Ruth Haines
Airport proprietors are advised to avoid creating revenue surpluses that exceed the amounts used for airport system purposes and other allowable purposes, including reserves and funds to facilitate financing and cover contingencies. While the Federal Aviation Administration (FAA) does not typically investigate airport fees, a progressive accumulation of surplus aeronautical revenue may prompt an inquiry to ensure compliance with fair and reasonable terms. The total airfield revenue recovered from airport users cannot surpass the combined allowable costs of the airports, and proprietors must adhere to specific practices regarding indirect costs in their fees.
| Characteristics | Values |
|---|---|
| Airport proprietors' obligations | To make the airport available on fair and reasonable terms |
| Airport revenue | Should only be expended on statutorily allowable purposes |
| Airport revenue accumulation | May warrant an FAA inquiry into the airport proprietor's application of revenues to the local airport system |
| Total airfield revenue | Should not exceed the total allowable costs of the airports |
| Indirect costs | May be included in aeronautical fees if based on a reasonable and transparent cost allocation formula |
| Airport owners and operators | Should not seek to create revenue surpluses that exceed the amounts to be used for airport system purposes and other allowable purposes |
| Fees charged to nonaeronautical users | May exceed the costs of service to those users, but the surplus funds must be used in accordance with § 47107(b) |
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What You'll Learn
FAA inquiry into excessive revenue surpluses
The FAA will not usually investigate the reasonableness of a general aviation airport's fees unless there is evidence of a progressive accumulation of surplus aeronautical revenues. The FAA's policy regarding airport rates and charges states that airport owners and operators should not seek to create revenue surpluses that exceed the amounts to be used for airport system purposes and other allowable purposes. The total airfield revenue recovered from users of both airports cannot exceed the total allowable costs of the two airports combined.
The FAA may inquire into whether aeronautical fees are consistent with the airport proprietor's obligations to make the airport available on fair and reasonable terms if there is a progressive accumulation of substantial amounts of surplus aeronautical revenue. This inquiry will also extend to the airport proprietor's application of revenues to the local airport system. The FAA expects each airport sponsor to determine a reasonable frequency for publishing information about carrier incentive programs, as a "one size fits all" solution is not appropriate due to variations in how incentive programs are utilized at different airports.
In general, the FAA relies on airport proprietors, aeronautical users, and the market and institutional arrangements within which they operate to ensure compliance with applicable legal requirements. Direct federal intervention is available when needed. The FAA's oversight and administration of the Air Carrier Incentive Program (ACIP) ensure that the program does not increase fees for non-participating carriers or other aeronautical users and tenants of the airport. ACIPs must also be funded from a source that does not involve the use of funds necessary for the proper operation and maintenance of the airport.
Airport proprietors must comply with certain practices when establishing fees and generating revenues. Indirect costs may only be included in aeronautical use fees if they are based on a reasonable and transparent cost allocation formula calculated consistently for other units or cost centers within the control of the airport sponsor. Additionally, airport proprietors may only expend revenue generated by the airport for statutorily allowable purposes.
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Accumulation of surplus aeronautical revenues
Airport proprietors are expected to comply with applicable legal requirements when establishing fees and generating revenues from all sources. While the Federal Aviation Administration (FAA) does not typically investigate the reasonableness of airport fees, a progressive accumulation of surplus aeronautical revenues may trigger an inquiry to ensure compliance with fair and reasonable terms.
The FAA's inquiry would examine whether the airport proprietor is applying revenues appropriately to the local airport system and if the fees are consistent with the obligation to make the airport accessible on fair and reasonable terms. This inquiry is warranted to prevent airport proprietors from creating excessive revenue surpluses that exceed the amounts required for airport system purposes and other allowable expenditures under 49 U.S.C. 47107(b)(1).
To ensure compliance with revenue usage regulations, airport proprietors must only expend revenue generated by the airport for statutorily allowable purposes. These purposes include reasonable reserves and other funds to facilitate financing and cover contingencies. Additionally, the total airfield revenue recovered from users cannot surpass the combined allowable costs of the airports.
Indirect costs can be included in aeronautical fees, but they must be based on a reasonable and transparent cost allocation formula consistently applied across different units or cost centers within the control of the airport sponsor. This approach ensures that airport sponsors do not create excessive revenue surpluses and that aeronautical revenues align with the costs of providing aeronautical services and facilities, including reasonable capital expenses.
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Airport proprietor's obligations
The specific legal rights of each airport proprietor may differ, but the general parameters of airport proprietary rights are shaped by a common set of legal elements. Most airport proprietors are initially empowered to operate by a broad grant of power that derives from state law and are subject to a common set of state law limitations.
Federal law then further shapes these state law rights. Federal regulations may supersede them under the doctrine of preemption, and federal contract obligations may modify them. Airport proprietors assume an obligation to make the airport available "on reasonable terms and without unjust discrimination". Proprietors must make the airport as "self-sustaining as possible under the circumstances existing at the particular airport". These and other obligations place limits on the proprietor's range of discretion when managing its facilities.
Grant contract obligations are generally enforced by the Federal Aviation Administration (FAA). Consistent with the general contractual policy to support these rights, the FAA's standard of review is often deferential to an airport proprietor's decisions. Under that standard, the FAA seeks to determine whether the airport owner is reasonably meeting the federal commitments. The FAA will not ordinarily investigate the reasonableness of a general aviation airport's fees absent evidence of a progressive accumulation of surplus aeronautical revenues.
However, the progressive accumulation of substantial amounts of surplus aeronautical revenue may warrant an FAA inquiry into whether aeronautical fees are consistent with the airport proprietor's obligations to make the airport available on fair and reasonable terms. In accordance with relevant federal statutory provisions governing the use of airport revenue, airport proprietors may expend revenue generated by the airport only for statutorily allowable purposes. The total airfield revenue recovered from the users of both airports cannot exceed the total allowable costs of the two airports combined.
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Statutorily allowable purposes
Airport proprietors are responsible for ensuring that fees are set reasonably and that revenues are used only for statutorily allowable purposes. The Federal Aviation Administration (FAA) will not usually investigate the reasonableness of an airport's fees unless there is evidence of a progressive accumulation of surplus aeronautical revenues.
In general, airport proprietors, aeronautical users, and the market and institutional arrangements within which they operate, are relied upon to ensure compliance with applicable legal requirements. Direct federal intervention is available if needed.
- Airport system purposes
- Reasonable reserves and other funds to facilitate financing and to cover contingencies
- Reasonable capital costs of providing aeronautical services and facilities
- Costs of shared services through the allocation of shared costs
- Indirect costs based on a reasonable and transparent cost allocation formula
- Local airport system purposes, if warranted by the progressive accumulation of substantial amounts of airport revenues
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Indirect costs
When it comes to airport rates and charges, there are guidelines in place to ensure that airport proprietors do not create excessive revenue surpluses. According to the Federal Register, airport proprietors should not aim to generate revenue surpluses that surpass the amounts intended for airport system purposes and other allowable expenditures outlined in 49 U.S.C. 47107(b)(1). This includes reasonable reserves and funds to facilitate financing and cover contingencies.
While nonaeronautical fees may surpass the costs of serving those users, the surplus funds from these fees must be utilized in accordance with § 47107(b). The Department of Transportation assumes that limitations on revenue usage and market forces will keep aeronautical revenues in check over time.
The inclusion of indirect costs in aeronautical fees should be justified and transparent. It is recommended that airport proprietors employ reasonable methodologies to determine fees, such as historical cost valuation, direct negotiation with aeronautical users, or fair market value assessments. By following these guidelines, airport sponsors can ensure that their indirect cost calculations are fair and consistent, preventing the creation of excessive revenue surpluses.
In conclusion, airport sponsors must exercise prudence in their financial management to avoid excessive revenue surpluses. While indirect costs can be factored into aeronautical fees, it must be done transparently and consistently. Adhering to established practices and methodologies ensures compliance with regulatory requirements and promotes fairness in airport rate-setting.
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Frequently asked questions
The FAA will investigate the reasonableness of an airport's fees if there is evidence of a progressive accumulation of surplus aeronautical revenues. The FAA will inquire whether aeronautical fees are consistent with the airport proprietor's obligations to make the airport available on fair and reasonable terms.
Airport revenue surpluses are used for airport system purposes and other purposes, including reasonable reserves and other funds to facilitate financing and cover contingencies.
Airport proprietors can determine fees through methodologies such as historic cost valuation, direct negotiation with aeronautical users, or objective determinations of fair market value.
