Lecture 1-2: Airport Financing

Goal:

• Gain a basic understanding of how selected airport operations and design parameters impact economic feasibility

• Apply net present value technique to investment and pricing decisions
• begin to understand the relationship between runway capacity, aircraft demand and delay (more later)
• be able to compute rational values for aircraft delay, and appropriate fee setting using weighted averages
• begin to understand the relationship between aircraft mix and runway capacity (more later)

Why begin here?

Economic analysis of transportation investments requires synthesis of information from a number of perspectives, namely technical and economic. It helps the student to see the design and analysis tasks as part of a larger problem, one that requires more than engineering skills. The economic analysis problem also demonstrates the utility and practicality of the methods to be studied this semester. Economic analysis of investments may be extended to all other branches of civil engineering, by substituting the appropriate discipline-specific analytics.

Don't sweat the details yet ...

The purpose of this first assignment is to familiarize you with capacity concepts and review economic analysis procedures. Make assumptions about airport capacity and go forward with the problems. Review my solutions and compare them with yours. Later in the semester, we will do a better job with capacity and delay analysis.

Key topics (required for homework problems):

Problem 45.

• First establish an average delay value for the mix of aircraft using the airport
• Read the concept of annual service volume (p. 343)
• Read the definition of mix index and examine its relation to runway annual service volume (p. 328 and table 8-16)
• You will have to make some assumptions regarding annual service volume and runway configuration, as the annual service volume for the exact runway configuration given in problem 45 is not given on table 8-16. Intermediate spaced runways (2500') have service volumes between that of closely spaced (<2500) and far spaced (>4300) parallel runways. I'll show you how I would approach it (there are other ways) ...
• You might approach problem 45 by looking at the difference in annual service volume between a type A configuration (table 8-16) and type B or type C situations. For the mix index in problem 45, type A can accommodate 240,000 annual operations. Type B can handle 340,000 (an increase of 100,000) and type C, 370,000 (an increase of 130,000). But, you have 2 runways in addition to the "main" runway (capacity 240,000). One is spaced at 2500' (not as far as type C which would increase service volume by 130,000, but farther than type B which would increase service volume by 100,000). So, let's increase service volume by 115,000 for that 2500' spaced runway. For the next runway (spaced at 4300'), let's increase the service volume by an additional 130,000. So, for the first 3 runways, we can assume a service volume of 240,000+115,000+130,000 = 485,000.
• When adding a fourth parallel runway at 2500', we could assume an additional increase in service volume of 115,000, for a total of 600,000. However, that is still less than configuration E, and we know we can accommodate more annual service volume than that (look at the spacings). So, let's set annual service volume for the 4-runway configuration to 675,000.
• To estimate delay, you can use figure 8-25. You will note that the ratio of annual demand to annual service volume for the 3-runway case is off the scale. You will have to extrapolate.
• The question asks for the range of benefits, so you will need to pick high and low values off figure 8-25

• For this problem, you will have to recall and use some of the economic evaluation techniques learned in IE304. Namely, the concept of Net Present Value.
• I strongly suggest you make use of the NPV function in a spreadsheet (Excel or Lotus) due to the repetitive nature of the following problems.

• Page 251 indicates the spacing required to handle simultaneous approaches in IFR (instrument) conditions is 4300'
• Bring all values of benefits and costs back to the current year (1992)
• Realize that the longer you wait to build the runway, the less it will cost you in present dollars
• Also realize the longer you wait to build the runway, the less benefit you will get from it
• Building the runway in 1992 is not economical, because cost exceed benefits
• Building the runway in 2010 gives no benefit

• Only thing different here is concept of "coverage". 1.25 coverage means benefits must be greater than or equal to 1.25 times the cost.
• You will also need to know the number of seats in each type of airplane, in order to set an equitable landing fee (one definition of equitable would be to charge the same fee to all seats, there are other definitions). This means that you should set the landing fee for the "average" aircraft (e.g., one with 190 seats - compute that) and then prorate the fee according to number of seats on the specific aircraft.
• As the number of landings is assumed to increase from 300,000 to 400,000 over the life of the project, so you can use the concept of arithmetic gradient, or simply use a spreadsheet to sum up the present value of all future landing fees.
• Hint: let x be the landing fee, and compute the present value of number of landings times x for each future year. Find X that meets the funding requirement.

• Straightforward using spreadsheet

• Use spreadsheet or econ-analysis book tables to find A given P for cost, then compare to calculated benefits per year.