9.1

True or False

There are two arguments as it relates to the setting of rates and charges.  One is that the airport offers an esstential public service. The other is that the airport should be a self sustaining as possible.

TRUE

9.2

What view of rate setting do the airlines typically adopt?

That the airport is a vital public facility and that the benefits are diffused into a common welfare and that taxes should therefore be used to support airport development and operations.

9.3

For an airport's revenue collection system to be successful, what six traits must it have?

1.  Fair

2.  Equitable

3.  Universally charged

4.  Reflective of overall airport economic realities

5.  Effective and efficient

6.  Have a positive effect on airport's PR

9.4

What four considerations should be taken into account prior to establishing and collecting fees at an airport?

1.  Local government structure

2.  The management philosophy

3.  Establishment of rates and charges philosophy

4.  Evaluation of airport's public image

9.5

True or False

When all is said and done, the real issue between users and airport management is not the setting of rates but rather financial risk allocation, amount of discretionary income the airport can make, degree of control over CIP decisions and degree of control over reallocation of facilities

TRUE TRUE TRUE OHHHH SOO TRUE

9.6

Which rate making approach results in a shifting of financial risk to the airlines in return for a negotiated limit to airport profit?

Residual approach

9.7

True or False

Under the residual approach to rate making, the airlines agree to pay all costs not covered by non-aeronautical income sources.

TRUE

9.8

What size of airports is residual rate making typically associated with?

Large Hub

9.9

What are the five benefits of having a residual approach to rate making?

1.  Greater security of revenue bond financing

2.  Subsidy of un-economic facilities

3.  Gauranteed annual cash flow

4.  Less impact of political decisions on airport facilities

5.  Transfer of risk to the airlines

9.10

What rate making approach results in the airport assuming financial risk and the airlines are charged the actual cost of the facilities and services they use regardless of the amount of non-aeronautical revenue generated?

Compensatory approach

9.11

True or False

The compensatory approach to rate making focuses on recovering costs by allocating operating expenses to the airlines.

FALSE

It is to ALL airport tenants, not just the airlines!

9.12

What are the four benefits of having a compensatory rate methodology in place?

1.  Allows airport management to manage facilities as a business

2.  Provides incentives and financial rewards for good management

3.  Permits discretionary use of surplus monies within limits

4.  Provides a greater degree of flexibility in managing the airport

9.13

What is the purpose of an airport use agreement?

It is a legally binding document that specifies how the risk, revenues and responsibilties are to be shared between the users and airport management.

9.14

What are the five current trends in lease agreements?

1.  Terms are becoming shorter

2.  More acceptance of a hybrid rate making method

3.  Replace residual with compensatory

4.  Maximization of airport revenues

5.  Revenue diversification

9.15

What are the six general reasons for the increase of costs and charges at US airports?

1.  Inflation

2.  Airline hubbing

3.  Increased operations

4.  Renewal and Replacement

5.  Noise Mitigation

5.  Government mandated programs

9.16

What are the four methods that airport management can put into lease agreements to effect rate adjustments?

1.  Adjustment clauses

2.  Reappraisal

3.  Consumer Price Index

4.  Producers Price Index

9.17

What are the two purposes of the "use-it-or-lose-it" provision in a lease agreement?

1.  Provide the airport with leasing flexibility

2.  Prevent an air carrier from "squatting" on a gate and blocking access for other carriers

9.18

What is the basic federal philosophy behind rates and charges?

That the airport should effect rates and charges in such a manner as to be as self sufficient as possible and, where that was not possible, then to enact a plan to achieve self-sufficiency.

9.19

The FAA/DOT Federal Policy on Rates and Charges was based on what three concepts?

1.  Fairness and reasonableness

2.  Strict historical valuation standard to core aeronautical facilities

3.  Intended to cover fees for use of aeronautical facilities

9.20

What three tests of reasonableness did the courts establish in order for a rate to be considered "fair and reasonable?"

1.  Is it based on some fair approximation of use?

2.  Does it discriminate against interstate commerce?

3.  It is excessive in comparison with the governmental benefit conferred?

9.21

What were the four major decisions to result from Kent County v. Northwest Airlines?

1.  Residual agreements are a result of negotiations

2.  Compensatory agreements does not require airline agreement

3.  Airport can set feets to meet immediate and long-term needs

4.  Reasonableness of rates not a legal but rather a DOT issue

9.22

What four arguements are used against the use of a peak pricing mechanism for rate setting?

1.  Discriminates agains smaller regional and/or GA aircraft

2.  Does not expand capacity

3.  Will block or limit GA and charter access to airport

4.  Regionals must schedule in the peak to meet connecting bank of flights

9.23

The amount of power a carrier has over an airport's CIP through majority-in-interest clauses is the distinguishing characteristic between what two types of carriers?

Signatory and non-signatory

9.24

True or False

MII clauses and exclusive gate leases can inhibit the ability of a new entrant from gaining access or improving service at an airport.

TRUE

9.25

The FAA form that an airport submits to the DOT within 120 days of the end of the fiscal year that details revenues, costs and any surplus is known as what?

FAA Form 5100-125

9.26

The FAA form that an airport submits to the DOT within 120 days of the end of the fiscal year that summarizes the amount paid to any service provided by other units of government is known as what?

FAA Form 5100-126

9.27

What are two common methods used to reslove a rates and charges dispute?

1.  Include alternative dispute resolution procedures in use and lease agreements

2.  Provide historic financial information for the two years prior

9.28

What is revenue diversion?

The legal or illegal transfer of airport generated revenue that is NOT commensurate with services rendered from the party who received the revenue.

9.29

The FAA considers what four activities as revenue diversion?

1.  Direct or indirect payments to those whose services and facilities are not provided or whose service is not reflective of airprot use

2.  Revenue for economic development, marketing and promotional activities

3.  In-lieu-of-taxes

4.  The loss of revenue when the airport charges less than fair market rent for non-airport related entities

9.30

What three methods are available for an airport to demonstrate compliance with the FAA's policy on revenue diversion?

1.  Sponsor self-certification

2.  Single Audit Act (SAA) audits

3.  3rd party complaints to the FAA OIG

9.31

What are the penalities for revenue diversion?

1.  Withdrawal or loss of AIP grants

2.  Civil penalties up to $50,000

9.32

What nine legitimate airport costs can be included in the rate base provided the airport bases them on historical cost and/or airport management can make a case for including them in the rate base?

1.  Airfield costs

2.  Public roadways

3.  Debt service

4.  Capital costs

5. Interest

6.  Return on investments

7.  Environmental costs

8.  Facility operations

9.  Multiple airports (airport proprietor must be the same and benefits accrue to the first airport)

9.33

How can an airport protect itself from bankruptcy of an air carrier?

(9 items)

1. Shorter lease terms

2.  Guarantees from a parent company

3.  Requiring financial reports

4.  Default clauses that allow for termination of leased space

5.  Short notice-to-cure clauses

6.  Contractual liens

7.  Use-it-or-lose-it provisions

8.  Requiring tenant performance by issuing immediate default notices

9.  Tenant escrows

9.34

What factors affect concession revenues generation at an airport?

(11 items)

1.  Local economic circumstances

2.  Terms of agreement

3. Inflationary impact

4.  Size

5.  Location

6.  Use

7.  Type of airport (O+D vs. Transfer)

8.  Enplanement levels

9.  Shifts of enplanements

10.  Customer preferences

11.  Prices

9.35

What are the three approaches airport management can take in the leasing of terminal concession space?

1.  Direct leasing and management of the program

2.  Third-party oversight

3.  Institutional operator as a master concessionaire

9.36

What are some common measurements of concession performance?

1.  Sales per enplaned passenger

2.  Sales per square foot

3.  Revenue percentage of total airp0rt budget

9.37

What type of lease agreement is often made with Fixed Base Operators (FBOs)?

A building or land lease

9.38

What three methods are used to generate revenue from an FBO?

1.  Minimum Annual Gaurantee (MAG)

2.  Percentage of Sales

3.  Fuel flowage fee (FFF)

9.39

The primary purpose of _____ is to guarantee a reliable stream of revenue.

Use agreements

9.40

At many commercial service airports, the largest source of revenue is from what?

Parking fees

9.41

What gives the airlines the legal ability to influence capital projects at the airport?

Majority-in-interest clause

9.42

True or False

Many airports use the Consumer Price Index and Producers Price Index to adjust rates and charges.

TRUE

9.43

The push for airprot privatization has been affected by what?

Grant assurances for governmental oversight of airport operations.

9.44

The framework for making managerial decisions and policies regarding the operation of the airport is closely tied to what?

The management philosophies on whether the airport exists for public good or as a commercial business.

9.45

What three factors are considered in determining equitable rates and charges in a terminal building?

1.  Amount of revenue producing space

2.  Costs of providing the various types of space

3.  Base building systems (HVAC, utilities, electrical provided?)

9.46

How are rates set for FBOs and General Aviation facilities?

High enough to cover the breakeven costs

9.47

What are some of the management techniques used to help lower airline expenses?

1.  Reducing airport debt costs through refinancing

2.  Adjusting airport staffing to meet service requirements

3.  Reorganizing and reevaluating airport procedures to increase efficiency

4.  Substantially lowering airline or tenant capital costs through tax-exempt financing

5.  Using local, discretionary and PFC funds in addition to federal and state grant programs

9.48

What is the purpose of a general idemnity clause?

To protect the airport owner from potential claims or losses because of the way a tenant conducts their operation.

9.49

True or False

Only the local share of an AIP funded project can be included into the rates and charges formula

TRUE

9.50

True or False

The DOT Rates and Charges Dispute Resolution is intended for parties to challenge a particular capital development project.

FALSE

9.51

How long after the receipt of a complaint does the DOT have to determine the reasonableness of a fee?

120 days

9.52

Within 30 days of filing a complaint, the DOT will determine what?

It the complaint is a "significant dispute"

9.53

True or False

Any new fee being disputed is still required to be paid to the airport until the matter is resolved.

TRUE