State and Local Government Programs

State and local funding is most often used as matching funds in order to receive federal support, although direct funding of maintenance projects is sometimes provided. During the 1990s, state and local funds accounted for 7 percent to 11 percent of airport capital development expenditures.

Funding of Annual Airport Operating Costs and Expenses

Most commercial service airports are self – sustaining5 due to the receipt of rents, passen­ger and shipper expenditures, and business users. Entities doing business at airports as
concessionaires, such as car rental companies, res­taurants, book stores, clothing outlets, and airlines pay rents for the space they occupy and also usu­ally pay a gross receipts tax on the total income they receive from their business at the airport.

Airport Facilities Use Arrangements

Use of airport facilities, buildings, and land is normally arranged under use and lease agree­ments between the airport management and the user. Most of these agreements are between the airport owner and the airlines. These agreements generally fall into three separate categories: residual, compensatory, and hybrid agreements. In addition, the airlines normally pay landing fees based on the gross weight of the landing aircraft.

Residual Use and Lease Agreements

Under this type of agreement, which is more typ­ically found in airport operating practices before deregulation, airlines agree to assume the finan­cial risk of running the airport. Airlines guarantee that the airport will not lose money by agreeing to make up the difference between total cost of operations and the total of non-airline revenue received by the airport.

These types of agreements originated dur­ing the period of regulation when traffic vol­umes were low and the airlines were much more powerful than after deregulation. The trade-off an airport makes when entering into this kind of agreement is two-fold: [18]

These Mil clauses allow the airline to approve or disapprove, or at least delay, specific capital projects, the costs of which would be included in the future charges to the airline.

Some of these capital projects (like con­struction of new gates) could benefit new entrant airlines into the airport, which would be adverse to the interests of the signatory airline. The right to disapprove the project, of course, is anticom­petitive, so that the airline has been placed in a position of unfair advantage over its would – be competitor. These clauses are also against the public interest in having better, bigger, and more efficient airport facilities for use by pas­sengers. Mil clauses, however, do not give the airline approval authority over projects funded by AIP, PFCs, or special facility bonds, and airlines are legally barred from exercising veto rights over PFC-funded projects. Eighty-four percent of residual use and lease agreements have Mil clauses, and the average length of the agreement at large hub airports is 28 years.

As these agreements mature and come up for renegotiation, airports are taking a different approach with carriers. As an example, Dallas/Ft. Worth International recently replaced a 35-year residual use agreement that had been signed in 1974 with the “hybrid” model (discussed below) and limited the contract to a 10-year period. Indianapolis Airport Authority also reached a new 5-year deal with some of its airlines. Atlanta Hartsfield International extended its Delta leases for 7 years in 2010. These shorter-term agree­ments are becoming the norm in the industry. These agreements are not one-way streets favor­ing the airport, however, as negotiations include various concessions to the airlines in some areas, including reduced landing fees.