Page 179 - Planning and Design of Airports

146 Airp o r t Pl anning

There are a number of techniques for comparing benefits with
costs. Most of them consider the time value of money based on an
appropriate discount rate which reflects the opportunity cost of capital.
The discount rate is a value by which a unit of money received in the
future is multiplied to obtain its present value or present worth. In
other words a cost incurred in 2010 has a different economic value
from that of the same item incurred in 2015.
If the time value of money is not considered, the ratio of benefits
to costs is made for each year by merely dividing the benefits in a
particular year by the cost of the project in that year. A project is con-
sidered economically feasible when the ratio of the benefits to costs is
greater than unity, that is, the benefits exceed the costs. The larger the
ratio, the more attractive is the project from an economic standpoint.
A ratio can also be obtained by comparing the present value of bene-
fits with the present value of costs. This approach recognizes the time
value of money. Another approach is to plot the net present value
(NPV) for each year against time. The net present value is defined as
the present value of benefits minus the present value of costs.
The financing of capital improvements for airports is discussed in
Chap. 13. In the early years of airport development, substantial capi-
tal improvement programs were financed at the local level by sale of
general obligation bonds backed by the taxing power of the commu-
nity. As air transportation became mature and the requirements of the
community for capital spending programs increased, airports began
to utilize revenue bonds as a source of financing. A financial feasibil-
ity study is therefore an analysis to determine if bonds are marketable
at reasonable interest rates. It also includes the feasibility of other
forms of financing. The analysis requires a thorough evaluation of the
revenues to be developed by a proposed improvement and the cor-
responding costs. Usually this is done in a traffic and earnings study
performed over the planning horizon. In such a study, the forecast of
demand is utilized and rates and charges established for the various
revenue categories. This results in annual revenue projections. To
make revenue bonds attractive to buyers a typical airport revenue
bond should show an expected coverage by net revenues (gross rev-
enues minus costs) of at least 1.25 times the debt service requirements.
If the analysis indicates that the revenues will be insufficient, revi-
sions in the scheduling or scope of the proposed development may
have to be made or the rates and charges to the users of the airport
may require adjustment.

Continuing Planning Process
A continuous airport planning process is necessary in order to respond
to the needs of air transportation in a changing environment [8].
Changes in aviation demand, community policies, new technology,