Update on the Federal Aviation Administration Airport Privatization Pilot Program

Posted on July 6, 2010 by Berne C. Hart
Many in the aviation community have been monitoring the progress of Chicago's efforts to privatize Midway International Airport (MDW) under the Federal Aviation Administration’s (FAA) Airport Privatization Pilot Program. The City faces a July 31, 2010 deadline to either select a private operator for MDW or seek an extension of the City’s slot in the Program from the FAA. Chicago is the only approved applicant for the Program’s only large-hub slot. If the application is approved, MDW would be the first privatized large-hub airport in the U.S. 

 

The Airport Privatization Pilot Program was established in 1996 by Section 149 of the Federal Aviation Administration Authorization Act, which added a new Section 47134 to Title 49 of the U.S. Code. Section 47134 authorizes the Secretary of Transportation and, through delegation, the FAA Administrator, to exempt a sponsor of a public use airport that has received Federal assistance from certain Federal requirements in connection with the privatization of the airport by sale or lease to a private party.

The Administrator may exempt the sponsor from some or all of the requirements to: (1) use airport revenues only for airport related purposes; (2) pay back a portion of Federal grants upon the sale of the airport; (3) return airport property deeded by the Federal Government upon transfer of the airport. The Administrator is also authorized to exempt the private purchaser or lessee from the requirement to use all airport revenue for airport related purposes, to the extent necessary to permit the purchaser or lessee to realize a profit from operation of the airport.

In establishing the Pilot Program, Congress also placed limitations on the number and types of airports eligible to participate. Section 47134(d)(1) provides that if the applications of five airports are approved, at least one must be a general aviation airport. Section 47134(d)(2) provides that no more than one of the airports approved may be a large-hub airport (an airport with more than one percent of revenue passenger boardings in the U. S. in the prior calendar year on an aircraft in service in air commerce, as defined in 49 U.S.C. section 47102(10)).

FAA final approval of a privatization application is based on a number of conditions, including the private operator’s ability to ensure continued access to the airport on reasonable terms, continued safe operations, ensure continued maintenance and improvements, adequate security, mitigation of noise and environmental impacts, and to provide for the continued operation of the airport in case of the private operator’s bankruptcy or other default. Privatization must be approved by at least 65% of the air carriers serving the airport and air carriers whose aircraft landing at the airport during the preceding calendar year had a total landed weight of at least 65% of the total landed weight of all aircraft landing at the airport during that year.

Since the Pilot Program was implemented, nine airports have applied for privatization. Five have withdrawn or terminated their application. The four active applicants are: MDW; Gwinnett County Briscoe Field (Lawrenceville, GA); Louis Armstrong New Orleans International Airport (LA); and Louis Munoz Marin International Airport (San Juan, PR). With the approval of Chicago’s preliminary application, all applications from other large-hub airports will be placed on a standby list. One slot remains available for a non-large-hub or general aviation airport.
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Plan Now, If You Plan to Sell Later: Restrictions on Use of Airport Revenues

Posted on September 17, 2008 by Chevalier, Allen & Lichman, LLP

If you own a commercial airport that has accepted federal grants and you have sold all or part of the airport’s property, you, no doubt are aware of the provisions of 49 U.S.C. § 47107(l)(5)(A). That provision of the Federal Aviation Reauthorization Act of 1996, as amended, limits any request to recoup capital an operating costs from the sale of airport property to those expenses that occurred within 6 years after the expense has been incurred: 

any request by a sponsor or any other governmental entity to any airport for additional payments for services conducted off of the airport or for reimbursement for capital contributions or operating expenses shall be filed not later than 6 years after the date on which the expense is incurred

49 U.S.C. § 47107(l)(5)(A). That new terminal that the City spent $1 million out of its General Fund on seven years ago? According to § 47107(l)(5)(A), you cannot recoup the expense now. Those operating deficits that the airport has been running for the past ten years that the City has covered? Only the last six years can be recouped. Although you may not be planning on selling all or part of the airport now, or even five years from now, it makes sense, because of § 47107(l)(5)(A) to ensure that the owner’s expenses are currently being paid by the airport by requesting reimbursement on a timely basis.

 

 

Section 47107(l)(5)(A) is the outgrowth of the FAA’s and Congress’ concern about “revenue diversion” by the owners and operators of commercial airports. The Airport and Airway Improvement Act of 1982, as amended, which established the AIP, requires sponsors to use all of an airport’s revenue for its capital and operating costs and not divert revenue for nonairport purposes. 49 U.S.C. § 47107(b). The intent of this provision was to ensure that airports receiving federal grants also used the revenue generated at the airport to pay for its costs. In 1987, the restrictions on revenue diversion were tightened to limit the use of airport expenditures to activities that were not only “directly” but also “substantially” related to air transportation. Then, in 1991, in response to a FAA request, the Department of Justice issued an opinion stating that public owners of airports are entitled to unreimbursed capital and operating expenses from the proceeds of an airport’s sale or lease. The opinion also stated that no time limits exist on the right to receive compensation for these expenses. However, the Federal Aviation Reauthorization Act of 1996 added § 47107(l)(5)(A) limiting requests to recoup capital and operating costs to those made no later than six years after the expense occurred.  

The statute of limitations was later included in the FAA’s “Policy and Procedures Concerning the Use of Airport Revenue.” 64 Fed.Reg. 7696 (Feb. 16, 1999). However, the FAA soften the blow a bit by stating that its policy “provides flexibility to structure future contributions to permit reimbursement over a longer period of time in order to promote the financial stability of the airport.” 64 Fed.Reg. at 7702. Moreover, the FAA Policy states that “if the contribution was a loan to the airport, and clearly documented as interest-bearing loan at the time it was made, the sponsor may repay the loan principal and interest from airport funds.” 64 Fed.Reg. at 7718.   Thus, in order to avoid having to settle for reimbursement of the past six years of expenses when an airport (or part thereof) is sold, the owner/operator of a commercial airport should ensure that it files its requests for reimbursement with the airport for the owner’s capital contributions and operating expenses on an ongoing basis, and not wait for airport property to be sold.
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