Reports and guidance documents; availability, etc: Airport proposals involving Federal aid; risk analysis policy,

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Federal Register: October 19, 1999 (Volume 64, Number 201)NoticesPage 56377-56379From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr19oc99-119

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Policy Regarding Risk Analysis for Airport Proposals Involving Federal Aid

AGENCY: Federal Aviation Administration (FAA); DOT.

ACTION: Notice of interim policy; request for comments.

SUMMARY: This notice announces the issuance of an interim policy establishing procedures to help proponents identify and analyze the principal risks related to the feasibility of certain airport development proposals for which Federal aid may be requested. Risk analysis is typically eligible for Federal aid when conducted in conjunction with, or in anticipation of, airport master and system planning studies. This interim policy describes the types of proposals for which risk analysis is warranted and the analytical procedures that are typically involved. The primary purpose of the policy is to ensure that proponents are informed early in the planning process about certain risks involving the financial feasibility of development, so that they can make appropriate adjustments. An interim policy is being issued in lieu of a proposed policy to help ensure that development proposals currently being planned are handled in a consistent manner. In formulating this interim policy, the FAA has considered and recognized the analytical practices currently accepted and in use as producing reasonable results. This policy does not intend to disturb those practices, but rather to apply them uniformly. This interim policy may be revised prior to issuance of a final policy pursuant to comments received.

DATES: Comments must be submitted on or before December 20, 1999. Late filedcomments will be considered to the extent possible.

ADDRESSES: All comments concerning this proposed policy must be delivered or mailed to Larry Kiernan, Manager, Airport Capacity Branch, Federal Aviation Administration, Room 623, 800 Independence Avenue, SW., Washington, DC 20591.

FOR FURTHER INFORMATION CONTACT: Larry Kiernan, Manager (APP-410), (202) 267-8784, Airport Capacity Branch, National Planning Division, Office of Airport Planning and Programming, Federal Aviation Administration, Room 623, 800 Independence Avenue, SW., Washington, DC 20591.

SUPPLEMENTARY INFORMATION:

[Page 56378]Background

Airport development is primarily a local or state responsibility, but the Federal government often provides substantial financial aid for planning and developing airports listed in the National Plan of Integrated Airport Systems (NPIAS). Federal aid currently accounts for about \1/4\ of the total public investment in airports. The Federal government typically pays 90% of the cost of eligible planning studies, in order to encourage the development of a safe and efficient airport system and to help local officials make well-informed decisions.

The FAA maintains guidance for the content of typical planning studies. However, some airport development proposals warrant additional, more detailed risk analysis during the planning phase because of the size of the investment and uncertainty whether future activity will achieve forecast levels. The potential consequences of a shortfall in activity includes a corresponding reduction in airport revenues. If the ability to generate adequate revenues cannot be demonstrated in a convincing manner, a project may be considered too risky to permit financing with revenue bonds or other forms of debt financing, which plan an essential role in most large projects. Inadequate revenues could also result in a requirement for an operating subsidy from the general fund of the local sponsoring agency.

A proposal should usually be subjected to detailed risk analysis if it involves an eventual total investment (Federal, State and local) of $25 million or more and has one or more of the following characteristics:

1. The traffic forecast that warrants the proposal involves a substantial change in or reallocation of the local traffic trend.

2. The proposal would compete with other airport facilities for a substantial portion of its traffic. (Examples would include the establishment of passenger and cargo transfer facilities and aircraft maintenance centers that are intended to attract business that would otherwise take place at another airport).

3. A substantial financial commitment is required long in advance of full utilization of the airport. (An example would be land banking for a major new airport).

4. The proposal is intended to serve a technology or innovation that has not yet been widely accepted and implemented. (Examples would include airports to serve future supersonic transports or tilt rotor aircraft).

5. The anticipated cost of the proposal is considerably higher than for proposals providing similar capacity at other locations. (An example would be an off-shore airport built on an artificial island).

6. The proposal does not enjoy strong support from the segment of air transportation that it is intended to serve. (Examples would be a remote transfer airport or a new cargo airport without firm financial commitments from the prospective users).

7. The implementation of the proposal is dependent on the availability of substantial Federal aid. (An example would be a supplemental air carrier airport with little near-term potential for generating revenues through rents and fees).

8. The proposal requires close cooperation by a number of public agencies in order to be implemented. (An example would be a new regional airport intended to replace one or more existing airports or that is expected to provide supplementary capacity to existing airports).

Application

Proposals that are considered potential recipients of Federal aid for planning and/or development, and which, if implemented, involve a total cost (Federal, state, and local) of $25 million or more, will be screened by FAA to determine whether detailed risk analysis is warranted as a part of the planning process. It is anticipated that about 200 projects will be screened annually and about 10 will require detailed analysis.

Initial Screening

Proposals will be screened by FAA Regional Airports Office personnel at the earliest possible time to determine whether special attention should be given to elements of risk. The screening will usually be conducted in conjunction with the initial discussions between the FAA and the project proponent. In addition to the factors mentioned above, an FAA Regional Airports Division Manager may require a detailed risk analysis based on other considerations that, in the Manager's judgment, warrant such action. The requirement that a proposal be analyzed for risk does not constitute an approval or disapproval action. It simply highlights specific aspects of a proposal that should receive special attention during the planning process.

Risk Analysis

Once a proposal has been recommended for analysis, the FAA Regional Airports Office will coordinate with the proponent to ensure that an appropriate analytical process is used to assess the risk and the results are disseminated to interested parties. An analysis should be tailored to the specific characteristics of a proposal, identifying potential risk factors and examining their significance. The selection and implementation of an appropriate analytical process is the responsibility of the proponent of the planning study, with the goal of providing a frank and complete assessment of major risks. The product should be a report that is both easily understood by the general public and consistent with expert opinion within the aviation community. The risk will usually be analyzed as part of a master or system planning study, although the analysis can result in a stand-alone study and report.

Application of Results

The main purpose of risk analysis is to support well-informed development decisions. Risk analysis should begin as soon as possible after conception of a major project and is ideally conducted in an iterative manner that is incorporated into the overall planning process. Information developed by the analysis may be used to modify the scope of the project, and these changes should be identified and implemented as quickly as possible. Changes may affect the underlying purpose of development, activity forecasts, staging of development, scale of development and proposed financing.

More information about the analytical process is included in Appendix 1.

Appendix 1. Analysis Techniques

The possibility that activity may fall short of forecasts, and the potential financial consequences of such a shortfall, are often the primary issues to be addressed.

It is particularly important to determine whether a project is intended to serve the current and probable future local demand for air transportation at a single airport with an effective monopoly position (the usual situation that tends to involve little risk) or if it is intended to compete with other airports for traffic that may be speculative (a situation that can involve substantial risk of failure). The risk of a shortfall in activity can be estimated through sensitivity analysis that examines the assumptions that underlie a forecast, consultation with experts, comparison to forecasts for similar proposals, if any are available, and comparison to regional and national growth projections.

The risk involved in a passenger enplanement forecast can be addressed from a number of perspectives;

1. Examination of the assumptions that underlie the forecast, and comparison to assumptions for official FAA forecasts.

2. Comparison to local, regional, and national historical data and trends.

3. Comparison to forecasts of local, regional, and national aeronautical activity

[Page 56379]and information available from the FAA, state aviation agencies, regional planning organizations, and airframe manufacturers.

4. Comparison to population and employment projections for the airport service area.

5. Computation of per capita consumption of air travel and comparison to the historical trend for the airport service area and the nation.

6. Discussion of the forecast with representatives of the air carriers and other segments of aviation serving the area. The opinion of all carriers should be given due consideration, particularly if the proposal is intended to promote competition. The opinion of incumbent carriers should be weighed against the probability of other carriers to serve the market.

7. Discussion of whether the proposal involves traffic currently served at another airport and, if so, the level of certainty that traffic will be transferred.

8. Examination of base data, principal assumptions, and forecasting methodology by a panel of experts convened for that purpose. (This could include peer review by operators of comparable airports). Cargo forecasts can be addressed by:

1. Examination of the assumptions that underlie the forecast.

2. Comparison to local, regional, and national historical data and trends.

3. Comparison to forecasts by metropolitan planning and state aviation agencies. (The FAA does not make detailed forecasts of air cargo.)

4. Comparison to forecasts by experts and industry leaders.

5. Examination and group discussion by an expert panel or peer review group.

6. Discussion with potential airport users, including shippers, air carriers, and tenants.

The financial aspects of a proposal can be examined in the context of a market analysis by estimating capital and operating costs and comparing them to probable sources of funds, including grants, subsidies, and income from rents and fees. The financial feasibility of many proposals can be estimated at an early stage by using guidelines and rules of thumb developed by credit rating agencies for evaluating the viability of revenue bonds. Increasingly detailed estimates can be prepared as the planning process generates more precise data.

Issued in Washington, D.C. on October 14, 1999. Louise E. Maillett, Acting Associate Administrator for Airports.

FR Doc. 99-27288Filed10-18-99; 8:45 amBILLING CODE 4910-13-M

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