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How the Aviation industry can Leverage the American Rescue Plan (ARP)

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The coronavirus pandemic wreaked havoc on airports and the entire aviation industry, with a 71.5% decline in domestic departures in May 2020 compared to May 2019.

Here's how the industry can bounce back with ARP.

Given the importance of airports to the economic development of cities, countries, and regions, the broader impact of COVID-19 on the global economy is enormous. While there is hope ahead for a recovery in some aviation sectors, the resiliency buffer that many airports had in days cash on hand is drained and demand for air travel has not yet returned to pre-2019 levels.

Even with lower revenues, airports must continue to meet their capital expenses obligations, including the predominantly high fixed costs necessary for maintaining and operating the infrastructure components of the airport, including runways, taxiways, aprons, parking stands and terminal buildings.

Airport officials pressed pause on Capital Improvement projects with passengers and revenue plummeting. In other cases, they are expediting current construction, pondering the fate of planned improvements, and looking at implications in the short, medium, and long term. Projects are being prioritized and even deferred to preserve capital.

According to Rand.org, although the airside infrastructure is in good repair, there are many aging control towers and other air traffic controls facilities require rehabilitation and upgrading. Airports will need to make significant investments in the coming years to sustain the regrowth of capacity and services. Airlines may need to invest in fewer, larger aircraft that are cheaper to run or investigate reconfiguring the layout of their cabins. Investment in cleaner aircraft and fuel can contribute to long-term resilience in the aviation industry.

The OECD reports operating costs are likely to increase in the short run for both airlines and airports because of additional health and safety requirements (e.g. disinfection, PPE, temperature checks or viral tests) before they can be passed on to consumers. They will need to invest in digitalization and IT. Mobile apps will need to be developed to store travelers’ vaccine certificates and Covid-19 test results.

The good news is air cargo demand is up by 12% of pre-crisis levels and global trade rose by 4.2% in March 2021. Airlines are using passenger aircraft for freight, keeping the global supply lines open. Sadly, it is not enough to cover the budgetary gaps.

 

 

Enter the American Rescue Plan Act.

Airport Rescue Grants

On June 22, 2021, the FAA announced total awards of $8 billion to U.S. airports under the American Rescue Plan Act of 2021, with grants to respond to the impact of the COVID-19 pandemic. While most of the funds will target passenger aviation, $227 million was designated to 120 airports for cargo operations. The FAA will distribute grants to all airports that are part of the national airport system, including all commercial service airports, all reliever airports, and some publicly-owned general aviation airports. This includes specific funding for airport concessions.

“The Airport Rescue Grants keep workers employed and help the aviation sector recover as more Americans get vaccinated and begin traveling again,” said U.S. Transportation Secretary Pete Buttigieg. “These grants are part of the Administration’s commitment to build back a better and safer transportation system throughout our country.”[1]

The deadline to apply for a grant is November 30, 2021, and the budget period for Airport Rescue Grants is four years. An airport that had allocated more than four times its annual operating expenses under the Coronavirus Aid, Relief, and Economic Security (CARES) Act would not be eligible for funding under this plan. Airports are required to continue to retain 90 percent of their workforce through September 30, 2021.

aviation-fed-1
$ 0 M
Airport Improvement Grants
$ 0 Bn
Primary Airport Support
$ 0 M
Non-Primary Airport Support
$ 0 M
Airport Concessions Support

$608 million: The FAA will cover 100% of the share of project costs for regular Airport Improvement Program grants issued in 2021, up from a typical share of 75-95%. Funds are available until September 30, 2024 and must be obligated by that date. [2]

$6.492 billion: Funds are to be distributed to primary airports (more than 10,000 annual passenger boardings) for costs related to operations, personnel, debt service payments, and combating the spread of pathogens at airports. There are no matching requirements, however, eligible expenses under previous relief acts should not be applied to additional relief funds. This will be disseminated in a similar way to how they currently receive Airport Improvement Program (AIP) entitlement funds. After allocation based on the formulas, the remainder is then allocated based on the number of boardings the airport had in 2019 as a percentage of total enplanements.

$100 million: Allocated to non-primary airports for costs related to operations, personnel, cleaning, sanitization, janitorial services, combating the spread of pathogens at the airport, and debt service payments. Allocations will be based on their NPIAS categories, reflecting the percentage of the aggregate published eligible development costs for each category, then dividing the allocated funds evenly among the eligible airports in each category.[3]

$800 million: Funds will be distributed to airport concessions at primary airports (based on annual boardings) to provide relief from rent and minimum annual guarantee (MAG) obligations. It will be allocated based on the number of enplanements in 2019 as a percentage of the total. Then the airport sponsor will allocate the funds based on each concession’s proportional share of the total annual rent and MAG for the airport. Eight percent of this allocation is for small businesses and minority-owned firms. FAA personnel will reach out to each airport sponsor to provide an opportunity to submit a grant application.[4]

In addition to these grants, FAA is administering approximately $10 billion in grants for airports under the CARES Act and approximately $2 billion under the Coronavirus Response and Relief Supplemental Appropriation (CRRSA) Act of 2021.

Airline Payroll Assistance Program (PSP3)

Under the ARP, the PSP3 will award $14 billion to passenger air carriers and up to $1 billion to eligible contractors in payroll assistance. 

 

The amounts, timing, and conditions of such payments will be determined by Treasury at its sole discretion, and airlines should expect to receive support in two payments. Airports that receive this funding will be required to employ at least 90% of employees from March 27, 2020 through September 30, 2021. Also notable, PSP2 recipients will not need to apply for PSP3. The Treasury will contact each PSP2 recipient to complete any documentation required. Awarded amounts are calculated as shown below.[5]

The Treasury provides data on all PSP3 payments on their website: Click Here – Treasury.gov website

Aviation Manufacturing Jobs Protection Program

The ARP also allocates an additional $3 billion to the Aviation Manufacturing Jobs Protection (AMJP) Program, to continue support with matching funds (50%) for a portion of workforce for up to six (6) months. This is administered by the U.S. Department of Transportation (DOT), and will help cover the wages, salaries, and benefits of manufacturing employees most at risk of being furloughed. Notable for this area, as a condition of an agreement with the DOT, an employer must refrain from conducting any involuntary layoffs, furloughs or reductions in pay or benefits from the date of application to the expiration date of the agreement.[6]

The application process is now open:

 

Guidance Needed

Operating costs are increasing in the short run for both airlines and airports, and airports will need to invest in new strategies to combat the irrevocable change in consumer behavior.

The FAA is committed to working with the aviation industry as it recovers from the impacts of the pandemic...These airport rescue grants provide needed support to our nation’s airports as we recover from the pandemic’s impacts.

Steve Dickson, FAA Administrator Tweet

The injection of the ARP funds could not have come soon enough.

Running an airport is complicated by a patchwork system of federally authorized funding mechanisms. Infrastructure projects at airports in the U.S. are primarily funded by Federal Grants through the FAA’s Airport Improvement Program (AIP), Passenger Facility Charge (PFC) local user fees, as well as tenant rents and other fees. Bonds are often utilized by airports to construct and renovate terminals. In many cases, airline rescue efforts come in the form of government bailouts—with strings attached. Navigating ARP to maximize funding can serve as a daunting task.


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