FINANCIAL

PL ANNING
(IN AERODROME)

R O Y T R I S TA N S . R O S A L E S
WHAT IS FINANCIAL PLANNING

It is the process of economic evaluation, forecast revenues, expenditures and policies to

procurement investment and administration funds of an institution/corporation/organization.

The purpose of Financial Planning is to determine capital requirements from the point of view of
revenues and expenditures to ensure the airport can afford to proceed over a long term
requirements.
WHY IS IT ESSENTIAL TO TEST THE
ECONOMIC FEASIBILITY?
It is essential to test the economic feasibility of the plan from the standpoint of airport operation
and individual facilities and services. The plan must consider to include the cost of capital to be
employed in financing the improvement, the annual operating cost of facilities and prospective
annual revenues.

Ex. Preliminary Cost

- construction cost allowance for architect and engineering fees for preparation and
individual facilities and services. The plan must be consider to include the cost of capital to be
employed in financing the improvement, the annual operating cost of facilities and prospective
annual revenues
BREAK-EVEN NEEDED

Break-even Needed
- it is the annual amount that is required to cover cost of capital investment and cost of
administration, operation, and maintenance
- it entails the calculation and examination of the margin of safety for an entity based on
the revenues collected and associated cost

IN ORDER TO MAKE SURE THAT THE INDIVIDUAL COMPONENTS OF THE AIRPORT ARE
GENERATING PROPER SHARE OF THE REQUIRED ANNUAL REVENUES, THE AIRPORT
CAN BE DIVIDED INTO COST AREAS FOLLOWING GENERALLY ACCEPTED COST
ACCOUNTING PRINCIPLES. THESE ARE : NONDEPRECIABLE INVESTMENT AND DEPRECIABLE
INVESTMENT
NONDEPRECIABLE INVESTMENT AND
DEPRECIABLE INVESTMENT
NONDEPRECIABLE INVESTMENT
- are those with permanent value like the cost of land acquisition, excavation and fill
operations and road relocations

DEPRECIABLE INVESTMENT
- the annual charge for depreciation depends on the useful life of the asset and the
source of capital used in acquiring the asset.
Ex. Equipment

* TO ESTABLISH ECONOMIC FEASIBILITY IS TO DETERMINE IF SUFFICIENT REVENUES

CAN BE EXPECTED AT THE AIRPORT TO COVER THE BREAK-EVEN NEEDED; THEREFORE
FORECAST ARE PREPARED FOR REVENUE PRODUCING AREAS.
5 POTENTIAL AIRPORT REVENUE

1. Landing Area – this area includes runways and related taxiways and circulation taxiways
2. Aircraft Aprons and Parking Areas
3. Airline Terminal Buildings – these are for concessionaries and ground transportation services
4. Public Parking Areas – revenues apply to public parking both airline and general aviation
terminals. These are obtained from rentals based on operated concessionaire
5. Cargo buildings – rentals are charged to cover investment in employee parking, truck
unloading docks as well as building space
OTHER REVENUES

6. Aviation Fuel – fees are charged to aviation fuel handling concessionaires

7. Hangars – rental space for housing aircraft
8. Commercial Facilities – airport office building, industrial facilities and hotels are usually
operated on a lessee-management basis
9. Other usable areas – Ground space are often financed by private capital
Air Transport
Economics &
Management

Philippine State
College of Aeronautics

8
THE COMMERCIAL
AVIATION
INDUSTRY

9
TO UNDERSTAND
AIRPORT MANAGEMENT
ONE MUST HAVE AN
APPRECIATION OF
THE TOTAL
COMMERCIAL AVIATION
INDUSTRY
AND THE ROLE OF ITS
VARIOUS PLAYERS AND
STAKEHOLDERS. 10
Airline Finance: Understanding the Air Transport Industry*
PRODUCERS CONSUMERS

MANUFACTURERS AIRLINES PASSENGERS

Airframes/Engines Major/Regional/Charter Trains/Car Hire/Hotels
Mechanical Systems Airlines/ Air Taxi Restaurants/Tourism
Computer Systems Operators/Air Cargo Retails Travel
Aircraft Parts Carriers/Special Services Agents/Meetings/Events
Materials/Chemicals General Aviation

GOVERNMENTS
Legislative bodies
Regulatory bodies Aviation
Authorities Customs AIR TRANSPORT INDUSTRY
Immigration

AIRPORTS/SERVICES FREIGHT
AVIATION SERVICES
Major Airports Freight Forwarders Transport
Insurance/Leasing/Sales General Aviation Airports Warehousing Consolidation
Distribution/Suppliers Training Centers/Terminals Input to Other Industries
Telecoms/Aircraft Maintenance/Catering Mail
Maintenance/Fuel & Oil ATC Services
Consultants

*Adopted from the illustration of the International Air Transport Association (IATA) for the Air Transport Action Group
(ATAG) in the Economic Benefits of Air Transport, 2000 Edition, Geneva, Switzerland
11
AFTER AN
APPRECIATION OF THE
INDUSTRY FRAMEWORK
FROM AN AIRPORT
OPERATION POINT OF
VIEW ONE IS PREPARED
TO LOOK INTO THE
BIG PICTURE OF
AIRPORT OPERATION,
ITS I.P.O. STRUCTURE. 12
 The Total Performance System: The IPO*
INPUTS PROCESS OUTPUTS
Resources Tasks Products/Services

PRODUCTION
STOCKHOLDERS / PROCESSING
CREDITORS

MACHINE
WORK
UNITS
POLICIES PRODUCTS CUSTOMER
MONEY MEN DATA & &
SYSTEMS
SERVICES USERS
SOP
METHODS
MATERIAL

Money gets REVENUES

the ball
OPERATIONS
/ DELIVERY Less COSTS =

rolling
PROFIT

*Adopted from the IPO Chart of the ACE Handbook of Philippine Airlines. 13
PASSENGERS Volume vs.
Yield vs. Total
Revenue
Booking access: T/Os, call centers,
online, SMS, ATMs Safety
Network, flight frequencies, Security
interline connections, exodus of
Euro & rise of ME carriers
Facilities, equipment, services:
VIP lounge, new fleet
Affordable prices: LCC/Budget vs.
Legacy
Check-in: Online, kiosks
Baggage handling: RFID
Affordability
Departure handling
Inflight amenities, frills, perks Convenience
Arrival handling
OTP 14
SHIPPERS Volume vs. Yield vs.
Total Revenue
Booking access: consolidators,
Safety
call centers, online
Network, flight frequencies, Security
interline connections
Facilities, equipment, services:
freighters, intermodals, Mail,
cargo tracking
Affordable prices: Express,
General and Specific cargo
Affordability
Cartel, anti-trust, EU & US
crackdowns Convenience
OTP 15
GOVERNMENT ..Charges
…….Fees
Commercial …..Taxes
DOTC, CAB, DOT, DFA, DTI, Congress, Senate, airlines, airports, service
providers
Franchise, economic regulations, tariffs & schedules filing, quasi judicial
powers
Aeropolitical matters: Chicago Convention, 8 Freedoms, Open Skies,
EO333 Revocation, EO219 Progressive liberalization, EO253 7th
Freedom, EO500/A/B, Reciprocity, Designation, Moral issues on traffic
rights
Negotiating panel:Traffic rights, Air services agreement

DOTC
16
GOVERNMENT
Technical
DOTC, ATO/CAAP, ICAO
Shortage of mission critical skills: pilots, mechanics, air controllers,
airworthiness engineers, licensing inspectors, English for ATS
Environmental: CO2, H2O, NOX, aerosol, radiative forcing; CO2 2%
contribution
SMS: 2006 States, MROs, AP/ATC , Policy, risk management, safety
assurance, promotion
CAT2 Downgrading; frozen, status quo

Charges...
Fees.........
Taxes……. ATO
17
AIRCRAFT
MANUFACTURERS
Airbus vs. Boeing: Commonality concept
A380/A350 vs. B787; A320 vs. B737
ATR42/72, Dash Q300/Q400, DO328
Acquisition options
Brand new vs. used: efficiencies
Owned vs. leased: cost of money, impact
on assets, sale & leaseback
Aircraft……
most
expensive
capital item

A380 18
AIRCRAFT
MANUFACTURERS
• Concept of leasing: Rent + residual value
• Economics of commonality: inventories
• New technologies: composite materials, glass cockpits,
ACARS, Airman, EFB-compatible, Kevlar cockpits
• Mandatory avionics:TCAS, EGPWS,VHF
• Techno obsolescence: SST, metal fuselage

MRO and
Maintenance
Reserves………
B787 19
AIRLINES
Mostly money
matters…….
Shortage/piracy of MSCs: pilots, mechanics
Downgrading of RP to Category 2 by USFAA
Spinning off MRO, Catering, Ground Handling
Spiraling fuel prices; hedging, operational savings, fuel
surcharges
Terrorism: high cost of safety and security of flights;
insurance surcharges
Aeropolitical concerns: Open skies, etc.
Legacy airlines, LCCs and an emerging hybrid
Rise of MidEast airlines; absence of RP in MidEast
20
THAT ALL THANK YOU!!!