G:\APP002\PFC-Related Issues to be Cons idered During Airport Privatization.docx PFC-Related Issues to be Considered During Airport Privatization Revised August 17, 2012

1. New or amended PFC collection authority. A private entity that is approved to function as an airport sponsor (hereafter “the sponsor”) under the Pilot Priv atization Program may be eligible to impose and use PFCs for PFC-eligible projects, consistent with the statutory and regulatory provisions applicable to other public agencies. All of the same rules appl y. By law, PFC revenues must be for projects that preserve or enhance capacity, safety, or security; reduce noise; or enhance competition. The FAA may approve PFCs to make reasonable payments fo r market-based debt service on bonds issued to construct an eligible, approved project.

2. Use of PFCs to retire or convert public (tax-exempt) bonds

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a. Existing PFC-Backed Bonds. If the airport has existing debts backed by PFC revenues (whether pledged or merely committed), then the spons or may request a PFC amendment to increase the collection authority in order to pay a slightly hi gher coupon rate on private (taxable) debt required to replace public (tax-exempt) bonds. However, th e FAA must be able to make a determination on the reasonableness of any such action. Before approving such an amendment, by law the FAA

would have to be able to make a determination that the cost is reasonable. The new debt structure would have to be competitive in nature (i.e., with the debt instruments publicly marketed to secure the most favorable rates possible), and the FAA would consider the historical difference in coupon rates between public (tax-exempt) and private (taxable) debt as part of this determination, as well as other considerations such as maturity period, amortization schedules and other criteria. Any such amendments would requi re airline consultation because it would represent a change in the method of financing the project. It would be imperative that the specific terms of such changes in debt structure be clearly presented to the airlines in the notice of consultation as well as in the actual amendment request.

The sponsor would also have to submit suffici ently detailed requests for PFC amendments to clearly show which the PFC-eligible projects in which applications would be affected by the proposed changes.

b. Other Existing Bonds. If the airport has other existing debts that have not been backed by PFCs, for PFC-eligible projects, then the sponsor woul d have to file new PFC application(s) in accordance with the normal requirements for PFC ap plications. Again, the FAA would have to

be able to make a determination on the reasonablen ess of the costs, including the financing costs.

c. Amendments requiring consultation. Any amendments to existing applications would require airline consultation, in accordance with FAA Or der 5500.1, Chapter 12, Section 12-6(c), because it would represent a change in the method of financing the project.

3. Notices and timelines . The sponsor is urged to review all of the requirements for PFC applications and amendments, set forth in FAA Order 5500.1. The FAA highlights the following as a courtesy:

a. Airline notice and consultation. The sponsor would have to provide at least 30 days advance

notice to the airlines of the scheduled consultati on, copying the FAA. The notice must contain sufficient detailed information regarding the pr oposed application(s) and/or amendment(s), including a clear disclosure of the net change in collection authority and a clear disclosure of what portion of the change is directly attributable to the proposed privatization. It is not sufficient to simply state that the principal am ount is unchanged—there must be a clear disclosure of the change in financing costs.

Due to the anticipated complexity, the FAA str ongly encourages the sponsor to allow the FAA to review a draft of the airline notice and public noti ce. The sponsor would then have to submit the PFC application(s) and/or amendment(s) within six (6) months of the consultation, but no sooner than 30 days after airline consultation.G:\APP002\PFC-Related Issues to be Cons idered During Airport Privatization.docx b. Public notice. Same as for the airline consultation.

c. FAA review time. For any new PFC application(s), the FAA has 120 days from the date a final, complete application is submitted before issui ng a decision. Due to the complexities involved with retiring and/or converting debt, these acti ons will not be delegated to the Region. Amendments can normally be faster but in this context they may require extensive review.