FY2007 ADOPTED BUDGET

Transcription

1 FY2007 ADOPTED BUDGET March 2004 Finance Department P.O. Box DFW Airport, Texas

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3 Dallas/Fort Worth International Airport

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5 Table of Contents Page Number Introduction Mission Statement... INT-1 Board of Directors... INT-1 Airport Background... INT-2 DFW Infrastructure... INT-3 DFW s Controlling Documents and Business Model... INT-4 Capital Funds INT-6 Basis of Budgeting... INT-8 FY 2006 Revenue Outlook... INT-9 Executive Overview Introduction...EXE-1 Budget Objectives...EXE-1 FY 2007 Budget Summary.. EXE-1 Preliminary Cost per Enplaned Passenger Projections...EXE-3 Preliminary Landing Fee Projection...EXE-4 FY 2007 Operational Outlook...EXE-5 Revenue and Expense Fund Overview...EXE-8 Fund 102 Expense Budget...EXE-10 FY 2007 Capital Sources and Uses of Cash EXE-11 Operating Budget Revenues... OPS-1 FY 2007 Expense Budget Walkforward... OPS-5 Expense Budget Walkforward by Category... OPS-10 Expense Budget by Category.OPS-11 Net Debt Service Budget... OPS-12 Position Walkforward... OPS-13 Department Budgets Departmental Overview... DEP-1 Dallas/Fort Worth International Airport Organizational Chart... DEP-2 Executive Office... DEP-3 Legal... DEP-4 Audit Services... DEP-5 Airport Development..DEP-6 Administration & Diversity Division Human Resources...DEP-7 Internal Communications & Diversity... DEP-8 Procurement... DEP-9 Risk Management... DEP-10 Small & Emerging Business... DEP-11 Finance & ITS Division Finance... DEP-12 Information Technology Services... DEP-13

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7 Table of Contents Page Number Department Budgets (continued) Marketing & Terminal Management Division Air Service Development... DEP-14 Aviation Real Estate... DEP-15 Customer Services... DEP-16 Marketing Services... DEP-17 Operations Division Airport Operations... DEP-18 Asset Management... DEP-19 Department of Public Safety... DEP-20 Energy & Transportation Management... DEP-21 Environmental Affairs... DEP-22 Planning...DEP-23 Revenue Management Division Commercial Development... DEP-24 Parking Operations... DEP-25 Revenue Management... DEP-26 FY 2007 Position Summary... DEP-27 Capital Funds Projected Capital - Uses of Cash... CAP-1 New Capital Projects...CAP-2 Other Capital Projects (Non-CDP)... CAP-4 Capital Project Sources of Cash... CAP-5 Capital Improvement Fund (CIF)... CAP-6 Debt Financing...CAP-9 Passenger Facility Charges... CAP-10 Grant Funds Airport Improvement Program... CAP-12 Consolidated Rental Car Center (RAC)... CAP-13 Hyatt Hotel/PFIC... CAP-13 Appendix Appendix A Glossary of Acronyms...APP-1 Appendix B Signatory Permittee Airlines...APP-3

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9 Introduction Dallas/Fort Worth International Airport Board Mission Statement DFW shall be the Airport of Choice by creating a positive, competitive, and safe environment that exceeds our customers expectations, thereby expanding economic benefits for Dallas, Fort Worth, and the Region. Board of Directors Chair of the Board J. Jan Collmer Dallas, Place 4 Vice Chair of the Board Lillie M. Biggins Fort Worth, Place 8 Mayor Laura Miller Dallas, Place 10 Francisco Hernandez, Jr. Fort Worth, Place 2 Benjamin Muro Dallas, Place 5 Ricardo Medrano Dallas, Place 11 Secretary of the Board Robert Hsueh Dallas, Place 6 Mayor Mike Moncrief Fort Worth, Place 3 Pamela Dunlop Gates Dallas, Place 1 Jeffrey Wentworth Fort Worth, Place 7 Michael Sorrell Dallas, Place 9 Lowell Cannaday* Irving *Non-Voting Member INT- 1

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11 Introduction Airport Background The Dallas/Fort Worth International Airport (the Airport ) was created by a Contract and Agreement between the Cities of Dallas, Texas, and Fort Worth, Texas ( the Cities ) on April 15, 1968 for the purpose of developing and operating an airport as a joint venture between the Cities. DFW is located between the Cities of Dallas and Fort Worth within the boundaries of the Cities of Grapevine, Coppell, Irving, and Euless. Source: DFW Airport Information Technology Services/GIS Group DFW is located within a four-hour flight time of 95 percent of the U.S. population and currently ranks third among the world s busiest airports in terms of operations. Its central location is the focal point of one of the nation s largest intermodal hubs, connecting air, rail, and interstate highway systems. DFW currently operates daily flights to more than 167 cities worldwide, including a total of 131 nonstop domestic destinations and 36 nonstop international destinations. DFW has continued to grow its air cargo segment. In March, 2006, DFW was named Best Cargo Airport in the World by industry-leading publication, Air Cargo World. INT- 2

12 Introduction DFW Infrastructure DFW has more capacity for operations than any airport in the world with seven runways - two diagonals and five north/south parallels. DFW continues to prepare for future growth and the use of the newest, largest transcontinental aircraft such as the A380 by extending its runway structure. DFW recently completed the extension of four runways from 11,400 feet to 13,400. An eighth north/south, 9,560 foot runway could be constructed if ever needed. DFW Infrastructure DFW operates five terminals (A, B, C, D and E), totaling 4.7 million square feet of building space and 165 aircraft boarding gates. DFW is responsible for all of the janitorial and facility maintenance in Terminals B, D and E, baggage maintenance in Terminals B and E, and a portion of the janitorial maintenance in Terminals A and C. American Airlines is responsible for INT- 3

13 Introduction the majority of the facilities maintenance in Terminals A and C and all of the baggage maintenance in Terminals A, C and D. DFW assumed responsibility for Terminal E in January 2005 when Delta Air Lines closed its hub and reduced service by approximately 90 percent. DFW has completed the $2.7 billion Capital Development Program (CDP), providing significant enhancements to DFW s customers and tenants with the addition of a new International Terminal and Skylink people mover system. The new International Terminal D, which opened in July 2005, significantly increased DFW s capacity with 29 new gates, 8,100 new terminal parking spaces, and 129,000 additional square feet of concession space (a 67 percent increase over existing space). Terminal D has 1.6 million square feet of air conditioned space, which represents a 52 percent increase over the total square footage of all other terminals combined. American Airlines (AA) commenced operations out of Terminal D on October 28, In April 2006, AA shifted some of its larger domestic operations from Terminals A and C to Terminal D, providing passengers with additional parking and concession options and conveniences. DFW s new airport train, Skylink, opened in May The bi-directional trains can carry 8,500 passengers per hour. There are two Skylink stations in each terminal, with trains arriving every two minutes. The average ride time between terminals is less than five minutes. The new terminal also offers a 300-room, integrated Grand Hyatt Hotel complete with a restaurant, ballroom, conference space, and roof top spa and swimming pool. The new DFW Airport Operations Center (AOC) was completed in April 2006 at an approximate total cost of $16.4M. This building accommodates AOC, Emergency Operations Center (EOC), and Airfield and DPS dispatch. This is a state of the art facility equipped with diverse systems necessary to provide video surveillance, telecommunications, control, dispatch, archiving systems, as well as landside, facilities, and airside monitoring. The AOC serves as a single point of contact to centralize communications for DFW s passengers, guests, tenants, employees, and contractors. This concept of single point of contact will include the call management to dispatch via radio police, fire and emergency medical responses. In 2007, this concept will take an additional step with the introduction of non-emergency services. DFW Controlling Documents and Business Model In addition to the Contract and Agreement between the Cities of Dallas and Fort Worth, DFW is governed by several other key documents including the 30 th Supplemental Bond Ordinance which modified the original 1968 Concurrent Bond Ordinance (collectively called the Bond Ordinances ); and the Use Agreement between DFW and the Signatory Airlines (signed in 1974). The Use Agreement expires on December 31, Collectively, these agreements are called the Controlling Documents. The Controlling Documents define how DFW manages its business affairs. DFW is a residual airport which means that the Signatory Airlines pay the residual net cost of operating DFW. Total revenues must equal total expenses each year. DFW does not collect any local tax revenue to fund its operations. INT- 4

14 Introduction The Controlling Documents require that Gross Revenues of the Airport be deposited into the 102 Revenue and Expense Fund. Gross Revenues are defined as all Airport revenues and receipts except: Bond proceeds PFC proceeds used to fund capital projects (rather than for debt service) Interest earned on unspent bond, Construction Improvement Fund (CIF), and PFC receipts Grant proceeds used to fund capital projects The 102 Fund is a self-balancing fund. The Airport s Gross Revenues must equal the Airport s annual 102 expenditures, as defined in the Controlling Documents, including: Operational expenditures The amount required to fund a 3 month operating reserve equal to 25% of the operating expenditure budget Debt service, plus coverage calculated at 25% of debt service. The coverage amount is then used to fund the following year s Capital Improvement Fund. The DFW residual model is shown in the following chart. The Revenues and Expense shown in this chart are recorded in the 102 Revenue and Expense Fund. Revenues Expenses * Landing Fees * Operating Expenses * Terminal Rentals * Debt Service & Coverage * Non Airline Revenues * Change in Ops Reserves FY07B = $619 Million FY07B = $619 Million Capital Improvement Fund Funded from the prior year's coverage amount FY07B = $55 Million Rate Setting Each year, management prepares an Annual Budget of projected expenditures for the Operating Revenue and Expense Fund (commonly referred to as the 102 Fund ). This budget includes DFW s projected operating expenses excluding depreciation, plus annual debt service (interest and principal), plus an amount sufficient to pay an additional 25% of the Aggregate Annual Debt Service (defined as Coverage ); plus any incremental amount sufficient to maintain a 90 day Operating Reserve. Next, management calculates ancillary non-airline revenues (e.g., parking, concessions, and ground leases) and non-operating revenues (e.g., interest income, Passenger Facility Charges - PFCs). These projected expenditures and revenues are then accumulated into cost centers to INT- 5

15 Introduction calculate the required airline revenues (primarily terminal rentals and landing) that must be collected during the year so that total revenues equal total expenditures. Total Expenses Non-Airline Revs Terminal Rents Landing Fees * Ops expenses * Parking * Terminal A * Maintenance * Concessions * Terminal B * Overhead minus * Ground rentals minus * Terminal C * Ops reserves (25%) * HVAC/trash/water * Terminal D * Debt service * PFCs * Terminal E * Coverage (25%) * CIF Transfers equals Net Expenses Landed Weights FY06 Rate $4.94 $619 Million $407 Million $37 Million $174 Million 100% 65% 7% 28% Landing fee revenue is the ultimate balancer to ensure that forecasted revenues equal forecasted expenses. The landing fee rate is calculated by dividing total required landing fee revenues by total projected Airline landed weights per thousand pounds. Management then uses this information to prepare an annual Forecast and a schedule of Rates, Fees, and Charges (approved by the Board) which is the basis for charging the airlines, tenants, and other airport users for services used. At the end of the year, a reconciliation or Settlement of the 102 Fund is computed using actual revenues and actual expenses. Depending on whether an individual Signatory Airline has overpaid or underpaid during the year, it receives a refund or is billed an additional payment. FY 2005 numbers in this report are settlement amounts. Capital Funds DFW s Bond Ordinances require DFW to collect 25% of Aggregate Annual Debt Service for Debt Coverage. The Airlines pay for Coverage through their fee structure. During the fiscal year, these funds are held in reserve to pay debt service, if ever required. After the fiscal year, these funds are transferred to the Capital Improvement Fund ( CIF ) as its primary source of capital funds. Proceeds from the sale of mineral rights or assets (such as natural gas proceeds) are also deposited directly into the CIF. DFW also uses Federal and State funds, PFCs, and debt financing to fund its capital projects Historically, DFW has used these funds primarily for capital projects although some CIF funds are then transferred back into the 102 Fund (in accordance with Airline agreement) to ultimately lower airline landing fees. The CIF is then allocated amongst three accounts: Airline Trust Accounts ( 400 Fund ); Airport s Discretionary Account ( 302 Fund ); and the Common Capital Improvement Account ( 301 Fund ). The following chart highlights the CIF waterfall. INT- 6

16 Introduction Coverage $54.8M Natural Gas $36M Before 777 Program With 777 Program CIF Coverage + Natural Gas $90.8M $90.8M 102/400 allocation amounts based on Agreements with Airlines 102 Fund Reimbursements $11.6M $25.6M 400 Funds Airline Trust 302 Fund Accounts Airport $7M Discretionary 301 Fund $0M Fund Joint Capital $8.5M Fund $8.5M $63.7M 302 allocation based on $56.7M number of passengers DFW s Controlling Documents govern the allocation and use of the CIF. The CIF may be used to pay for capital programs, extraordinary or major operations and maintenance expenses; or to pay debt service if necessary. The Airlines may use the Airline Trust Account (400 Fund) to fund capital projects on the Airport. These projects must be approved, procured, and constructed by the Board. DFW has full control over the Airport s Discretionary Account (302 Fund) which may be used for any lawful purpose. In certain instances, as defined by the Use Agreement, the Common Capital Improvement Account (301 Fund) requires both DFW and Airline approval before funds may be spent. Fund Structure Although DFW uses the word fund to describe the designation of the source and prospective use of proceeds, DFW is an enterprise fund and does not utilize traditional fund accounting commonly used by government organizations. The following table summarizes the primary funds used by DFW: INT- 7

17 Introduction Fund Number Fund Description Primary Use 101 Fixed Asset/LT Debt Balance Sheet 102 Operating Revenue and Expense Operations 252 Passenger Facility Charges (PFC) Capital/Debt Service 301 CIF - Common Capital Improvement Account Capital 302 CIF - Airport Discretionary Account Capital Various Bond Funds Capital 400s CIF - Airline Trust Account Capital 500/600 Debt Service and Sinking Funds Debt Service 907 FIC - Rental Car Facility Rental Car Facility 910 PFIC - Grand Hyatt Hotel Hotel DFW s Generally Accepted Accounting Principles (GAAP) Financial Statements include all of DFW s funds, whereas the Budget document focuses on revenues and expenses included in the 102 Fund. DFW manages its day-to-day operations primarily through the 102 Fund in accordance with the Controlling Documents. Basis of Budgeting The 102 Fund Budget is commonly called an Operating Budget, but it contains elements that are not expenses under GAAP such as debt service, coverage requirements, reserve requirements, and certain expenditures which may be capitalized under GAAP. Capital expenditures are funded through the issuance of Joint Revenue Bonds, grants, passenger facility charges, or through Capital Improvement Fund allocations as defined in the Controlling Documents. From a process standpoint, the Board does not approve an overall capital budget (although a list of projected expenditures for capital projects is included in this report). Rather, the Board approves projects to be funded with bond proceeds before the bonds are sold and establishes individual capital project budgets as contracts for large bondfunded projects are brought to the Board for approval. DFW management uses the budgets included in the Capital Funds section of this report as the basis for reporting capital project statuses to the Board. Budget Schedule The FY 2007 Expense Budget was compiled by the departments in April, and reviewed and modified by Executive Staff in May. A preview presentation was made to the Board of Directors on June 1, with a more detailed presentation on June 29, Approval is scheduled for July 6, The Controlling Documents require that the Airport s Budget be submitted to the City Managers of Dallas and Fort Worth by July 15 each year and considered for approval by the City Councils by September 1 each year. DFW s fiscal year begins October 1. Presentation of Amounts & Comparisons to Prior Years The FY 2007 Budget is presented in tables and charts that are rounded to millions and thousands. The detail supporting the tables and charts are not rounded. Therefore, some columns and charts may not add-up due to rounding difference. Certain amounts within the FY 2006 Budget may have been reclassified to reflect reorganizations or new accounting methodologies, so that the comparison with the FY 2007 Budget is as consistent as possible in INT- 8

18 Introduction the various sections of this report. In FY 2007, DFW will focus on keeping net cost to airlines as low as possible. FY 2006 Revenue Outlook In February 2006, DFW updated its revenue projection for the remainder of FY This FY 2006 Outlook reflects a $35 million reduction in revenue (from $635 million to $600 million) and is included in many revenue tables to provide the most accurate comparisons to the FY 2007 Budget. The revenue shortfall resulted primarily from a reduction of flights at DFW due to higher fuel costs and an expansion of direct flights from Love Field in Dallas to include Missouri. INT- 9

19 Executive Overview Introduction The past five years have been very challenging for DFW and the airline industry from an economic perspective. Since 2001, DFW has faced airline disruptions resulting from the terrorist attacks of 9/11, two wars, the near bankruptcy of American Airlines in FY 2004, the elimination of Delta s hub at DFW in FY 2005, and the loss of 49 daily flights (5% of total) in FY 2006 due to record high jet fuel prices and a change in the Wright Amendment to allow direct air service from Love Field to Missouri. During this timeframe, DFW Management and Board have taken steps to minimize the negative impact on the airlines by limiting expenditures, refinancing debt, and growing non-airline revenues. The net impact of these actions has been to return $177 million in rate relief to the airlines over the last five years. The opening of the new International Terminal D and the Skylink system have provided significant service level and capacity improvements for the airlines, concessionaires and DFW passengers. Customer satisfaction surveys reveal that DFW s customers are very satisfied with the new facilities. However, the incremental opening and debt service costs for the new facilities have challenged management to continue to find ways to minimize and contain costs and to grow non-airline revenues as much as possible. Management expects the challenging times for DFW to continue and has predicated its FY 2007 Adopted Budget on this assumption. Management projects a decrease in operations, landed weights, and passengers in FY 2007 as compared to FY 2006 due to the elimination of 49 flights mentioned above. This translates into a $25 million to $35 million revenue shortfall as compared to the FY 2006 Budget. Budget Objectives The Management team s FY 2007 Budget Objectives were to: Provide a signatory landing fee at or below the current rate (FY 2006 Budget) of $4.94 per thousand pounds of landed weight, despite a 8.4% decrease in projected landed weights from FY 2006 Budget. Provide a cost per enplaned passenger that was at or below $8.32 (FY 2006 Budget) despite a 2.5% decrease in projected enplanements from the FY 2006 Budget. To achieve these goals, the Management team focused its efforts on: Maximizing non-airline revenue opportunities Continuing to drive efficiencies without sacrificing quality or safety or security FY 2007 Budget Summary The Adopted FY 2007 Expense Budget is $618.7 million, an $11.9 million (1.9%) reduction from the FY 2006 Budget of $630.6 million. This reduction was accomplished despite increases in contractual costs, health and welfare costs, energy costs, fuel costs, pension costs, and a merit increase for employees. The FY 2007 Budget also includes a $26.7 million (7%) increase in nonairline revenues in FY 2007 as compared to FY 2006 due primarily to a new revenue sharing program (777 Program discussed below) and certain parking fee increases. The combination of the two results in a reduction of airline revenues paid through landing fees and terminal rentals of $38.6 million (15.4%) in FY 2007 as compared to FY EXE-1

20 Executive Overview 102 Fund Budget Comparison (In Millions) FY 2006 FY 2007 Budget Budget Inc (Dec) Percent Inc (Dec) Total Expense Budget $ $ (11.9) (1.9%) Less Non-Airline Revenues % Amount Paid by Airlines * $ $ $ (38.6) (15.4%) Percent Paid by Airlines * 39.7% 34.3% * Amount paid through landing fees and terminal rents 777 Program The FY 2007 Non-Airline Revenue Budget reflects $14 million of additional revenue from a oneyear agreement between the airlines (called the 777 Program) that involves the transfer of $7 million of natural gas proceeds and $7 million of Airline Trust funds to the 102 Fund in FY If accepted by the airlines, DFW proposes to transfer $7 million of natural gas proceeds from the 301 Fund to the 102 Fund, contingent upon airlines agreeing to transfer $7 million from 400 (Airline Trust Fund) to the102 Fund and transfer $7 million from the 301 Fund to the 302 Fund. The flow of funds is illustrated graphically below: Proposed 777 Program Cash Flow $7 Million 102 Operating Fund $7 Million Natural Gas Proceeds 301Joint Capital Fund 302 DFW Discretionary Capital Fund 400 Airline Trust Funds $7 Million The $14 million transfer to the 102 Fund would reduce landing fees by $0.36 and is reflected in the FY 2007 Budget as Non-Airline, Non-Operating Revenue. The $7 million transfer to the 302 Fund will provide resources for discretionary projects such as the Airline Incentive Program. The airlines have not yet agreed to this program. If an agreement is not reached by the time of FY 2007 Rates, Fees, and Charges are proposed to the Board (i.e., September 1, 2006), landing fees will be increased to recover the additional $14 million of revenue. The impact of this decision is reflected in the CPE and Landing Fee Charts that follow. EXE-2

21 Executive Overview Airline Contribution Comparison As a result of the lowering of expenses and the increase of non-airline revenues, the percent of airport costs paid by airlines (defined as landing fees and terminal rents) is being reduced from a FY 2006 Budget of 39.7% to 34.3% assuming the 777 Program is approved. 45.0% Percent Airline Contribution 40.0% 35.0% 39.7% 37.6% 34.3% 36.6% 30.0% 25.0% FY06 Budget FY06 Outlook FY07 Budget FY07B w/o 777 Cost Per Enplanement (CPE) Cost per enplaned passenger represents the average cost per passenger enplanement to the airlines (through landing fee and terminal rents). The FY 2007 CPE has been reduced to $7.25, down 12.9% from the FY 2006 Budget of $8.32. Cost per Enplaned Passenger $9.00 $8.32 $8.00 $7.87 $7.91 $7.25 $7.00 $6.00 $ Budget 2006 Outlook 2007 Budget FY07B w/o 777 The following chart highlights DFW s FY 2006 Cost per Enplaned Passenger projection with the twenty largest U.S. airports before (light blue) and after (dark blue) the completion of their EXE-3

22 Executive Overview expansion programs. The information on the following table has been obtained from the consulting firm of Leigh Fisher. Newark New York (JFK) Miami San Francisco * Denver Boston New York (LGA) * Seattle-Tacoma Los Angeles Chicago-O'Hare Philadelphia Dallas-Fort Worth Houston (Bush) Detroit Las Vegas * Minneapolis-St. Paul Orlando* Atlanta Charlotte-Douglas** Preliminary Landing Fee Cost per Enplaned Passenger Comparison - DFW FY 2007 = $ Source: Leigh Fischer * Forecasted amounts not available ** Forecast amounts lower than current levels Current Forecast The landing fee is assessed per 1,000 pounds of maximum approved landed weight for each specific aircraft as certified by the Federal Aviation Administration (FAA). The preliminary landing fee projection for FY 2007 is $4.45, 9.9% less than the FY 2006 Budget of $4.94. $5.50 Landing Fee Rate $4.75 $4.94 $4.94 $4.45 $4.81 $4.00 $3.25 FY 2006 Budget FY 2006 Outlook FY 2007 Budget FY07B w/o 777 The Board approve DFW s official Schedule of Charges in September The actual landing rate for FY 2007 may differ from the rates shown above because DFW will use an updated revenue forecast. Although total revenues and expenses will not change from the Approved Budget, the allocation may differ resulting in higher or lower landing fee rates. EXE-4

23 Executive Overview Operational Performance Indicators FY 2007 Operational Outlook The Airport s Key Operational Performance Indicators are: Operations which drives landed weights and landing fee revenues Landed weight which drives landing fee revenues Passengers - which drives parking, concessions, rental car revenues, and international (FIS) fees The FY 2007 Budget for these key indicators was prepared by the Air Services Development Department and based on existing service and new service that has been announced by airlines as of May 1, These projections will be updated over the summer and may be modified when DFW issues its Annual Forecast and establishes the Rates, Fees, and Charges (RFCs) for FY The operational projections are based on the assumption that there are no further Wright Amendment changes. Operations Annual operations (defined as the total number of departures and arrivals) grew after 9/11 until Delta announced its hub pull-down in FY 2005 which resulted in an 8.8% decrease. The 6.2% reduction in the FY 2006 Outlook resulted from reduced operations due to high fuel prices and to AA s decision to drop 31 daily flights due to Wright Amendment changes. Operations are projected to grow less than 1% from FY 2006 Outlook in FY Number of Annual Flight Operations In Thousands FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Budget FY2006 Outlook FY2007 Budget EXE-5

24 Executive Overview Operations can also be viewed on an average daily basis as shown in the following chart. Daily Departures FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Budget FY2006 Outlook FY2007 Budget Landed Weights The following chart highlights landed weights from FY 2002 through the FY 2007 Budget. Landed weights are projected to increase to 39.2 billion pounds in FY 2007, a 0.4 billion (1.1%) improvement from the FY 2006 Outlook. Landed weights are projected to grow at a higher percentage than operations in FY 2007 due to a change in the mix of jets being projected primarily due to increases in cargo and in mainline passenger carriers such as Mexicana, Alaska, and ATA. 48 Total Landed Weights In Billions of Pounds FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Budget FY2006 Outlook FY2007 Budget Signatory Airlines represent 98.4% of the total landed weights or 38.6 billion pounds for FY 2007 with non-signatory permittee at 0.5 billion pounds and non-permittee at 0.1 billion pounds. EXE-6

25 Executive Overview Passengers Total passengers are projected to increase to 58.6 million in FY 2007, a 1.2 million (2.1%) increase over the FY 2006 Outlook, due to added service by passenger carriers previously mentioned in the discussion of landed weights and by increases in the seat factor. Total Passengers In Millions FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Budget FY2006 Outlook FY2007 Budget Since the time Delta pulled down its operations, passenger levels have not fallen at the same ratio as the decrease in operations and landed weights due to growth in the percentage of seats filled (i.e., seat factor). For FY 2007, the seat factor is projected to be 79.2% a 0.4% increase over the FY 2006 Outlook. Seat Factor 100% 90% 80% 70% 66.0% 68.9% 71.4% 75.4% 76.2% 78.9% 79.2% 60% 50% 40% 30% FY2002 Actual FY2003 Actual FY2004 Actual FY2005 Actual FY2006 Budget FY2006 Outlook FY2007 Budget EXE-7

26 Executive Overview The following table compares FY 2007 Budget with the FY 2006 Outlook and FY 2006 Budget, for the various passenger statistics. Revenues (In Millions) Passengers (in Millions) FY 2006 Budget FY 2006 Outlook FY 2007 Budget Total Enplaned Total International Int'l FIS Deplanements Originating Non-Originating Connecting Total Revenue and Expense Fund Overview The FY Fund Revenue Budget is $618.7 million, an $11.9 million (1.9%) decrease from the FY 2006 Budget of $630.6 million, primarily due to reduced airline revenues resulting from a reduced FY 2007 Expense Budget as compared to FY Revenues FY 2005 Actual FY 2006 Budget FY 2007 Budget Inc (Dec) Total Airline Revenue $166.3 $250.6 $212.0 ($38.6) Non-Airline Ops Revenues Revenue (in Millions) PFCs & Non-Ops Revenue Total Non-Airline Revenues Total Revenues $457.3 $630.6 $618.7 ($11.9) Operating revenues are classified into Airline Revenues (landing fees and terminal rentals), Non- Airline Operating Revenues (primarily parking, concessions, ground rentals, RAC, transportation and utilities), and PFCs & Non-Operating Revenues (PFCs to repay CDP debt service, interest income, CIF reimbursements, and the 777 Program). Airline and Non-Airline Operating Revenues are derived primarily from user charges (i.e., airlines, tenants, passengers, and other airport users) based on usage of the various Airport facilities and services in accordance with established rates. Airlines and other tenants generally pay amounts equal to the Airport s direct operations and maintenance expense for the service, plus an allocation of debt service and general airport services (i.e., overhead). Other than the parking fee changes highlighted below, all other revenues are discussed in the Operating Budget section of this report. EXE-8

27 Executive Overview Parking and Off-Airport Privilege Fee Modifications The FY 2007 Budget includes the assumption that the parking fee and access fee modifications described in this section are implemented. These fee increases would result in a $6.3 million increase in parking fees in FY 2007 and compared to FY Parking rate modifications are being made because: It has been five years since the last terminal rate changes and ten years prior to that change DFW needs to begin to recoup a portion of the $150 million of capital investment made for the Terminal D parking garage and the new automated parking system Operating costs have increased with inflation and fuel costs have escalated significantly in the past few years The Airline Use and Lease Agreement requires that rates...shall be no lower than the mean average rate charged for comparable service at large hub airports, as defined by the Federal Aviation Administration. A study comparing DFW parking rates to other large hub airports was completed by Leigh Fisher in May of The study found that DFW rates were below the average rate charged in all categories. The following is a comparison of the average rates to current DFW rates. DFW Airport Mean Parking Rates Charged at Large Hub Airports Terminal $13.00 to $16.00 Express Uncovered $9.00 to $10.00 Remote Dropoff/One Hour Drop-off/8 Minutes $6.00 $1.00 $1.00 $19.07 $11.13 $9.80 $3.14 $1.81 A summary of parking fee modifications follows: Lot Current Rate Dates of Rate Increases Old Rate New Rate Proposed New Rate Terminal Infield $16.00 $13.00 October 1, 2001 October 1, 2001 $12.00 $9.00 $16.00 $13.00 January 7, 1991 January 7, 1991 $10.00 $7.00 $12.00 $9.00 $17.00 $14.00 Express Uncovered (Reduced) $9.00 October 1, 2001 $7.00 $9.00 $10.00 January 7, 1991 $5.00 $7.00 September 3, 2003 $5.00 $6.00 January 7, 1991 $4.00 $5.00 Remote $6.00 $7.00 Meet and Greet * $2.00 (1 Hr. - 2 Hr.) October 1, 2001 $1.50 $2.00 $2.00 (30 Min - 2 Hr.) January 7, 1991 $2.00 $1.50 Drop-off * $1.00 (9 Min. - 1 Hr.) September 3, 2003 $0.00 $1.00 $1.00 (9 Min Min) May 1, 1999 $0.50 $0.00 * Proposed rate adjusts timeframe EXE-9

28 Executive Overview Off-Airport Privilege Fee An off-airport parking privilege fee (8% of gross revenue) is being proposed to generate $0.8 million of incremental revenue in FY 2007 (assuming a January 2007 implementation date). This type of fee, which is currently being used at many airports around the country, would be assessed to private off-airport self-parking and valet-parking services that generate revenue by accessing DFW s transportation and terminal infrastructure, and would replace current access and permit fees for these entities. This fee would not be applicable to taxis, shared ride limousines, and hotel shuttles, who will continue to be subject to access and permit fees under Chapter 5 of the Code of Rules and Regulations. Some fee modifications are also being recommended for taxi s, limo s, and shuttles that will generate an estimated $0.9 million of incremental revenue in FY These fee increases are recommended to eliminate a deficit for this business unit. Fund 102 Expense Budget The Fund 102 Expense Budget is comprised of Operating Expenses and Net Debt Service plus Coverage. The FY 2007 Expense Budget is $618.7 million, an $11.9 million (1.9%) decrease from the FY 2006 Budget of $630.6 million, as shown in the following table. The Net Debt Service Budget increased $2.4 million in FY 2007 from the FY 2006 Budget, due to an increase in the variable interest rate from 3.5% to 3.75%; and due to changes in the structure of debt liabilities. Expense Budget Comparison (in Millions) FY 2005 Actual FY 2006 Budget FY 2007 Budget Inc (Dec) Operating Expenditures $254.1 $336.1 $321.7 ($14.4) Net Debt Service & Coverage Total Expense Budget $457.3 $630.6 $618.7 ($11.9) Budget Walkforward Ref Millions FY06 Budget. as Approved $635.2 A Less: Pass-Through Expenses (4.5) FY06 Budget, as Adjusted $630.6 Less: Budget Reductions B Reduction in Reserve Requirement ($17.5) C Other Budget Savings/Reductions (17.6) Total Budget Reductions ($35.1) Add - Major Cost Drivers D Cost Annualization/Fixed Increases $8.7 E Scope Increases to Existing Programs 5.6 F FY 2007 Merit Pool (5%, efective 1/1) 3.9 G Increase in Debt Service 2.4 H Other, Net 2.7 Total Budget Increases $23.2 FY07 Proposed Budget $618.7 EXE-10

29 Executive Overview The budget reductions of $35.1 million were more than sufficient to offset the expense increases associated with energy and fuel costs, medical and pension costs, fixed contract increases, and a merit increase for employees. Detailed explanations of these budget reductions and cost drivers are included in the Operating Budget section. FY 2007 Capital Sources and Uses of Cash Total capital expenditures for FY 2007 are $211 million and are forecast on a cash basis. The completion of the CDP (primarily final payments for retainage) represents $59 million (28%) of the projected FY 2007 capital expenditures. The largest new project in FY 2007 is the Perimeter Taxiway project on the southeast quadrant of DFW Airport ($64.7 million total cost; $25 million projected to be spent in FY 2007). A detailed listing of capital projects and funding sources is included in the Capital Funds section of this report. The following table summarizes projected FY 2007 capital expenditures by category. Vehicle, Environment, Security, & Other $41 FY 2007 Projected Capital Expenditures $211 Million CDP $59 Roadways & Transit $9 Terminal $53 Airfield $49 FY 2007 Capital Funds Overview DFW s capital programs are funded primarily through the issuance of Joint Revenue Bonds, the Capital Improvement Fund (CIF) which is funded annually by the airlines through coverage payments, Federal Airport Improvement Program (AIP) Grants, and Passenger Facility Charges (PFCs). The following chart highlights the projected sources of cash for capital expenditures in FY Note that the $82 million of bonds have already been issued and do not reflect a new issuance of debt. Detailed discussion of all funding sources and projects are included in the Capital Budget Section of this report. EXE-11

30 Executive Overview FY 2007 Capital Sources of Cash $211 Million CIF $46 Bonds $82 PFC $30 Capital Funds Available AIP $53 The following table highlights capital funds available at the end of FY 2007 by funding source. Airport Capital Funds Walkforward In Millions Total FAA CIF Bonds DFW Grants Old PFCs Cash Avail Beginning Balance $ 5.5 $ 40.0 $ 0.2 $ 11.3 $ 67.7 $ 95.8 $ $ $ 38.7 Sources of Funds: - Settlement Interest Income Natural Gas Program (14.0) 7.0 PFCs Collected Receipts from TSA Less: Capital Uses (31.3) (3.6) (0.2) (11.9) (70.0) (15.0) (29.8) (161.7) (37.6) Less: Debt Service (95.8) (119.1) (214.9) - Ending Cash Balance $ 26.0 $ 53.9 $ 0.0 $ 0.0 $ 0.0 $ 3.1 $ $ $ 1.0 Management anticipates receiving a one-time bonus payment of a minimum of $36 million for natural gas drilling rights on the Airport. The Controlling Documents require that these funds be placed directly in the Capital Improvement Fund (CIF) and ultimately into the 301 Fund. (See the Introduction for a discussion of the CIF.) The 777 Program (discussed previously) provides for the transfer of $7 million from the 301 Fund to the 102 Fund and an additional $7 million to the 302 Fund. The third $7 million is to be transferred from the Airlines Trust Accounts (not shown in walkforward) to the 102 Fund. Management has identified potential uses for the incremental 301 funds should they become available; however, these funds have not been programmed in the capital budget yet to be conservative. This is discussed in more detail in the Capital Section of this book. EXE-12

31 Operating Revenue and Expense Budget Revenues The following table highlights revenue by category and revenue summary account. FY 2007 Revenue Budget is $618.7 million, an $18.5 million (3.1%) increase over the FY 2006 Outlook, which is Management s most recent projection of expected FY 2006 results. Variances between the Outlook and the FY 2007 Budget are explained below. Airline Rev FY 2005 Actual FY 2006 Budget FY 2006 Outlook FY 2007 Budget FY 2007 Over (Under) Outlook Landing Fees $156.8 $212.3 $190.8 $174.4 ($16.4) Terminal Leases Total Airline Revenue $166.3 $250.6 $225.0 $212.0 ($13.0) Non-Airline Operating Rev Parking $88.2 $90.1 $90.1 $97.5 $7.4 Concessions FIS, GA, Common-Use Gates (0.1) Rental Car Facility Utilities (0.4) Commercial Development (0.2) Employee Transportation (0.2) Taxi, Limo, & Shuttle Fees Other Rev (2.1) Total Non-Airline Ops Rev $216.6 $245.0 $239.2 $248.0 $8.8 Non-Operating Revenue 102 Fund Revenues (In Millions) Passenger Facility Charges (PFCs) $60.7 $117.2 $117.1 $119.1 $2.0 Interest Income Reimbursements from Other Funds /7/7 Program Total Non-Operating Rev $74.3 $134.9 $136.0 $158.7 $22.7 Total Revenue $457.3 $630.6 $600.2 $618.7 $18.5 Landing Fees Signatory Airlines pay landing fees based on the landed weight of the aircraft utilizing the Airport and a landing fee rate. Non-Signatory Permitee and Non-Signatory Non- Permitee/General Aviation Airlines pay a 15% and 30% premium over the signatory landing fee rate, respectively. A discussion of how landing fee rates are calculated is included in the Introduction Section of this report. The preliminary FY 2007 Landing Fees Budget is $174.4 million, a $16.4 million (8.6%) decrease from the FY 2006 Outlook of $190.8 million primarily due to a reduction in the total Expense OPS-1

32 Operating Revenue and Expense Budget Budget and the increase in Non-Airline Revenues. Landed weights are projected to increase by 1.1%, from 38.8 billion pounds based on the Outlook for FY 2006 to 39.2 billion pounds in FY The signatory landing fee rate is projected to decrease from $4.94 per thousand pounds in FY 2006 to $4.45 per thousand pounds in FY Terminal Leases Terminal lease fees are charged to Signatory Airlines based on the projected costs to operate the terminals, plus allocations, less a credit for allocated concessions revenue (based on passengers per terminal). Terminal lease forecasts are established on a per square foot basis. The Terminal Lease fee budget is predicated on the following assumptions: All international service will operate out of Terminal D in FY New airlines will operate out of Terminal E. ATA, Midwest Express/Mesa, and Alaska Airlines will operate out of Airport-operated gates in Terminal E and pay gate usage fees, rather than enter into a lease. American Eagle and United Airlines will occupy Terminal B. Airport-operated gates in Terminal B will only be used for Military Rest and Relaxation flights and overflow from American Eagle and United Airlines. The FY 2007 Terminal Lease Budget is $37.6 million, a $3.3 million (9.7%) increase from the FY 2006 Outlook of $34.3 million primarily due to having American Airlines in Terminal D and American Eagle in Terminal B for a full year rather than a partial year as in FY Parking Parking fees are charged to the public based on the length of stay and the parking facility used. The Airport offers five parking products: Terminal, Infield, Express (covered and not covered), Remote and hourly for drop-offs and pass throughs. See the Executive Summary section for an explanation on the new Parking fee structure. The FY 2007 Parking Revenue budget is $97.5 million, a $7.4 million (8.2%) increase from the FY 2006 Outlook of $90.1 million, primarily due to increasing the parking fees, implementing an Off-Airport Privilege fee, and continuing promotional programs to encourage growth in the Terminal Parking product. Concessions Concessions revenues consist primarily of in-terminal food, beverage, vending, passenger services, retail concessions, advertising, and communication concessions net of a reserve for bad debts. A small percentage of this revenue stream is derived from concession activities outside the terminal (e.g., gas station and airport-wide cell phone leases). Concessionaire contracts normally require payment of a Minimum Annual Guarantee (MAG) plus a percentage of gross sales over an amount specified in the contract. Advertising and communications contracts generally have fixed monthly payments, but can have one-time payments which are amortized over the life of the contract. In FY 2006, Concessions revenues are down approximately 11% from the FY 2006 Budget of $41.0 million due to suspending the MAG requirement for concessionaires in Terminals D, due to the delay in moving American Airline flights to Terminal D and the slow ramp up of passenger activity in the south end of Terminal D. The FY 2007 Concessions Budget is $39.7 OPS-2

33 Operating Revenue and Expense Budget million, a $3.1 million (8.5%) increase from the FY 2006 Outlook of $36.6 million, primarily due to reinstating the MAG requirements for concessionaires in Terminals D. FIS International Fees, General Aviation, and Common Use Gate Fees FIS fees represent the $4.80 fee paid on each deplaning international passenger for customs inspections. The Common Use gate fees result from airline use of Airport-owned gates (rather than leasing terminal space). Common Use gates are planned in FY 2007 for Terminals B, D and E. Terminal B gates will only be used for Military R&R flights and overflow from American Eagle and United Airlines. General Aviation fees consist of landing, fueling, and facility fees. Fees in this category are projected to remain near the same levels as FY Rental Car Facility (RAC) Rental car agencies that operate in the Airport s RAC are charged a ground lease and a percentage of gross sales as stipulated in the rental car agreements. RAC base rent per acre is derived from the average Airport cost per acre (described in the Commercial Development section below). The FY 2007 RAC revenue budget is $27.5 million, a $0.3 million (1.1%) increase from the FY 2006 Outlook of $27.2 million, primarily due to projected higher rental car usage in FY 2007 based primarily on increased destination passengers, net of lower ground rent revenue. Utilities Utility fees are charged to Airport users for their heating, cooling, trash removal, and water usage. The utility accounts are self balancing cost centers whereby revenues are forecast to cover the expected cost of providing the utility services, plus allocations of airport services (overhead) and debt service. At the end of the year, any differences between revenues billed and expenses incurred for Heating, Ventilation, and Air Conditioning (HVAC) are balanced and settled with the tenants. Net differences between Water and Trash revenues and expenses are ancillary which means the difference will impact the landed fee rate. The FY 2007 Utilities revenue budget is $18.1 million, a $0.4 million (2.1%) decrease from the FY 2006 Outlook of $18.5 million due to a decrease in natural gas and electricity rates. Natural gas rates have been locked in through September Electricity rates have been locked in through March Commercial Development This category includes ground lease and percentage rent revenue generated from non-terminal Airport facilities and property. Multi-year lease agreements are negotiated with tenants, typically on a per square foot or per acre basis. Some facilities such as the Hyatt Regency Hotel and golf course also have percentage rent components. The ground lease price per acre for most tenants is based on direct maintenance costs, plus an allocation of airport services and debt service, divided by total developed acres. The FY 2007 Ground Lease Revenue Budget is $20.5 million, a $0.2 million (1.1%) decrease from the FY 2006 Outlook of $20.8 million due to the net impact of a lower Airport Services rate per acre and more acres under ground lease The Ground Lease rate per acre is projected to decrease from $23,950 in FY 2006 to approximately $22,000 per acre in FY 2007 due to a reduction in expenses charged to the Airport Services cost center. The FY 2007 Budget contains approximately $1.8 million of new ground lease business which is offset by a one-time, 2006 payment of $1.3 million for a restructured lease and by the reduced per acre rate. Employee Transportation OPS-3

34 Operating Revenue and Expense Budget Tenants pay $40 for each full-time employee, and the airlines pay $20 per month for flight crews, to transport the employees from the parking lots to the terminals. The FY 2007 employee transportation budget is $7.5 million, a $0.2 million (2.2%) decrease from the FY 2006 Outlook of $7.7 million due primarily to fewer concessionaire employees using the employee parking lots. Taxi, Limo & Shuttle Fees These revenues represent the fees paid by taxis, limos, shuttles and other shared-ride transportation companies that require access to the airport to drop-off and pick-up passengers. The FY 2007 Budget of $6.1 million is $0.9 million (17.3%) greater than the FY 2006 Outlook of $5.2 million primarily due to increasing access fees for taxis, limos and shuttles which will allow this cost center to eliminate the deficit between revenues and direct expenses. Other Revenues Other Revenues include reimbursements from the Transportation Security Administration (TSA) for law enforcement officer flex-response at security checkpoints ($2.8 million), fingerprinting, badging, DPS Training Center and miscellaneous DPS revenue ($2.8 million), and other miscellaneous revenues ($0.6 million). The FY 2007 budget of $6.2 million is $2.1 million (25.3%) less than the FY 2006 Outlook of $8.3 million primarily due to the receipt of a one-time settlement in FY Passenger Facility Charges (PFCs) DFW collects $4.50 PFCs for each enplaned passenger passing through the Airport. DFW deposits these funds into the 252 Fund and then uses the funds to pay for eligible capital projects and debt service as incurred. In FY 2007, DFW will use $119.1 million of PFCs to pay approximately 75% of the eligible debt service on the CDP. This amount transferred from the 252 Fund to the 102 Fund is considered Gross Revenue. This increase in PFCs is due to an increase in eligible interest expense. Interest Income Interest income includes interest earned on investments from the Operating Revenue & Expense Fund (102) and Debt Service Reserve Fund (600s). The FY 2007 Interest Income Budget is $12.3 million, a $0.9 million (8.0%) increase from the FY 2006 Outlook due to higher projected interest rates (3.7% to 4.0% in FY 2007 versus 2.75% to 3.5% in FY 2006). Reimbursements from Other Funds DFW and the Airlines have agreed to make an annual reimbursement from the Common Capital Improvement Account (301) to the 102 Fund known as the Coverage Credit to offset debt service coverage for debt supported with surety policies. Refer to the CIF funding topic in the Capital Funds section of this report for more information. As a result of increased debt service coverage in FY 2006, the coverage credit for FY 2007, which is based on the prior year s debt service coverage, will increase $4.1 million. This category of revenue also includes a $1.7 million transfer in FY 2007 from excess debt reserve requirements. 777 Program The 777 Program is discussed in detail in the Executive Overview Section of this report. OPS-4