No Turbulence in XNA Budget

Revenue and Entitlement Grant Exceed Expenses for First Time

After losing $1.9 million last year, the Northwest Arkansas Regional Airport should finish 2001 in the black — a first for the two-and-a-half-year-old airport in Highfill.

Scott Van Laningham, staff director at the airport, said revenue plus a Federal Aviation Administration entitlement grant should exceed expenses by about $1 million this year. The entitlement grant is included with revenue in his calculation because it’s based on the number of “enplanements,” or passengers, at the airport and will continue to be funded on a yearly basis.

“We’re about three years ahead of projections on enplanements and two to three years ahead of where we thought we would be financially,” Van Laningham said.

The 2,200-acre airport opened in October 1998 on a plateau in Benton County with a dedication that featured President Clinton. The FAA has designated it XNA, and pilots have dubbed it “Xena.”

Normally, it takes several years of creative financing before an airport begins to make money. Federal grants are available to get an airport off the ground, so to speak. A 30-year, $79.5 million bond issue provided the bulk of the money for construction.

The reason the numbers look so much better this year is that it’s the first year the airport has been able to receive the full FAA entitlement grant. Last year, XNA received the minimum amount allowed for the entitlement grant — $650,000.

The airport had 367,000 enplanements in 2000, an increase of 4.7 percent over 1999, a year in which airlines were relocating from Fayetteville’s Drake Field to XNA. Van Laningham “conservatively” predicts a 3 percent increase in enplanements for 2001.

To improve matters further, Congress passed what is referred to as “AIR 21,” a bill that appropriated $3.2 billion to the nation’s airports and doubled the amount of money some airports (including XNA) receive this year through the FAA entitlement grant to help them keep up with the strain on facilities as air travel continues to grow.

The airport expected to receive $1.3 million from the entitlement grant in 2001 but instead received $2.7 million, thanks to Congress. However, that kind of federal generosity might not continue. The government will continue to provide the grants, but the amount might be bumped down to the 2000 level.

Budget set

The $1 million figure we used excludes items that might cloud the bottom line of normal revenue and expenses, like $9.7 million in discretionary, one-time federal grants and $1.9 million in road grant proceeds.

The airport has 46 round-trip flights a day to nine destinations.

The five airlines that migrated north from Fayetteville and continue to operate at the regional airport, along with their primary destinations, are American Eagle (Dallas, Chicago and New York), Northwest Airlines (Memphis), Atlantic Southeast Airlines (Dallas and Atlanta), Trans World Express (St. Louis) and U.S. Airways (Little Rock, Kansas City and Charlotte, N.C.).

On March 15, American Airlines plans to begin providing a daily round-trip flight to Chicago from XNA on a mid-sized, 87-seat Fokker F 100 aircraft. That flight will replace one of six daily round-trip flights to Chicago operated by American Eagle, an American Airlines carrier.

Van Laningham said American would become the sixth airline to start using XNA since the airline is separate from American Eagle, which is a wholly owned subsidiary of American Airlines.

Van Laningham said it was too early to tell how two national airline mergers — between American Airlines and TWA, and U.S. Air and United — will affect air travel to and from XNA

XNA’s 2001 budget, which was approved Dec. 14 by it’s 14-member board, shows projected annual revenue of $6.9 million and the entitlement grant of $2.7 million from the FAA, for a total of $9.6 million.

The airport’s primary source of revenue was the parking lot, which brought in $1.4 million. In 2001, it’s expected to net $1.5 million. Second on the list of money makers is car rental, which brought in $1.16 million for the airport last year and is expected to net $1.19 million in 2001. The passenger facility charge, a $3 tax on each airline ticket, was the third largest source of revenue, bringing in $1.08 million in 2000 and expected to net $1.26 million in 2001.

This year, the federal government allowed airports to raise the passenger facility charge from $3 to $4.50. That should bring in an additional $180,000 this year over the $1.08 million it raised last year.

Projected 2001 outlays — expenses, operations and management, and debt service — are $8.6 million. Without rounding off the numbers, the difference between revenue and outlays is $972,729.

One interesting expense in the 2001 budget is $500,000 for land acquisition for a second runway. Van Laningham said the additional runway won’t be needed for another 10 to 15 years, but airport officials want to begin purchasing land now instead of waiting until the area becomes more developed and real estate prices rise.

Had Congress not doubled the amount of the entitlement grant this year, however, airport directors would be predicting a 2001 loss of $424,066, excluding other grants and road bond proceeds.

Since airport officials don’t know whether Congress will continue to double the entitlement money given to airports, it’s difficult to project XNA’s earnings and expenses past 2001.

The budget does contain projections to 2008, however, with estimated revenue of $8.8 million, an entitlement grant of either $1.6 million or $3.2 million (based on the formula used) and expenses of about $10.5 million.

Using the projected 2008 numbers, revenue including the FAA entitlement grant would be either $10.4 million, resulting in a net profit of $69,304, or $12 million, resulting in a net profit of $1.6 million, for that year.

2000 loss

The airport was in the red last year by $1.9 million. That reflects $6.4 million in revenue (plus an entitlement grant of $650,000) and $8.6 million in expenses, $6.1 million of which was debt service.

Van Laningham said that the airport isn’t expected to turn a substantial profit for several years but that that was expected all along.

“Without these FAA grants, we’re still not generating sufficient revenue to cover operations and maintenance and debt service,” Van Laningham said. “That’s the reason we set up the financial plan as we did — to give us four or five years to get up and running and start generating sufficient revenue to cover O and M and debt service.”

The debt service is related to the $79.5 million bond issue to build the airport. XNA’s board will pay $6.1 million to investors in debt service this year. That amount is projected to increase to $7.1 million in 2004 and $7.5 million in 2005. It is scheduled to be totally paid off in 2027. Payments will average about $7 million per year until then, Van Laningham said.

The $1.9 million in road grant proceeds for 2001 is part of a $16 million federal grant that Rep. Asa Hutchinson, R-Ark., got for the airport to build an eight-mile road from Interstate 540 direct to the airport. The rest of the $16 million will be distributed over the next three years. Airport officials hope to complete the road in 2004.

The access road is expected to cost a total of $35 million, so the additional $19 million will probably be raised through a bond issue, Van Laningham said. Currently, the drive is about 15 miles from I-540 through Cave Springs to the airport for passengers traveling up the interstate from the south.

WMTX

Regional airport officials issued $15 million in bond-anticipation notes to get construction under way. Llama Co. of Fayetteville, the investment banking company that Alice Walton owned, bought $5 million of those notes. That debt was repaid in 1997 after the $79.5 million bond issue.

The 7,600-SF terminal at the airport has since been named in honor of Walton, the daughter of Sam Walton, founder of Wal-Mart Stores Inc.

The primary draw of the new airport is jet service, Van Laningham said. The 8,800-foot runway allows jets to operate at XNA. Drake Field could only accommodate slower turboprop aircraft.

Jet service means shorter flights and direct flights to cities like Chicago, Atlanta and New York. Jets can also fly above bad weather and thus encounter less turbulence.

Two-thirds of the flights at XNA are on regional jets, with all airlines there providing at least some jet service. American Eagle and Northwest Airlines operate only jets from the new airport.

Van Laningham said the biggest complaint he had received about the airport is that long-term parking is too far from the terminal. So airport officials are considering the construction of a drop-off facility for baggage near the terminal or converting the employee parking lot to a covered parking area for passengers.