Introduction
The pandemic and related legislative and economic restrictions are gradually becoming a thing of the past. The whole planet is returning to the globalization model it has adhered to for many decades, and the United States (US) is no exception. Private aviation is also returning to its old pace, intensifying and accelerating the economies of various countries. It is becoming increasingly vital for entrepreneurs to know the basics and principles of business partnerships in this area.
Use and Lease Agreements in America
Use and lease agreement is the primary type of two-way commercial contractual interactions in the aviation sector of the US transportation industries. Karanki and Lim (2020) argue that these are an integral and fundamental part of almost all business transactions and operations between vendors, namely airports, and airlines. Other experts agree with them, stating that these are “the bedrock on which airport finances are built” (Use and lease agreements, n.d., para. 1). Knowing their categories is essential for every business person entering the air-commerce area.
Business entities in American aviation use three types of use and lease agreements. These ways of a commercial partnership include “residual, compensatory and hybrid agreements” (Lim & Karanki, 2020, p. 1). According to specialists, the first one sets such rules where “the financial risk of the host airport is borne by the signatory airlines, and in return, the signatory airlines pay reduced user fees” (Karanki & Lim, 2020, p. 1). Airport owners are those who collect revenues related to aeronautical operations and transactions, and all the remaining income is for airlines in this case. The second one establishes that “airports bear their own financial risks in the absence of a signatory airline” (Karanki & Lim, 2020, p. 1). Under this type of agreement, the airport operator receives revenue both from non-aeronautical sources and from charges paid by their partner.
There is also a hybrid agreement, under which the financial risk is negotiated as well as returns. Interestingly, the residual agreement is ultimately more expensive in terms of monetary and labor costs than the compensatory and hybrid ones (Lim & Karanki, 2020). This financial and human resource trend in the commercial aviation sector began more than four decades ago, after the federal government signed the Airline Deregulation Act.
Exclusive Leased Spaces vs. Common Use Spaces
Relations between numerous American airports and air carriers differ not only by the type of use and lease agreements under which they decided to cooperate. The way in which gates and ticket counter spaces are managed is another thing that varies from one commercial setting to another. In the US commercial aviation, there are exclusive leased spaced and common-use ones. The former provides its tenant with exclusive use of both gates and ticket counter spaces. Simply put, its competitors cannot use these for aeronautical operations and brand advertising. Common-use airports do not require their partner airlines to pay rent. Air carriers use the sites assigned to them by their airfield coordinator, and the payment for these works on a per-use principle. As one can see, exclusive leased spaces are more profitable for large airlines with significant cash resources, while common-use areas are more cost-effective for smaller business actors.
Conclusion
This paper explores the main categories of business agreements that exist between airport owners and air carriers. Three types exist, and they consist of residual, compensatory, and hybrid agreements. The last two are the most popular and widely used among private aeronautical business actors because they involve less overhead than the first. Moreover, the benefits of exclusive leased spaces and common-use spaces were analyzed and explained.
References
Karanki, F., & Lim, S. H. (2020). The effects of use agreements on airport efficiency. Journal of Air Transport Management, 84. Web.
Lim, S. H., & Karanki, F. (2020). Airport use agreement types and input and output slacks: The case of US airports. Research in Transportation Economics, 84. Web.
Use and lease agreements. (n.d.). Kaplan Kirsch Rockwell. Web.