Metro Airport revenues are derived from two primary sources: airline revenues and non-airline revenues. Non-airline revenues come from airport concessions which pay a fee to the airport (see Table 3).

TABLE 3

METRO AIRPORT REVENUE
1985

Revenue Source:

Gross Revenue:

 

 

Non-airline revenue/concessions:

 

Automobile Parking

$13,917,000

Rental Cars

$5,020,000

Food and Beverage

$2,721,000

In-flight catering

$2,147,000

News and gift shops

$1,735,000

Other

$4,317,000

Subtotal/concessions:

$29,857,000

 

 

Other revenue:

 

Certain facility rentals

$2,298,000

Security reimbursement

$93,000

Utility fees

$1,984,000

Interest Income

$2,811,000

Miscellaneous

$539,000

Subtotal/other revenue:

$7,725,000

 

 

Airline Revenue:

 

Terminal Building rentals

$2,951,000

Facilities Use Fees

$2,204,000

"Activity Fees"

$4,138,000

Subtotal/Airline revenue:

$9,293,000

   

Gross Airport Revenue:

$46,875,000

Source: Prospectus for Airport Revenue Bond sale issue by Wayne County, 1986, p. B-73.


Non-airline revenue from concessions includes gross receipts from automobile parking at the airport (less a management fee paid to the parking lot management), 10% of gross receipts on rental cars, a percentage of gross revenue on food and beverages from airport restaurant operators (ranging from 5% to 13.81%) and a percentage of gross receipts from other sales including the airport hotel. The airlines also reimburse the airport for security and utilities.

The most complex and unpredictable revenue source is the fees charged to the airlines for landing. These fees, included in a charge called "activity fees" are charged each airline as a rate per thousand pounds of Approved Maximum Landing Weight payable by each airline to airport for such aircraft as have landed at the airport during the year. [10]

Activity fees cover "all rentals, fees and charges for the use of the premises, facilities, rights, licenses, services and privileges" incurred by the airline. [11]

In a non-regulated business environment, the airport would endeavor to change fees and charges to raise sufficient revenue to perform capital construction while earning a profit. However, the Basic Agreement between the airlines and airport, in effect for most airlines since 1959 and not expiring until 2009, has provisions which limit the total revenue to the airport.

The Basic Agreement provides that the "revenue requirement" for the airport is calculated by adding the following items:

  1. Airport expenses for maintenance, operation and administration;

  2. 133-1/3% of the amount of principal and interest due for outstanding Senior Lien Airport Revenue Bonds;

  3. 125% of the amount of principal and interest due on Subordinate Lien Airport Revenue Bonds;

  4. Deposits into the Bond Reserve Accounts, the Operation and Maintenance Reserve Fund and the Renewal and Replacement Fund required by the bond ordinances; and then subtracting all other airport revenues received. [12]

In effect, the total costs (including capital costs) of the airport are calculated and the revenue from all sources other than the airlines is subtracted. The remainder is then divided among the airlines based on the landing weight of each airline's aircraft during the year. Thus, airline revenue for the airport equals activity fees multiplied by landed weight.

In a normal business income statement, the basic formula is:

(REVENUE — EXPENSES) = PROFIT

Under the above contract, the income formula would be:

(EXPENSES — NON-AIRLINE REVENUE) = AIRLINE FEES

Importantly, any increase in revenue to the airport from concessions or sources other than the airlines results in an equal reduction in revenue from the airlines. Thus, fee changes under the current contract cannot produce a profit for the airport.

In 1986, the airlines paid activity fees of $0.436 per thousand pounds of landed weight. After the year ended, increased concession revenue and higher than anticipated airport traffic resulted in a reduction in the activity fee to $.29. The difference was refunded to the airlines.

Following are graphic illustrations of the relationships between airline activity fees and non-airline revenue under the current Basic Agreement.

Figure 1 shows the relationship between activity fees and landed weight. If landed weight increases, the activity fee will decrease. Aggregate airline fees cannot change as a result of airline activity.

Total airport revenue must equal expenses. (See Figure 2) When revenue from other sources increases, aggregate airline fees must decrease (C1 to C2). The relationship between activity fees and landed weight remains the same, activity fees mmust decrease.

When capital expansion began in 1986 for the new Republic hub, activity fees began increasing dramatically to provide revenue for the new bonded indebtedness. The activity fee rose to $0.46 in 1987 and $0.76 in 1988.

The Basic Agreement also binds the airport in determining the cost of its operations. For example, the Basic Agreement prohibits the airport from paying for "operation, maintenance and administration in excess of the amounts reasonably and necessarily required." [13]

Any excess revenue to the airport for debt retirement can only be used to retire debt and the airport cannot incur additional debt without the concurrence of the airlines. [14] This, in effect, gives the airlines veto power over all airport construction projects.

Under the existing agreement between the airport and airlines, the airport lacks incentives to operate efficiently. The contract simply provides that the airport not incur costs "in excess of amount reasonably and necessarily required."