[Federal Register Volume 64, Number 201 (Tuesday, October 19, 1999)]
[Notices]
[Pages 56377-56379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27288]


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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.

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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 
filed comments 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. 99-27288 Filed 10-18-99; 8:45 am]
BILLING CODE 4910-13-M