FAA Grant Assurances and Policies Regarding Airport Real Estate
Last time we briefly reviewed the origin and history of how the federal government through the Federal Aviation Administration (FAA) came to support the development of civil and commercial aviation and airports in the U.S. in the years following World War II.
Recall that initially, the FAA simply awarded funds to any airport or airport owner/sponsor who applied for a grant. In the beginning, FAA grants were paid from the U.S. Treasury but in 1970 the Airport and Airway Trust Fund (AATF, aka the Aviation Trust Fund) was established to pay for them. The Trust Fund gives airports and their sponsors some skin in the game because the trust fund is fed in large part by fuel taxes. Thus the operation of airports as a whole became responsible for support of the entire airport system, with the larger primary hub airports, by virtue of their vastly greater volumes of fuel flowage, helping support the smaller airports.
However, FAA grant funds are no free lunch — there is a quid pro quo: In return for receiving grant funding for airport maintenance, repairs, and capital improvement projects, airports must comply with a number of grant assurances which are the FAA policies and regulations governing how airports are to be managed.
In today’s installment we’ll outline a number of publications the FAA has issued pertaining to airport property usage and valuation.
The FAA provides a raft of guidance documents for airports to remain in compliance with FAA rules, regulations, and grant assurances. All of these documents are available for download on the FAA website, as noted below, and hard copies can be obtained by writing to the FAA’s Office of Airport Compliance and Management Analysis at 800 Independence Ave SW, Washington, DC, 20591.
The most comprehensive document is the Airport Compliance Manual — Order 5190.6B. This is the bible used by airport management to stay on the good side of the FAA, and provides information on every topic imaginable.
Of particular interest for this discussion are the following sections of the Airport Compliance Manual: 1) Chapter 3 – contains the definition and factors involved in the analysis of highest and best use for determining market value and establishing market rent (lease rate); 2) Chapter 9 – recommendations for periodic adjustment in rent for leases longer than 5 years; 3) Chapter 12 – concerns the FAA’s determination of 50 years as being the maximum lease term for airport property; and 4) Chapters 17 and 18 – discusses considerations involved in determining lease rates for aeronautical and non-aeronautical use of airport property.
In addition to Order 5190.6B, several of the 39 Grant Assurances are pertinent to our discussion.
Assurance 22 concerns Economic Nondiscrimination. It means that businesses operating at an airport, such as FBOs, maintenance or avionics shops and other aeronautical operators, must all be treated fairly in terms of lease rates. Note that it does not mean everyone gets charged the same, but that the same factors in determining lease rate must all be considered for all aeronautical tenants. For example an FBO centrally located and having excellent airside and landside access may be charged a higher rent than an FBO located further away from the main entrance.
Assurance 24 states that a Fee and Rental Structure must be maintained for airport facilities and services such that the the airport will be as self-sustaining as possible. This speaks to the FAA’s intent that airports must attempt to receive fair market rent for all land and improvements on the airport.
Assurance 38 covers Hangar Construction. When a non-commercial aircraft owner wants to build a hangar, at its own expense, on the airport for the storage of its aircraft, the airport must grant a lease term of sufficient length such that the investment in the hangar can be amortized by the aircraft/hangar owner. In most, but not all, cases the FAA considers a lease term of 30-35 years as generally sufficient for this purpose.
Assurance 5 pertains to Preserving Rights and Powers. This assurance mandates that lease agreements must contain language specifying that at the end of a lease term and any extensions, all improvements revert to the airport. In some cases the improvement must be removed and the land returned to its original condition, but usually structures remain in place and may be leased to another entity.
HangarNetwork was part of a team that worked with the FAA under the Airport Cooperative Research Program (ACRP) to develop a Guidebook to assist airport managers, owners, and sponsors in determining market values and market rents for airport properties. The final draft of the Guidebook has gone to print and should be available in the coming months. The FAA guidance discussed here today is covered in much greater detail in the Guidebook.
We strongly recommend that airport managers/sponsors and anyone contemplating leasing airport property take advantage and use the Guidebook as well as become familiar with all FAA guidance pertaining to this subject. Knowing what the FAA requires in terms of its orders, assurances, and policies will make lease negotiations progress much more smoothly and fairly, with both sides achieving their goals with full knowledge of expectations and a minimum number of misunderstandings.
Mike Straka, PhD
HN Contributing Author & Technical Support
Executive Director, Colorado Aviation Business Association
1. Airport Compliance. FAA website. https://www.faa.gov/airports/airport_compliance/
2. Airport Compliance Program. FAA website. https://www.faa.gov/airports/airport_compliance/overview/
3. Grant Assurances (Obligations). FAA website. https://www.faa.gov/airports/aip/grant_assurances/