U.S. Airports Face Significant Infrastructure Funding Shortfall, Says ACI-NA CEO

GRAND RAPIDS, Michigan—U.S. airports may need a "plan B" to finance billions of dollars in needed infrastructure improvements if Congress continues to refuse to lift the passenger facility charge (PFC) cap, Airports Council International-North America (ACI-NA) President and CEO Kevin Burke says.

In an interview here in Grand Rapids this week with Aviation Week Network at the annual ACI-NA Conference and Exhibition, Burke said a higher PFC is needed as a mechanism to fund infrastructure projects in a country in which most airports are publicly owned and managed by municipalities. 

When passing a five-year FAA reauthorization bill earlier this year, Congress declined to lift the $4.50 per-flight-segment PFC cap that has been in place since 2000. To fund approved projects, airports can collect PFCs from passengers via airlines, with a maximum for each passenger of $4.50 per flight segment, $9 per one-way trip (if a passenger has a flight change) and $18 per a roundtrip.

According to the FAA, which approves and regulates PFC projects, estimated monthly PFC collections in 2024 are $309.5 million. The FAA estimates airlines will collect—and pass through to airports—$3.7 billion in total PFCs in 2024 and $3.8 billion in 2025.

U.S. airlines are strong opponents of a PFC increase, arguing the charge is a “tax” on passengers that can quickly add up, particularly if a family is traveling via connecting flights. Airports, on the other hand, classify PFCs as a “user fee” meant to fund critically needed improvements to benefit passengers who use their facilities.

“The number hasn't been adjusted in over 20 years,” Burke says. “So, when you look at it from an inflationary perspective, that $4.50 is worth about $2.”

Burke contends airline passengers would not be deterred from booking flights by a $4 increase in the per-segment PFC cap, particularly if they are aware the charge was going to finance airport improvements.

Airlines contend a higher PFC will raise fares, hitting the hardest families and travelers from smaller communities who make connections. A family of four is now capped at paying $72 in total PFCs per roundtrip, but a doubling of the cap, for example, would increase the total to $144. 

“The issue with the airlines has not been about the economics of it,” Burke says. “It's been about the control of airports, and what I mean by control is if an airport enhances itself and creates more gates, it does so for two reasons: One, if the dominant carrier needs more gates, usually the dominant carrier helps pay for that. But, two, if it's [via a financing mechanism] that brings more airlines, maybe non-hub carriers, then that’s competition to the large carriers. They don't like that. It's been amazing that airlines have been able to hold this off for years, but they've had supporters in Congress who think it's a tax, which it is not. It's a user fee.”

$151 Billion Needed

The five-year, $105 billion FAA reauthorization bill, passed by Congress and signed into law in May by President Joe Biden, increases annual Airport Improvement Program (AIP) funding from $3.35 billion to $4 billion, its highest-ever level. The increase is viewed as a big win by ACI-NA, but the federal program will not provide enough to come close to funding the infrastructure needs of U.S. airports, Burke says.

Combined funding for airport projects from the infrastructure legislation passed by Congress in 2021, the AIP program and PFCs will come to around $12 billion per year in 2025 and 2026, but annual infrastructure needs at U.S. airports top $30 billion, according to ACI-NA. The organization conducted an extensive survey last year of the country’s airports to reach a figure of $151 billion in total projects that need financing over the 2023-2028 period.

“I'm very confident in that number, because 100% of our airports responded to the survey,” Burke says. “There's going to be a continuous need for replacing infrastructure, and this takes time. It's not cheap.”

Fitch Ratings, in an analysis of the FAA reauthorization's effect on airport credit, said, “While increased AIP funding will help defray airport capital budgets, most large and midsize airports will continue to heavily rely on debt to fund infrastructure linked to terminal and airfield projects.”

That reliance on debt decreases the amount of PFC money that can go directly to projects. In 2022, $2.8 billion out of the $3.3 billion in PFCs collected by U.S. airports was used to offset debt service, according to ACI-NA.

Airport Privatization

Burke conceded that with long-term FAA reauthorization legislation already passed, a hike in the PFC cap in the near future is unlikely. A PFC increase proved “impossible” as part of the FAA reauthorization bill because of intense opposition in the House of Representatives, Burke said.

“I'm an eternal optimist,” he adds. “I think at some point [the cap could be raised]. We've made some real headway,” he says, in explaining the issue to lawmakers.

“I do think there'll be one day where, if they want to keep the type of airport financing system in place in the [U.S.] that we currently have, Congress will have to increase the PFC, because what's plan B? If Congress or the airlines continue to block a PFC increase, we will have to go to a plan B. We're talking $151 billion in [total infrastructure needs] and that's gone up 30% in two years. That number will go up again, I guarantee it.”

The figure largely does not include financing high-technology projects, such as building vertiports at airports for potential electric air taxi services.

The most likely plan B would be to move toward the airport financing model prevalent in Europe and other parts of the world, where private companies (often consortiums) take over development and management of airports under decades-long leases with governments. Burke noted the Port Authority of New York and New Jersey has gone this route in terminal renovations at New York airports. A prime example is the New Terminal One (NTO) consortium building and managing John F. Kennedy International Airport’s new international terminal, set to open in 2026 with a price tag of at least $9 billion, under a lease with the Port Authority that extends through 2060.

These public-private partnerships (P3s) have more flexibility in capital markets. “Most airports and terminals in the U.S. are publicly owned, which constrains how funds can be raised, and that can lead to a degree of underinvestment and aging in airport infrastructure,” NTO COO Simon Gandy told Aviation Week’s Window Seat Podcast.

“We have a unique way of financing airports in the [U.S.] compared to our colleagues around the world,” Burke says, noting that local governments in the U.S. are often reluctant to cede control of airport management to a private entity.

But without a PFC increase, “you're going to more than likely see, over the course of many years, more public-private partnerships to fund the multiples of billions of dollars it takes to build airports,” Burke says. “I will not be surprised if I see that.”