Aviation Freight Mobility Planning & Policy Issues Presented to Freight Advisory Committee

1. Aviation Freight Mobility Planning & Policy IssuesPresented toFreight Advisory Committee Lawrence J. Krauter, A.A.E., AICP Chief Executive Officer Spokane International Airport, Felts Field and Airport Business Park

2. Today’s Objectives • Recap of Presentation Highlights from May 2013 • Discussion of Washington Airport Survey Findings (other than Port of Seattle) • Comparison to Early Issues Presentation • Questions/Recommendations

3. Value of Air Cargo • Trade Facilitator • Job Creator • Transports $6.4T worth of goods • 35 percent of world trade by value • Intricate component of the consumer supply chain • High-value/time-sensitive products

4. Exploring Current Issues: Changing Distribution System • Manufacturing shifting back to North America and Europe • Rising labor costs in Asia • Accelerating consumption of a growing middle class • Higher fuel costs • Increased expense of security screening • Increased shipping costs • Repatriation of previously exported industry to U.S. & Europe • Manufacturing & Distribution move to decentralized business model to reduce costs of transportation logistics, which favors trucking over air transport • Traditional ‘Gateways’ are fragmenting as airlines start new international routes from inland airports • Airlines making better use of belly capacity

5. Exploring Current Issues • Airport marketing becoming more sophisticated • Emergence of new markets in Eastern Europe, Africa and Middle East • Carriers have pulled back on direct lease or ownership of airport facilities – gap being filled by third-party developers and cargo handling companies • Cost of screening favors major gateways due to economies of scale • The ‘Cargo Village’ or ‘On-Airport Logistics Complex’ • Industry Alliances and Consolidations • Modal Shifts • Open Skies Treaties • Emissions Trading Schemes (EU) • Growth of ACMI operators (Aircraft, Crew, Maintenance & Insurance)

6. Snapshot of the Air Cargo Industry • Air Cargo traffic declined in the U.S. and Internationally in 2012. • World-wide air cargo demand dropped 2 percent in 2012 • Markets connected to Far East experienced the most growth • Forecasts call for gradual improvement • U.S. Air Carriers flew 36.4 billion revenue ton miles in 2012, down 2.4 percent from 2011 • U.S. all cargo carriers flew 79.2 percent of total RTMs • International RTMs declined 3.6 percent • European Sovereign Debt Crisis • Slowing Chinese economy • U.S. Domestic Cargo RTMs will decline by 0.9 percent in 2013, then increase an average of 0.8 percent annually • International RTMs will increase 1.1 percent in 2013, then increase at an annual average rate of 5.7 percent

7. Snapshot of Air Cargo Industry • Maturation of U.S. Domestic express package market? • Shift from air to ground modes of transportation • U.S. Postal Service use of all-cargo carriers for mail transport/increased use of electronic substitutes for mail • Yet, Boeing expects air cargo growth to triple over next 20 years • Asia will continue to be at the forefront of the industry • Routes associated with Asia will experience the highest growth rates over the next 20 years

8. Policies Adversely Affecting Air Cargo Movement • Federal Level • No comprehensive National Aviation Policy • Intermodalism and freight mobility not adequately connected to decision-making • Funding Program Uncertainty • FAA Reauthorization process • Deficit Reduction Measures • Dedicated Revenue Streams for Air Cargo Infrastructure (like a PFC equivalent to the passenger carriers) • Regulations imposed by FAA and TSA • Pilot Crew Rest Periods • Cargo Screening Rules • Use of infrastructure grants is very limited regarding cargo facilities • Growing inflexibility due to increasing internal audits

9. Policies Affecting Air Cargo Movement • NEPA Process needs streamlined for optimization of performance based navigation • State Level • No mention of cargo in State Aviation System Plan • No emphasis on aviation economic development • Intermodalism focused on physical v. economic connectivity • Competitiveness Challenges/Impact of state taxes and regulations on an industry that is very mobile with its assets and has very low margins • Local Level • Cost of aeronautical land discourages combining air/ground stations

10. FAA Funding Uncertainty • New legislation signed by the President on 2/14/12 • Authorizes FAA and AIP through FFY 2015 • AIP is set at $3.35B, which is less than the $3.5B carried in extensions (Translates to @ $4.7M in Entitlement Formula funds to SIA (@ $500k reduction) • Matching share of projects will decrease from 95% to 90% • PFC cap remains at $4.50 (SIA collects @$6.7M/year currently) • Unknown impacts of potential deficit reduction measures • Airport Industry Proposals • Airline Industry Proposals • National Aviation Policy

11. Survey of Airports • Bellingham • Moses Lake • Renton • Spokane • Tri-Cities • Walla Walla • Wenatchee • Yakima

12. Moses Lake • Freight forecast being developed as part of Master Plan Update • FedEx and UPS parcel service (small aircraft) • Occasional Charters with specialized/unique loads • Pitched concept of international distribution hub to Asian carriers - Logistics/Economics not viable • 3 major truck terminals in the area • Extensive aircraft parking ramp capacity • On-site warehouses can support breakbulk or containers • Freight forwarders minimal (Small operators focused on ag. & one on industrial) • Excellent connectivity to highway system • On site rail requires modernization and new alignment • Extension of rail from southeast corner of City to Airport is high priority for freight mobility (currently under design – grant funds applications completed) • Other projects of high-importance: Columbia Basin Rail Project ($24M)

13. Renton • No freight operators • Fixed Base Operator has tried to secure a contract (unknown status) • Night operations highly problematic for community • No freight forecast in Master Plan • No ramp space or warehouse space to handle freight on-airport • Kent Valley has warehouse space and good connectivity • Rail is @ 1 mile away • Highest priority project is to support I-405/SR 167 interchange improvements

14. Spokane • Master Plan cargo growth projected at 2 percent annually • FedEx & UPS service with mix of small feeder aircraft, narrowbody and widebody equipment. • FedEx & UPS have limited on-airport facilities for transfer of freight to city sorting stations • No warehouses on-airport (extensive room for construction) • Limited aircraft parking apron (extensive room for expansion) • 7 freight forwarders • 15 significant truck terminals in region • Alaska, Delta, Frontier, United, US Airways and Southwest belly freight • Airport has good connectivity to three major I-90 interchanges • Access from FedEx & UPS on-airport facilities needs significant improvement • Rail within close proximity to airport land, but not near any existing air cargo areas. Rail vision is more related to future aerospace campus • Projects of significance include trans-load facility, extension of rail on to western airport property holdings, improvement of Medical Lake Interchange (FMSIB Tour)

15. Tri-Cities • Master Plan forecasts cargo growth at 4.8 percent annually • FedEx service from Spokane with turbo-prop aircraft (ATR-42) Empire Airlines • Small FedEx sort facility on-airport (needs expansion) • FedEx has own aircraft parking apron • Ameriflight and Airpac use general aviation apron • UPS service provided by Ameriflight. Freight is transferred at Tri-Cities airport and trucked to Vista (Air)Field Kennewick • Airpac Airlines provides bank and medical transport from Boeing Field with small general aviation aircraft • Delta, United, Alaska provide minimal belly freight with RJs (dramatic reduction when change of gauge occurred) • Warehouse space could be constructed on-airport to eliminate UPS trucking to Vista Field. Airport has available land to lease for warehousing. • Good connectivity to I-182/I-82/US 395 with BNSF Switch Yard in Pasco and Barge Terminals • No rail line to airport, nearby but separated by arterial road • 12 major trucking terminals in region • High priority project would be to receive funds for construction of a multi-tenant warehouse on airport property

16. Wenatchee • Master plan forecast for cargo growth is 2% annually • FedEx and UPS through contract airlines (Empire/Ameriflight) provide package service • FedEx has on-airport sorting facility • No other warehousing on-site/ 5-7 miles away via 4-lane arterials • Rail access is @ 5 miles away • No major truck terminals identified • 3 freight forwarders • Highest priority project would be a runway extension to allow for larger cargo aircraft

17. Yakima • Master plan forecast for air cargo growth is <1% annually • FedEx service provided by Empire Airlines (C-208) from Spokane • UPS service provided by Ameriflight (BE1900) from Boeing Field • FedEx has small sorting facility on-airport (@ 25,000 sf) has room for expansion • UPS loads trucks on aircraft parking ramp and drives to sort facility @ 2.5 miles away. • Horizon handles small amount of freight with Q400 passenger aircraft • No other on-airport warehouse • Warehouses located just off airport with good access to I-82 • Rail is @ 3 miles from airport and is owned by Central WA RR • Highest priority project is to obtain funding for a infrastructure/multi-tenant warehouse that could be used to offset costs of attracting freight companies to area and to consolidate FedEx and UPS because both companies operate at different locations on the airport, which confuses customers • Improvement of Valley Mall Blvd. for better access from Union Gap area and the lower valley is also a high priority.

18. Comparison to Issues Discussion in May • How can we impact a changing distribution system? • Reduced costs • Increased efficiencies • Logistics expertise and planning/strategy • What can we become really good at from standpoint of creating air freight market opportunities on platforms of: • International (Sea-Tac, Spokane, Moses Lake, Bellingham) • Interstate (Tri-Cities, Spokane, Boeing Field, Bellingham, Moses Lake) • Intrastate (Tri-Cities, Spokane, Boeing Field, Moses Lake, Walla Walla, Wenatchee, Yakima) • An air cargo mobility system plan with an economic strategy focused on Asia logistics? • Need a SWOT from experts

19. Comparison to issues Discussion in May • Private companies have made investments in infrastructure that may be contributing to increased costs (i.e. trucking relatively short distances from airports to other facilities) • Extreme example is UPS in Tri-Cities, delivering to air carrier airport and trucking to facility at Vista Field. • Achieving economies of scale for cargo operators at the airports should be a strategy that we think about pursuing. • Development of low-cost cargo facilities at airports with both air and city-station characteristics to provide efficiency gains. • Fold in capability for package freight/forwarders/non-exclusive areas for use by multiple trucking companies. • Public funding of construction to help lower lease costs

20. Survey Comparison to Policy Issues • Intermodalism and freight mobility not ‘connected’ to modal planning at national, state or local levels. • Greater flexibility is needed for airports to use federal grant funds for cargo projects, particularly freight processing buildings, not just aircraft parking aprons. • FAA Reauthorization in 2015 should contain new air freight mobility planning requirements and mandates for integrated planning with MPOs. • Most MPOs/RTPOs in WA not working closely with airports. Ports have done a good job of bridging the gap but MTPs need to have a much more integrated freight mobility/air freight interface. • State transportation funds should be made available to airports for freight mobility projects on a wide-scale (rail, road and warehouse)

21. Survey Comparison to Policy Issues • The state has been absent in helping airports directly address air freight mobility needs and many other airport infrastructure needs. • Tax and fee revenue should be dedicated to a restricted account for funding projects. • This may be too big for WSDOT Aviation, which needs more funding and staff resources just to catch up with basic system safety and maintenance requirements. • Should FMSIB or another entity play a more significant role in coordinating aviation economic investment for air freight? • State must be a leader in creating a framework to force more integrated planning at the local level for air freight. • More discussion needed with Port of Seattle, Bellingham and Walla Walla before final conclusions reached.