FAA Capital Financing of Airports:
The Airport Improvement Program

[The following is excerpted from An Assessment of Innovative Financing Options for the Airport Improvement Program, Federal Aviation Administration, March 1996.]



Airport finance today is marked by a prominent Federal role and an even more significant role of debt finance. The Federal role is exerted in two ways, (1) AIP [Airport Improvement Program] formula and discretionary grants funded by user taxes on airline tickets, aircraft fuel, freight waybills and international departures, and (2) an exemption from Federal tax on interest income for holders of airport bonds (a "tax expenditure" funded by the general taxpayer). In addition, the Passenger Facility Charge program (PFC), administered by the FAA, generates local funds to finance airport improvements.

Between 1985 and 1995, the AIP financed 14 percent of all capital spending at large commercial airports, 28 percent at medium-sized commercial airports and 41 percent at small airports (small commercial airports as well as reliever and general aviation facilities).

. . .


Although airport capital investment today is funded by a combination of airport cash reserves, debt capital raised in the municipal bond, commercial loans, and grants from state and Federal governments, it is the sale of tax-exempt bonds and the provision of Federal grants through the AIP program that finance the lion's share of major capital projects.


Financed since 1970 by user taxes on domestic airline tickets, aircraft fuel, freight waybills, and international departures, the Federal government funded $11.2 billion in formula and discretionary grants over the period 1985 to 1993 (Table 2.1). Distributed through the AIP, just over 65 percent of the funds were allocated to primary commercial airports while 13.1 percent ($1.46 billion) were used in capital projects at reliever airports. As shown in Table 2.1, more than half the AIP spending over the period 1985 to 1993 was used for "airside" development, including runway, taxiway and apron infrastructure; 19 percent went to noise-related projects [Web-Editor's Note: the table shows 10.8, not 19 %]; and the remainder helped pay for safety, security, terminals and other buildings, roadways and planning activities.

TABLE 2.1 AIP Allocations by Program Category for
Fiscal Years 1985 to 1993 and Type of Project.

           Allocation (in billions)

Primary airports 

   Large  $3.58 (32.1 %)

   Medium $2.36 (21.2 %)

   Small  $1.38 (12.3 %)

Other commercial service airports $0.52 (4.7 %)

Reliever airports  $1.46 (13.1 %)

General aviation airports  $1.85 (16.5 %)

Total $11.15  (100.0 %)


        Type of Project (percent) 

Landing areas, construction of runways      22.1 

Landing areas, construction of taxiways     16.4 

Landing areas, construction of aprons       13.9 

Land, other than for noise control           8.1 

Land for noise control                       7.3 

Safety and security                          6.4 

Lighting, navigation aids, and weather
  equipment                                  5.6 

Roadways                                     5.3 

Building, terminals                          4.1 

Noise control, other than land acquisition   3.5 

Miscellaneous                                2.5 

Planning                                     1.9 

State pilot block grant program              1.7 

Building, other                              1.2 

Total                                      100.0% 

Source: FAA, Twelfth Annual Report of Accomplishments
Under the Airport Improvement Program, FY 1993. 

See also:

AIP Authorizations 1982-1996
AIP, Fiscal Year 1998
AIP Funds Spent in California, FY 1996
AIP Funds Provided Under Letters of Intent
AIP and Noise Control
AIP Requirement for Local Involvement in Noise Mitigation Projects
Assurances Required of AIP Grantees (PDF file)
FAA Grants for Airport Noise Abatement: The AIP and PFC Programs
Zoning Restrictions Required for AIP Grants