HOUSTON AIRPORT SYSTEMDepartment Of Aviation

FY2018 Proposed Budget PresentationMario Diaz, Director of AviationRobert Merz, Deputy Director of Finance

May 23, 2017

Houston Airport System Org Chart

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Director’s Office

Administration

InfrastructureHuman Capital MgmtFinance & Accounting

Commercial DevelopmentTechnology

External AffairsOBO

Safety & Emergency MgmtMunicipal AffairsInternal Audit

Operations

IAH

HOU

EFD

City of HoustonHuman Resources

HITSFleet Mgmt

HECLegal

FinanceController

OBOSPD

Public Safety (HPD, HFD)

HAS FY2018 Department Initiatives

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Initiative Mayor 's Priority Plan Houston StrategyExpand international service at both IAH and HOU for passenger and cargo services Services & Infrastructure Support a global economy.

Support plans for growth for United at IAH and for Southwest at HOU Services & Infrastructure

Partner with others, public and private. Support a global economy.

Continue to rebuild airfields at IAH and HOU Services & InfrastructureSustain quality infrastructure. Spend money wisely.

Partner with Lone Star Museum and HISD to provide programs that encourage youth to pursue tomorrow's aviation and aerospace jobs through the HAS Aviation Club

Complete Communities Champion learning. Partner with others, public and private.

Train residents in construction trades to provide new skills in an industry lacking trained workers through the Construction Education Collaborative

Complete Communities Champion learning. Partner with others, public and private.

Maintain debt service coverage ratio of at least 1.5xSound Financial

Management Spend money wisely. Grow responsibly.

Maintain airline cost per enplaned passenger (CPE) at levels that will keep IAH and HOU competitive with their peers

Sound Financial Management Spend money wisely. Grow responsibly.

HAS FY2017 Highlights

IAHHOU

HAS EFD

HAS Revenues By Funds($’s in thousands)

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FY18 Proposed Budget vs. FY17 Estimate

1 – Terminal Concessions revenue was reduced further downward after budget submission from $41M to $39.4M which causes Total RevenueFund 8001 to be slightly less than the $495.9M that was originally submitted.

VarianceFY16 FY17 FY17 FY18 FY18 Proposed/ %

Actual Budget Estimate Proposed FY17 Estimate Change

Enplanements (in thousands)

Domestic 21,494 21,923 21,087 20,725 (362) -1.7%

International 5,663 5,617 5,739 5,660 (79) -1.4%

Total Enplanements 27,157 27,540 26,826 26,385 (441) -1.6%

HAS - Revenue Fund 8001

Landing Fees 89,505$ 90,801$ 89,801$ 89,697$ (104)$ (0.1%)

Terminal Rentals and Usage Fees 198,568 186,604 184,604 188,682 4,078 2.2%

Subtotal Airline Revenues 288,073$ 277,405$ 274,405$ 278,379$ 3,974$ 1.4%

Parking & Gound Transportation 111,733$ 117,695$ 108,195$ 113,013$ 4,817$ 4.5%

Terminal Concessions 35,190 37,058 39,405 1 39,489 84 0.2%

Auto Rental Concessions 30,737 30,424 29,424 27,708 (1,715) (5.8%)

Other 31,061 39,143 42,805 45,272 2,466 5.8%

Subtotal Non-Airline Revenues 208,720$ 224,321$ 219,830$ 225,482$ 5,652$ 2.6%

TOTAL Revenue Fund 8001 496,794$ 501,726$ 494,235$ 503,861$ 9,626$ 1.9%

Airline Revenues

Non-Airline Revenues

FY2018 - Revenue Highlights

• Revenue for FY2018 is proposed to be $503.9M, an increase of $9.6M, or 1.9%, over the FY2017 estimate despite a 1.6% decrease in projected passenger enplanements versus FY2017.

• Airline revenues from landing fees and terminal rent are projected to increase by $4.0M or 1.4%, due to the projected increase in O&M costs.

• The projected increase in parking and ground transportation revenues of $4.8M, or 4.5%, is primarily attributable to an increase in garage parking rates that were implemented this May.

• Terminal concession revenue is projected to increase $0.08M, or 0.2%, full year effect of new program is offsetting decreases due to anticipated decrease in passenger traffic.

• Car rental concessions revenue is projected to decrease by $1.7M, or 5.8%, driven by the anticipated decrease in passenger traffic.

• Other revenue is projected to increase by $2.5M, or 5.8%, related to contractual increases for various leaseholds and the new Centurion Lounge at IAH’s Terminal D.

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HAS Expenditures By Funds($’s in thousands)

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FY18 Proposed Budget vs. FY17 Estimate

* ‐ FY16 includes $16.4M of Net Pension Obligation and $5.2M in Other Post Employment Benefits, other years do not include these

Note – TOTAL HAS line does not include debt service or other transfers. For FY18, this amount is $193M. 

Fund FY16 FY17 FY17 FY18 Actual Adopted Estimate Proposed H / (L) % Change

Personnel * 123,872$ 114,614$ 104,078$ 111,755$ 7,677$ 7.4%

Supplies 8,140 9,375 8,144 9,318 1,174 14.4%

Other Services & Charges 176,329 183,415 166,765 187,281 20,516 12.3%

Non-Capital 1,114 2,284 1,183 2,486 1,303 110.2%

HAS Revenue Fund (O&M) 8001 309,455$ 309,688$ 280,170$ 310,840$ 30,670$ 10.9%

Equipment & Other 3,300$ 2,173$ 1,837$ 2,841$ 1,004$ 54.7%

Vehicles 3,202 8,392 8,392 4,064 (4,328) (51.6)%

HAS Capital Outlay Fund 8012 6,502$ 10,565$ 10,229$ 6,905$ (3,324)$ (32.5%)

TOTAL HAS 315,957$ 320,253$ 290,399$ 317,745$ 27,346$ 9.4%

VarianceFY18 Prop/ Est.

FY2018 - Expenditures Highlights• Personnel expenditures are budgeted to increase by $7.7M, or 7.4%, versus the FY2017 estimate

driven primarily by a higher than typical vacancy factor in FY2017, projected increase in healthcare related costs and the scheduled HOPE increase.

• Other Services & Charges are budgeted to increase by $20.5M, or 12.3%, versus the FY2017 estimate driven by the following:

– Contractual increases in the facility maintenance contracts for HVAC, elevator/escalators, Skyway, Subway

– Anticipated environmental work to be done in connection with several new projects; United hangar project at IAH, Southwest hangar project at HOU, tower demolition at EFD

– Several new IT related contracts; (Smart Restrooms, UPS, Access Control system hardware, Telecom maintenance)

– Increased spending for marketing efforts both to improve customer service and attract new air service

– Job Order Contracting (JOC) program being reinstated in FY2018

• Supplies and Non-Capital Equipment are budgeted to increase by $2.5M, or 26.6%, compared with the FY2017 estimate. This is driven by the comfortable seating project at Hobby and virtual desktop program being implemented by our IT group.

• The Capital Outlay Fund (8012) expenditures are budgeted at $6.9M which is a decrease of $3.3M or 32.5% versus the FY2017 estimate, primarily due to the receipt of several ARFF vehicles in FY2017.

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FY2018 Budget Expenditures Net Change (in thousands)

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FY2017 Estimate

Revenue Fund (8001) 280,170$ Capital Outlay Fund (8012) 10,229

FY2017 Estimate 290,399$

Contractual or Mandated Increases/(Decreases)Facility Maintenance Contract Escalations - HVAC, Elevator/Escalator, Skyway, Subway, etc. 2,752$ Salaries - HOPE increase and run rate of other FY17 increases/adjustments 1,885 Communication Equipment Services - Contracts for new services; UPS, Smart Restrooms 1,579 Interfund Utilities (Water, Sewer & Electricity) 1,359 Health increases (9% rate increase) 1,320 Pension rate decrease from 29.36% to 27.96% (822)

Subtotal Contractual or Mandated Increases/(Decreases) 8,073$ FY18 Proposed Budget Increases/(Decreases)

Salaries & Benefits - Driven by lower vacancy factor with fringe 5,294$ (Vacancy Factor FY17: 6.4%, Vacancy Factor FY18: 4.3%)Mgmt Consulting - Facility assessments, Full year impact of programs started in FY17 3,362 Parking Services - Driven by full year impact of enhanced service programs put into place in FY17 2,656 Comm Equipmt Services - Increases in various systems mx costs such as WiFi and phones 1,819 Facility Maintenance Contract Other Service Requests (OSR's) 1,334 Environmental Abatements associated with new projects and existing facilities 1,237 Job Order Contract program reinstated 1,216 Supplies - Mostly cleaning supplies and airfield markings related 1,174 Antcipated O&M expenses from On-call Design contract 1,000 Advertising related to anticpated new air service 1,000 Security services related to stricter contract enforcement 581 HOU Comfortable Seating project 560 Professional Services contract to assist international passengers at IAH 400 IT Virtual Desktop project 360 Reduction in Capital Outlay Fund 8012, driven by purchases of ARFF equipment in FY17 (3,324) Other 604 Subtotal Proposed Budget Increases/(Decreases) 19,273

FY18 Proposed Budget 8001 & 8012 Contractual/Mandated and Proposed Budget Increases 27,346

FY2018 Proposed Budget 8001 & 8012 317,745$ % Change from FY17 Estimate 9.4%

Explanation of FY18 Incremental Increase/(Decrease)

FY18 Enterprise Fund Budget Expenditures Net Change to FY2017 Estimate

Functional Org Chart($’s in thousands)

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Division FTE BudgetAdmin 327 $114,229

IAH 614 $150,072HOU 233 $48,857 EFD 26 $4,587

Total (Funds 8001 &8012)

1,200 $317,745

Non-Utility Interfund Amounts

$57,847

Non-Utility Interfund % of Total

18%

Debt Service Coverage Ratio

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Actual Actual Actual Forecast1 Budget2

Revenue 2014 2015 2016 2017 2018Operating revenue

Airline revenue $248,681 $263,932 $274,911 $277,725 $280,179

Nonairline revenue $205,463 $212,351 $213,986 $209,581 $214,670_______ _______ _______ _______ _______

Subtotal operating revenue $454,144 $476,282 $488,897 $487,306 $494,849

Nonoperating revenue $6,623 $13,541 $6,934 $8,541 $9,012_______ _______ _______ _______ _______Total Revenue $460,767 $489,823 $495,831 $495,847 $503,861

Operating expenses (Fund 8001 Only) $268,745 $283,557 $314,715 $310,820 $310,946

Net revenues (=available to pay debt service) $192,022 $206,266 $181,117 $185,027 $192,915

Gross debt service $156,424 163,319$   163,905$   $175,655 $185,157Less: PFCs used to pay debt service (35,614)      (38,054)      (42,320)      (51,945)      (60,523)     Less: Grants used to pay debt service (22,942)      (16,399)      (13,888)      ‐                   ‐                  _______ _______ _______ _______ _______Net debt service $97,868 $108,866 $107,696 $123,710 $124,633

Debt service coverage (target=1.50) 1.96            1.89            1.68            1.50            1.55           

Remaining net revenues $94,154 $97,400 $73,420 $61,317 $68,2811FY17 forecast as of 3/31/2017 including NPO and OPEB estimates, HOU Int'l amortization2FY18 budget submitted 4/7/2017

O&M changes over last 5 years

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Note ‐ FY14‐FY16 Personnel amounts include pension and OPEB liability actuals whereas the FY17 Estimate and FY18 Proposed do not. 

Fund FY14 FY15 FY16 FY17 FY18 Actual Actual Actual Estimate Proposed H / (L) CAGR %

HAS Revenue Fund (O&M) (8001)

Personnel 108,520$ 114,947$ 123,872$ 104,078$ 111,755$ 3,235$ 0.7%

Supplies 8,822 7,934 8,140 8,144 9,318 496 1.4%

Services 149,957 159,218 176,329 166,765 187,281 37,323 5.7%

Non-Capital 1,338 1,352 1,114 1,183 2,486 1,148 16.7%

HAS Revenue Fund (O&M) 8001 268,638$ 283,451$ 309,455$ 280,170$ 310,840$ 42,201$ 3.7%

HAS Capital Outlay Fund (8012)

Equipment & Other 2,148$ 1,962$ 3,300$ 1,837$ 2,841$ 693$ 7.2%

Vehicles 1,517 3,208 3,202 8,392 4,064 2,547 27.9%

HAS Capital Outlay Fund 8012 3,665$ 5,170$ 6,502$ 10,229$ 6,905$ 3,240$ 17.2%

TOTAL HAS 272,304$ 288,621$ 315,957$ 290,399$ 317,745$ 45,441$ 3.9%

FY18 vs FY14

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HAS Statistical Overview

• Over 53 million passengers anticipated in FY17 of which over 10 million will be international

• Nearly 100 miles of runways and taxiways

• Nearly 7 million square feet of terminal space

• Over 33,000 parking spaces under HAS control

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• Over 400,000 metric tons of cargo will be processed in FY17

• Nearly 800,000 flight operations will occur in FY17 over 80% of which will be air carrier

• A footprint of over 13,000 acres

• Over 200 retail and food/beverage options

Appendix

15Source: Headcount from SAP as of May 8, 2017

FY 2018 Performance Measures

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* FY16 Actual DSCR is shown net of grants as all other years do not yet reflect final grant amounts. FY16 Actual DSCR with grants is 1.68.

Mayor’s FY16 FY17 FY17 FY18

Priorities Actual Budget Estimate Budget

HOU $7.38 $7.02 $6.37 $6.92

IAH $10.53 $10.65 $11.12 $11.48

HOU 99.2% 90.0% 99.4% 90.0%

IAH 76.7% 80.0% 71.4% 80.0%

HOU 97.3% 95.0% 97.4% 95.0%

IAH 96.7% 95.0% 97.2% 95.0%

Debt Service Coverage Ratio (DSCR) Sound Financial Management HAS 1.49* 1.52 1.50 1.55

Total M&O per Passenger Sound Financial Management HAS $10.33 $11.08 $10.45 $11.81

Passengers clearing TSA within 15 minutes Services & Infrastructure

Performance Measures (KPI’s) Function

Airline Cost Per Enplaned Passenger (CPE)Sound Financial

Management

Passengers clearing Customs & Border Protection (CBP) within 30 minutes Services & Infrastructure

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