In an industry as conservative and risk-averse as aviation, change comes slowly and incrementally. Nonetheless, change comes.
And change is underway in how aviation projects are funded and implemented.
For decades, whether those projects are flat, like runways, taxiways and aprons, or vertical, like terminals and hangars, funding came from either the Federal Aviation Administration (FAA) Airport and Airway Trust Fund or debt generated by the airports and reimbursed by the airlines. Those projects have been delivered in the tried-and-true design-bid-build process.
The winds of change started to blow during the pre-pandemic years, when passenger traffic was surging and airports were struggling to keep up on their own. Airlines, celebrating some very profitable years, started undertaking projects on their own. Free from the strings attached to government funding, they were able to procure and deliver work in alternative ways: design-build or construction manager at risk (CMAR). These alternative methodologies enabled projects to be delivered faster and more flexibly. As people got more comfortable with alternative delivery, more projects were included. However, a significant limitation remained: Then-prevailing FAA rules and regulations meant that if FAA money was funding the project, the traditional design-bid-build methodology had to be used.
But recent federal rule changes have begun to open the door to alternative delivery methods on FAA-funded projects. This is allowing airports to consider multiple options and choose whichever is most advantageous. Additionally, public-private partnerships (P3s) have begun offering alternative financing models. These developments are opening the door to a myriad of opportunities for airports, airlines and even private developers to pursue projects at airports.
Pursuing Efficient Project Delivery
Alternative delivery methods like design-build have a strong history in other industries. In the aviation sector, early adoption tended toward vertical work. Prior to the COVID-19 pandemic, profitable airlines began to reinvest in upgraded passenger experiences. Amenities such as private lounges and more comfortable hold rooms in terminals were designed to develop competitive experiences and attract travelers.
This ushered in the era of P3, in which airlines were the developers but airports still owned the projects, typically in the form of a long-term lease.
When the pandemic struck and travel plummeted, the airlines were hard-hit. Funding became harder to come by. Alternative delivery made sense in tighter financial circumstances because of its efficiency in time and money.
With airline-funded initiatives slowing down and passenger traffic rebounding faster than anticipated, airports needed flexibility in ways to improve their facilities quicker and with less airport capital. Because federal money was practically the only money available, regulations were changed to allow for the use of alternative delivery with federal money. This opened the door for design-build for flat work as well. While the use of design-build for runway-type work is relatively rare, it is increasing.
Bringing New Money to the Table
The option to leverage private funding has expanded the possibilities for aviation projects. Rather than depending on federal funds, airlines and private developers are coming to the table with creative approaches to improve the passenger experience and generate returns.
For example, when LaGuardia Airport wanted to revamp its image, it turned to both Delta Air Lines and a private developer to implement the projects. Whether through operations or long-term payback scenarios, airports are finding ways to entice private investment.
Although these types of projects are more common at some of the nation’s largest airports, the alternative approach is beginning to touch down at midsized airports as well. Coming out of the pandemic, midsized airports rebounded faster than some of their larger counterparts. The huge influx of passenger traffic has driven airports to find new ways to keep up with the growth.
Preparing for Takeoff
The possibilities available today and in coming years are completely different than 20 years ago. Whereas past projects were federally funded and implemented through design-bid-build delivery, there is now a wide range of scenarios for financing and alternative delivery approaches. And the possibilities continue to evolve.
Even airports that typically stick to traditional approaches are beginning to find ways to incorporate alternatives. An airport might use design-bid-build and federal funds for a terminal renovation but find private developer options for the central utility plant or parking garage. When the airport can find partners to structure creative deals, new possibilities open up.
In the past, if the available federal funds were insufficient, the project wouldn’t get done. Now there are growing opportunities to be more creative and make projects work. The nascent flexibility will help the aviation industry manage and embrace growth for decades to come — the sky is the limit.
