FAA Regulations - Laserfiche WebLink

Home

• Chapter 12. ECONOMIC FEASIBILITY 81. General. As stated in the introduction to this advisory circular, the technical and economic feasi- bility of master plan considerations must be analyzed throughout the development of the plan. In the estab- lishment of airport requirements, the planner must decide whether it is feasible to expand the existing airport or look for a new airpoort site. In the site selection process, the feasibility of constructing an airport at each possible location must be considered. After site selection, the feasibility of various airport concepts must be tested before the final airfield/ terminal area/access plan is adopted. In each case, preliminary estimates must be made of capital invest- ment, anticipated revenues, and the ability of users to pay costs attributable to proposed improvements. Methods such as determination of facility cost per enplaned passenger, as is used by some airlines, may be helpful in establishing feasibility during the various stages of the plan's development. After these steps have been taken during the devel- opment of the plan, a final evaluation of economic feasibility should be made to establish what the finan- cial prospectus of the airport will be when the plan is implemented and to establish a financial plan for the implementation of the proposed improvements. The terms of economic feasibility should be based on short, intermediate, and long-range forecasts (approximately 5, 10, and 20 years) . In simple terms the practicality of the master plan will depend on whether the users of the airport im- provements programmed under the plan can produce the revenues (as may be supplemented by Federal, State, or local subsidies) required to cover annual costs attributable to capital investment plus the annual cost for administration, operation, and maintenance. This must be determined for each stage of development scheduled in the master plan. This consideration should include the cost of capital to be employed in the improvement, the annual costs of facilities, and prospective annual revenues. 82. Capital Investment. The schedule of im- provements proposed in the master plan, as well as the cost estimates of those improvements, should be developed as prescribed in Chapter 11. They should schedule construction by phases and break down the costs of proposed improvements by elements such as the passenger terminal area, cargo area, landing area, airport administration, and operations and mainte- nance areas. This will provide the basic capital in- vestment information needed for evaluating the feasibility of individual facilities. Estimated construc- tion costs should be adjusted to include allowance for architect and engineer fees for preparation of detailed plans and specifications, overhead for construction administration, allowance for contingencies, and al- lowance for interest during construction. Estimated costs of land acquisition, as well as the costs of ease- ments required to protect approach and departure areas, should be included. If the master plan pro- vides for the expansion of an existing airport, the cost of the existing capital investment may be required to be added to the new capital costs. 83. Break -Even Need. The annual amount which is required to cover cost of capital investment and costs of administration, operation, and mainte- nance can be called the break-even need. The reve- nues required to produce the break-even need are de- rived from user charges, lease rentals, and concession revenues produced by the airport as a whole. To be assured, however, that individual components of the airport are generating a proper share of the required annual revenues, the airport can be divided into cost areas to allow allocation of costs to such areas follow- ing generally accepted cost accounting principles. Carrying charges on invested capital will include de- preciable and nondepreciable items. 84. Nondepreciable Investment. Nondepreci- able items are those which will have a permanent value even if the airport site is converted to other uses. Nondepreciable items include the cost of land acquisiton, excavation and fill operations, and road relocations which enhance the value of the airport site. The annual cost of capital invested in non - depreciable assets depends in the first instance on the source of the capital used. If revenue or general obligation bonds have been issued to acquire the asset, 71