom we interviewed, and  we considered the geographic location of the airport. We also visited  three locations from our selected airports to discuss and view examples  of airports’ planned infrastructure projects. The airports we visited  included Seattle-Tacoma International Airport, Spokane International  Airport, and Paine Field Airport. See table 4 for a list of all the airports  where we conducted interviews.

We also interviewed representatives from Airlines for America (A4A)—the  U.S. airline association—and representatives from eight selected U.S.  airlines to obtain their views on airport infrastructure funding and financing  issues. We selected airlines with the highest passenger traffic, as  measured by revenue passenger miles. In addition, we selected airlines  representing legacy and low cost carriers, and airlines that provide  service outside the United States. Selected airlines that we interviewed  were: Alaska Airlines, American Airlines, Delta Air Lines, Frontier Airlines,  JetBlue Airways, Southwest Airlines, Spirit Airlines, and United Airlines.  Collectively, the selected airlines transported about 90 percent of total  U.S. passenger traffic in 2018. Because we used a nonprobability sample  of airport and airlines to interview, our interviews are not generalizable.

Last, to obtain information about how foreign airports fund and finance  infrastructure development, we reviewed documents from and conducted  interviews with international airport associations, international aviation- industry stakeholders, and representatives from four of the five foreign  airports that we selected as case studies. These airports included:  Toronto Pearson International Airport (Canada); Frankfurt Airport  (Germany); Heathrow Airport (United Kingdom); Helsinki Airport (Finland);  and Changi Airport (Singapore). Representatives from Frankfurt Airport  provided us with written responses and documents for our review. See  table 5 for a list of international organizations and foreign airports where  we conducted interviews. For each of the five selected foreign airports,  we collected information about airport infrastructure funding at the  airports, including the sources of funding and financing the airports use,  types of projects the airport has planned, and factors they consider when  setting airport charges, among other topics. In addition, for each of our  case studies, we presented financial information in the appropriate foreign  currency as well as in U.S. Dollars (USD) in parentheses. We converted  foreign currency information to U.S. Dollars using Federal Reserve data  on foreign exchange rates. For 2018 data, we used the Federal Reserve  2018 annual rate. For 2019 data, we calculated a Federal Reserve 2019  annual rate.

The primary criterion that we used to select foreign airports as case  studies was the ownership model of the airport. To ensure our selection  included a mix of ownership models, we selected airports that fit each of  the following ownership models:

Not-for-profit, private corporation  As secondary criteria, we selected foreign airports with the highest  passenger traffic among international airports, airports which had service  by U.S. carriers, and airports located in regions where it would be feasible  to obtain information and interview officials. Because we used a  nonprobability sample of foreign airports to interview, our interviews are  not generalizable. While our case studies of foreign airports and their  experiences with funding and financing airport infrastructure are not  generalizable to all foreign airports, they provide a range of examples of  how foreign airports fund and finance airport infrastructure.

We conducted this performance audit from September 2018 to February  2020 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Jean Cook and Susan  Zimmerman (Assistant Directors); Maria Mercado (Analyst-in-Charge);  Pin-En Annie Chou; Jessica Du; Sharon Dyer; David Hooper; Delwen  Jones; Grant Mallie; Josh Ormond; Pam Snedden; Kelly Rubin; and  Rebecca Rygg made key contributions to this report.

U.S. airports collectively received $14 billion annually (on average) for infrastructure projects between fiscal years 2013-2017.

Their three largest funding sources are:

Funding from federal Airport Improvement Program grants

However, airport officials said that these combined funds may not be enough to cover the costs of their planned infrastructure projects. These projects are expected to cost an average of $22 billion annually between fiscal years 2019-2023.