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A Guide to Transportation Funding Options

Aviation Funding – Summary of Funding Strategies

For more detailed information on innovative financing for airports, please see the Airport Cooperative Research Program's report Innovative Finance and Alternative Sources of Revenue for Airports [PDF] .


Airport and Airway Trust Fund (AATF)

The Airport and Airway Trust Fund (AATF), created by the Airport and Airway Revenue Act of 1970, is the primary source of federal funding for nation's system of airports. AATF funding currently comes from aviation related excise taxes and collections related to passenger tickets, passenger flight segments, international arrivals/departures, cargo waybills, aviation fuels, and frequent flyer mile awards from non-airline sources like credit cards. The AATF was established to help in the development of a nationwide airport and airway system as well as to fund investments in air traffic control facilities.

The AATF provides for about 82 percent ($11.2 billion in 2006) of the Federal Aviation Administration's total funding. The remainder of FAA funding is received from the General Fund. FFA has four primary accounts:

Current Aviation Excise Tax Structure
(Updated 2/7/07, Federal Aviation Administration)
Applied to Passengers
Aviation Taxes Comment Tax Rate
Domestic Passenger Ticket Tax Ad valorem tax Rate is indexed by the Consumer Price Index starting 1/1/02
$3.00 per passenger per segment during calendar year (CY) 2003
$3.10 per passenger per segment during CY2004.
$3.20 per passenger per segment during CY2005.
$3.30 per passenger per segment during CY2006
$3.40 per passenger per segment during CY2007
Domestic Flight Segment Tax "Domestic Segment" = a flight leg consisting of one takeoff and one landing by a flight Rate is indexed by the Consumer Price Index starting 1/1/02
$3.00 per passenger per segment during calendar year (CY) 2003
$3.10 per passenger per segment during CY2004.
$3.20 per passenger per segment during CY2005.
$3.30 per passenger per segment during CY2006$3.40 per passenger per segment during CY2007
Passenger Ticket Tax for Rural Airports Assessed on tickets on flights that begin/end at a rural airport.

Rural airport: less than 100K enplanements during 2nd preceding CY, and either 1) not located within 75 miles of another airport with 100K+ enplanements, 2) is receiving essential air service subsides, or 3) is not connected by paved roads to another airport
7.5% of ticket price (same as passenger ticket tax)

Flight segment fee does not apply.
International Arrival and Departure Tax Head tax assessed on passengers arriving or departing for foreign destinations (& U.S. territories) that are not subject to passengers ticket tax. Rate is indexed by the Consumer Price Index starting 1/1/99
Rate during CY2003 = $13.40
Rate during CY2004 = $13.70
Rate during CY2005 = $14.10
Rate during CY2006 = $14.50
Rate during CY2007 = $15.10
Flights between continental U.S. and Alaska or Hawaii Rate is indexed by the Consumer Price Index starting 1/1/99
$6.70 international facilities tax + applicable domestic tax rate (during CY03)
$6.90 international facilities tax + applicable domestic tax rate (during CY04)
$7.00 international facilities tax + applicable domestic tax rate (during CY05)
$7.30 international facilities tax + applicable domestic tax rate (during CY06)
$7.50 international facilities tax + applicable domestic tax rate (during CY07)
Frequent Flyer Tax Ad valorem tax assessed on mileage awards (e.g., credit cards) 7.5% of value of miles
Assessed on Freight/Mail
Aviation Taxes Comment Tax Rate
Domestic Cargo/Mail 6.25% of amount paid for the transportation of property by air
Assessed on Aviation Fuel
Aviation Taxes Comment Tax Rate
General Aviation Fuel Tax Aviation gasoline: $0.193/gallon
Jet fuel: $0.218/gallon
Commercial Fuel Tax $0.043/gallon

Source: Federal Aviation Administration

State and Local


The Hawaii Department of Transportation Capital Improvements Budget [PDF] includes $307 million for FY 2010 and $326 million in FY 2011 for state airports. The Department is responsible for "equipping, regulating and protecting the state system of public airports and related facilities" as well as planning, designing, developing, acquiring and constructing new and expanded airports and facilities and restructuring existing facilities.

The state role in aviation funding is generally limited to the allocation of funds through state aviation commissions and departments of transportation. Some states also maintain a state aviation capital fund that receives dedicated funding from various sources including general fund revenues. Local and county governments tend to take a more active role in management of airport facilities as they are often the owners of such facilities. Funding at the local level may come from general revenue sources, such as sales and property taxes.

Several states maintain a dedicated Aviation Fund. The State of Iowa maintains just this sort of account. These funds receive revenues from a number of sources, including appropriations from state General Funds.

Aircraft Excise Taxes

These types of taxes are generally imposed on the purchase price of eligible aircraft. Exemptions will often be made for the purchase of aircraft for certain uses (such as purchases by governmental agencies for emergency services) or for certain users (such as disabled veterans.) Definitions of eligibility, exemptions and the amount of the tax levy varies from state to state.

Aviation Fuel Taxes


California Aviation User Taxes [PPT]
Presentation on California's aviation fuel tax and related aviation taxes and fees (California Department of Transportation)

Like fuel taxes levied on the purchase of motor fuel for use in automobiles, taxes can be levied on the purchase of fuel used for aviation purposes as well. As with traditional motor fuel taxes, aviation fuel taxes are generally levied by the gallon.

Airport Revenues

The majority of funds for airport development are derived from operational income generated by the airports themselves.

Large Hub Airports - Revenues
Aviation Operations Landing Fees $1,601,668,626 13.1%
Terminal Rentals $2,314,762,403 19.0%
Other Aviation $632,572,601 5.2%
Subtotal $4,549,003,630 37.3%
Non-Aviation Operations Parking $1,543,550,783 12.7%
In-Terminal Concessions $1,120,796,143 9.2%
Rental Cars $734,007,150 6.0%
Other non-aviation revenue $740,527,926 6.1%
Subtotal $4,138,882,002 33.9%
Non-Operations Passenger Facility Charges $1,667,716,410 13.7%
Grant Receipts $723,055,176 5.9%
Other non-operating revenue $1,114,372,343 9.1%
Subtotal $3,505,143,929 28.7%
TOTAL $12,193,029,561

Source: Federal Aviation Administration, CATS Annual Financial Reports

Medium Hub Airports - Revenues
Aviation Operations Landing Fees $586,279,065 13.3%
Terminal Rentals $616,497,587 14.0%
Other Aviation $321,253,565 7.3%
Subtotal $1,524,030,217 34.6%
Non-Aviation Operations Parking $789,267,930 17.9%
In-Terminal Concessions $220,709,073 5.0%
Rental Cars $386,365,077 8.8%
Other non-aviation revenue $171,052,156 3.9%
Subtotal $1,567,394,236 35.6%
Non-Operations Passenger Facility Charges $538,114,984 12.2%
Grant Receipts $438,877,590 10.0%
Other non-operating revenue $338,610,921 7.7%
Subtotal $1,315,603,495 29.9%
TOTAL $4,407,027,948

Source: Federal Aviation Administration, CATS Annual Financial Reports

Small Hub Airports - Revenues
Aviation Operations Landing Fees $150,238,700 7.3%
Terminal Rentals $220,968,757 10.7%
Other Aviation $170,936,168 8.3%
Subtotal $542,143,625 26.4%
Non-Aviation Operations Parking $312,951,144 15.2%
In-Terminal Concessions $76,104,912 3.7%
Rental Cars $184,855,683 9.0%
Other non-aviation revenue $139,735,155 6.8%
Subtotal $713,646,894 34.7%
Non-Operations Passenger Facility Charges $184,765,587 9.0%
Grant Receipts $501,515,604 24.4%
Other non-operating revenue $114,840,170 5.6%
Subtotal $801,121,361 38.9%
TOTAL $2,056,911,880

Source: Federal Aviation Administration, CATS Annual Financial Reports

Terminal Leases

One substantial source of funding is the leasing of terminals for use by airlines. Lease agreements and their stipulations are unique to each airport and are developed based on a number of factors but typically reflect actual or reasonably anticipated operations and maintenance costs.

Parking Revenues

A major source of nonairline revenue is parking revenue. Innovative ideas for enhancing parking revenues include premium parking services, parking operational enhancements and off-airport parking percentage fees.

Premium parking services
Parking Operational Enhancements
Off-Airport Parking Percentage (or Privilege) Fees

Privilege fees are calculated as a percentage of the company's gross revenues. The fees are charged to off airport parking lots that benefit from the presence of the entire airport. These fees have generated revenues that exceed $1 million per year at some large airports.

Rental Car Revenues

Revenues from rental cars companies can be structured in one or more of the following ways:

Terminal Concessions

Airports can receive a significant percentage of revenues from leasing space within terminals to private vendors such as food service providers, print media outlets, and souvenir stores. Concession sales have increased dramatically as airlines discontinue meal services and changes in airport security require that passengers arrive early. Concession partnerships are turning airport terminals into places that effectively serve the dining and shopping needs of customers.

There are several strategies being undertaken to reinvent terminal concessions programs. These include:

Airport operators are taking a more competitive look at retail space through different approaches:

Advertising Programs

With more time spent inside airports, customers have more time to view advertisements. Technological innovations offer opportunities for airport revenue enhancements:

Effective sponsorship programs may defray costs while providing valuable customer amenities. Opportunities also exist for advertising in nontraditional locations such as moving walkways, escalators, and websites to generate extra revenue. In Johannesburg, South Africa, advertising has been placed on an unpaved airfield to maximize advertising revenues.

Commercial Development and Land Use

Depending on the type and size of airport, there can be a variety of revenue producing leases from nonairline operations. Non-aviation commercial development can create additional revenue sources without increasing the number of aircraft or the level of operations. This enables the building up of airport reserves and provides for additional improvements to facilities.

Industrial uses include importing/exporting, manufacturing, warehousing, research and development, cargo facilities, bulk storage, outside storage and petroleum exploration and mineral rights.

Commercial uses include restaurants, commercial office space/complexes, hotels, recreational centers, training facilities, small business centers, retail sales, industrial businesses, car rental agencies, automobile dealers, golf courses, movie theaters, agricultural uses and recreational facilities.

Passenger Facility Charges (PFC)

More Information

Primer on Passenger Facility Charges [PDF] (Airports Council International)

PFC Monthly Reports

With passage of the Aviation Safety and Capacity Expansion Act of 1990, the U.S. Congress authorized certain airports to collect PFCs for qualifying enplaned passengers to be used on certain projects. Eligible projects include those that:

PFCs are levied on a per-enplaned passenger basis and are capped at $ 4.50 per-enplaned passenger. Airports wishing to impose PFCs must submit an application to the Federal Aviation Administration and undergo a rigorous approval process to ensure transparency and need.

Bonding and Credit Assistance

General Obligation (GO) Bonds

These types of bonds are issued to finance airport capital improvements and are backed by general tax revenues from the city, county, or state that owns and operates the airport. The airport operator generally pays debt service from airport based revenues. Occasionally, a general local tax may directly pay debt service of proceeds used to fund airport projects. GO bonds are a widely used financing tool for small airports because they have lower issuance costs, can offer stronger credit with lower interest rates (because they are backed by the full faith and credit of the issuing entity), and they have no coverage requirement. Early airport construction was characterized by a strong reliance on these types of bonds, as airports themselves were unable to generate sufficient revenue to finance infrastructure development.

General Airport Revenue Bonds (GARBs)

These types of bonds are the most commonly issued bonds for airport infrastructure development. Since WWII, GARBs have replaced GO bonds as the preferred means of financing new airport construction, expansion or improvement. A GARB's credit rating is based on revenues generated from airline rates and charges, parking, rental car operations, terminal concessions, other leases, interest, and any other revenue generated by the airport seeking to issue the GARB.


Interest Rate Swaps: The Good, Bad & Ugly [PPT]
Presentation discussing interest rate swaps (from the City of Cleveland)

Other types of innovative bonds related to GARBs include:

Passenger Facility Charge (PFC) Bonds and Bonds backed by Customer Facility Charges (CFCs)

PFC bonds include a pledge of PFC revenues and/or are to be repaid in part or in full from PFC revenues. CFCs are collected by rental car companies from their customers at certain airports to pay for operating expenses and debt service for consolidated rental car facilities. CFC revenues can be structured similarly to the PFC bonds: combined flow of funds, direct debt service offset, back up pledge of subordinate airport revenues and stand alone CFC bonds.

Different approaches to these kind of bonding approaches incorporate:

Single-Tenant and Multi-Tenant Special Facility Bonds

Single-Tenant Special Facility Bonds are issued by a single tenant and are used to finance unit passenger terminals, portions of terminals, hangar and maintenance facilities, cargo buildings, and ground equipment support facilities for the exclusive use of the tenant airline. They are backed solely by the airline corporations pledge to repay the debt. Multi-Tenant Special Facility Bonds have been issued to fund multi-tenant terminal, fuel storage and distribution facilities. Since these types of bonds are backed by multiple tenants and thus a more diverse revenue base, they have greater credit strength than single-tenant special facility bonds.

Potential new tax credit bonds (TCBs) for baggage screening infrastructure

The TCB process involves the issuance of taxable debt by state and local governments or other non-federal entities for designated capital purposes. Bondholders receive annual tax credits that can be applied against their federal income tax liability instead of cash interest payments. Principal is repayable by the issuer from nonfederal sources. The bond structure is such that the principal is repaid in a lump sum at bond maturity, which maximizes the value of the tax credit. The issuer makes periodic deposits to a sinking fund to provide for principal retirement at maturity.

This tax subsidy encourages private investment in desired infrastructure through lower-cost debt capital for the issuer. Possible pledge revenue streams include:

Commercial Paper

Commercial paper is a money market security that is usually used to manage cash flows as opposed to financing long-term investments. Commercial paper is commonly bought by money funds, is generally regarded as a safe investment and thus relatively low risk. It therefore comes with a correspondingly low interest rate. It is used most often by large airports or airports that operate independently as authorities. Many airports, such as those that operate as enterprise funds of a city, county or state and have centralized financial management, may find the tool more difficult to utilize.

Bond Anticipation Notes (BAN) and Grant Anticipation Notes (GAN)

A BAN is a short term financing mechanism that provides capital in advance of issuing long terms loans. In some cases, commercial paper may be a more-cost effective mechanism. A GAN is a short term financing mechanism that provides capital in advance of receiving expected grants.

Pooled Credit

Most airport operators do not have major issues accessing credit markets. For those that do, there are opportunities for pooling credit.

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