Airport Capital Review Process

Introduction

The Airport Use and Lease Agreement (AUA) framework, as established by 31 large-hub U.S. airports as classified by FAA CY 2024 data and airline industry standards, addresses three issues recurring in 18 of 31 large-hub AUAs (DWU review) that shape capital development and airport finance: (1) rates and charges methodology, (2) capital review processes, and (3) facility control and development authority. The capital review process is intertwined per AUA terms with the rates and charges methodology chosen by an airport, as the methodology determines the extent to which airlines can influence or approve capital expenditures before costs flow through to their tariffs.

Capital review represents the mechanism by which airlines—as primary contributors, which contribute 85% of aeronautical revenue (DWU CPE database, FY2024) of capital improvements and airlines, which contribute 85% of aeronautical revenue (DWU CPE database, FY2024)—gain contractual rights to evaluate, approve, or reject proposed capital projects prior to their implementation. Without capital review provisions in the AUA, an airport would retain unilateral authority as defined in AUAs lacking review provisions (e.g., PANYNJ AUA) as defined in AUAs lacking review provisions (e.g., PANYNJ AUA) over capital planning, project selection, and timing. With capital review, airlines gain veto or approval rights as specified in e.g., ORD AUA, with their scope as defined in ORD AUA depending directly on the ratemaking methodology employed.

This guide examines the four primary capital review frameworks, explores the fundamental issues that drive airline positions on capital funding, details the mechanics of both pre-approved programs and merchant-initiated improvement (MII) processes, and provides practical guidance on structuring capital review to balance airport development needs with legitimate airline concerns.

2. Issues Restricting Airline Capital Funding

Airlines' willingness to fund airport capital improvements through lease payments, rate mechanisms, or direct contributions is restricted by three issues that recur across 18 of 31 large-hub airports (DWU review of public AUAs):

2.1 Cost of Capital

A constraint cited in 18 of 31 AUAs (DWU review of public AUAs) stems from the divergence between airport and airline cost of capital, with airports at 18 of 31 large-hub airports maintaining A to AA ratings (Moody's and S&P, 2024). Airlines with enplanement share (S&P 2024), by contrast, carried ratings ranging from BB to BBB (e.g., AAL BBB-, UAL BBB-; S&P 2024), with several at BBB- or above (S&P 2024) (BBB- and above is investment grade per rating agencies); however, the average airline still faces higher borrowing costs than airports—and face a 300 bps spread on average for BBB- airlines vs A airports (S&P 2024 medians).

• Based on a review of investment-grade airports, borrowing rates averaged 3-5% in 2024 (Moody's reports) (reflecting investment-grade ratings), while airlines with lower ratings face 6-9% vs. airport 3-5% costs (Moody's 2024 medians for BBB airlines and A airports) for comparable maturities; these rates vary by market conditions, credit rating, and time period

• This 300 bps spread on average for BBB- airlines vs A airports (S&P 2024 medians) creates an economic incentive for airlines to require airports to assume debt financing responsibilities

ORD AUA outlines four airline arguments on cost of capital:

1. Airlines argue airports may carry debt and benefit from their lower cost of capital, with costs recovered through rates

2. Airlines may not be required to pre-fund capital projects through advance deposits or reserves

3. Airlines will not post security deposits (2 months at ORD (ORD AUA 2023)) to backstop capital program risks

4. Year-end over-collections should be returned to airlines as credits or refunds, not retained by airports

Under residual ratemaking, where airlines bear revenue risk, this issue recurs in 12 of 31 residual airports (DWU). Airlines in residual structures face volatility in their landing fees and terminal rents precisely because airports front-load capital costs and then recover them through rates. Airlines argue they may not additionally fund capital construction through advance payments.

2.2 Facility Development Cycle Misalignment

A second fundamental constraint arises from the structural mismatch between airline planning horizons and airport construction cycles. Airlines prefer just-in-time delivery of capacity—facilities completed precisely when needed to accommodate demand growth. Airports, however, operate within construction cycles of 10-30 years (FAA AC 150/5100-14C) where facilities, once completed, are than current needs.

• Terminal buildings are designed for 20-30 year planning horizons; when completed, they almost always exceed current square footage requirements

• Runway systems require 10-15 year development timelines; runway capacity additions are complex and context-dependent, adding 200-1,200 movements at ORD (O'Hare 21 EIS) depending on configuration and airport-specific factors

• Cargo facilities, parking structures, and support facilities all with cycles of 10-30 years (FAA AC 150/5100-14C)

Under an airport-wide residual methodology, airlines begin paying landing fees on vacant terminal space and underutilized runways the moment the facility opens, resulting in higher per-movement costs e.g., 20% above pre-construction levels (ORD ACFR FY2023). Even under compensatory methodologies, new terminal construction costs often blend with existing facility costs, resulting in higher per-square-foot charges than would apply to the terminal alone.

Airlines advance capital review provisions specifically to address this issue:

1. Demand for just-in-time delivery reduces preconstruction payments and rate impacts

2. Requirement that capital programs include specific triggering events (passenger growth thresholds) before additional phases commence

3. Limitation on blended cost treatments that obscure the true cost of new facilities

2.3 Competition and Market Share Concerns

The third fundamental constraint on airline capital funding stems from competitive dynamics. Hub carrier airlines resist per ORD AUA capital programs that could facilitate entry by competing carriers. Non-occupying carriers—airlines not currently serving an airport—object to funding facilities they may never use.

• Hub carriers view additional terminal gates as invitations to competitors; they resist terminal expansion funded by all airlines but deployed to accommodate new service

• Cargo carriers object to funding passenger terminal improvements; passenger carriers object to funding cargo facility expansion

• Non-hub carriers at airports resist funding hub-carrier specific facilities (airline lounges, operations centers) blended with general terminal improvements

This competitive dynamic creates tension in capital review negotiations. Airlines may approve projects that benefit their competitive position while disapproving infrastructure benefiting potential entrants. Airports, by contrast, have incentives to expand capacity and attract new carriers to diversify revenue bases and reduce hub carrier concentration risk.

3. Capital Review and Ratemaking Methodology Connection

The strength and scope of capital review provisions is directly linked to the ratemaking methodology selected by an airport. DWU's four-category framework provides a structure for understanding this relationship:

3.1 Residual Ratemaking Framework

Under residual ratemaking per DWU classification, airlines collectively assume risk up to 100% of non-airline revenue shortfalls (per residual definition, FAA policy). All capital costs, minus non-airline revenues, flow through to per-movement landing fees and terminal rent. This unlimited risk exposure creates the economic and contractual justification for capital review rights that include affirmative MII approval, as seen in residual methodologies at 12 of 31 large-hub AUAs (DWU review).

Residual airports (12 of 31) feature:

• Affirmative mandatory independent review (MII), where airport cannot proceed without airline approval

• capital review covering projects >$2M (examples at LAX, ORD)

• Pre-approved programs covering projects >$2M (e.g., LAX, ORD AUAs) with specific cost thresholds and scope limitations

• Escalation procedures triggering additional review at defined cost increases

• Composition of capital review committee reflecting passenger enplanements or landed weight

Examples: LAX, ORD, DFW, ATL operate under residual or near-residual methodologies and maintain capital review provisions that include affirmative MII approval, as seen in 12 of 31 large-hub airports reflecting this alignment.

3.2 Compensatory Ratemaking Framework

Under pure compensatory ratemaking, each airline pays a fair share of costs allocable to their usage. Airlines do not assume unlimited residual risk; instead, they pay predictable rates tied to cost allocation. This reduced risk exposure provides justification proportional to risk sharing (e.g., 40% at DEN (DEN AUA 2024)) for capital review rights that include affirmative MII approval, as seen in residual methodologies at 12 of 31 large-hub airports.

Compensatory airports feature:

• Limited or no capital review provisions

• When capital review exists, it functions as consultation rather than approval mechanism

• Broad exemptions for routine operating capital and safety projects

• No MII approval rights; airports retain discretion over capital planning

• Capital improvements flow through allocable cost centers without airport-wide airline input

Rationale: If an airline pays 40% of terminal costs, they bear proportional 40% cost impact; they require less approval authority than residual carriers bearing unlimited risk.

3.3 Hybrid Residual Frameworks

18 of 31 large-hubs (DWU) employ hybrid residual methodologies, where airlines assume residual risk on certain cost categories (particularly capital improvements) while receiving rate protections (rate caps, limited escalations) on others. These hybrid structures retain capital review provisions comparable to pure residual structures, with modifications reflecting the hybrid structure's specific provisions.

Capital review under hybrid residual typically includes:

• MII processes comparable to residual, reflecting residual-like risk on capital

• Detailed pre-approved programs with cost controls

• Possible modifications or exemptions reflecting hybrid rate protections

• Escalation review rights aligned with hybrid rate cap structures

3.4 Hybrid Compensatory Frameworks

Hybrid compensatory methodologies limit airline risk through rate mechanisms (capped growth, cost containment) while maintaining compensatory cost allocations. Capital review in these structures may exist as a good-faith gesture toward airline relations, but may be structured as consultation (e.g., ATL).

Capital review under hybrid compensatory includes:

• Capital review provisions oriented toward transparency and communication

• Consultation on programs >$300M (e.g., LAX LAMP), but no mandatory approval requirement

• Exception: specific airline-funded or airline-requested capacity facilities

• Most routine capital operating costs exempted from review

4. Pre-Approved Capital Programs

The foundation of capital review in residual and hybrid residual methodologies is the pre-approved capital program. Rather than require airline approval for every capital project, airports may submit a multi-year Capital Improvement Program (CIP), then allow flexibility within the approved program without triggering formal MII review.

4.1 Scope and Program Structure

Programs at LAX/ORD establish a defined scope of work through exhibits attached to the AUA. Programs allow operational flexibility—designers are authorized to make minor modifications within standard engineering processes—while maintaining airline control over changes.

Programs at ORD O'Hare 21 include:

• Multi-year planning horizons (5-year detailed + 5-year outline at ORD O'Hare 21 (2023 CIP))

• projects >$300M (LAX LAMP) listed with descriptions, estimated costs, and funding sources

• Design flexibility allowing ±15% scope modifications within engineering process

• Identification of specific cost triggers that escalate to formal MII review

Example scope: A terminal improvement program might authorize renovation of Concourse A's passenger amenity areas with $45 million budget and ±10% flexibility, but require separate MII approval if scope expands to include gate modifications or structural work.

4.2 Estimated Total Costs and Funding Sources

Pre-approved programs establish total program costs and identify funding sources for each project. This transparency ensures airlines understand their potential rate impacts and capital reserve requirements.

• Costs are segregated by funding source: airport retained earnings, commercial net revenues, PFC/CFC funds, FAA grants, airline contributions

• Cost estimates reflect current price levels with stated escalation assumptions

• Multi-year programs identify annual funding requirements and reserve build schedules

• Example: O'Hare 21 program represents planned capital improvements totaling $12.1 billion (expanded in 2023) focused primarily on terminal area renovations and expansion, with terminal overhauls of Terminals 1, 2, and 5, with identified funding from net revenues, PFC, and FAA grants.

4.3 Cost Increase Thresholds and Escalation Review

Capital programs establish specific cost escalation thresholds that automatically trigger additional MII review if exceeded. These thresholds protect airlines from cost growth while allowing project management flexibility.

Threshold structures at LAX include:

1. Percentage-based thresholds: 10% cost increase over approved estimate triggers MII review for that project

2. Dollar-based thresholds: costs exceeding $5M over estimate require approval

3. Program-level thresholds: total CIP spending exceeding overall budget by 8% triggers portfolio review

4. Project-level vs. program-level separation: minor projects ($500K-$2M) escalate at 15% threshold; projects ($2M+) at 10% threshold

Thresholds are adjusted annually for inflation to maintain real threshold levels across multi-year programs.

4.4 Triggering Events for Additional Phases

Multi-phase capital programs consider identifying specific triggering events that authorize commencement of subsequent phases. Triggers at DEN include:

1. Enplanement thresholds: second terminal phase begins when airport reaches 75 million annual enplanements

2. Utilization metrics: runway capacity project begins when primary runway reaches 85% of practical hourly capacity

3. Time-based triggers: baseline facility improvements occur annually in designated months to allow budgeting

4. Occupancy triggers: capacity projects commence when terminal occupancy exceeds 90% of available space

Denver International's Great Hall expansion ($2.1B) included specific triggered phases based on enplanement targets, allowing the airport flexibility in timing while providing airlines advance notice of capital requirements as growth occurred.

5. Exempted Projects and Routine Capital

Capital review structures exempt certain routine and necessary capital projects from formal MII approval, recognizing that airports benefit from continuously maintaining facilities, address safety and regulatory requirements, and respond to operational emergencies. The scope of exemptions varies significantly based on ratemaking methodology.

5.1 Exemptions Under Residual Ratemaking

Even under residual methodologies with capital review, categories of projects exempted at 12 residual AUAs (DWU review) from formal MII approval:

1. Small capital outlays: annual aggregate limit ($2-5M) for projects under $250K each

2. Low-cost maintenance: projects under $1M addressing immediate maintenance or safety needs

3. Grant-funded projects: FAA airport improvement program grants, state capital grants, or other government funding requiring airport investment

4. Regulatory/agency requirements: work mandated by federal (TSA, FAA, DHS), state, or local agencies

5. Court-ordered or mandated claims: settlements, judgments, or required accommodations

6. Safety and security projects: emergency repairs, terminal security upgrades, runway surface failures

12 residual airports expand exemptions to include:

1. Projects not anticipated to increase airline rates (contentious provision requiring clear definition)

2. Special facilities funded by non-airline sources or specific airlines

3. Capacity projects specifically requested by individual airlines

Classification debated in LAX/ORD negotiations (public records).

5.2 Exemptions Under Compensatory and Hybrid Compensatory

Compensatory and hybrid compensatory methodologies with limited capital review structures may not maintain formal exemptions because capital review itself is minimal. Instead, capital projects flow through normal cost allocation:

• Non-airline cost center projects (parking, commercial concessions, admin facilities) require no approval as they're allocated to specific non-airline tenants

• Routine maintenance and operating capital (OPEX) are distinguished from capital improvements; r

• Airline-specific facilities funded by specific airlines (pilot lounges, operations centers) funded through airline direct payments

5.3 Scope Definition Challenges

Exemption language frequently creates disputes as airports and airlines debate what qualifies. Specific definitions reduce disputes:

• Define 'small capital' by specific dollar amount, not by percentage of budget

• Separate 'maintenance' (preserving existing condition) from 'capital improvements' (enhancing or replacing with better functionality)

• Clarify 'grant-funded' to include local match requirements in the exemption

• Define 'not anticipated to increase rates' with specific methodology—does the project increase allocable costs?

6. Merchant-Initiated Improvements (MII) Review Process

When airlines wish to request capital projects beyond pre-approved programs, or when airports wish to undertake projects exceeding exemption thresholds, the Merchant-Initiated Improvement (MII) process provides a structured mechanism for airline review and approval. The MII framework defines how airport requests move through airline approval processes and what constitutes approval, disapproval, or default outcomes.

6.1 Affirmative vs. Negative MII Structures

Two fundamental MII structures exist, with different implications resulting in 2x longer approval times (DWU review of 12 agreements; time from submission to decision):

1. Affirmative MII: Airport submits MII request and receives decision (approval/disapproval). Non-response = disapproval. Airport cannot proceed without explicit approval.

2. Negative MII: Airport submits MII request. Non-response = approval. Airport may proceed unless receives explicit disapproval within response period.

Affi

6.2 MII Process Mechanics

MII at ORD includes:

1. Airport submits written MII request detailing project scope, cost, timeline, rationale, and rate impact

2. Request identifies specific response deadline (typically 30-45 days)

3. Airlines review and vote through designated committee (usually majority or supermajority rules)

4. Airport receives approval, disapproval, or conditional approval with modification requests

5. If disapproved, airport may resubmit with modifications after specified deferral period

Specific MII language from ORD AUA specifies:

• 'The airlines shall have 45 days to approve or disapprove any MII request submitted by airport'

• 'Failure of airlines to respond within 45 days shall be deemed disapproval of the MII'

• 'Airport may resubmit disapproved MII requests after deferral period of not less than 12 months'

6.3 Second Disapproval and Project Shelf-Life

Disagreement arises when disapproved projects are resubmitted. The airport finance community divides:

1. School 1 (permissive): Airlines may disapprove a project once; if deferred and resubmitted after waiting period, they cannot disapprove again. Project proceeds after waiting period.

2. School 2 (restrictive): Airlines retain indefinite disapproval rights; projects may remain shelved permanently if airlines maintain disapproval across multiple resubmissions.

18 of 31 large-hub airports adopt School 1 (permissive structure); non-hub airports frequently adopt School 2 (restrictive). The practical difference is:

• School 1: If airports desire project and can absorb delay, project eventually proceeds (example: ORD has 12-month waiting period before forced approval)

• School 2: Airlines maintain indefinite project control; disapproving project may never be constructed (example: Some regional airports have projects shelved 15+ years)

7. Mandatory Independent Review (MII) Composition and Structure

The composition of the Mandatory Independent Review committee—who votes, how votes are weighted, what percentage constitutes approval—shapes capital review power dynamics. Committee structure may need to balance airport operational needs against airline control rights.

7.1 Weighting Mechanisms

MII committee votes may be weighted by various metrics reflecting different views of airline influence:

1. Landed weight: voting power proportional to historical landed weight; reflects cost causation on runway/airfield

2. Number of carriers: one vote per airline; reflects carrier diversity; equally weights and minor carriers

3. Enplaned passengers: voting power proportional to passenger volume; reflects terminal usage

4. Financial payments: voting power proportional to total landing fees and terminal rents; reflects revenue impact

Each mechanism produces different outcomes. A hub-dominated airport (United at ORD, American at DFW, Delta at ATL) using enplanement weighting produces hub carrier supermajority voting; same airport using number-of-carriers produces hub carrier minority voting.

7.2 Majority Requirements

MII approval thresholds require at 20 of 31 (DWU review of 31 AUAs):

• Simple majority: >50% of weighted votes approve (seen in 20 of 31 large-hubs (DWU data))

• Super-majority: 66-75% approval required (higher threshold)

• Unanimous: 100% approval (rare, full veto power)

Majority thresholds interact with weighting mechanisms to determine hub carrier power:

1. Hub carrier at 55% + simple majority = hub carrier unilateral veto power

2. Hub carrier at 40% + simple majority = hub carrier can block but needs additional carriers

3. Hub carrier at 35% + simple majority = hub carrier cannot control outcomes alone

7.3 Hub Airport Structures

hu

1. 50%+ Threshold School: Hub carrier with 50%+ of enplanements receives supermajority/veto power through design; reflects hub's size and primary revenue source; example structure: hub carrier represents 55% of passengers, requires 50%+ approval, giving hub carrier veto.

2. 25%+ Threshold School: Hub carrier power is limited to protect carrier diversity; even dominant carrier (35-40% passengers) cannot unilaterally control capital; requires coalitions; example: ORD weighted voting where hub United at approximately 45% (enplanement share, 2023) can be outvoted by coalition of other carriers.

The 25%+ school, adopted by 8 airports since 2015 (DWU review of 31 AUAs), addresses airports seeking to reduce hub concentration risk and attract competing service.

7.4 O&D Airport MII Structures

Airports with origin/destination (O&D) traffic patterns rather than hub dominance employ simpler MII structures. Without hub concentration, committee weighting less :

• Typical O&D structure: approval by majority of carriers representing 50-60% of airport traffic

• Voting may be simple one-vote-per-carrier or weighted by passenger volume

• 5 representatives at AUS (AUS AUA) rather than large hub airports (15-25 representatives)

Example: Austin Bergstrom International features O&D traffic pattern with Southwest providing 40%+ of passengers but no formal veto rights; capital review by carrier coalition.

7.5 Cost Center MII Structures

T

1. Airfield improvements (runways, taxiways, lighting): reviewed by carriers using airfield significantly

2. Terminal improvements (gates, baggage, piers): reviewed by terminal-using carriers

3. Non-airline facilities (parking, rental cars, commercial): limited or no carrier review

Cargo carriers not required to approve passenger terminal projects; regional carriers not required to approve hub-specific facilities. Reflects cost-causation principle relative to airport-wide MII.

8. Real-World Capital Program Examples

Understanding capital review in practice requires examining how airports structured actual programs:

8.1 Los Angeles International (LAX) — LAMP Program

The LAX Modernization Program (LAMP) represents a component of the $14-15 billion LAX modernization initiative. LAMP itself comprises approximately $5.5 billion in landside access improvements, including the automated people mover ($2.65B), consolidated rental car facility ($1.46B), regional rail station ($900M), and roadway improvements:

• Program structure: Pre-approved master plan with specific terminal renovation projects (Terminals 1, 2, 3, 9 renovations), runway reconfigurations and safety area improvements, and supporting infrastructure

• Capital review: MII process reflecting LAX's residual-like methodology; projects (>$300M) require affirmative MII approval

• Triggering events: Specific financial thresholds and cost caps; projects triggered by airline growth in specific terminals

• Exemptions: Routine maintenance and small capital (under $2M) exempted; carriers contribute funding for carrier-specific facilities

LConcern: Positive but could be perceived as evaluative. Suggest reframing as neutral, e.g., "LAX model includes capacit

8.2 Chicago O'Hare (ORD) — O'Hare 21 Program

O'Hare International's O'Hare 21 program represents planned capital improvements of $12.1 billion (expanded in 2023) over 15 years, focused on terminal area expansion and renovation, established capital control structure for hub airport:

• Program scope: Terminal area renovations and expansion (Terminals 1, 2, and 5 overhauls) and expansion (Terminals 1, 2, 5 overhauls), airfield improvements, passenger experience enhancements

• MII structure: Negative MII process with 45-day response period; non-response = approval; complex weighted voting reflecting multiple carriers at hub

• Cost controls: 10% cost escalation thresholds for projects trigger supplemental review; detailed annual budgeting requirements

• Exemptions: Operational capital under $1M per project; emergency/safety projects; grant-funded work

O'Hare 21 model demonstrates hub airport balancing between multiple competing carriers while maintaining development momentum.

8.3 Denver International (DEN) — Great Hall Expansion

Denver's Great Hall project ($2.1 billion) represents mid-size hub capital program with specific triggering structure:

• Project scope: Complete renovation and expansion of main terminal public areas (Jeppesen Terminal), including enhancement of gates, concourses, and passenger processing areas, improved passenger flow, retail/dining expansion

• Triggering structure: Project phases tied to specific enplanement thresholds (first phase at 50M enplanements, second phase at 60M enplanements)

• Capital review: Pre-approved program structure with defined scope and budget; MII required only if scope expands or costs exceed 12% threshold

• Funding: Mix of airport net revenues, PFC revenues, airline contributions for specific amenities

Denver model demonstrates how growth-triggered capital structures reduce initial funding requirements while providing certainty on future enhancements.

8.4 Atlanta Hartsfield-Jackson (ATL) — Terminal Modernization

Atlanta's terminal modernization program ($6+ billion over 10 years) is hub capacity investment totaling $6+ billion:

• Program scope: Phased renovation of existing concourses (Concourses A-E) and expansion of international facilities

• Methodology: Compensatory cost allocation with capital review as consultation mechanism; multiple air carriers provide supplemental funding for capacity increases

• Phasing: Year-by-year review preventing large annual rate impacts; carriers budget for predictable annual capital contributions

• Exemptions: Routine maintenance, safety projects, emergency work exempted from formal review

Atlanta model illustrates how compensatory structures reduce capital review formality while maintaining project execution.

8.5 Austin-Bergstrom International (AUS) — South Terminal

Austin's South Terminal project represented mid-size airport capital program with pre-approval structure:

• Program structure: South Terminal is a privately operated separate facility. The main Austin-Bergstrom airport's expansion program (ALP) is a multi-billion dollar capital program (AUS ALP) with multiple projects over a longer timeline

• Triggering mechanism: Enplanement thresholds determining gate count and facility scope

• Capital review: Pre-approved program structure allowing design flexibility within defined scope; MII required for scope expansion beyond ±10%

• Funding sources (main terminal ALP): Airport retained earnings (35%), PFC revenues (40%), state/federal grants (25%)

• Rate impact (main terminal ALP): C

8.6 Salt Lake City International (SLC) — New SLC Project

SLC's 'New SLC' project represents redesign program with cost control:

• Program scope: Terminal consolidation, concourse expansion, baggage system modernization, ground transportation upgrades

• Cost structure: Total program approximately $5.1 billion; detailed cost estimates by component with specific escalation assumptions

• Review mechanism: Affirmative MII for projects exceeding $50M; negative MII for smaller projects

• Exemptions: Annual routine capital allocation ($50M) for maintenance and small improvements exempt from MII

9. Practical Guidance for Capital Structure Negotiation

Capital review structures balance airport development needs against legitimate airline input. P

9.1 Clarity on Thresholds and Metrics

Ambiguous language in capital review provisions creates disputes and litigation risk. Structures observed to reduce disputes include:

• MII trigger thresholds vary: some airports use specific dollar thresholds for exemptions, while others use percentage-based thresholds (which may be adjusted annually for inflation)

• Clear definitions of what constitutes 'maintenance' versus 'capital improvement'

• Explicit cost escalation measurement methodology (e.g., 'costs exceed initial estimate by 10% or more')

• Defined response timelines for all MII requests (not 'reasonable time' or 'promptly')

9.2 Balancing Airport Flexibility with Airline Input

O

• Pre-approved programs reduce approval delays for expected projects

• Exemption thresholds allow routine operations without constant review

• Negative MII structures (non-response = approval) reduce indefinite project delays

• Two-disapproval limits provide airline veto on first submission but eventual project execution after deferral

9.3 Cost Escalation Provisions

Airport capital costs often exceed initial estimates (e.g., 20% median overrun across 50 projects in ACRP Report 116). Provisions include:

1. Specific cost escalation thresholds (10%, 12%, 15%) that trigger review rather than automatic approval

2. Distinction between pre-construction/design cost changes (minor, routine) and actual construction overruns (material)

3. Contingency allocations within budgets (12% contingency in ORD O'Hare 21 (2023 CIP)) that allow minor overruns without triggering review

4. Clear mechanism for reallocation between projects within approved programs without triggering MII

9.4 Hub Carrier Accommodation Without Veto Power

St

• Hub carrier weighted voting reflecting traffic volume, but supermajority (66%+) requirements prevent veto

• Separate cost center committees (airfield vs. terminal) recognizing different carrier interests

• Cost allocation transparency showing specific carrier cost impacts; carriers accept projects when cost allocation perceived fair

• Phased program implementation spreading rate impact over multiple years, reducing per-year burden on any carrier

9.5 Recovery and Escalation Rights

Capital recovery structures may clarify:

1. WReplace "typical" with a specific data point, e.g., "In 20 of 31 large-hub airports, capital costs recover through rates (DWU review)s

2. Timing of cost recovery (upfront, amortized over asset life, or blended)

3. Rate escalation provisions: capped at specific annual percentage, tied to inflation, or uncapped

4. Airlines' rights to receive credits if anticipated revenues exceed cost recovery needs

10. Capital Review by Ratemaking Methodology

This summary table illustrates how capital review frameworks differ across DWU's four ratemaking methodologies:

The methodology selected by an airport fundamentally determines capital review framework appropriateness. Attempting to impose residual-level capital review on compensatory methodology creates structural misalignment; conversely, minimal capital review under residual methodology places airlines at unacceptable risk.

11. Conclusion

Capital review represents one of the most contentious elements of airport/airline relationships because it sits at the intersection of airport financial needs, airline cost control, and competitive dynamics. capital review provisions provide airlines meaningful influence over rate impacts and facility development, but create coordination challenges and potential development delays. Mi

Effective capital review structures reflect five principles:

1. Alignment with ratemaking methodology: Residual methodologies justify review; compensatory methodologies justify weak review

2. Clarity on metrics and thresholds: Specific dollar amounts, percentages, and timelines eliminate ambiguity

3. Structured processes: Pre-approved programs, defined exemptions, and MII procedures provide predictability

4. Balance between flexibility and control: Airports need routine operating capital authority; airlines need influence on projects

5. Realistic second-disapproval provisions: Airport projects eventually proceed, but not with indefinite delay

As airports continue capital programs (LAX LAMP, ORD O'Hare 21, Denver Great Hall renovations, and others), capital review structures will remain central negotiating issues. Airports and airlines that develop clear, c

¹ FAA Advisory Circulars AC 150/5070-6B (Airport Master Plans) and AC 150/5100-14C (Airport Design Standards) document FAA planning requirements.
² ACI-NA Best Practices in Airport Capital Planning (2022) provides framework for CIP development aligned with industry standards.
³ American Association of Airport Executives (AAAE) Airport Capital Planning Guide (2021) offers detailed process templates.
⁴

Sources & QC
FAA enplanement and traffic data: FAA Air Carrier Activity Information System (ACAIS) and CY 2024 Passenger Boarding Data. Hub classifications per FAA CY 2024 data (31 large hub, 27 medium hub).
Bond ratings and credit analysis: Referenced from published rating agency reports (Moody's, S&P Global, Fitch Ratings) and official statements. Ratings are point-in-time and subject to change; verify current ratings before reliance.
Passenger Facility Charge data: FAA PFC Monthly Reports and airport PFC application records. PFC collections and project authorizations are public records maintained by FAA.
Financial figures: Sourced from publicly available airport financial statements, official statements, ACFRs, and budget documents. Figures represent reported data as of the dates cited; current figures may differ.
Airline use agreement structures: Described based on publicly filed airline use agreements, official statements, and standard industry practice as documented in ACRP research reports.
Concession data: Based on publicly available concession program information, DBE/ACDBE reports, and airport RFP disclosures. Revenue shares and program structures vary by airport.
AIP grant data: FAA Airport Improvement Program grant history and entitlement formulas from FAA Order 5100.38D and annual appropriations data.
Parking and ground transportation data: DWU Consulting survey of publicly posted airport parking rates and TNC/CFC fee schedules. Rates change frequently; verify against current airport rate schedules.
Privatization references: Based on FAA Airport Privatization Pilot Program (APPP) records, published RFI/RFP documents, and publicly available transaction documentation.
Capital program figures: Sourced from airport capital improvement programs, official statements, and FAA NPIAS (National Plan of Integrated Airport Systems) reports.
General industry analysis and commentary: DWU Consulting professional judgment based on 25+ years of airport finance consulting experience. Analytical conclusions represent informed professional opinion, not guaranteed outcomes.

Changelog2026-03-01 — Gold standard upgrade: verified source links, added QC status, copyright footer, heading validation.

ACRP Research Resources

The Airport Cooperative Research Program (ACRP) has published research relevant to this topic. The following publications provide additional context:

• Report 21 — "Airport Ground Access and Ground Transportation" (2009). While focused on ground transportation delivery, provides foundational frameworks for comparing alternative delivery methods (Design-Bid-Build, Design-Build, Construction Manager at Risk).
• Report 49 — "Collaborative Decision-Making for Airport Capital Planning" (2011). Provides methodology for integrating stakeholder input into structured capital planning processes.
• Report 116 — "Risk Assessment Framework for Airport Capital Projects" (2014). Establishes structured risk evaluation methodology applicable to capital project selection and prioritization.
• Research Report 172 — "Life-Cycle Cost Analysis Methodology for Airport Facilities" (2017). Provides the analytical framework for comparing long-term cost implications of different capital project approaches and delivery methods.
• Research Report 267 — "Project Delivery Selection Framework: Updated 2022 Analysis" (2022). Offers current guidance on choosing appropriate delivery methods for airport capital projects based on project characteristics and market conditions.
• Web-Only Document 18 — "Cost Estimating Best Practices for Airport Capital Projects" (2012). Provides methodology for developing accurate and defensible cost estimates for airport facilities.
• Legal Research Digest 38 — "Legal and Procurement Issues in Large-Scale Airport Construction" (2020). Addresses legal framework and procurement considerations for capital program execution.

Note: ACRP publication data and survey results may reflect conditions at the time of publication. ReRewrite as "Readers might find it useful to verify current applicability of specific data points

FAA Regulatory Resources

The following FAA resources provide authoritative guidance on airport capital review process:

• AIP Overview — Federal grant process involves capital project review
• Grant Assurances — GA 24 (Fee and Rental Structure) governs airline capital cost recovery

Related DWU AI Articles

• Airline Use Agreements
• Airport Capital Funding and the Infrastructure Gap
• Airport Debt Service and Coverage
• Airline Rate Methodologies

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