Airport Revenue Bond

What Is an Airport Revenue Bond?

An airport revenue bond is a type of municipal bond in which the operating revenue of an airport is utilized to secure the bond. A municipality or airport authority will issue an airport revenue bond, with the funds going toward improving, extending or building another airport.

At times, an airport revenue bond is a type of public purpose bond. The bonds are generally exempt from federal taxes if something like 10% of proceeds are utilized for private business.

Understanding Airport Revenue Bond

Airport revenue bonds are a common form of airport debt. Since a municipality or airport authority issues the debt, it is bound to pay a lower interest rate, which brings down financing costs for the airport.

Like other municipal bonds, airport revenue bonds are generally exempt from federal taxes. They can be exempt from state and neighborhood taxes too in the event that the buyer dwells in a similar place where the bond is issued. Nonetheless, the tax-exempt status of an airport revenue bond relies upon the airport's mix of public and private use. On the off chance that over 10% of the bond's proceeds are utilized for private business, it is considered a private-purpose bond and may not fit the bill for tax-exempt treatment.

Credit analysts rate airport revenue bonds on the amount of traffic the airport gets, how well the airport performs monetarily, and how probable it is that carriers will keep on utilizing the facility.

The U.S. Congress and the Federal Aviation Administration (FAA) direct the utilization of airport revenue assuming that the administrators have accepted federal assistance. Common acceptable purposes incorporate airport improvements, gateway improvements, safety improvements, and limit upgrades, as well as building new facilities.

Different Kinds of Municipal Revenue Bonds

Revenue bonds are municipal bonds that finance income-creating projects and are secured by a specific revenue source. Models would incorporate projects, for example, a toll road, a reusing plant, or a nearby games arena. Government agencies managed as businesses can issue revenue bonds.

Revenue bonds are backed from the money streams made by a specific project. They are thought of as riskier than general obligation (GO) bonds, which are reimbursed through an assortment of municipal tax sources and depend on the full credit of the responsible municipality, as no assets are utilized as collateral. Notwithstanding, as a result of the greater risk, revenue bonds ordinarily pay a higher interest rate.

On account of an airport revenue bond, a municipality might issue a bond to build another terminal. The income generated from airport activities secures the debt. Once completed, airport landing fees, terminal rents, concession revenue, parking charges and other income streams will be utilized to pay off the bond.

Notwithstanding airport revenue bonds, other revenue bonds incorporate housing revenue bonds, student loan revenue bonds, parkway revenue bonds, and transit revenue bonds.