Airport projects consist of one or more of the following elements: airside facilities (such as the runway(s) and hangers) and the landside facilities (such as terminal buildings and car parks). Such airports:
- are technically simple, although some items such as instrument landing systems and radars are complex
- contain relatively small amount of equipment which may need to be imported
- generate revenues from a wide variety of sources such as (a) airside: landing fees, aircraft parking fees, fuel fees and utilities, and (b) landside: passenger fees, car parking fees and shop leases
- serve the airline market which has shown a steady increase in size each year (but the Covid-19 pandemic in 2020 may change this). This increasing demand needs continuing investment (e.g. larger terminals, car parks, sometimes additional runways)
- generate revenues from one of two methods: compensatory and residual cost. In the compensatory method the airport operator sets the fees and takes the risks. In the residual cost method the airlines share the costs after taking credit for passenger side revenues
- may be set up as a Public Private Partnership (PPP) project with the airport owner paying the state for the concession
- are usually subject to International Civil Aviation Organization (ICAO) rules. These rules contain provisions for fair pricing and transparency.
- wide range of contractual arrangements. No two airports are the same. "Seen one airport and you have seen one airport".
- are subject to straightforward taxation calculations if the airport is in the private sector. Public sector owners usually do not pay corporate taxes
As passenger demand increases, there comes a time when the operator needs to invest in terminal and other buildings. It is not acceptable for the model to assume that revenues can go on increasing without such investment. To do this the model needs to contain a calculation of the required size of terminal for each period over the operating life of the project. The model should also assume that a sinking fund will be used to fund the additional investment when it is needed.
How Promoter handles Airport Projects
It assumes capital cost, revenues and operating costs from the following sources:
Runway: landing fees and passenger service charges
Terminal: rental space to airlines, concessions
Car park: rental space to public
Hangers: rental space
Promoter handles an airport with any combination of the elements described above. It currently only handles the compensatory method.
The user sets the initial design margin on the terminal size. When the passenger figures exceed this capacity, Promoter assumes the owner will invest and expand the terminal facilities to cope with the additional demand. It would be prudent to require the owner/operator to maintain a sinking fund for this capital investment.
Typical Project Cash Flows
The revenues increase in line with the growth in airline travel which is in the region of 5% per year. The operating costs will also grow at a similar rate. The terminal facilities will eventually reach their capacity limit and the owner will invest in further facilities. The diagram above illustrates two such expansions over the life of the airport.