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Allowable use of airport revenue dollars: Avoid common compliance mistakes

July 13, 2022 Article 4 min read
Authors:
Pamela Hill Ali Hijazi Rumzei Abdallah
The Federal Aviation Administration is stepping up audits on revenue diversion. Make sure your airport complies with the regulations or risk losing your grant funding.
Close-up of a business professional going down stairs.With the drastic dip in enplanements during the COVID-19 pandemic, the climb back for airports has been gradual but promising. Preliminary numbers from the Federal Aviation Administration (FAA) show that enplanements nationally increased to just over 650 million in 2021, but that’s still 300 million less than in 2019, and all airports are recovering at a different pace.

The resulting recovery of revenue brought in by returning passengers brings to light another issue — ensuring your airport doesn’t inadvertently divert revenue. Now is the time to make sure your airport has a process to ensure compliance with the regulations. Why now? Because the FAA is ramping up audits due to increased risk of noncompliance. If you’re audited and found noncompliant, your airport could face sanctions, civil penalties and fines, and the loss of grant funding.

Get to know the FAA Airport Compliance Manual

Guidance on the allowable use of airport revenue has been around for decades, but we’ve identified instances where airports have been unaware of or unclear about the regulations. The best place to start is with the FAA Airport Compliance Manual Order 5190.6B. Chapter 15, specifically, speaks to the permitted and prohibited uses of airport revenue and is key to ensuring you understand the do’s and don’ts of airport spending. At only 12 pages, it’s a must-read — and one we reference so often that many of our consultants keep a copy on their desks.

When reading chapter 15, keep in mind that many of the listed items could be considered immaterial from an airport’s perspective. However, from the FAA’s perspective, compliance is compliance whether it’s $1,000 or $1 million. Take note of these important points to avoid mistakes.

Promotion of the airport and community activities

Chapter 15, section 9, specifically speaks to the permitted use of airport revenues. In this area, two noteworthy items are the promotion of the airport and community activities. Both are allowable uses of airport revenues, but both have stipulations attached in order for them to be allowable. For example, your airport could be in a city that would be hosting the Super Bowl. If the airport were to use this opportunity to promote the airport and its services, perhaps becoming a sponsor for an event before the Super Bowl, that may or may not be allowable.

Two noteworthy items are the promotion of the airport and community activities.

Here are the keys to consider:

  • Is the name of the airport prominently featured in marketing and promotional material?
  • Is the intent to increase the use of the airport?
  • Does the promotion include specific information about the airport?

In essence, ask yourself if the sponsorship is purely a cash donation with nothing in return for the airport. If so, that wouldn’t be considered allowable. If the promotion is designed to increase the use of the airport, it’s allowed. The same goes for community activities — they’re allowable uses of revenue as long as they serve to promote the airport.

Prohibited uses of airport revenues

Chapter 15, section 13, covers the prohibited uses of airport revenues. In general, revenue diversion, as defined by the FAA, is the use of airport revenue for purposes other than airport capital, operating costs, or the costs of other facilities owned or operated by the airport and directly related to air transportation. Some common areas of revenue diversion where we often see compliance mistakes are subsidy of air carriers, parking at the airport, and general economic development.

Subsidy of air carriers

While air service incentive plans are allowed by the FAA, it’s important to evaluate and ensure these arrangements meet the spirit of the program. In essence, the incentive plan can’t be designed to subsidize the air carrier and help keep them in business.

A great example of an allowable air service incentive plan is when an air carrier is offering new routes at your airport. When that occurs, the airport could determine to offer a promotion fee waiver to that airline for a period of time. This is allowed as long as it’s for a promotional period. You’ll also need to ensure it’s available and offered to all similarly situated users of the airport willing to provide the same type and level of new service.

Airport parking

We often see airport clients run into revenue diversion issues regarding parking. Essentially, if an employee, board member, or any individual is parking at the airport for airport-related business, the airport is allowed to subsidize and not collect revenue for their parking. However, allowing staff to park for free while on vacation? That’s a no-go. Parking at the airport for free for any reason other than airport business is not allowed.

General economic development

Lastly, make sure you understand the concept of general economic development. We often hear folks in the industry say that a particular airport supports local events and sponsors various occasions because the airport is an important part of the community and benefits from general economic development in the area. Unfortunately, the FAA would disagree with this. The manual specifically states that using airport revenue for general economic development is a prohibited use of airport revenue.

Using airport revenue for general economic development is a prohibited use of airport revenue.

Steer clear of mistakes and hang onto your grant funding

As long as you have a solid grasp of what’s considered an allowable diversion of revenue, you’ll be able to avoid fines, increased scrutiny, and other regulatory issues. In short, keep the airport compliance manual handy and before spending, always ask yourself, “How does this benefit the airport?” If you can’t answer that question, there’s a good chance it could be revenue diversion — and a serious problem for your airport.

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