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Aviation Division 2016 Budget Review Commission Briefing October 13, 2015 1 Contents 2016 Operating Budget 2016 2020 Capital Budget Financial Forecast Funding Plan: Proposed Use of PFCs Appendix 2 Unprecedented Growth at Sea-Tac Enplaned Passengers (000s) Landings 25,000 250,000 5.0% 12.0% 5.0%5.0% 7.7% 11.9%12.0% 20,000 4.7% 200,000 7.2%7.7% 2.1% 15,000 150,000 10,000 20,963 22,011 100,000 195,565 16,597 17,376 18,717 186,253 155,262 166,448 152,057 5,000 50,000 - - 2012 2013 2014 2015 Fcst 2016 Bud 2012 2013 2014 2015 Fcst 2016 Bud Enplaned passengers: Landings: 32.6% growth since 2012 28.6% growth from 2012 2016 CAGR of 7.3% CAGR of 6.5% Anticipate 44 million annual Growth in landings driven primarily passengers (MAP) in 2016 vs. 33 by Alaska and Delta MAP in 2012 Growth creates customer service challenges that drive budget 3 2016 OPERATING BUDGET 4 2016 Budget Drivers Passenger growth creating current customer service challenges: Restrooms and terminal areas need cleaning more often Increased bags causing system breakdowns Crowded terminal and long security lines Long-term facility planning/development at critical stage: Finalize master plan Initiate environmental review of master plan Start advance planning for master plan projects Non-aero revenue growth opportunities: ADR program Property development Other issues needing current attention: Part 150 implementation planning Air space obstruction removal (trees) Meeting customer needs drives budget 5 Budget Overview 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % Operating Revenues: Aeronautical Revenues 228,864 242,352 232,534 261,446 19,093 7.9% 28,912 12.4% SLOA III Incentive Straight Line Adj (3,576) (3,576) (3,576) (3,576) (0) 0.0% (0) 0.0% Non-Aeronautical Revenues 180,791 188,465 194,832 206,744 18,279 9.7% 11,912 6.1% Total Operating Revenues 406,079 427,242 423,790 464,614 37,372 8.7% 40,823 9.6% Total Operating Expenses 230,704 248,141 239,564 268,229 20,088 8.1% 28,665 12.0% Net Operating Income 175,375 179,101 184,226 196,384 17,284 9.7% 12,159 6.6% Aero revenues primarily based on cost-recovery formulas cost are increasing Non-aero revenues reflect growing spending by passengers for parking, rental cars, and airport dining and retail NOI growing by 10% over 2015 Budget 6 Budget Development Approach Revenues Airline revenues based on cost recovery formulas defined by SLOA III Non-aero revenues based on analysis of 2015 results, passenger growth, assessment of business conditions, lease provisions, etc. Expenses Baseline budget scrutinized for savings, then adjusted for payroll and contractual increases Non-recurring items treated as zero-base budget. Proposed additions listed as individual budget requests Roll-up of Aviation Division includes allocated share of Corporate costs Budget has undergone rigorous review 7 Aviation Division Expense Summary: Baseline & Non-recurring Costs in 000's Approved Proposed Budget Change 2015 Budget 2016 Budget $ % Baseline Budget 161,358 161,358 Baseline Cost Reductions/Savings (2,205) Baseline Cost Increases 6,606 Net Change to Baseline Budget 161,358 165,758 4,400 2.7% Proposed additions to Baseline - 4,322 4,322 Revised Baseline Budget 161,358 170,080 8,722 5.4% Non-recurring Expenses 6,014 10,158 4,144 68.9% Budget before Exceptions 167,372 180,238 12,866 7.7% Exceptions: Regulated Materials (ERL) 2,642 3,246 604 22.9% Aviation O&M Budget $ 170,014 $ 183,484 $ 13,470 7.9% Majority ($10.2M) of budget requests are for non-recurring items 8 Baseline Cost Reductions 2016 Baseline Cost Reductions/Savings: $000's Payroll Savings (before new FTE requests) Remove (10) FTE positions on hold 841 CPI/Lean FTE's transferred to Corporate (OSI) 445 Eliminate (1) FTE - Sr. Internal Control Analyst 117 Eliminate (1) FTE - Mgr Airline Systems & Svcs 154 Salary savings - vacant FTE's to midpoint 81 Payroll charges to capital projects increased 129 Lower unemployment expense & OPEB 88 Other payroll savings (zero based budgeting) 98 Total Payroll Decrease (before new FTE's) 1,953 Non-Payroll Savings (zero based budgeting) Lower utility demands - RCF 85 Other non-payroll savings (zero based budgeting) 168 Total Non-Payroll Savings 253 Total 2016 Baseline Cost Reductions 2,205 Savings due to eliminated FTEs, review of baseline 9 Baseline Cost Increases 2016 Baseline Cost Increases: $000's Payroll detail: Payroll Increases (before new FTE requests) New FTE's approved during 2015 New FTE's approved (16) during 2015 882 Annualized (14) new FTE's approved in 2015 Budget 433 Airfield Security (11) TSA Average payroll increase (3.4%) 891 requirements Average represented wage increase 612 Increase in overall benefits 720 Credential Center (3) badge volume & Adjustment for 40 hour work week 225 TSA requirements Job evaluation outcomes resulting in pay increases 180 Construction Support Specialists (2) Other payroll adjustments (zero based budgeting) 65 Total Payroll Increase (before new FTE's) 4,007 capital program Contractual & Formulaic Cost Increases Worker's Comp expense increase 335 Aeronautical B&O tax increase 335 Maintenance contract increases 203 Other Non-Payroll Increases (zero based budgeting) 58 Total Contractual Increases 931 Non-Aero costs related to revenue growth Amortization - prepaid frontage fees (DMCBP) 593 Clubs & Lounges - increased operating costs 499 B&O tax increase 166 Increase in credit card fees 193 Other Non-Aero Revenue Growth costs 216 Total Non-Aero Cost Increases 1,667 Total 2016 Baseline Cost Increases 6,606 Payroll for existing staff is primary driver of increase 10 Budget Addition Requests 2016 Budget Request $000 Problem/Need/Opportunity Solution FTEs Baseline One-time Passenger growth - long-term facility needs Identify facility needs Complete SAMP 1,500 Validate plan Environmental review of SAMP 2,000 Identify specific projects Initiate planning for SAMP projects 2,000 Airline coordination on CIPs Add Airline Technical Rep 164 Passenger growth - operational challenges today Terminal and restroom cleanliness Increase janitorial budget 2,350 Inadequate oversight of janitorial Add Port FTE to focus 100% on managing 1.0 99 services janitorial contract priorities Baggage system breakdowns Add 6 FTEs to manage, monitor, 6.0 579 173 + contract bio-diverters + tubs Long security lines, crowded terminal, Add 4 Pathfinders 4.0 260 FIS facility at capacity Painted surfaces: can't maintain Add 3 painters: 3.0 217 2 stripers and 1 architectural Passenger growth is major driver 11 Budget Addition Requests (cont.) 2016 Budget Request $000 Problem/Need/Opportunity Solution FTEs Baseline One-time Enhance Safety Tree growth around airport impacting Initiate tree removal program 750 airspace TSA requires increased background Increase contract for security clearance 237 checks processing Reduce bird strikes Avian radar upgrade/enhancement 96 Electrical danger for staff and Arc flash study Phase 3 100 contractors Central terminal window wall Hire consultant engineer to inspect 95 inspection past due Safety continues to be primary concern for airport 12 Budget Addition Requests (cont.) 2016 Budget Request $000 Problem/Need/Opportunity Solution FTEs Baseline One-time Non-aero Revenue Growth Develop land to generate revenues Burien NERA FAA pilot program - 1,500 planning, design and permitting for infrastructure (90% reimbursed) ADR releasing program Increase consultant spend to facilitate 756 re-leasing program Reserved parking can generate new Define system needs for parking 130 revenues pre-booking program Port's SSAT club space not optimizing Reconfigure space to meet customer 245 revenue needs Oversight of Des Moines Creek continue to hire owners liaison 100 Business Park development (100% reimbursed) Other Contractual commitments - air service Add budget to fund remaining 24 58 incentive program commitments Improve storm water run-off, native Obtain Salmon-Safe Certification 75 habitat Additional expertise to define and Hire consultant to define programs and 150 implement Part 150 programs provide cost estimates Other 0.0 392 430 Total - 2016 Budget Requests 14.0 4,322 10,158 Property development and ADR program drive non-aero requests 13 Expense Summary 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % Operating Expenses Payroll 95,916 104,181 99,122 108,107 3,926 3.8% 8,985 9.1% Outside Services 31,714 32,534 33,673 40,149 7,615 23.4% 6,476 19.2% Utilities 13,861 14,796 14,074 14,686 (110) -0.7% 612 4.3% Other Airport Expenses 19,474 18,340 19,929 20,296 1,956 10.7% 368 1.8% Total Aviation Expenses 160,965 169,851 166,797 183,238 13,387 7.9% 16,440 9.9% Corporate (including Capital Development) 49,225 56,938 51,485 62,273 5,335 9.4% 10,789 21.0% Police Costs 16,514 17,413 17,344 18,728 1,315 7.6% 1,384 8.0% Maritime/Economic Development 4,001 3,939 3,939 3,991 52 1.3% 52 1.3% Costs from other Divisions 69,739 78,290 72,767 84,992 6,701 8.6% 12,225 16.8% Total Operating Expense 230,704 248,141 239,564 268,229 20,088 8.1% 28,665 12.0% Increase in outside services due to non-recurring items such as SAMP-related budget requests ($5.5M) and Burien NERA 3 FAA Pilot program budget request ($1.5M) Airport receives larger share of Corporate and Police costs in 2016 than in prior years Expenses here include costs from other divisions 14 FTE Changes 2016 Proposed Budget FTEs FTEs % 2015 Approved Budget 877.0 Remove FTE positions on hold (10.0) CPI lean staff transferred to Corp (OSI) (2.0) Construction Support Specialists (capital program) 2.0 Airfield Security (TSA requirements) 11.0 Credential Center (badge volume & TSA requirements) 3.0 2015 Adjusted Baseline 881.0 0.5% 2016 Budget Changes: Eliminate (1) Sr. Internal Control Analyst (1.0) Eliminate (1) Mgr. Airline Systems & Services (1.0) New FTE's Proposed: New FTE's for Baggage System Solution 6.0 Baggage System Specialists (baggage volume) 2.0 Mechanical Maint Engineers (baggage volume) 2.0 Baggage Monitors (baggage volume) 2.0 Janitorial Contract Supervisor (passenger volume) 1.0 PathFinders (passenger volume) 4.0 Painters (deferred asset maintenance) 3.0 Net 2016 Change in FTEs: 12.0 1.4% 2016 Budget Proposed FTEs 893.0 1.8% FTE growth much lower than passenger growth 15 Non-Aero NOI 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % Non-Aero Revenues Rental Cars - Operations 32,496 32,772 32,928 35,108 2,335 7.1% 2,180 6.6% Rental Cars - Operating CFC 13,608 12,172 12,016 12,421 249 2.0% 405 3.4% Public Parking 57,128 58,925 62,682 66,284 7,358 12.5% 3,601 5.7% Ground Transportation 8,333 8,244 8,309 8,302 58 0.7% (7) -0.1% Airport Dining & Retail 46,954 49,883 51,623 54,138 4,254 8.5% 2,515 4.9% Commercial Properties 6,638 8,204 8,138 10,190 1,986 24.2% 2,052 25.2% Other 15,635 18,265 19,136 20,302 2,037 11.2% 1,166 6.1% Total Non-Aero Revenues 180,791 188,465 194,832 206,744 18,279 9.7% 11,912 6.1% Total Non-Aero Expenses 80,345 91,270 86,916 97,648 6,378 7.0% 10,732 12.3% Net Operating Income 100,446 97,195 107,916 109,096 11,900 12.2% 1,180 1.1% Less: CFC Surplus (6,497) (4,760) (4,457) (4,781) 22 -0.5% (324) 7.3% Adjusted Non-Aero NOI 93,949 92,436 103,459 104,314 11,879 12.9% 855 0.8% Debt Service 45,797 45,386 43,998 43,494 1,892 4.4% (504) -1.1% Net Cash Flow 48,152 47,050 59,461 60,820 13,771 29.3% 1,359 2.3% Within other, primary revenue increases for 2016 Budget driven by Employee Parking ($1.1M) and non-airline terminal leased space ($1.1M) Budget over Budget expenses increasing due to increased expenses from Business Development ($2.9M), increased allocations from Corporate and other divisions ($2.8M), and non-aero share of increased Terminal expenses ($0.7M) Budgeting for $13.8M increase in net cash flow 16 Aeronautical Cost Drivers 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % O&M 145,529 152,822 148,760 166,798 13,976 9.1% 18,038 12.1% Debt Service Gross 109,410 113,121 112,835 120,668 7,547 6.7% 7,833 6.9% Debt Service PFC Offset (30,975) (32,584) (32,515) (32,583) 2 0.0% (68) 0.2% Amortization 20,023 24,358 24,377 28,338 3,981 16.3% 3,961 16.2% Space Vacancy (4,087) (3,605) (3,522) (2,431) 1,174 -32.6% 1,091 -31.0% TSA Grant and Other (2,459) (715) (715) (1,000) (285) 39.8% (285) 39.8% Total Rate Base Revenues 237,442 253,395 249,220 279,790 26,395 10.4% 30,570 12.3% Operating Expense: 2016 budget increase of $14M is mostly driven by the increase in divisional allocations $3.2M, and corporate allocations $4.4M. Additional changes are: $2.1M Janitorial, $1M security FTEs, $800K Airfield Environmental Remediation, $750K trees obstruction removal, $503K baggage solution, $360K - 4 Path Finders FTEs and Janitorial Supervisor positions, and $237K increased badging costs. Debt Service: 2016 budget increase of $7.5M comprised of $2.7M for existing debt service amortization and 2015 bonds debt service of $4.8M (e.g., Runway 16C) Amortization (use of ADF): $283K Concourse D roof replacement, $139K Elevator/stairs at A13/14, $156K mezzanine upgrade, $ 683K C60 - C61 BHS Modifications, new window wall at zone 1, $418K FIMS/CUSE, $352K buses for hardstand operations, $677K APC kiosks at FIS, $80K deicer Aero rate base driven by increased O&M and capital costs 17 Aeronautical NOI 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % Revenues: Movement Area 75,403 78,635 78,931 95,230 16,595 21.1% 16,299 20.6% Apron Area 11,290 11,233 10,541 14,144 2,911 25.9% 3,604 34.2% Terminal Rents 141,822 153,167 149,664 159,579 6,412 4.2% 9,915 6.6% Federal Inspection Services (FIS) 8,927 10,360 10,083 10,836 476 4.6% 753 7.5% Total Rate Base Revenues 237,442 253,395 249,220 279,790 26,395 10.4% 30,570 12.3% Commercial Area 8,328 8,445 8,955 9,306 861 10.2% 351 3.9% Subtotal before Revenue Sharing 245,770 261,840 258,175 289,096 27,256 10.4% 30,921 12.0% Revenue Sharing (16,905) (19,488) (25,641) (27,650) (8,162) 41.9% (2,009) 7.8% Total Aeronautical Revenues 228,864 242,352 232,534 261,446 19,093 7.9% 28,912 12.4% Total Aeronautical Expenses 150,359 156,871 152,648 170,581 13,710 8.7% 17,933 11.7% Net Operating Income 78,505 85,481 79,886 90,865 5,383 6.3% 10,979 - 13.7% Debt Service 82,029 84,496 83,810 91,723 7,227 8.6% 7,914 9.4% Net Cash Flow (3,525) 985 (3,924) (859) (1,844) -187.2% 3,065 -78.1% Revenue growth driven by increased rate base costs 18 Budget Summary 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % Operating Revenues: Aeronautical Revenues 228,864 242,352 232,534 261,446 19,093 7.9% 28,912 12.4% SLOA III Incentive Straight Line Adj (3,576) (3,576) (3,576) (3,576) (0) 0.0% (0) 0.0% Non-Aeronautical Revenues 180,791 188,465 194,832 206,744 18,279 9.7% 11,912 6.1% Total Operating Revenues 406,079 427,242 423,790 464,614 37,372 8.7% 40,823 9.6% Operating Expenses: Aviation Budget before Exceptions 156,140 167,208 163,453 179,992 12,783 7.6% 16,539 10.1% Exceptions 5,259 2,647 3,349 3,246 599 22.6% (103) -3.1% Aviation O&M Budget 161,399 169,855 166,802 183,238 13,382 7.9% 16,436 9.9% Costs from Other Divisions 69,305 78,286 72,763 84,992 6,706 8.6% 12,229 16.8% Total Operating Expense 230,704 248,141 239,564 268,229 20,088 8.1% 28,665 12.0% Net Operating Income 175,375 179,101 184,226 196,384 17,284 9.7% 12,159 6.6% CFC Surplus (6,497) (4,760) (4,457) (4,781) (22) 0.5% (324) 7.3% Net Non-Operating items paid from ADF 2,614 1,504 1,431 1,539 35 2.3% 108 7.5% SLOA III Incentive Straight Line Adj 3,576 3,576 3,576 3,576 0 0.0% Debt Service (127,239) (128,343) (127,296) (135,217) (6,875) 5.4% (7,922) 6.2% Adjusted Net Cash Flow 47,829 51,078 57,480 61,500 10,422 20.4% 4,021 7.0% Key Measures CPE 11.48 11.78 10.35 11.12 (0.66) -5.6% 0.76 7.4% O&M per Enplanement 12.33 12.82 11.43 12.19 (0.63) -5.0% 0.76 6.6% Debt Service Coverage 1.38 1.40 1.44 1.45 0.05 3.8% 0.01 0.9% Increased bottom line and debt service coverage 19 2016 Budget: Aero & Non-Aero $ in 000's Aero Non-Aero Other Total Operating Revenues 261,446 206,744 - 468,190 SLOA III Incentive (3,576) - - (3,576) Total Revenues 257,870 206,744 - 464,614 Operating Expenses 170,581 97,648 - 268,229 Net Operating Income 87,289 109,096 - 196,384 CFC Surplus - (4,781) - (4,781) Net non-op paid with ADF - - 1,539 1,539 SLOA III Incentive 3,576 - - 3,576 Available for Debt Service 90,865 104,314 1,539 196,718 Debt Service - net of PFCs 91,723 43,494 - 135,217 Adjusted Net Cash Flow (859) 60,820 1,539 61,500 Non-aero businesses generate cash flow 20 Cost Per Enplanement - Trend CPE trending down due to cost management and increased enplanements 21 Current CPE Comparison 2014 CPE For 22 Peer Airports $35.00 $30.00 $25.00 $20.00 Middle Third $15.00 30.29 26.24 25.70 $10.00 20.54 18.73 18.39 17.59 15.78 13.59 13.55 12.40 11.74 11.49 $5.00 10.98 10.49 10.49 10.44 10.39 7.53 6.84 5.79 3.90 $0.00 EWR IAD JFK MIA LGA ORD SMF SFO LAX BOS DEN PHL SEA SJC SAN DTW IAH PDX DFW MSP PHX SLC Current CPE Ranks 10 out of 22 22 O&M Per Enplanement - Trend Trending down 23 O&M Per Enplanement vs. Peer Airports O&M costs per enplanement compares favorably to peer airports 24 2016 Budget Summary Activity growth: O&M costs driven by unprecedented growth 2015 Enplanements O&M +8.1% vs. 2015 Budget +12% vs. 2014 Overall cost 2016 Enplanements management +5.0% vs. 2015 fcst. CPE Down 5.6% vs. 2015 Non-Aero revenue budget growth: Bottom line improvement 2016 budget +9.7% vs. 2015 budget Net cash flow +$10.4 million vs. 2015 budget 2016 budget +6.1% vs. D/S coverage 1.45x vs. 2015 forecast 2015 budget of 1.40x All Key Measures showing improvement 25 CAPITAL BUDGET 2016 - 2020 26 Capital Budget Highlights Add South Satellite renovation to capital program Restroom renovations Create hold room for off-gate operations New Part 150 program insulation Renewal & replacement Port committed to airlines to initiate renovation of SSAT 27 Capital Budget Summary # of Cash Flows (Figures in $000s) 2016-20 Projects 2015 2016 2017 2018 2019 2020 Total Existing CIP Authorized 96 165,870 293,165 375,214 396,309 333,905 182,781 1,581,374 Other projects (excl. allowance CIPs) 20 9,177 26,127 18,559 8,967 5,450 5,400 64,503 Total 116 175,047 319,292 393,773 405,276 339,355 188,181 1,645,877 Proposed New Projects 32 - 30,772 46,226 13,299 21,730 104,960 216,987 Allowance CIPs 2 - 10,000 17,000 35,000 55,000 70,000 187,000 Total Proposed CIP 150 175,047 360,064 456,999 453,575 416,085 363,141 2,049,864 All projects with some amount of authorization included in first line Proposing 32 projects totaling $217M spending through 2020 Budget includes place-holder spending for as yet undefined future projects (called "Allowance CIPs"): $187M Budget does not include potential projects to be identified by Sustainable Airport Master Plan (SAMP) Total of authorized projects is $1.6 billion, 77% of planned spending 28 Capital Budget Summary With Major Projects Broken Out $500,000 $450,000 $400,000 $350,000 Allowance CIPs $300,000 $250,000 New Projects $200,000 $150,000 Four Major $100,000 Projects $50,000 Existing projects $0 2016 2017 2018 2019 2020 Existing projects Four Major Projects New Projects Allowance CIPs Four major projects account for 82% of spending 29 Commission Authorized/Underway Cash Flows (Figures in $000s) 2016-20 Commission Authorized/Underway CIP 2015 2016 2017 2018 2019 2020 Total NorthSTAR program 5 CIPs 36,638 49,616 90,670 101,735 100,324 93,111 435,456 International Arrivals Facility C800583 11,983 59,252 145,341 214,909 164,700 6,365 590,567 Baggage Recapitalization/Optimization C800612 8,384 20,000 50,000 50,000 50,000 50,000 220,000 Runway 16C/34C Reconstruction C800406 38,513 43,786 9,097 - - - 52,883 Service Tunnel Renewal/Replace C102112 684 4,000 8,000 8,000 6,816 - 26,816 Highline School Insulation C200007 - - 7,250 - - 15,681 22,931 Single Family Home Insulation C200093 3,000 1,719 - - - - 1,719 Main Term Low Voltage Sys Upgrade C800061 420 3,500 5,000 5,000 3,000 2,582 19,082 Vertical Conveyance Modernization C800251 3,485 4,500 1,239 - - - 5,739 GSE Electrical Charging Stations C800335 570 8,000 4,000 2,330 - - 14,330 Airfield Pavement Replacement C800483 39 6,460 6,500 6,500 6,500 6,300 32,260 Utility ER Backup/Standby Pwr C800538 202 20,000 15,000 1,015 - - 36,015 Parking Garage Lights C800581 11,983 1,916 3,300 100 100 65 5,481 2014-2015 Roof Replacement C800637 229 4,000 133 - - - 4,133 CCTV Camera/Data Improvement C800642 653 6,000 4,259 - - - 10,259 Other projects (74) 49,087 60,416 25,425 6,720 2,465 8,677 103,703 Total 165,870 293,165 375,214 396,309 333,905 182,781 1,581,374 If project is partially authorized (e.g. design), full project budget included. Much of 2016- 2020 spending for projects already authorized 30 Proposed New Projects Next # of Cost Cash Flows (Figures in $000s) 2016-20 Slide Projects Description Estimate 2016 2017 2018 2019 2020 Total I 6 Response to Growth: Passengers 17,698 3,225 6,243 3,040 2,830 2,360 17,698 II 5 Response to Growth: Airlines 27,210 15,540 9,070 1,000 1,000 600 27,210 III 3 Regulatory and Community 13,632 1,286 7,608 4,738 - - 13,632 IV 14 Renewal and Replacement 638,787 7,886 22,530 4,521 17,900 102,000 154,837 V 4 System Improvement, Safety and Security 3,610 2,835 775 - - - 3,610 32 TOTAL 700,937 30,772 46,226 13,299 21,730 104,960 216,987 A total of 47 projects were proposed to the Aviation Investment Committee for approval. The largest project is for the renovation of the South Satellite, a project estimated to cost as much as $600 million. As this could not be completed until 2023, most of the cash flows occur outside of the next five years. The proposed projects do not include projects that will come out of SAMP Renewal & Replacement primary driver for new projects 31 Proposed New Projects Response to Growth: Passengers Cost Cash Flows (Figures in $000s) 2016-20 I CIP Description Estimate 2016 2017 2018 2019 2020 Total 1 C800697 Restroom Upgrades Conc B, C, D 11,180 1,200 1,790 3,000 2,830 2,360 11,180 2 C800782 Satellite Transit System Cars Customer Experience 2,200 1,000 1,200 2,200 3 C800777 Reuse of S. 28th St. GT Lot 1,018 125 853 40 1,018 4 C800810 RCF Bus Purchase 1,800 1,800 1,800 5 C800800 SEA Smartphone App 500 400 100 500 6 C800790 PAX Flow Mgmt Image Processing 1,000 500 500 1,000 Infrastructure TOTAL 17,698 3,225 6,243 3,040 2,830 2,360 17,698 1. Renovate 8 sets (men, women, family) of restrooms on Concourses B, C and D that have not been renovated for 14 22 years. 2. Provide simple upgrades to the Satellite Transit System (STS) cars to enhance the customer experience including new LCD signage, improved handrails and a new lighting element to provide a visual queue to passengers about when the trains are about to depart. 3. Increase staging capacity for commercial vehicles 4. Procure 4 CNG buses to allow the bus service to continue meeting growing demand, while properly maintaining our current equipment for maximum use. 5. Procurement of services from a software development firm with expertise in mobile devices and experience in indoor navigation solutions to design and develop smartphone applications for the iOS and Android platforms to be used by our passengers to wayfind and prompt concession sales . 6. This project will implement an image processing-based movement analytics capability or infrastructure at key locations in the airport. Modern image processing systems enable accurate real-time measurements, flow and dwell analysis and historical reporting of passenger and staff movements in congested areas (checkpoint lines, FIS queues). Renovating restrooms is critical for customer service 32 Proposed New Projects Response to Growth: Airlines Cost Cash Flows (Figures in $000s) 2016-20 II CIP Description Estimate 2016 2017 2018 2019 2020 Total 1 C800771 Gate D6 Holdroom for Hardstand 1,400 420 980 1,400 2 C800781 SSAT Narrow Body Configuration 5,810 720 5,090 5,810 3 C800780 SSAT Make-Up Feed Line 14,000 13,000 1,000 14,000 4 C800772 Fuel Hydrant Pit Additions 4,000 400 1,000 1,000 1,000 600 4,000 5 C800769 Hardstand Passenger Processing Capacity 2,000 1,000 1,000 2,000 TOTAL 27,210 15,540 9,070 1,000 1,000 600 27,210 1. Prepare Gate D6 to accommodate hardstand operations. 2. Will create 3 additional narrow body positions at SSAT for use outside of wide-body peak. 3. Will add needed capacity to outbound and transfer baggage makeup within existing footprint of the terminal by installing new conveyor line to allow outbound baggage from the main terminal to be available for makeup in the South Satellite. 4. This project will allow for expedited fuel pit additions in response to shifting gate and aircraft configurations. 5. This is a place holder item to begin development of additional hardstand operations support capacity. Providing domestic gates and bag makeup capacity 33 Proposed New Projects Regulatory and Community Cost Cash Flows (Figures in $000s) 2016-20 III CIP Description Estimate 2016 2017 2018 2019 2020 Total 1 C200094 Single Family Noise Insulation 12,312 1,186 6,438 4,688 12,312 2 C800760 Auburn Mitigation Road Removal 720 720 720 3 C800806 Electrical Service Security Imrpovements 600 100 450 50 600 TOTAL 13,632 1,286 7,608 4,738 - - 13,632 1. Based on recent Part 150 study, there are 171 single family homes within the noise remedy boundary that have not been insulated. The estimated cost per home is $72,000 ($85,000 including expense costs). 2. Relating to the 1997 Master Plan, the Port has final work to do on the Auburn mitigation site. Under the permit conditions, the Port is required to remove the road through the site. 3. The scope of this project will harden and secure the Airport's electrical substations and install surveillance cameras in accordance with the recommendations of the Western Electricity Coordination Council. Proposing first new project from recent Part 150 34 Proposed New Projects Renewal & Replacement Cost Cash Flows (Figures in $000s) 2016-20 IV CIP Description Estimate 2016 2017 2018 2019 2020 Total 1 C800709 Terminal-Wide Voice Paging Upgrade 1,600 1,000 600 1,600 2 C800743 SSAT Renovation Project 600,000 150 900 15,000 100,000 116,050 3 C800766 Conc B & C Carpet Replacement 2,000 1,370 630 2,000 4 C800770 B Concourse Roof Replacement 7,262 1,161 6,000 101 7,262 5 C800775 Plow/Broom Snow Equipment 2,500 2,500 2,500 6 C800784 Emergency Generator Control Renewal 995 425 570 995 7 C800788 Airport's Operation Local Area Network Switches 3,000 2,000 1,000 3,000 8 C800793 Passenger Loading Bridge Renew & Replace 10,000 500 2,500 2,500 2,500 2,000 10,000 9 C800794 Phase 2Fire Pump Replacement 580 80 400 100 580 10 C800798 SSAT Infrastructure Upgrade 6,000 100 5,330 570 6,000 11 C800799 Trenchless Replacement of Pipe 1,550 300 1,200 50 1,550 12 C800802 Auto Tag Reader Replacements 1,800 550 1,250 1,800 13 C800811 Chiller Panel Upgrade 500 300 200 500 14 C800818 SSAT Structural Improvements 1,000 100 200 300 400 1,000 - TOTAL 638,787 7,886 22,530 4,521 17,900 102,000 154,837 2. The South Satellite has not been significantly upgraded since its original construction over 45 years ago. The building is in need of upgrades in order to provide an acceptable level of service to passengers. 4. Replace the B Concourse roofing system, as well as the installation of penthouse ladders, fall protection and refurbishment or replacement of KalWall windows/skylights. The B Concourse roof system was last installed in 1991 with a total square footage of 86,500. 8. Replace passenger boarding bridges and fixed walkways at (a) S11 Bridge and Walkway built 1983, (b) B9 Bridge and Walkway built 1991, (c) B10 Bridge built 1987, (d) C15 Bridge built 1970's, (e) B7 Bridge built 1984, (f) C9 Bridge built 1980's, (g) D11 Bridge built 1984. 9. Replace two 45 year old fire pumps (and diesel engines) with new pumps, engines, and controls in Pump House building. Renewal & replacement is necessary to maintain capacity 35 Proposed New Projects System Improvement and Safety Cost Cash Flows (Figures in $000s) 2016-20 V CIP Description Estimate 2016 2017 2018 2019 2020 Total 1 C800804 Water Hammer Attenuation 500 500 500 2 C800787 NSAT Roofs to Storm Piping 1,700 1,600 100 1,700 3 C800805 Duress System Upgrade 750 425 325 750 4 C800774 Overheight Vehicle Detection 660 310 350 660 - TOTAL 3,610 2,835 775 - - - 3,610 1. Install two surge tanks strategic locations in the network of water piping to reduce potential damage at the airport. 2. Pipe from the NSAT roofs using trenchless technology to send clean runoff water to the Storm Drain System (SDS) which will reduce about 2.1MGAL/year of water being sent to Industrial Waste System (IWS) causing higher operating expense and future capital cost of expanding the IWS lagoon . 3. Replace the input/output modules and alarm display functions for the airport-wide duress system to cover duress system needs for terminal growth over next five to ten years. The current system has 300 input points and 384 output points and requires additional 30% capacity. 4. Improve roadway signage to better inform over-height vehicle drivers (ie: semi trucks) of the clearance limitations to prevent future over-height beam collisions on lower drive resulting in closures for repair. Safety remains a priority 36 Capital Budget: 2015 - 2024 2015 2016 Cost CIP Name $ in $000s Forecast Estimate 2017 2018 2019 2020 2021 2022 2023 2024 Total RW16C-34C Design & Reconstruction 38,513 43,786 9,097 - - - - - - - 91,396 NorthSTAR CIPs 36,638 49,616 90,670 101,735 100,324 93,111 - - - - 472,094 International Arrivals Facility 11,983 59,252 145,341 214,909 164,700 6,365 - - - - 602,550 Checked Bag Recap/Optimization 8,384 20,000 50,000 50,000 50,000 50,000 21,450 21,450 21,450 21,450 314,184 South Satellite Terminal Renewal 150 900 15,000 100,000 100,000 335,000 48,950 600,000 Proposed New Projects 30,772 46,076 12,399 6,730 4,960 - - - - 100,937 Allowance CIPs 10,000 17,000 35,000 55,000 70,000 85,000 97,674 175,000 200,000 744,674 Other CIPs 79,529 146,638 98,665 38,632 24,331 38,705 5,298 8,426 5,018 4,574 449,816 Total 175,047 360,064 456,999 453,575 416,085 363,141 211,748 462,550 250,418 226,024 3,375,651 Currently defined capital projects will be mostly done by 2023 Existing capital plan includes $745 million of undefined capital spending (allowance CIPs) Built into CPE forecast Existing capital plan excludes SAMP future projects CPE forecast lower than last year's through 2022 37 FINANCIAL FORECAST 38 Enplanement Growth Enplanement growth exceeds SAMP forecast 39 Financial Forecast In $000's 2015 Bud 2016 Bud 2017 2018 2019 2020 Airline Revenue 242,352 261,446 272,669 291,203 321,921 347,756 Non-Airline Revenue 188,465 206,744 210,925 215,731 222,062 237,856 Total Revenue 430,818 468,190 483,593 506,935 543,982 585,611 Operating Expense 248,141 268,229 272,884 282,884 292,959 304,984 Net Operating Income 182,677 199,961 210,709 224,051 251,023 280,627 Net Non-Operating Income/Expense 1,504 1,539 3,353 3,411 3,536 3,662 CFC Excess* (4,264) (4,781) (2,454) (3,253) (2,293) (8,534) Available for Debt Service 179,916 196,718 211,608 224,210 252,267 275,756 Net Debt Service 128,343 135,217 146,562 159,192 186,319 206,016 Net Cash Flow 51,574 61,501 65,046 65,017 65,948 69,740 Key Measures Debt Service Coverage 1.40 1.45 1.44 1.41 1.35 1.34 Revenue Sharing 19,488 27,650 28,405 25,219 19,368 18,236 Passenger Airline CPE 11.78 11.12 11.37 11.92 12.96 13.76 Debt per Enplaned Passenger 129.3 114.5 118.0 129.3 137.8 143.3 * CFC collection in excess of CFC debt service/O&M is restricted and cannot be used for other revenue bond debt service Strong growth compared to 2015 40 CPE Forecast Passenger Airline Cost Per Enplanement (CPE) 18.00 16.00 14.00 12.00 10.00 8.00 15.84 15.68 15.54 14.27 14.60 13.17 13.76 12.96 6.00 11.76 11.85 11.48 11.92 11.12 11.37 10.35 4.00 2.00 - 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Fcst Bud High point in 2023 41 Projected CPE vs. Peer Airports $35.00 SEA Future CPE in 2024 $30.00 CPE Future CPE $25.00 Western U.S. Airports with orange outline Middle Third $20.00 $15.00 $10.00 $5.00 $0.00 IAD EWR JFK ORD SFO LAX MIA LGA SMF BOS SEA DFW DEN PDX PHL SJC SAN IAH DTW MSP SLC PHX Future CPE Ranks 12 out of 22 42 Debt Per Enplanement vs. Peer Airports $400 Blue represents other airports in 2013 $350 343 340 Green represents SEA in 2022 (forecast high point) $300 293 249 $250 230 Targeted Middle Third 198 $200 170 166 150 $150 129 115 115 115 $100 93 89 88 84 69 $50 0 $0 SJC IAD MIA SMF ORD DFW DEN SFO SEA DTW LAX BOS SAN IAH PHL MSP PDX PHX SLC 2022 Forecasted debt level high point remains in target range 43 FUNDING PLAN: USE OF PFCS 44 Overview of Funding Strategy Consistent with the funding principles outlined in the May 26, 2015 motion, Port aims to maintain competitive rates and CPE A key financing tool is Passenger Facility Charges (PFCs) as costs paid with PFCs are excluded from airline rate base: Directly funded project Revenue bond debt service paid by Will continue to use PFCs to pay debt service for Third Runway to manage landing fee rate Next PFC application to FAA will include NSAT, IAF and Baggage Optimization to allow flexibility to use PFCs to address cost centers with greatest rate growth pressure PFCs used to manage airline rates and CPE 45 Forecasted Sources & Use of PFCs $000s 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total Uses SOURCES Beginning balance 100,875 78,791 - - - - - - - (0) Collections & interest 84,884 86,785 87,366 89,166 91,003 92,877 94,791 96,743 98,747 101,329 USES - Debt Service PFC Backed Bonds Third Runway 5,695 18,915 20,129 20,128 18,768 18,766 18,770 18,769 - - 139,938 Conc A & STS 13,073 - - - - - - - - - 13,073 Revenue Bonds Third Runway 24,622 27,551 28,238 28,429 28,429 28,109 20,619 18,496 18,497 38,913 261,906 Conc A, STS, Baggage 9,178 6,249 5,562 5,371 13,474 13,472 14,894 14,895 14,833 7,155 105,081 Baggage Optimization - - - - - - - - 18,264 9,588 27,852 IAF - - - - 18,304 18,919 19,549 20,406 19,362 19,133 115,673 NSAT - - - - 2,928 4,324 11,479 14,504 16,407 16,407 66,048 USES - PAY GO - IAF 2,620 97,380 - - - - - - - - 100,000 NSAT 46,780 9,556 28,437 30,237 1,324 - - - - - 116,336 Baggage Optimization - - - - - 4,288 2,983 4,674 4,845 - 16,790 Airfield/Noise - 925 - - 2,776 - 1,496 - 1,538 - 6,735 Other Terminal 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 10,133 55,133 Ending balance 78,791 - - - - - - - (0) - 1,024,565 Used for debt service 49% 32% 62% 60% 90% 90% 90% 90% 88% 90% PFCs used to offset airfield, terminal and FIS costs 46 Planned uses of PFCs by Cost Center Uses - $000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-25 Airfield 30,317 47,391 48,367 48,558 49,973 46,875 40,885 37,265 20,035 38,913 408,579 Terminal 74,030 20,805 38,999 40,608 22,726 27,083 34,356 39,073 59,349 43,283 400,313 FIS 2,620 97,380 - - 18,304 18,919 19,549 20,406 19,362 19,133 215,673 106,967 165,576 87,366 89,166 91,003 92,877 94,791 96,743 98,747 101,329 1,024,565 Percent Airfield 28% 29% 55% 54% 55% 50% 43% 39% 20% 38% 40% Terminal 69% 13% 45% 46% 25% 29% 36% 40% 60% 43% 39% FIS 2% 59% 0% 0% 20% 20% 21% 21% 20% 19% 21% Includes both PFCs use to fund project costs (pay-go) and debt service In 2016 and 2017 plan to use built up PFC balance to fund project costs for NSAT and IAF Use PFCs to pay debt service on IAF beginning in 2020 Use of PFCs can shift as priorities change 47 Planned Use of PFCs to Pay Debt Service $000s 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 1. PFC-Backed Bonds: Eligible Amount 18,767,100 18,914,600 20,128,600 20,128,375 18,767,500 18,765,500 18,770,000 18,768,750 - - Less: Usage (18,767,100) (18,914,600) (20,128,600) (20,128,375) (18,767,500) (18,765,500) (18,770,000) (18,768,750) - - Remaining - - - - - - - - - - % of DS Covered by PFCs 100% 100% 100% 100% 100% 100% 100% 100% 2. IAF (C800583): Eligible Amount - - - - 28,829,800 28,946,858 28,946,858 28,946,858 28,946,858 28,946,858 Less: Usage - - - - (18,303,683) (18,919,144) (19,548,881) (20,405,846) (19,362,335) (19,132,839) Remaining - - - - 10,526,117 10,027,714 9,397,978 8,541,012 9,584,523 9,814,019 % of DS Covered by PFCs 63% 65% 68% 70% 67% 66% 3. 3rd Runway: Eligible Amount 24,622,046 27,551,311 28,238,296 28,429,443 28,429,098 28,109,434 20,619,499 18,496,163 18,497,383 38,913,405 Less: Usage (24,622,046) (27,551,311) (28,238,296) (28,429,443) (28,429,098) (28,109,434) (20,619,499) (18,496,163) (18,497,383) (38,913,405) Remaining - - - - - - - - - - % of DS Covered by PFCs 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 4. Terminal Total (Existing + New) Eligible Amount 13,955,153 13,598,413 13,474,573 26,275,129 29,881,490 29,879,120 31,301,182 31,301,826 31,240,252 23,561,806 Less: Usage (9,177,954) (6,248,689) (5,561,704) (5,370,557) (16,402,102) (17,795,494) (26,373,138) (29,398,176) (31,240,252) (23,561,806) Remaining 4,777,199 7,349,723 7,912,869 20,904,572 13,479,388 12,083,626 4,928,044 1,903,650 - - % of DS Covered by PFCs 66% 46% 41% 20% 55% 60% 84% 94% 100% 100% 5. Baggage (C800612) Eligible Amount - - - 3,957,499 8,651,102 13,344,705 14,955,727 16,689,221 18,263,952 19,822,679 Less: Usage - - - - - - - - (18,263,952) (9,588,294) Remaining - - - 3,957,499 8,651,102 13,344,705 14,955,727 16,689,221 - 10,234,385 % of DS Covered by PFCs 0% 0% 0% 0% 0% 100% 48% Port has flexibility to adjust use of PFCs in future years 48 Funding Plan for IAF Funding Sources $000s Capital Rate Base 2020 2024 Cash/ADF 200,000 Amortization - - Revenue Bonds 308,365 Debt Service 28,830 28,947 PFCs 100,000 DS paid w/PFCs (18,304) (19,362) Total 608,365 Net capital costs 10,526 9,585 Effective percent of PFCs to fund project costs: 48.6% 50.3% Per funding principles (May 26, 2015 ), amount of PFCs based on targeted $12 FIS rate (current estimate of high end of market rate) Use of PFCs can vary depending on other factors that impact FIS rate base Compared to the July 2015 IAF presentation, the effective use of PFCs has declined from 57.6% due to increased forecast for deplaned international passengers Use of PFCs lower than July Presentation 49 Funding Plan for NSAT Funding Sources $000s Capital Rate Base 2020 2024 Cash/ADF 537 Amortization 36 36 Revenue Bonds 299,010 Debt Service 18,947 27,751 PFCs 116,336 DS paid w/PFCs (2,928) (16,407) Total 415,883 Net capital costs 16,055 11,380 Effective percent of PFCs to fund project costs: 39.1% 70.5% Estimating that approximately 70% of costs are PFC eligible subject to determination by FAA Use of PFCs on NSAT will increase as PFC backed bonds are fully amortized in 2023 Use of PFCs for NSAT will increase after 2023 50 APPENDIX Additional 2016 Budget Materials 51 Airfield Commercial NOI 2014 2015 2015 2016 Budget Change Budget vs Forecast $ in 000's Actual Budget Forecast Budget $ % $ % AF Commercial Area Revenue 8,328 8,445 8,955 9,306 861 10.2% 351 3.9% AF Commercial Area O&M 3,909 3,670 3,516 3,725 55 1.5% 209 5.9% Net Operating Income 4,419 4,775 5,439 5,581 806 16.9% 142 2.6% Debt Service (3,007) (2,420) (2,978) (3,295) (875) 36.2% (317) 10.7% Adjusted Net Cash Flow 1,412 2,355 2,461 2,285 (69) -2.9% (176) -7.1% Airfield Commercial cost center revenues based on leases and fees (compensatory), not cost recovery Currently contributes positive cash flow to Aeronautical side of business Commercial Area generates positive net cash flow 52 Non-Aero Key Indicators 2014 2015 2015 2016 Budget Change Budget vs Forecast Actual Budget Forecast Budget $ % $ % Revenues per Enplanement Parking 3.05 3.04 2.99 3.01 (0.03) -1.1% 0.02 0.7% Rental Cars (includes Operating CFC) 2.46 2.32 2.14 2.16 (0.16) -7.0% 0.02 0.7% Ground Transportation 0.45 0.43 0.40 0.38 (0.05) -11.4% (0.02) -4.8% Airport Dining and Retail 2.51 2.58 2.46 2.46 (0.12) -4.6% (0.00) -0.1% Commercial Properties 0.35 0.42 0.39 0.46 0.04 9.2% 0.07 19.3% Other 0.84 0.94 0.91 0.92 (0.02) -2.3% 0.01 1.0% Total Revenues 9.66 9.74 9.29 9.39 (0.34) -3.5% 0.10 1.1% Primary Concessions Sales / Enpl 11.78 11.88 11.80 11.86 (0.02) -0.2% 0.06 0.5% Revenue growth not keeping pace with enplaned passenger growth 53 Proposed Additions to Baseline Other Baseline Requests 2016 Baseline Budget Requests: $000's Increase to electrical maintenance materials Janitorial - due to passenger volumes ($150K) Janitorial contract scope increase 2,350 Annual fees for (14) addt'l automated passport control Sr. Contract Administrator (1) FTE 99 kiosks ($75K) Consultant services Internal Baggage System - due to bag volumes Control ($75K) Additional staffing (6) FTE's 508 Contract scope increase FIS Centralized Int'l Support PathFinders (4) FTE's - due to passenger volumes 260 Services ($50K) Painters (3) FTE's - deferred asset mgmt 217 Real estate development planning expenses ($30K) Increased badging costs - volume & regulations 237 Right-size training & other employee costs for new hires Airline Technical Representative - consultant 164 ($54K) All other Baseline budget requests 488 Asset Mgmt estimator ($30K) Air Services Development Total 2016 Baseline Budget Requests 4,322 joint marketing ($24K) Details for proposed additions to baseline budget 54 2016 Non-recurring Expenses Other Non-recurring budget requests: 2016 Non-recurring Budget Requests: $000's Noise consulting & feasibility ($200K) Sustainable Master Plan Avian Radar Upgrade ($96K) SAMP - scheduled to complete in 2016 1,500 Space planning consultant ($100K) SAMP Environmental Review (NEPA/SEPA) 2,000 DMCBP owner's liaison 100% Adv Planning IDIQ for Master Plan projects 2,000 reimbursed ($100K) Baggage System - due to bag volumes DMCBP West pre-development ($50K) Biodiverters (contracted services) 73 Salmon Safe Certification consulting Additional baggage tubs 100 ($75K) Non-Airline Revenue Development Solid Waste System Optimization ($75K) Burien NERA 3 - FAA pilot program 1,500 ARC Flash phase 3 ($100K) ADR leasing consultant 756 CT Window Wall Main inspection ($95K) Reconfiguration of SSAT Lounge 245 Art conservation ($60K) Parking pre-booking system services 130 Other technology enhancements & consulting services ($95K) Airport Obstruction Removal (trees) 750 Air Incentive Program - new int'l service 58 All other Non-recurring budget requests 1,046 Total 2016 Non-recurring Budget Requests 10,158 Details for proposed non-recurring items 55 2016 Budget Requests Classified by Airport Strategy 2016 Baseline Budget Requests: $000's Strategic Initiatives: Safe, Secure Airport 1,083 Customer Needs/Capacity 5,906 Asset Management 712 Customer Service 3,535 Environmental Innovation 75 Airline Cost Management 30 Non-Airline Revenue Development 2,886 Employee/Organizational Development 54 Community Partnership 200 Total 2016 Baseline Budget Requests 14,480 Long-term facility needs and short-term customer needs are priorities 56
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