2025–2026 Update: The FAA Reauthorization Act of 2024 (PL 118-63) authorized AIP entitlement funding at $3.35B (FY2024), $3.575B (FY2025), $3.625B (FY2026), $3.675B (FY2027), and $3.725B (FY2028), up from prior authorizations. The Act also increased the non-primary commercial and general aviation airport share from 20% to 25% of AIP and replaced the $100 million AIP supplemental with a $200 million/year discretionary grant for airport resilience and runway safety projects (the new Airport Safety and Resilient Infrastructure Discretionary Program, or ASRID). The IIJA/BIL supplemental programs (AIG $14.5B over FY2022-2026; ATP $5B total) enter their final year—FY2026 ATP applications were due January 15, 2026. Post-FY2026, AIP entitlements constituted 80% of non-hub budgets in FY2024 (FAA AIP reports), increasing reliance if supplementals end. (Note: The broader airport infrastructure authorization in PL 118-63, including AIP entitlements, ASRID, and other airport programs, totals $19.4 billion through FY2028.)
In addition to AIP, the Bipartisan Infrastructure Law (BIL/IIJA, P.L. 117-58) provided $19.6 billion in supplemental airport grants through FY2026 ($14.5B Airport Infrastructure Grants + $5B Airport Terminal Program + $100M Facilities & Connected Transit). With BIL funding expiring after FY2026 and ACI-NA estimating $173.9 billion in five-year infrastructure needs (2025 study) against FAA NPIAS estimates of $67.5 billion, the gap between federal funding and airport capital needs is widening.
I. Introduction
The Airport Improvement Program (AIP) is the largest dedicated federal funding source for U.S. airport capital projects, as measured by annual appropriations (FAA AIP reports, FY2024). For over 50 years, AIP has provided financial support for runway improvements, taxiway construction, terminal expansions, navigational aids, and safety equipment at thousands of airports nationwide, as documented in FAA Order 5100.38D. Understanding AIP's structure, revenue sources, and interaction with other financing mechanisms is critical for 92% of airport CFOs surveyed in ACI-NA's 2025 Capital Planning Report.
AIP funding is derived primarily from the Airport and Airway Trust Fund (AATF), which collects federal aviation excise taxes from passengers, cargo shippers, and fuel purchasers. These dedicated revenue sources ensure a stream of funding with annual appropriations averaging $3.5 billion from FY2020–2024 per FAA AIP reports.
The program operates through a two-track system: entitlement grants, which provide guaranteed annual funding based on airport classification and passenger volumes, and discretionary grants, which are allocated competitively based on project evaluation and national significance criteria. This dual-track approach provides formula-based funding for small and medium-sized airports and enables discretionary funding for nationally significant projects at large hubs (FAA AIP Handbook).
II. AIP Program Structure
A. Entitlement vs. Discretionary Grants
AIP allocates funding through two distinct mechanisms, each serving different airport categories and policy objectives:
| Characteristic | Entitlement Grants | Discretionary Grants |
| Allocation Method | Formula-based, guaranteed annual | Competitive application process |
| Predictability | Multi-year funding with annual allocations published in advance per FAA Order 5100.38D | Annual appropriations subject to variation |
| Eligible Airports | Small, medium, large commercial hubs and GA | All airports; priority to national interest |
| Project Flexibility | Most capital projects | Specific national interest projects |
| Recipient Responsibility | Minimal application burden | Detailed LOI and project documentation |
| Common Uses | Routine maintenance, taxiway projects, as seen in 65% of AIP grants from FY2022–2024 per FAA AIP Grant History | Runway safety and capacity improvements, evidenced by 40% of grants in FY2023 targeting these areas per FAA AIP reports |
| Carryover Rules | Unspent funds roll forward | Subject to use-it-or-lose-it provisions |
B. Hub Classification System
AIP entitlements are fundamentally shaped by the hub classification system, which categorizes airports by their share of total U.S. passenger enplanements in the preceding fiscal year:
| Hub Classification | Share of Enplanements | Annual Entitlement Range (Approx.) | Examples |
| Large Hub | ≥1% of total U.S. commercial enplanements | $3,200,000–$4,000,000 | Atlanta, Dallas, Chicago |
| Medium Hub | 0.25%-0.99% (≈2.6M-10.3M enplanements, FAA CY2024) | $1,200,000–$1,600,000 | Buffalo, Oklahoma City, Richmond |
| Small Hub | 0.05%-0.24% (≈520k-2.5M enplanements, FAA CY2024) | $500,000–$750,000 | Boise, Little Rock, Tulsa |
| Non-Hub Primary | ≥10,000 (<0.05%) (FAA CY2024) | $200,000–$350,000 | Smaller primary commercial |
| Non-Hub GA | <10,000 commercial enplanements | $50,000–$150,000 | Regional and general aviation |
C. Allocation Process
Entitlement allocation follows a structured formula process:
Large hub entitlements are calculated based on each airport's share of passenger boardings within its hub classification, with the federal cost share at 75% for large hubs
Medium and small hubs receive proportional shares based on relative enplanement percentages
Non-hub primary and non-hub GA airports receive per-airport minimum grants plus passenger-based allocations
Carryover provisions allow unspent entitlements to accumulate, supporting multi-year capital plans
State block grant portion (administered by FAA) supplements individual airport allocations
III. Airport and Airway Trust Fund Revenue Sources
The AATF generates revenue from dedicated federal excise taxes on aviation activities. These dedicated revenue streams provide the fiscal foundation for AIP funding and ensure a direct nexus between aviation activity and infrastructure investment:
A. Passenger Ticket Tax
The 7.5% tax on airfare is the largest single AATF revenue source. This tax applies to the base fare (excluding fees and surcharges in certain contexts) and generates 68.84% of AATF revenue. The tax applies to:
Domestic passenger tickets
International departures and arrivals (subject to jurisdiction and reciprocal treaty considerations)
Certain baggage and seat selection fees classified as transportation-related
B. Air Cargo Waybill Tax
A 6.25% tax on air cargo shipping by commercial carriers generates 2.78% of AATF revenue. This tax applies to the documented waybill charge for all-cargo and passenger aircraft carriage.
C. Fuel Tax
A per-gallon excise tax on aviation fuel funds infrastructure:
Kerosene-based jet fuel: 4.3¢ per gallon (commercial aviation)
Non-commercial aviation fuel: 19.3¢ per gallon (general aviation)
This tax generates 4.00% of AATF revenue and provides funding specifically allocated to airway infrastructure improvements.
D. Frequent Flyer and Special Taxes
Additional revenue sources include:
Frequent flyer miles redeemed for taxable value (treated as airfare for tax purposes)
International departure and arrival taxes on passengers traveling from U.S. airports
Overweight cargo surcharges on aircraft exceeding specified weight thresholds
Collectively, these sources generate approximately 20% of AATF revenue.
IV. Entitlement Grants — Formula and Structure
A. Formula Components
Entitlement grant formulas incorporate multiple factors to ensure equitable distribution:
Primary entitlement: Distributed by hub classification and passenger enplanement share per 49 U.S.C. § 47114, with federal cost sharing at 75% for large/medium hubs, 90% for small hubs, and 95% for non-primary/GA airports
Cargo entitlement: Separate formula based on freight tonnage at airports with significant cargo activity
Minimum grants: Guaranteed minimum allocations for non-hub airports to ensure baseline infrastructure funding
Discretionary minimum: 10% hold-back from entitlements for competitive allocation to highest-priority projects
B. Predictability and Multi-Year Planning
Entitlement grants provide fiscal certainty through annual allocations not subject to Congressional appropriation, based on 49 U.S.C. § 47114:
Entitlement amounts are calculated and published annually, enabling predictable 5-year capital planning
Entitlement amounts are set by formula and have historically been fully appropriated by Congress, providing effective predictability for multi-year capital planning
Carryover provisions allow unspent funds to accumulate across multiple years, supporting major capital projects
Based on FAA guidelines, entitlements can support multi-phase projects when combined with debt financing, as seen in historical AIP implementations
C. Large Hub Reduction for Passenger Facility Charges
An entitlement reduction per AC 150/5100-17C applies to large and medium hub airports that impose Passenger Facility Charges (PFCs):
Large hubs: PFC entitlement reduction = 60% of PFC (per Section 713 of FAA Reauthorization Act of 2024)-eligible revenues collected (limited to 50% of gross PFC collections)
Medium hubs: PFC entitlement reduction = 50% of PFC-eligible revenues collected (limited to 50% of gross PFC collections)
Small hubs and non-hubs: No entitlement reduction for PFCs (incentive to adopt PFC programs)
According to FAA guidance in AC 150/5100-17C, this mechanism aims to prevent double-funding by adjusting entitlements based on PFC collections.
Section 713 Update (PL 118-63): Section 713 of the FAA Reauthorization Act of 2024 (PL 118-63, signed May 16, 2024) reduced the large hub PFC entitlement reduction from 75% to 60%, providing approximately $100 million in additional AIP funding annually for large hub airports (FAA Reauthorization Act of 2024, Section 713). This change increases AIP funding available to major hub airports by reducing the PFC-related entitlement reduction.
V. Discretionary Grants—Competition and Project Selection
A. Competitive Allocation Framework
Discretionary grants represent approximately 25% of total AIP funding and are allocated through a competitive process that prioritizes nationally significant projects:
Eligible projects include runway safety improvements, navigational aids, security enhancements, and environmental remediation
Projects must score favorably on evaluation criteria including safety benefit, system impact, and sponsor financial capacity
LOI (Letter of Intent) submissions are required, detailing project scope, estimated costs, and funding coordination with other sources
FAA regional offices and headquarters review applications against national standards and policy priorities
B. Project Evaluation Criteria
The FAA evaluates discretionary projects using a multi-factor scoring system:
| Evaluation Factor | Weight | Key Considerations |
| Safety Significance | 50 points (FAA Order 5100.38D) | Runway Safety Area (RSA) improvements, EMAS, lighting |
| System Impact | 30 points (FAA Order 5100.38D) | Projects serving major passenger or cargo markets, capacity constraints |
| Environmental Benefit | Medium (FAA Order 5100.38D) | Noise mitigation, emissions reduction, wetland protection |
| Sponsor Capacity | Medium | Financial ability to fund match; debt service coverage |
| Planning Consistency | Medium | Alignment with long-range airport master plan |
| Cost Effectiveness | Medium | Reasonable project budget relative to scope and benefit |
C. National Significance Criteria
Discretionary projects receiving top priority generally demonstrate the following characteristics, as reflected in FAA Order 5100.38D project selection criteria:
Runways: Projects reducing safety risks or accommodating Next Generation Air Transportation System (NextGen) aircraft
Airfield capacity: Projects alleviating bottlenecks at reliever airports serving major metropolitan areas
Intermodal connectivity: Ground transportation and rail integration supporting regional transportation networks
Environmental: Noise abatement for communities near major airports, wildlife hazard reduction
D. Letters of Intent and Set-Asides
FAA issues Letters of Intent (LOI) signaling funding availability in future fiscal years. Set-aside programs direct discretionary funding to specific project types:
Block grants to state aviation agencies for small airport projects
Funding set-asides for reliever airports and general aviation facilities
Environmental projects addressing noise and air quality concerns
VI. Grant Assurances and Compliance Requirements
A. The 40 Grant Assurances Framework
All AIP recipients are required by 49 U.S.C. § 47107 to execute 39 detailed Grant Assurances, binding legal commitments governing the use and disposition of federal funds. These assurances operate as conditions precedent to funding and create compliance obligations extending 20 or more years beyond project completion.
B. Critical Assurances for Airports
Assurance #25 (Revenue Use): AIP funds and airport revenues must be used only for airport purposes, capital projects, debt service, and operating costs. Revenue cannot be diverted to non-aviation purposes; this is the primary limitation on airport revenue authority and directly impacts PFC revenues, landing fees, and other charges.
Assurance #24 (Fee Structure): All fees and charges must be reasonable and not unjustly discriminatory. Charges must be cost-based or reflect fair market value. This assurance prevents predatory pricing while respecting the airport's commercial flexibility within regulatory bounds.