ENCLOSURE I

[GAO/RCED-97-179R Compliance With Federal Grant Requirements]

Transportation Issues

AIRPORT FINANCING: Compliance With Federal Grant Requirements

Case Study on Northwest Arkansas Regional Airport

Background
New Airport

  • Airport has an 8,800-foot runway with full instrument landing system for both runway ends.

  • Control tower is sponsor-funded and -operated.

  • Terminal has 78,000 square feet.

  • Runway's aggregate base has been laid; pavement will be poured in June 1997.

  • Airport to open in the fall of 1998.
Background
Total Estimated Cost
  • As of January 1997, the new airport's cost was estimated to be $107.4 million.

  • AIP will pay almost two-thirds of this cost, with $32.7 million already paid.
Percent total est. cost

Background
Actual and Proposed AIP Costs

Fiscal year AIP funds Purpose
1991 $ 601,538 Master plan study
1992 0
1993 656,904 Environmental impact statement
1994 9,019,075 Land acquisition and relocation
1995 12,371,000 Site preparation
1996 10,000,000 Site preparation
1997 7,000,000 Landside infrastructure and equipment
1998 3,500,000 Runway, taxiway, and apron construction
1999 5,000,000 Runway, taxiway, and apron construction
2000 7,000,000 Runway, taxiway, and apron construction
2001 7,000,000 Runway, taxiway, and apron construction
2002 7,000,000 Runway, taxiway, and apron construction
Total $ 69,148,517

Review Questions
  • Did FAA follow its process for awarding AIP grants to the new airport?

  • Did FAA follow its criteria for issuing the letter of intent (LOI) for the new airport?

  • Was the federal share for the new airport's highway connector consistent with other airport connector projects?

  • What are the key factors that will affect the new airport's viability?
Results in Brief
Grant Award Process
  • FAA followed its grant award process, which allows subjective assessment of needs.

  • FAA approved a grant based, in part, on its subjective assessment that the new airport would replace Drake Field as the region's commercial service airport, but

    • airlines serving Drake Field have made no firm commitment to use the new airport and

    • Drake Field is actively seeking to retain commercial service.
Results in Brief
LOI Criteria
  • FAA considered five key LOI criteria but did not demonstrate that two were met.

  • FAA has not defined what constitutes a significant capacity enhancement for projects at small airports.

  • GAO's concerns on benefit/cost analysis are

    • questionable assumptions and data were used and

    • information and conditions were not updated for the LOI.
Results in Brief
Highway Connector Funding
  • The federal share of funding for the new airport's connector was set at 95 percent by the National Highway System Designation Act of 1995.

  • Other statutory provisions allow states to obtain the 95 percent federal share for highway funding based on many factors.

  • A comparison with the federal share of funding for other airport connectors could not be made because FHWA does not maintain such information.
Results in Brief
New Airport's Viability
  • The viability of the new airport depends on

    • how much scheduled air traffic transfers from Drake Field,

    • obtaining capital and minimizing financing costs,

    • controlling remaining construction costs, and

    • the accuracy of projected nonairline revenues.

  • Some uncertainty exists with all of these factors.
AIP Grant Awards
FAA's Project Selection Process

  • FAA allocates AIP discretionary funds by applying a national priority system:

    • projects receiving funding typically fall within a specified priority range and

    • projects outside the priority range may still receive funding based on FAA's judgment.

  • The new airport received a ranking outside the priority range for funding.
AIP Grant Awards
FAA's Project Selection Process
  • FAA chose to fund the project because of

    • population growth between 1980-90 at 18.1 percent -- nearly twice the national average,

    • constraints at Drake Field (e.g., operating under FAA's waivers, weather, no precision landing approach, and constrained runway expansion), and

    • local community and airline support.

  • Once approved, future AIP funding is a priority.
AIP Grant Awards Questionable Assumption Used
  • FAA's justification was based on the assumption that the new airport would replace Drake Field as the region's commercial service airport, but

    • the city of Fayetteville stated its intent to retain commercial traffic at Drake Field and

    • no airline had committed to use the new airport, although some were interested.
LOI for New Airport
Key Criteria for an LOI
  • An LOI can be issued only

    • to a primary or reliever airport,

    • for airside development,

    • with financial commitment from the sponsor,

    • for projects that significantly enhance systemwide capacity, and

    • when the benefit/cost ratio is greater than 1.
LOI for New Airport
Compliance With Key Criteria
  • FAA did not demonstrate that two criteria were met.

    • First, FAA has not defined what constitutes a significant capacity enhancement for projects at small airports.

      • FAA determined that the new airport would add capacity by eliminating constraints affecting Drake Field.

      • It is not clear that the added capacity would be a significant enhancement.
LOI for New Airport
Compliance With Key Criteria
  • Second, the benefit/cost analysis included questionable assumptions and data and was not updated. For example, it

    • assumed a 100 percent transfer of air traffic to the new airport,

    • used unverified weather data, and

    • was not updated to reflect installation of a new instrument landing system that improves access to Drake Field.
New Airport Connector
Comparison With Other Connectors
  • The National Highway System Designation Act of 1995 set the federal share of funds for the new airport connector at 95 percent.

  • Other statutory provisions allow a 95 percent federal funding share -- for example, for states with a high percentage of Native American or federal lands.

  • A comparison with the federal share of other airport connectors can not be made because FHWA does not maintain such data.
New Airport Connector
Condition of Current Access Roads
  • Current access to the new airport is via state highways 264 and 12, which are inadequate for the anticipated increases in traffic.

  • Both highways are two-lane roads with narrow lanes and shoulders and sharp curves.

  • Highway 264 -- the airport's primary access -- has a higher accident rate than similar highways in the state.
Viability of New Airport
Air Traffic Projections
  • Ultimately, the new airport's viability depends on whether projected air traffic is realized.

  • Drake Field will compete for commercial traffic.

  • No airline has committed to use the new airport, but airlines are evaluating it.

    • The new airport's costs exceed Drake Field's ($10 vs. $1.50 per enplanement).

    • Airlines will consider operating costs.

    • Airlines will consider new market potential.
Viability of New Airport
Access to and Cost of Capital
  • Outside financing depends on privately placed and narrowly secured debt:

    • below-market bridge loans,

    • $29.5 million bond backed by LOI,

    • $48.0 million revenue bond, and

    • $10.0 million hangar bond (uncertain).
Viability of New Airport
Project Costs & Nonairline Revenues
  • The new airport's construction costs are within budgeted levels, but terminal construction has not started.

  • Nonairline revenues (e.g., concessions, parking, and tenants) seem reasonable if projected levels of passenger traffic are met.
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