AIRPORT FUNDING

Aviation Industry Changes 

Affect Airport Development 

Costs and Financing

Statement of Gerald L. Dillingham, Ph.D., Director, 

Physical Infrastructure Issues

Testimony 

Before the Subcommittee on Aviation, 

Committee on Transportation and 

Infrastructure, House of 

Representatives

For Release on Delivery 

Expected at 10:00 a.m. EDT

Wednesday, June 18, 2014

GAO-14-658T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-658T, a testimony 

before the Subcommittee on Aviation, 

Committee on Transportation & Infrastructure, 

House of Representatives

June 2014

AIRPORT FUNDING

Aviation Industry Changes Affect Airport 

Development Costs and Financing

Why GAO Did This Study

U.S. airports are important contributors 

to the U.S. economy, providing mobility 

for people and goods both domestically 

and internationally and often 

contributing to the economic success 

of the communities served. Since 2007 

when GAO last reported on airport 

funding and its sufficiency to meet 

planned development of airport 

infrastructure, there have been 

significant changes in the aviation 

industry. During this time, federal 

support for airport development has 

declined. As deliberations begin in 

advance of FAA’s reauthorization in 

2015, Congress will consider the most 

appropriate type, level, and distribution 

of federal support for development of 

the national airport system. 

This testimony discusses trends in (1) 

aviation activity at airports since 2007, 

(2) costs of airports’ planned 

development, and (3) federal funding 

and airport revenues that may be 

available to finance development 

costs. This testimony is based on 

previous GAO reports on aviation from 

June 2007 through June 2014,

updated through June 2014 with 

interviews with key FAA and trade 

association officials and FAA airport 

funding data from 2005-2013. GAO 

shared the information it used to 

prepare this statement with FAA and 

incorporated its comments as 

appropriate. 

What GAO Found

Since 2007, economic pressures—including high fuel prices, the financial crisis, 

and the ensuing recession of 2007–2009—contributed to airline restructuring 

which has resulted in reductions in the number of commercial flights at airports, 

especially at medium- and smaller-sized airports. General aviation activity, which 

includes all forms of aviation except commercial and military, has also declined 

over the last decade. Because many sources of airport funding, including federal 

support and locally generated revenue, are tied to aviation activity, for many 

airports these trends mean less funding available for infrastructure development. 

According to Federal Aviation Administration’s (FAA) estimates, airports' total 

costs of planned infrastructure development eligible for federal support from 

FAA’s Airport Improvement Program (AIP) grants are about $42.5 billion for the 

2013 through 2017 period, or about $8.5 billion per year on average which was 

down 18 percent from $52.2 billion for the 2011 through 2015 period. FAA 

attributed the decline to airports’ choosing to defer projects due to reductions in 

aviation activity or having identified other funding sources, among other factors. 

Airports in the national airport system receive AIP entitlement grants for eligible 

projects, generally those that enhance capacity, safety, or environmental 

conditions. The U.S. airport association, Airports Council International—North 

America, estimated costs of other planned development not eligible for federal 

support, such as parking structures, totaled $4.6 billion per year for the 2013 

through 2017 period. Therefore, the total costs of planned development for the 

most current period are estimated to be approximately $13.1 billion per year. 

To fund infrastructure development, some airports, especially smaller sized 

airports, rely on AIP funds which have averaged a little over $3 billion in annual 

grants and have decreased in recent years. In addition, federally authorized 

Passenger Facility Charges (PFC) collections by airports totaled about $2.8 

billion in 2013, more than $100 million less than the peak in 2006, prior to the 

recession. PFCs have been capped at $4.50 per flight segment since 2000. To 

finance more than $7 billion in airports’ planned development costs not covered 

by AIP and PFCs, airports seek to generate more revenues. Growth in 

passenger related non-aviation revenue, for example from parking and 

concessions, has grown over 4 percent on average each year since 2004. 

Airports are also exploring more innovative options to boost revenue, including 

commercial retail and leisure enterprises, hotels and business centers, medical 

facilities, and specialized cargo handling and refrigerated storage facilities, 

among other developments. Airports have also sought private sector participation 

to finance airport development projects. For example to demolish old terminals 

and to construct, partially finance, operate, and maintain a new terminal at 

LaGuardia Airport in New York, the private sector will provide financing in return 

for a share of the airport’s revenues. However, many smaller airports may find it 

difficult to access private capital markets. 

View GAO-14-658T. For more information, 

contact Gerald L. Dillingham, Ph.D. at (202) 

512-2834 or dillinghamg@gao.gov.
Page 1 GAO-14-658T 

Chairman LoBiondo, Ranking Member Larsen, and Members of the 

Subcommittee:

I am pleased to be here today to discuss airport funding as you begin 

considering reauthorization of the Federal Aviation Administration (FAA). 

U.S. airports are important contributors to our economy, providing mobility 

for people and goods both domestically and internationally, and often 

contributing to the economic success of the communities served.

Since 2007, when we last reported on airports’ funding and its sufficiency 

to meet airports’ planned development costs,1

My statement today focuses on funding for airport development. 

Specifically, this statement discusses trends in (1) aviation activity at 

airports since 2007, (2) costs of airports’ planned development, and (3) 

federal funding and airports’ revenues that may be available to finance 

development costs.

aviation activity has slowed 

or even declined at many airports, while activity has become more 

concentrated at larger airports. This has affected the demands on 

infrastructure at these airports, as well as their finances. Also, federal 

support for airport development has declined during this period. In 

response, airports have leveraged their expected future revenues and 

have sought to increase their non-aviation revenues to finance past or 

current development. To meet future planned development costs, airports 

have sought an increase in the cap on Passenger Facility Charges (PFC), 

which are added to ticket prices along with federal taxes. However, 

airlines strongly oppose an increase because higher ticket prices could 

reduce passenger demand and therefore airline revenues.

This statement draws from our body of work, completed from June 2007 

through June 2014 examining airport and aviation-industry trends. 

Specific products from this work are cited throughout the statement. The 

products cited contain explanations of the methods we used to conduct 

this work. We have updated this work through June 2014 with interviews 

with key FAA and trade association officials and updated FAA airport 

funding data from 2005 through 2013. We also reviewed the President’s 

2015 budget proposal for FAA and obtained updated information about 

 1

GAO, Airport Finance: Observations on Planned Airport Development Costs and Funding 

Levels and the Administration’s Proposed Changes in the Airport Improvement Program, 

GAO-07-885 (Washington DC: June 2007).
Page 2 GAO-14-658T 

FAA program activities based on public sources. In addition, we have 

ongoing work examining airports’ funding and planned development, 

alternative PFC collection methods, and FAA’s airport privatization pilot 

program, on which we plan to issue reports later this year.

The work on which this statement is based was conducted in accordance 

with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our objectives. We believe that the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit 

objectives.

The United States has the largest, most extensive aviation system in the 

world with over 19,000 airports ranging from large commercial 

transportation centers transporting millions of passengers annually to 

small grass airstrips serving only a few aircraft each year. Of these, 

nearly 3,400 airports are designated as part of the national airport system 

and thus are eligible for federal assistance. The national airport system 

consists of two primary types of airports—commercial service airports, 

which have scheduled service and board 2,500 or more passengers per 

year, and general aviation airports, which have no scheduled service and 

board fewer than 2,500 passengers. FAA divides commercial service 

airports into primary airports (boarding more than 10,000 passengers 

annually) and commercial service nonprimary airports. The 389 primary 

airports are arranged into various types of hub airports—large, medium, 

and small hub, and nonhub—based on passenger traffic (see fig. 1).2

Passenger traffic is highly concentrated: 88 percent of all passengers in 

the United States boarded at the 62 large or medium hub airports in 

2012.3

 2

49 U.S.C. § 40102 (29), (31), (42).

3

The division of airports into categories is based on the previous year’s boardings at that 

airport as a percentage of the total number of boardings in the United States.

Background
Page 3 GAO-14-658T 

Figure 1: Commercial Airport Categories Based on 2012 Boardings of U.S. Passengers

Note: The term “hub” is defined in federal law to identify primary commercial service airports as 

measured by passenger boardings. These airports are grouped into four categories—large, medium, 

and small hubs and nonhub. (49 U.S.C. § 40102).

More than 2,500 airports in the national airport system are designated as 

“general aviation” (GA) airports. These airports range from large business 

aviation and cargo-shipment centers that handle thousands of operations 

a year to small rural airports with fewer operations per year but which 

provide vital access to the national transportation system for their 

communities.

Since 1946, the federal government has sponsored a grant program to 

fund airport development. Today, those monies come from Airport 

Improvement Program (AIP) grants. AIP is supported by the Airport and 

Airway Trust Fund (trust fund), which is funded in part by airline ticket 

taxes and fees.4

 4

In total, the trust fund collected $12.8 billion from various taxes in fiscal year 2013. The 

manner in which the trust fund is funded has not changed significantly since it was 

established in 1970, although attempts have been made, unsuccessfully, to implement a 

user fee system.

General aviation flights also contribute to the trust fund 

through a tax on noncommercial jet fuel. Airports in the national airport 

system may receive AIP entitlement grants based on the number of 

passengers and amount of cargo carried and may also compete for AIP 
Page 4 GAO-14-658T 

discretionary grants. FAA selects grantees for discretionary grants 

according to national priorities and objectives.5

FAA’s tool for identifying future airport capital projects that are eligible for 

AIP grants is the National Plan of Integrated Airport Systems (NPIAS). 

FAA relies on airports, through their planning process, to identify 

individual projects for funding consideration. Federal law

AIP grants can only be 

used for eligible projects, generally those that enhance capacity, safety, 

or environmental concerns, such as runway construction and 

rehabilitation, airfield lighting, and airplane noise mitigation. AIP 

appropriations totaled $3.35 billion in fiscal year 2013. The grants require 

a local match ranging from 5 to 25 percent, depending on the size of the 

airport and type of project.

6

PFCs, a federally authorized source of funding for airport development 

projects, are an airport-imposed fee of up to a maximum of $4.50 per 

boarded passenger per flight segment. A passenger may be charged no 

more than two PFCs on a one-way trip or four PFCs on a round trip (with 

a maximum charge of $18). The fee is collected by the airline on the 

passenger ticket and remitted to the airports (minus a small administrative 

fee retained by the airline). PFC collections can be used for the same 

and FAA’s rules 

establish which types of airport development projects are eligible for AIP 

funding. Generally, most types of airfield improvements, such as runways, 

lighting, navigational aids, and land acquisition are eligible, while hangars 

and interest expense on airport debt are not. AIP-eligible projects for 

airport areas serving travelers and the general public—called “landside 

development”—include entrance roadways, pedestrian walkways and 

movers, and space within terminal buildings, such as waiting areas that 

do not produce revenue and is used by the public. AIP-ineligible landside 

development projects include revenue-producing terminal areas, such as 

ticket counters and concessions, parking lots, and interest on construction 

bonds. Because the estimated cost of eligible airport projects greatly 

exceeds the available grant funding, FAA uses a priority system based on 

the type of airport and type of project to ration the available funds. The 

Airports Council International—North America (ACI-NA), a trade 

association for airports, also estimates future airport capital projects by 

surveying its airport members in the U.S.

 5

General aviation airports receive a maximum entitlement of $150,000.

6

49 U.S.C. § 47102 (3).
Page 5 GAO-14-658T 

types of projects as AIP grants, but are also allowed to pay interest costs 

on debt issued for those projects. The $4.50 maximum PFC was last 

increased in 2000. Collections totaled $2.8 billion in calendar year 2013. 

According to FAA, 388 commercial service airports were approved to 

collect PFCs as of April 2014.

Airports also fund development projects from revenues generated directly 

by the airport. Airports generate revenues from aviation activities such as 

aircraft landing fees and terminal rentals, and non-aviation activities such 

as concessions, parking, and land leases. Aviation revenues are a 

traditional method for funding airport development; however, because 

Department of Transportation (DOT) regulations generally limit aviation 

charges to the recovery of historical airport costs—rather than 

replacement costs—they may not fully fund new investment.

Generally, the level of aviation activity—whether commercial passenger 

and cargo or general aviation business and private aircraft—drives airport 

development and the monies that finance it. While only three new major 

airports have been built in the United States over the last three decades,7

While almost all airport sponsors in the United States are states, 

municipalities, or public authorities, there is a significant reliance on the 

private sector for finance, expertise, and control of airport assets. For 

billions of dollars have been invested in building new capacity and 

maintaining and upgrading existing airport infrastructure during that time.

In addition, according to the most recent FAA forecast, air traffic demand 

is projected to increase 2.7 percent per year from 2014 through 2034. 

Funding for both AIP and PFCs is linked to passenger activity. In this 

way, Congress aims to direct funds to where they are needed most.

Similarly, airport-generated revenues are also tied to aviation activity and 

the number of passengers who use airport-related services. These 

revenues are typically used to finance the issuance of local debt such as 

tax-exempt bonds, which for larger commercial airports constitutes more 

than half of their funding. Because of the size and duration of airport 

development—for example, planning, funding and building a new runway 

can take more than a decade and several hundred million dollars to 

complete—long-term debt is used to help finance these types of projects.

 7

Denver International Airport in Denver, CO; Northwest Arkansas Regional Airport in 

Bentonville, AR; and Austin-Bergstrom International Airport in Austin, TX.
Page 6 GAO-14-658T 

example, the majority of airport employees are employed by private 

sector entities, such as vendors and baggage handlers, and private 

companies also own and operate some airports. Under congressional 

authorization, since 1996, FAA has piloted an airport privatization 

program that relaxes certain restrictions on the sale or lease of airports to 

private entities.

Since 2007, economic pressures—including record-high fuel prices and 

the recession of 2007 through 2009—helped spark a wave of 

consolidation across the airline industry. For instance, Delta acquired 

Northwest in 2008, United and Continental merged in 2010, Southwest 

acquired AirTran in 2011, and US Airways and American Airlines received 

U.S. District Court approval for their proposed merger in April 2014.

As part of this restructuring and a more general focus on capacity 

decisions, U.S. airlines have reduced the number of flights they offer 

passengers in certain markets. We found in June 2014, based on our 

analysis of DOT data, that there were 1.2 million fewer scheduled 

domestic flights at large, medium, and small hub, and nonhub airports in 

2013 than during 2007.8 The greatest reduction in scheduled flights 

occurred at medium hub airports,9 which decreased nearly 24 percent 

from 2007 through 2013, compared to a decrease of about 9 percent at 

large hub airports and about 20 percent at small hub airports over the 

same time period. Medium hub airports also experienced the greatest 

percentage reduction in air service as measured by available seats (see 

fig. 2).10

 8 GAO, Airline Competition: The Average Number of Competitors in Markets Serving the 

Majority of Passengers Has Changed Little in Recent Years, but Stakeholders Voice 

Concerns about Competition, GAO-14-515, (Washington, D.C.: June 11, 2014).

9

The declines at medium hub airports can be partly attributed to closing hubs following 

recent airline mergers. For example, Memphis, Cleveland, and Cincinnati airports, all 

experienced significant loss of traffic after a merger. 

10 GAO-14-515.

Aviation Activity at 

Airports Has Slowed 

or Declined Since 

2007
Page 7 GAO-14-658T 

Figure 2: Percentage Change in Number of Flights and Available Seats by 

Commercial Airport Category, 2007–2013

However, because airlines are now better able to match capacity to 

demand, planes are fuller than they have ever been. As a result, 

passenger boardings did not fall as much as either the number of flights 

or available seats. According to our analysis of DOT’s data from 2007 

through 2012,11 passenger boardings decreased approximately 17 

percent at medium hub airports and about 2 percent at large hub airports, 

but increased more than 4 percent and about 3 percent at small hub and 

nonhub airports, respectively. 12

In addition, this April, we testified before this Committee that air service to 

small communities has declined since 2007 due, in part, to higher fuel 

costs, airline consolidation, and reduced demand both from declining 

populations in those communities and as a result of some passengers’

opting to drive to larger markets with more attractive service (i.e., larger 

airports in larger cities).13

 11Currently, 2013 boarding data are not yet available.

A 2013 Massachusetts Institute of Technology 

(MIT) study of domestic air service trends reported similar results and 

12FAA forecasts that total passenger boardings will have fully recovered by 2015, 

exceeding the previous peak in 2007 of 765.3 million boardings.

13GAO, Commercial Aviation: Status of Air Service to Small Communities and the Federal 

Programs Involved, GAO-14-454T (Washington, D.C.: Apr. 30, 2014).
Page 8 GAO-14-658T 

found that the prolonged economic downturn, high fuel prices, and 

capacity restraint contributed to a reduction in service.14

A significant decline in general aviation activity affects airports, especially 

those that rely on general aviation for revenue. For GA airports—which 

generate revenues from landing fees, fuel sales, and hangar rents—the 

loss of traffic can have a significant effect on their ability to fund 

development. A 2012 MIT study

The study also 

concluded that airlines have been cutting back on capacity to medium

hub and small hub airports far more than at the nation’s large hub 

airports.

15 that examined historical trends for GA 

operations at towered airports across the country indicates that annual 

operations have fluctuated since the late 1970s but that total GA 

operations dropped 35 percent from 2000 to 2010. According to the MIT 

study, the number of annual hours flown by GA pilots, as estimated by 

FAA, has also decreased during this period.16 Numerous factors affect the 

level of GA operations and include high fuel prices, the costs of owning 

and operating personal aircraft, and the total private pilot and GA aircraft 

populations. We recently found that the supply of future GA pilots is 

changing as fewer students enter and complete collegiate pilot-training 

programs and fewer military pilots are available than in the past.17

 14Michael D. Wittman and William S. Swelbar, Trends and Market Forces Shaping Small 

Community Air Service in the United States, Massachusetts Institute of Technology 

International Center for Air Transportation (May 2013).

15Kamala I. Shetty and R. John Hansman, Current and Historical Trends in General 

Aviation in the United States, Massachusetts Institute of Technology International Center 

for Air Transportation (Aug. 2012).

16Unlike commercial service aviation, GA operators are not required to report flight activity 

to FAA. FAA estimates GA flight hours on the basis of estimates derived from its annual 

survey of GA operators—the General Aviation and Part 135 Activity Survey. We found in 

2012 that the survey has long suffered from methodological and conceptual limitations, 

even with FAA’s efforts to improve it over the years. See: GAO, General Aviation Safety: 

Additional FAA Efforts Could Help Identify and Mitigate Safety Risks, GAO-13-36 

(Washington, D.C.: Oct. 4, 2012).

17GAO, Aviation Workforce: Current and Future Availability of Airline Pilots, GAO-14-232 

(Washington, D.C.: Feb. 28, 2014).
Page 9 GAO-14-658T 

FAA estimates that the annual costs of planned airport development 

projects that are eligible for AIP grants will average about $8.5 billion 

(2011 dollars) from fiscal years 2013 to 2017.18 In 2012, FAA estimated 

$42.5 billion (2011 dollars) in total 5-year costs of eligible development for 

fiscal years 2013–2017. This figure was down 18 percent from the 

estimated $52.3 billion (2009 dollars) costs for fiscal years 2011—2015 or 

$10.5 billion annually.19 FAA attributed the decline to several factors, 

including airport sponsors choosing to defer projects due to reductions in 

aviation activity, having identified other funding sources for projects, and 

projects’ having been completed. In developing the estimate, FAA 

reviewed approximately 23,000 existing projects at the five categories of 

commercial airports, GA airports, reliever airports,20

 18AIP projects are also eligible for PFC funds, but some PFC uses (such as debt service) 

cannot be funded with AIP.

and new airports and 

adjusted, deferred, or removed from consideration approximately 3,700 

projects (16 percent). FAA estimated that eligible development costs for 

all airport categories decreased between the two time periods, with the 

largest nominal decreases for large hubs ($2.7 billion, a 15 percent 

decrease) and medium hubs ($2.3 billion, a 31 percent decrease) (see 

fig. 3).

19We did not adjust FAA’s estimates to a common dollar year. Doing so would result in a 

larger percent decrease from the 2011-2015 estimate to the 2013-2017 estimate than the 

difference between the unadjusted estimates.

20Reliever airports are airports designated by the Secretary of Transportation to relieve 

congestion at commercial service airports and to provide improved general aviation 

access to the overall community. 49 U.S.C. § 47102 (23). These airports may be publicly 

or privately-owned. 

Airports’ Planned 

Development Costs 

Have Declined
Page 10 GAO-14-658T 

Figure 3: FAA’s Estimates of AIP-Eligible Planned Development Costs by Airport 

Category, Fiscal Years 2011–2015 and Fiscal Years 2013–2017

Note: 2010 dollars for fiscal years 2011–2015 costs and 2012 dollars for fiscal years 2013–2015 

costs.

Based on FAA’s estimates, the largest category of eligible planned 

development is to bring existing airports up to current design standards 

(28 percent), followed by reconstruction (replacement or rehabilitation of 

airport facilities, mostly pavement and lighting systems) (25 percent), and 

increasing airfield capacity (23 percent). Compared to fiscal years 2011–

2015, FAA’s estimates of planned development for fiscal years 2013–

2017 decreased across every development category except capacity, 

which saw a slight increase of 2.5 percent (see fig. 4). While large hubs 

were the only airport category that experienced an increase in the cost of 

planned capacity projects (from about $6.8 billion to about $8.1 billion, a 

19 percent increase), this increase was greater than the corresponding 

decrease for all other airport categories (from about $2.7 billion to about 

$1.7 billion, a 37 percent decrease). FAA is currently compiling the 
Page 11 GAO-14-658T 

estimated planned development costs for the fiscal years 2015–2019 

period, due to be published in fall 2014.

Figure 4: FAA’s Estimates of AIP-Eligible Planned Development Costs by Project 

Category, Fiscal Years 2011–2015 and Fiscal Years 2013–2017

Note: 2010 dollars for fiscal years 2011–2015 costs and 2012 dollars for fiscal years 2013–2015

costs.

ACI-NA also estimated airports’ costs of planned development for the 

fiscal years 2013–2017 period for projects eligible for federal funding as 

well as those not eligible. The total estimated costs of planned 

development for fiscal years 2013–2017 are $68.2 billion (2012 dollars) or 

approximately $13.6 billion per year on average.21

 21According to ACI-NA, the $68.2 billion estimate if adjusted for inflation would be $71.3 

billion. Because FAA estimates are not inflation adjusted, we present ACI-NA estimates in 

a similar context. 

This is about a 10 
Page 12 GAO-14-658T 

percent decline from ACI-NA’s prior estimate of $75.6 billion (2010 

dollars) for the prior fiscal years 2011–2015 estimating period.22

ACI-NA’s estimate of airport planned development costs is considerably 

larger than FAA’s because it is based on a broader base of projects and 

other factors. For example, ACI-NA’s estimate includes projects that are 

not eligible for AIP grants, while FAA’s estimate includes only AIP-eligible 

projects

ACI-NA 

attributed the decline to several factors, including the recent recession 

and challenging economic conditions, airline consolidation and capacity 

reductions, and projects’ having been completed or postponed beyond 

2017. ACI-NA’s estimates of eligible development decreased between the 

two time periods for all airport categories except medium hubs, which saw 

a 5 percent increase. The largest decreases were for large hubs ($2.3 

billion, a 6 percent decrease) and small hubs ($2.1 billion, a 27 percent 

decrease).

23

 22We did not adjust ACI-NA’s estimates to a common dollar year. Doing so would result in 

a larger percent decrease from the fiscal years 2011-2015 estimate to the fiscal years 

2013-2017 estimate than the difference between the unadjusted estimates.

(see table 1). ACI’s estimate of the annual cost of planned 

airport development for the 2013—2017 period that is not eligible for AIP 

grants is $4.6 billion (2012 dollars). We combined this with FAA’s 

estimate of the annual cost of planned airport development that is AIPeligible for the same time period—$8.5 billion—to estimate that the total 

annual costs for airports’ planned development is $13.1 billion. When 

comparing just the AIP-eligible portions of the respective estimates, ACINA’s estimate is 6 percent greater than FAA’s ($2.6 billion in total or $0.5 

billion annually).

23In addition, there are other differences in the way FAA and ACI-NA estimate airport 

planned development costs. First, while FAA’s estimates cover projects for every airport in 

the national system, ACI-NA surveyed its member airports in the U.S. (117 of which 

responded, consisting mostly of large, medium, and small hub airports) and then 

extrapolates a total based on cost-per-boarding calculations for large, medium, and small 

hub airports that did not respond. Second, FAA data are based on planned project 

information taken from airport master plans and state system plans, minus projects that 

already have an identified funding source, while ACI-NA includes all projects, whether 

funding has been identified or not. Third, FAA data includes only the portion of a project 

that is eligible for AIP, while ACI-NA estimates the total value project cost. Fourth, ACI-NA 

and FAA estimated planned development costs for the same 5-year time period, but the 

estimates were made at different times—the ACI-NA survey was completed in 2012, while 

FAA’s estimate is based on information available through 2011. Lastly, FAA’s estimates 

use 2011 dollars, whereas ACI-NA’s estimates use 2012 dollars.
Page 13 GAO-14-658T 

Table 1: Comparison of FAA’s and Airports Council International-North America’s 

Estimates of Airport Planned Development Costs 

Estimated costs, fiscal years 2013—2017 

Airport type 

Number of 

airports

FAA

(2011 dollars

in millions)

ACI-NA

(2012 dollars

in millions)

Large hub 29 $14,941 $35,449

Medium hub 36 5,055 8,869

Small hub 74 3,589 5,525

Nonhub 239 4,906 4,906

Commercial Service 

Nonprimary

a

121 670 670

General aviation 

a

2,563 9,777 9,777 a

Reliever 268 2,996 2,996

New airports 

a

25 610 -

Total 3,355 $42,545 $68,192

Source: FAA and ACI-NA.

a ACI-NA’s estimates for these categories of airports are drawn directly from FAA’s estimate.

Federal Support for 

Airport Development 

Declined, While 

Alternative Revenue 

Sources at Airports 

Have Grown
Page 14 GAO-14-658T 

Regarding AIP grants, annual appropriations decreased from about $3.5 

billion for fiscal years 2007 through 2011 to about $3.4 billion for fiscal 

years 2012 through 2014.24 In addition, the actual amount of AIP grants 

awarded annually has decreased 9.6 percent since 2007 from $3.3 billion 

in fiscal year 2007 to $3 billion in fiscal year 2013. Excluding grants to GA 

airports, AIP grants on a per-passenger basis have also decreased, from 

$3.80 per passenger in 2007 to $3.40 per passenger in 2012. Since then 

Congress transferred $253 million in unobligated funds from AIP to FAA 

operations to reduce furloughs for air traffic controllers in legislation 

passed in March 2014.25

The President’s 2015 Budget calls for a reduction in AIP appropriations to 

$2.9 billion. The Wendell H. Ford Aviation Investment and Reform Act for 

the 21st Century of 2000 legislates that if AIP appropriations fall below 

$3.2 billion and that provision is not changed, AIP entitlement grants will 

be reduced by half; the funds from the entitlement grant reductions would 

instead flow to AIP discretionary grants

Airport association representatives told us that 

these funds had been reserved for airport development.

26

With regard to PFCs, the federal PFC cap of $4.50 has not increased 

since 2000 and thus has not kept pace with inflation. According to FAA 

data, PFCs collections peaked in 2006 at $2.93 billion and then fell during 

the recession before rebounding to $2.81 billion in 2013. According to 

FAA, as of (April 2014, 388 commercial service airports (including of the 

largest 100 airports by passenger boardings) imposed a PFC. According 

to FAA, more than 90 percent of PFC collections go to large and medium

hub airports, but large and medium hub airports collecting PFCs must 

giving FAA greater decisionmaking over which airport projects receive funding.

 24For fiscal year 2009, in addition to the base appropriation of $3.5 billion, AIP received a 

supplemental appropriation of $1.1 billion under the American Recovery and 

Reinvestment Act of 2009 (Pub. L. No. 111-5 123 Stat. 115, 205) for a total appropriated 

amount of $4.6 billion. The appropriated amount for each fiscal year includes amounts for 

AIP grants to airports as well as for other components of the AIP program. For example, of 

the $3.5 billion appropriated for the AIP program in fiscal year 2010, $3.4 billion was for 

AIP grants, $93.4 million was for administrative expenses of the FAA’s Office of Airports, 

$22.5 million was for the Airport Technology Research Program, $15 million was for the 

Airport Cooperative Research Program, and $6 million was for the Small Community Air 

Service Development Program.

25Pub. L. No. 113-9, § 2, 127 Stat. 443 (2013).

2649 U.S.C. § 47114.

Federal Support for Airport 

Development Has 

Declined
Page 15 GAO-14-658T 

return a portion of their AIP entitlement grants, which are then 

redistributed to smaller airports.27

The President’s 2015 Budget and airports have requested an increase in 

the PFC cap to $8—which they say takes into account inflation that has 

occurred since 2000 and eliminating AIP entitlements for large hub 

airports.

In addition, we have found that many 

airports’ future PFC collections are already committed to pay off debt for 

past projects, leaving them little future PFC collections for new 

development. For example, at least 50 airports have leveraged their 

PFCs through 2030 or later, according to FAA data.

28 Airlines have generally opposed any increase in ticket taxes or 

fees, including PFCs, arguing that if an increase in taxes or fees is 

passed onto the consumers through an increase in ticket prices, it could 

reduce demand for air travel. For example, in December 2013, Congress 

approved allowing the Transportation Security Administration to raise the 

security fee currently applied to each ticket from $2.50 to $5.60 and to 

eliminate the cap on the number of fees that can be collected on a flight 

itinerary. Airlines opposed that increase based on concerns that it would 

hurt travel demand. We concluded in 2012 that a $3.00 increase in the 

security fee to $5.50 would reduce passenger boardings by about 1 

percent based on a review of passenger demand literature.29

While airports have primarily supported the current collection method, 

some told us they might consider using an alternative method if it allowed 

them to remove the PFC cap. In 2013, we examined alternative collection 

mechanisms, such as airport kiosks and internet-enabled devices such as 

We are 

currently assessing the impact of increases in the amount of the PFC on 

passenger demand, airport investment, and aviation users and plan to 

report our findings later this year.

 27Medium and large hub airports return 50 percent of their AIP entitlement funds if their 

PFC level is $3.00 or less and 75 percent of their entitlement if their PFC level is above 

$3.00 (49 U.S.C. § 47114(f)). FAA’s Small Airport fund—for use by small hubs, nonhubs,

general aviation, and reliever airports—receives 87.5 percent of the total returned amount, 

and the other 12.5 percent goes toward AIP discretionary funds (49 U.S.C § 47116).

28Airport trade associations ACI-NA and the American Association of Airport Executives 

have made prior proposals to raise the PFC cap to $8.50 with periodic adjustments for 

inflation.

29GAO, 2012 Annual Report: Opportunities to Reduce Duplication, Overlap, and 

Fragmentation, Achieve Savings and Enhance Revenue, GAO-12-342SP (Washington, 

D.C.: Feb. 28, 2012).
Page 16 GAO-14-658T 

smartphones that could be used to collect PFCs separately from the 

ticket. We found that none of these alternatives was better than the 

current method. Specifically, we determined that each of the alternatives 

negatively affected the passenger experience and the transparency of 

fees relative to the current method.30

Although support for airport development from AIP and PFCs has 

declined in recent years, so have planned development costs. In addition, 

we have not yet determined how much funding has recently been 

generated by the other major source of revenues for airport 

development—municipal bond proceeds, backed primarily by airport 

revenues. Therefore, the extent to which the gap between airport funding 

and planned airport development costs has changed since we last 

reported on this in 2007 is unknown. As discussed above, for the 2013 

through 2017 period, the total estimated annual costs for airports’ planned 

development projects is about $13.1 billion, $8.5 billion of which is eligible 

for AIP grants and PFCs. However, annually only about $6 billion in 

support has been available from AIP grants and PFC collections. The 

remaining $7 billion in annual planned development will need to be 

funded by locally generated revenues or deferred. In 1998, 2003, and 

2007, we found a funding gap between the 5-year airport planned 

development costs and historical funding. In 2007, the total gap was $1 

billion annually. This gap has been most acute for smaller airports that 

may have less access to capital markets.31 We are currently assessing 

whether this gap has grown or declined in light of declining federal 

funding and planned development and will report our findings to this 

Committee later this year.

 30GAO, Alternative Methods for Collecting Airport Passenger Facility Charges, 

GAO-13-262R (Washington, D.C.: Feb. 14, 2013).

31GAO, Airport Finance: Observations on Planned Airport Development Costs and 

Funding Levels and the Administration’s Proposed Changes in the AIP, GAO-07-885 

(Washington, D.C.: June 29, 2007); Airport Finance: Past Funding Levels May Not Be 

Sufficient to Cover Airports’ Planned Capital Development, GAO-03-497T (Washington, 

D.C.: Feb. 25, 2003); and Airport Financing: Funding Sources for Airport Development, 

GAO/RCED-98-71 (Washington, D.C.: Mar. 12, 1998).
Page 17 GAO-14-658T 

To help fund airport development, some commercial service airports have 

increasingly relied on non-aviation revenues. According to ACI-NA, nonaviation revenue has grown, on average, over 4 percent each year since 

2004, compared to a 1.5 percent increase in passenger boardings over 

the same period. In 2012, according to FAA data, non-aviation revenue 

accounted for approximately 45 percent of airports’ total operating 

revenues. Parking and ground transportation accounted for the greatest 

portion (41 percent) of passenger-related non-aviation revenue, followed 

by terminal concessions (20 percent) and revenue from rental car 

facilities (20 percent) (see fig. 5).32

Figure 5: Total Revenue and Non-Aviation Revenue for All Airports (2012, Dollars in Millions)

Notes: 2012 is the latest full fiscal-year data available in FAA’s CATS database.

Terminal Concessions include Retail & Duty Free, Food & Beverage and Terminal Services.

In addition to traditional commercial activities to generate non-aviation 

revenue, some airports have developed unique commercial activities with

stakeholders from local jurisdictions and the private sector to help 

 32Airports Council International—North America, 2013 (FY12) Benchmarking Survey, ACINA (Washington, D.C.: Oct. 17, 2013).

Alternative Revenue 

Sources at Airports Have 

Grown
Page 18 GAO-14-658T 

develop airport properties into retail, business, and leisure destinations.33

An increasing range of unique developments on airport property have 

contributed to non-aviation revenues, including high-end commercial retail 

and leisure activities, hotels and business centers, medical facilities, and 

specialized cargo handling and refrigerated storage facilities, among 

other developments (see fig. 6). For example, Miami International Airport 

was named one of the world’s top-10 airports for retail shopping, and the 

$1.7 billion international terminal at Los Angeles International Airport, 

which is currently under construction, will contain 140,000 square feet of 

premier dining, retail, and club lounges. By acting more like businesses 

than public utilities, airports have increasingly become more competitive 

with one another, providing services, including hotels and conference 

space, to attract and retain business travelers who might otherwise stay 

in a downtown hotel off airport property. For example, Dallas/Fort Worth 

International Airport owns a Grand Hyatt hotel inside Terminal D, Denver 

International Airport is building an attached Westin Hotel, and HartsfieldJackson Atlanta International Airport is considering an airport hotel inside 

or connected to its domestic terminal. Also, in an effort to generate 

revenue by leasing cold storage space to freight forwarders and 

businesses that transport low-volume, high-valued goods, including 

pharmaceuticals, produce, and other time-sensitive or perishable items, 

airports in Denver, Miami, and Indianapolis have built—or plan to build—

cold storage facilities on airport property.

 33Airport-centric development—development at and around airports, in part, to generate 

non-aviation revenue and stimulate regional development—has taken place at airports 

around the world. This form of development has also been referred to as aerotropolis or 

airport-city. For more information on factors that may support this form of development, 

see: GAO, National Airspace System: Airport-Centric Development, GAO-13-261 

(Washington, D.C.: Mar. 28, 2013).
Page 19 GAO-14-658T 

Figure 6: Examples of Expanded Services Offered in Some Airport Terminals

In addition, airports can fund airport improvements with private sector 

participation. Public-private partnerships, involving airports and 

developers, have been used to finance airport development projects 

without increasing the amount of debt already incurred by airports. FAA’s 

noise land disposal program, for example, allows airports to sell or lease 

land that had been used in the past for noise abatement purposes and is 

no longer needed for noise abatement. FAA also allows airports with 

excess available land to use the land for certain types of commercial 

development, pending approval by the FAA.34

 34FAA restricts certain types of land use on or near airport properties and also restricts 

lease or sale of airport-owned land. Such restrictions are established in grant assurances 

that airports accept as a condition of receiving federal land or funds. Airport operators 

must obtain FAA’s concurrence to lease airport land or facilities to developers if the 

operator has obtained grants from FAA. Local planning officials have also affected 

particular land uses near airports through planning policies related to noise, environmental 

quality (air, water, wetland, species protection), and zoning restrictions.

Airport operators must 
Page 20 GAO-14-658T 

obtain FAA’s concurrence prior to leasing airport land or facilities to 

private developers to help ensure, among other things, that the 

developer’s plans will be compatible with airport operations and that the 

airport receives fair market value for the use of its property. The ability to 

lease airport land has allowed some airport operators to generate 

revenue through temporary leases of airport property for manufacturing, 

warehousing, and freight-forwarding operations while also reserving the 

land for future aviation needs. For example, solar farms have been built 

on airport land in Indianapolis and Denver; officials at Dallas/Fort Worth 

International Airport have leased a portion of the airport property for oil 

extraction; and land at Alliance Airport near Ft. Worth, Texas, has been 

leased for agricultural uses, such as cattle grazing and a golf course (see 

fig. 7). In addition, Miami International Airport entered a $512 million 

public-private partnership to develop 33 acres of airport property. The 

developer will finance construction and pay rent and a percentage of the 

revenues to the airport in return for a 50-year lease.
Page 21 GAO-14-658T 

Figure 7: Examples of Development Efforts on Airport Property Outside of Terminals

Privatization of airports is another option that some public sector airport 

owners have considered to obtain private capital for airport improvement 

and development, among other things. However, FAA’s Airport 
Page 22 GAO-14-658T 

Privatization Pilot Program (APPP), which was established in 1996 to 

reduce barriers to airport privatization has not led to many privatizations.35

Only one airport—San Juan Luis Muñoz Marín International Airport in 

Puerto Rico –has been privatized, and currently there is only one active 

applicant in the program.36

In conclusion, this year commemorates one century since the first 

commercial airline flight,

Nonetheless, airports are using the private 

sector to finance airport development or manage airports outside of the 

APPP. For example, the Port Authority of New York and New Jersey has 

recently received responses for its request for proposals for the private 

sector to demolish old terminal buildings and construct, partially finance, 

operate, and maintain a new Central Terminal Building for LaGuardia 

Airport in New York City in return for a share of terminal revenues. In 

addition, Gary/Chicago International Airport in Gary, Indiana, outside 

Chicago has entered into a public-private partnership with a private sector 

firm to both operate the airport and economically develop off-airport 

property. We are currently examining airport privatization and the APPP 

and plan to report our findings later this year.

37

 35GAO, Airport Privatization: Issues Related to the Sale or Lease of U.S. Commercial 

Airports, 

and in that relatively short time span, 

commercial aviation has grown at an amazing pace to become a 

ubiquitous and mature industry in the United States. While commercial 

aviation still has many exciting prospects for its second century, it also 

faces many challenges, chief among these are ensuring that airports can 

continue to accommodate millions of flights and hundreds of millions of 

passengers every year. Maintaining and upgrading this vital infrastructure 

will require the combined resources of federal, state, and local 

governments, as well as private companies’ capital and expertise.

Effectively supporting this development involves focusing federal 

resources on the FAA’s key priorities of maintaining one of the world’s 

safest aviation system and providing adequate system capacity, while 

allowing maximum flexibility for local airport sponsors to maximize local 

GAO/RCED-97-3 (Washington, D.C.: Nov. 7, 1996).

36Stewart Airport in New York was privatized in 1999 under a 99-year lease to a private 

sector operator, but in 2007, the Port Authority of New York and New Jersey assumed the 

lease after the private sector operator ceased to operate airports.

37On January 1, 1914, the St. Petersburg-Tampa Airboat Line became the world’s first 

scheduled passenger airline service, operating between St. Petersburg and Tampa, Fla. It 

was a short-lived endeavor—only 3 months.
Page 23 GAO-14-658T 

investment and revenue opportunities. In deciding the best course for 

future federal investment in our national airport system, key 

considerations for Congress will be to balance the interests of all aviation 

stakeholders, including airports, airlines, and most importantly 

passengers and shippers, to help ensure a safe and vibrant aviation 

system.

Chairman LoBiondo, Ranking Member Larsen, and Members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to respond to any questions that you may have at this time.

For further information about this testimony, please contact Gerald L. 

Dillingham at (202) 512-2834 or dillinghamg@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this statement. Key contributors to this testimony 

include Paul Aussendorf (Assistant Director), Amy Abramowitz, Jessica 

Bryant-Bertail, Jonathan Carver, Ben Emmel, John Healey, David 

Goldstein, Greg Hanna, David Hooper, Delwen Jones, Jennifer Kamara, 

Maureen Luna-Long, Faye Morrison, Eleni Orphanides, Justin Reed, 

Melissa Swearingen, and Pamela Vines.

GAO Contacts and 

Staff 

Acknowledgments

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