Airport Financing on a Shoestring Budget: An Analysis of LOI Funding to Date

In the past, airport capital improvement programs were funded almost exclusively by federal Airport Improvement Program (AIP) grants. The president's latest budget request for fiscal year 2007 proposed a cut of AIP funding by over 20%. As a result, airports are increasingly seeking alternative funding. The Federal Aviation Administration (FAA) is working with airports to guarantee funding levels for many multi-year projects through Letters of Intent (LOIs). This article provides an understanding of how LOI grants have been used in the past. Since 1990, the FAA has committed almost $5 billion through LOIs to airport projects that focus on capacity, safety, security and noise reduction. Although these projects have ranged greatly in the amount of funding and LOI length, there seems to be a preference for 5- and 10-year LOIs. The FAA also appears to favor funding levels below $40 million, but has issued LOIs up to $337 million. Large hubs received 35% of the LOIs issued and 60% of the funding committed through LOIs. However, the smallest airports are still receiving substantial funding in relation to the proportion of passengers they serve. AIP entitlement funding may or may not be included in the funds guaranteed by an LOI. These findings highlight the flexibility of the LOI program.