City of Charlotte

NEW ISSUE Ratings: FULL BOOK-ENTRY Moody’s: “Aa3” Fitch: “AA-” (See “MISCELLANEOUS-Ratings” herein) In the opinion of Parker Poe Adams & Bernstein LLP, Bond Counsel, under existing law (1) assuming compliance by the City with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”), (a) interest on the 2017A Bonds and the 2017C Bonds (i) is excludable from gross income for federal income tax purposes, and (ii) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, (b) interest on the 2017B Bonds (i) is excludable from gross income for federal income tax purposes, except for interest on a 2017B Bond for any period during which such 2017B Bond is held by a person who is a “substantial user” of the facilities financed or refinanced by the 2017B Bonds or a “related person” within the meaning of Section 147(a) of the Code, and (ii) is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (2) interest on the 2017 Bonds is exempt from State of North Carolina income taxation. See “TAX TREATMENT” herein. $302,780,000 CITY OF CHARLOTTE, NORTH CAROLINA Charlotte Douglas International Airport $167,385,000 $16,345,000 $119,050,000 Airport Revenue Bonds Airport Revenue Bonds Airport Refunding Revenue Bonds Series 2017A (NON-AMT) Series 2017B (AMT) Series 2017C (NON-AMT) Dated: Date of Issuance Due: As shown on inside cover This Official Statement has been prepared by the City of Charlotte, North Carolina (the City“ ”) to provide information on the Bonds offered hereby (the “2017 Bonds”). Selected information is presented on this cover page for the convenience of the user. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

Security: The 2017 Bonds are special obligations of the City, payable from Net Revenues. The principal of, premium, if any, and interest on the 2017 Bonds are not payable from the general funds of the City, nor do the 2017 Bonds constitute a legal or equitable pledge, charge, lien or encumbrance on any of its property or on any of its income, receipts or revenues, except as provided in the Bond Order or the 2017 Resolution (each as defined herein) pursuant to which the 2017 Bonds are issued. Neither the credit nor the taxing power of the City is pledged for the payment of the principal of, premium, if any, or interest on the 2017 Bonds, and no owner has the right to compel the exercise of the taxing power of the City or the forfeiture of any of its property in connection with any default under the Bond Order or the 2017 Resolution. The 2017 Bonds will be issued and secured under the Bond Order on a parity with the City’s outstanding Prior Bonds (as defined herein) and any Additional Bonds (as defined herein) that may be issued, from time to time. On April 24, 2017, the City approved amendments to the Bond Order which will not become effective and incorporated into the Bond Order until the later of June 2, 2017, or the date the City receives the written consent of the Owners of not less than fifty-one percent (51%) of the aggregate principal amount of the Bonds then Outstanding at the time such consent is obtained (collectively, the “Consent Amendments”). Attached hereto as APPENDIX D is the Proposed Amended and Restated Bond Order which is blacklined against the Bond Order to show all of the Consent Amendments (the “Proposed Amended and Restated Bond Order”). See also “PROPOSED AMENDED AND RESTATED BOND ORDER” herein for a summary of the Consent Amendments. Each original purchaser of the 2017 Bonds will be required to execute a written consent to the Consent Amendments, the form of which is attached hereto as APPENDIX I. Redemption: The 2017 Bonds will be subject to optional redemption, extraordinary redemption and mandatory redemption pursuant to sinking fund provisions, as described herein. Issued Pursuant to: The 2017 Bonds will be issued pursuant to the Bond Order and the 2017 Resolution. Purpose: The City is issuing the 2017 Bonds to obtain funds to (1) to refund in advance of their maturities the Refunded Bonds (as defined herein), (2) acquire and construct certain improvements to the Charlotte Douglas International Airport, (3) pay capitalized interest on the 2017A Bonds and 2017B Bonds, (4) fund a deposit to the debt service reserve fund, and (5) to pay the costs of issuance of the 2017 Bonds. Interest Payment Dates: January 1 and July 1 of each year, commencing January 1, 2018, with respect to the 2017A Bonds and 2017B Bonds, and commencing July 1, 2017, with respect to the 2017C Bonds. Denomination: $5,000 or integral multiples thereof. Closing/Delivery Date: On or about June 1, 2017. Registration: Full book-entry only; The Depository Trust Company. See Appendix H hereto. Trustee: U.S. Bank National Association, Charlotte, North Carolina. City Financial Advisor: DEC Associates, Inc., Charlotte, North Carolina. Airport Financial Advisor: Frasca & Associates, LLC, New York, New York. Bond Counsel: Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina. City Counsel: Robert E. Hagemann, Esq., Charlotte, North Carolina. Underwriters’ Counsel: McGuireWoods LLP, Charlotte, North Carolina. BofA Merrill Lynch J.P. Morgan PNC Capital Markets LLC May 19, 2017

MATURITY SCHEDULE $81,570,000 Serial 2017A Bonds (NON-AMT) Maturity Principal Interest Maturity Principal Interest (July 1) Amount Rate Yield CUSIP1 (July 1) Amount Rate Yield CUSIP1 2019 $2,370,000 5.00% 1.04% 161036LN6 2029 $4,400,000 5.00% 2.56%* 161036LY2 2020 2,540,000 5.00 1.18 161036LP1 2030 4,620,000 5.00 2.64* 161036LZ9 2021 2,730,000 5.00 1.32 161036LQ9 2031 4,850,000 5.00 2.70* 161036MA3 2022 3,105,000 5.00 1.48 161036LR7 2032 5,090,000 5.00 2.75* 161036MB1 2023 3,280,000 5.00 1.65 161036LS5 2033 5,345,000 5.00 2.84* 161036MC9 2024 3,445,000 5.00 1.81 161036LT3 2034 5,615,000 5.00 2.88* 161036MD7 2025 3,620,000 5.00 1.98 161036LU0 2035 5,895,000 5.00 2.93* 161036ME5 2026 3,800,000 5.00 2.16 161036LV8 2036 6,190,000 5.00 3.01* 161036MF2 2027 3,990,000 5.00 2.30 161036LW6 2037 6,495,000 5.00 3.05* 161036MG0 2028 4,190,000 5.00 2.45* 161036LX4

$37,700,000 5.00% Term 2017A Bonds Due July 1, 2042, Yield 3.12%*, CUSIP 161036MH8 $48,115,000 5.00% Term 2017A Bonds Due July 1, 2047, Yield 3.21%*, CUSIP 161036MJ4 $7,860,000 Serial 2017B Bonds (AMT) Maturity Principal Interest Maturity Principal Interest (July 1) Amount Rate Yield CUSIP1 (July 1) Amount Rate Yield CUSIP1 2019 $155,000 5.00% 1.24% 161036MK1 2029 $435,000 5.00% 2.88%* 161036MV7 2020 200,000 5.00 1.39 161036ML9 2030 455,000 5.00 2.96* 161036MW5 2021 210,000 5.00 1.56 161036MM7 2031 480,000 5.00 3.04* 161036MX3 2022 300,000 5.00 1.76 161036MN5 2032 505,000 5.00 3.11* 161036MY1 2023 325,000 5.00 1.96 161036MP0 2033 530,000 5.00 3.18* 161036MZ8 2024 340,000 5.00 2.11 161036MQ8 2034 555,000 5.00 3.24* 161036NA2 2025 355,000 5.00 2.30 161036MR6 2035 580,000 5.00 3.29* 161036NB0 2026 375,000 5.00 2.49 161036MS4 2036 610,000 5.00 3.33* 161036NC8 2027 395,000 5.00 2.61 161036MT2 2037 640,000 5.00 3.37* 161036ND6 2028 415,000 5.00 2.75* 161036MU9

$3,730,000 5.00% Term 2017B Bonds Due July 1, 2042, Yield 3.44%*, CUSIP 161036NE4 $4,755,000 5.00% Term 2017B Bonds Due July 1, 2047, Yield 3.49%*, CUSIP 161036NF1 $118,910,000 Serial 2017C Bonds (NON-AMT)

Maturity Principal Interest Maturity Principal Interest (July 1) Amount Rate Yield CUSIP1 (July 1) Amount Rate Yield CUSIP1 2018 $1,060,000 4.00% 0.98% 161036NG9 2028 $9,270,000 5.00% 2.45%* 161036NS3 2019 3,050,000 4.00 1.04 161036NH7 2029 9,760,000 5.00 2.56* 161036NT1 2020 3,170,000 5.00 1.18 161036NJ3 2030 5,600,000 5.00 2.64* 161036NU8 2021 3,350,000 5.00 1.32 161036NK0 2031 5,895,000 5.00 2.70* 161036NV6 2022 3,510,000 4.00 1.48 161036NL8 2032 6,190,000 4.00 3.07* 161036NW4 2023 3,675,000 4.00 1.65 161036NM6 2033 6,470,000 4.00 3.18* 161036NX2 2024 7,515,000 5.00 1.81 161036NN4 2034 6,725,000 3.25 3.37 161036NY0 2025 7,925,000 5.00 1.98 161036NP9 2035 5,950,000 4.00 3.33* 161036NZ7 2026 8,340,000 5.00 2.16 161036NQ7 2036 6,200,000 4.00 3.36* 161036PA0 2027 8,790,000 5.00 2.30 161036NR5 2037 6,465,000 4.00 3.40* 161036PB8

$140,000 3.50% Term 2017C Bonds Due July 1, 2041, Yield 3.62%, CUSIP 161036PC6 Principal is payable on July 1. Interest is payable on January 1 and July 1, beginning January 1, 2018, with respect to the 2017A Bonds and 2017B Bonds, and beginning July 1, 2017, with respect to the 2017C Bonds.

* Yield to the July 1, 2027 optional redemption date at a redemption price of 100%. 1 CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright©2016 CUSIP Global Services. All rights reserved. CUSIP data herein is provided by S&P Capital IQ, a division of McGraw-Hill Financial, Inc. The CUSIP data herein is provided solely for the convenience of reference only. None of the City or the Underwriters is responsible for selection or use of these CUSIP numbers, and no representation is made as to their correctness on the 2017 Bonds or as indicated above. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2017 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of the 2017 Bonds.

IN CONNECTION WITH THIS OFFERING, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, J.P. MORGAN SECURITIES LLC AND PNC CAPITAL MARKETS LLC (THE “UNDERWRITERS”) MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2017 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

No dealer, broker, salesman or other person has been authorized to give any information or to make any representation other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon. This Official Statement and its electronic distribution does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any offer or sale of the 2017 Bonds by any person in any jurisdiction in which it is not lawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the City and other sources that are deemed to be reliable, but is not guaranteed as to accuracy or completeness by the Underwriters and is not to be construed as a representation by the Underwriters.

NONE OF THE 2017 BONDS, THE BOND ORDER OR THE 2017 RESOLUTION (AS DEFINED HEREIN) HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION BY REASON OF THE PROVISIONS OF SECTION 3(a)(2) OF THE SECURITIES ACT OF 1933, AS AMENDED AND SECTION 304(a)(4) OF THE TRUST INDENTURE ACT OF 1939, AS AMENDED. THE REGISTRATION OR QUALIFICATION OF THE 2017 BONDS AND THE BOND ORDER IN ACCORDANCE WITH APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE 2017 BONDS AND THE BOND ORDER HAVE BEEN REGISTERED OR QUALIFIED, AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES, SHALL NOT BE REGARDED AS A RECOMMENDATION THEREOF.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

All quotations from and summaries and explanations of laws and documents herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale of the 2017 Bonds shall under any circumstances create any implication that there has been no change in the affairs of the City or the Airport since the date hereof.

The information set forth herein has been obtained from sources which are believed to be reliable and is in a form deemed final by the City for the purpose of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (except for certain information permitted to be omitted under Rule 15c2-12(b)(1)). The information contained herein is subject to change after the date of this Official Statement, and this Official Statement speaks only as of its date.

References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement for purposes of, and as that term is defined in, Rule 15c2-12 (as defined herein).

The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

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INTRODUCTION ...... 1 THE 2017 BONDS ...... 3 General ...... 3 Book-Entry-Only Form ...... 4 Redemption ...... 4 Ownership of Bonds ...... 7 PROPOSED AMENDED AND RESTATED BOND ORDER ...... 7 The Proposed Amended and Restated Bond Order ...... 7 Summary of the Consent Amendments ...... 7 SECURITY AND SOURCES OF PAYMENT FOR THE 2017 BONDS ...... 9 Source of Payment ...... 9 Revenue Bond Reserve Account ...... 10 Rate Covenant ...... 12 Additional Bonds ...... 12 Special Purpose Facilities Bonds ...... 13 FLOW OF FUNDS ...... 13 THE PLAN OF FINANCE ...... 16 The 2017 Projects ...... 16 The Refunding ...... 19 ESTIMATED SOURCES AND USES OF FUNDS ...... 20 DEBT SERVICE REQUIREMENTS ...... 2 1 THE AIRPORT ...... 22 General ...... 22 Management and Personnel ...... 22 Physical Facilities ...... 24 Air Service Area ...... 24 Airlines Serving the Airport ...... 25 Historical Enplaned Passengers ...... 26 Projected Air Traffic ...... 27 Role of the Airport as a Hub for American Airlines ...... 27 Airline Information ...... 27 CAPITAL IMPROVEMENT PLAN ...... 2 8 PASSENGER FACILITY CHARGES ...... 28 Historical and Projected PFC Collections ...... 2 9

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THE AIRLINE AGREEMENTS ...... 30 Airport Fees and Charges ...... 30 Terminal Building Charges ...... 30 Landing Fees ...... 31 Sharing of Net Remaining Terminal Revenues ...... 31 Extraordinary Coverage Protection ...... 31 Pre-Approved Capital Projects and MII Approvals ...... 32 AIRPORT FINANCIAL INFORMATION ...... 33 Historical Revenues and Expenses ...... 33 Historical Debt Service Coverage ...... 34 Historical Airline Cost Per Enplaned Passenger ...... 34 REPORT OF THE AIRPORT CONSULTANT ...... 35 INVESTMENT CONSIDERATIONS ...... 35 General Factors Affecting Level of Airline Traffic And Revenues ...... 35 Uncertainties of the Airline Industry ...... 36 Airline Bankruptcies ...... 36 Consolidations and Mergers ...... 37 Growth of Low Cost Carriers ...... 37 Certain Risks Related to Market Dominance by American Airlines ...... 38 National and International Economic and Political Conditions ...... 38 Capacity of National Air Traffic Control and Airport Systems ...... 38 Air Carrier Service and Routes ...... 38 Air Travel Security and Health Concerns ...... 39 Passenger Facility Charges ...... 39 Federal Legislation Affecting the Air Transportation Industry ...... 40 Federal Regulation Regarding Rates and Charges Disputes ...... 40 Regulations and Restrictions Affecting The Airport ...... 40 Cost of Capital Improvement Plan ...... 41 Force Majeure Events Affecting the City and the Airport ...... 41 Municipal Bankruptcy ...... 41 Assumptions in the Report of the Airport Consultant ...... 42 Forward-Looking Statements ...... 42 FINANCIAL STATEMENTS ...... 42 UNDERWRITING ...... 43

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LEGAL MATTERS ...... 44 Litigation ...... 44 Opinions of Counsel ...... 44 Related Parties ...... 44 TAX TREATMENT ...... 44 General ...... 44 Original Issue Discount ...... 46 Original Issue Premium ...... 47 CONTINUING DISCLOSURE OBLIGATION ...... 47 FORWARD-LOOKING STATEMENTS ...... 50 MISCELLANEOUS ...... 50 Ratings ...... 50 Financial Advisors ...... 50 Approval ...... 50

APPENDIX A - CITY OF CHARLOTTE, NORTH CAROLINA AUDITED FINANCIAL STATEMENTS OF THE AIRPORT FOR THE YEAR ENDED JUNE 30, 2016 APPENDIX B - REPORT OF THE AIRPORT CONSULTANT APPENDIX C - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D - PROPOSED AMENDED AND RESTATED BOND ORDER APPENDIX E - FORM OF OPINION OF BOND COUNSEL APPENDIX F - THE CITY OF CHARLOTTE APPENDIX G - LOCAL GOVERNMENT COMMISSION OF NORTH CAROLINA APPENDIX H - BOOK-ENTRY SYSTEM APPENDIX I - FORM OF BONDHOLDER CONSENT TO CONSENT AMENDMENTS

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State of North Carolina Department of State Treasurer

DALE R. FOLWELL State and Local Government Finance Division GREG C. GASKINS Treasurer and the Local Government Commission Deputy Treasurer

OFFICIAL STATEMENT

relating to

$302,780,000 CITY OF CHARLOTTE, NORTH CAROLINA Charlotte Douglas International Airport

$167,385,000 $16,345,000 $119,050,000 Airport Revenue Bonds Airport Revenue Bonds Airport Refunding Revenue Bonds Series 2017A (NON-AMT) Series 2017B (AMT) Series 2017C (NON-AMT)

INTRODUCTION

This Official Statement, which includes the cover page and the appendices, provides certain information concerning the City of Charlotte, North Carolina (the “City”), the Charlotte Douglas International Airport (the “Airport”) and certain other information in connection with the issuance by the City of $167,385,000 Airport Revenue Bonds, Series 2017A (the “2017A Bonds”), $16,345,000 Airport Revenue Bonds, Series 2017B (the “2017B Bonds”), and $119,050,000 Airport Revenue Refunding Bonds, Series 2017C (the “2017C Bonds” and collectively with the 2017A Bonds and the 2017B Bonds, the “2017 Bonds”). For further information about the City, see APPENDIX F - “THE CITY OF CHARLOTTE.”

The 2017 Bonds are being issued pursuant to The State and Local Government Revenue Bond Act, as amended; a Bond Order adopted by the City Council on November 18, 1985, as amended by the First Supplemental Bond Order adopted by the City Council on June 8, 1992, and as further amended by the Second Supplemental Bond Order adopted by the City Council on August 23, 2004 (the “Second Supplemental Bond Order” and, collectively, the “Bond Order”), and the Series Resolution regarding the 2017 Bonds adopted by the City Council on April 24, 2017 (the “2017 Resolution”). The proceeds of the 2017 Bonds will be used, with other available funds, to (1) refund in advance of their maturities the City’s (a) Airport Revenue and Refunding Revenue Bonds, Series 2007A maturing on and after July 1, 2018 (the “2007A Bonds”), (b) Variable Rate Airport Revenue Bonds, Series 2007B (the “2007B Bonds”), (c) Variable Rate Airport Refunding Revenue Bonds, Series 2008D (the “2008D Bonds”), and (d) Variable Rate Airport Revenue Bonds, Series 2011C (the “2011C Bonds” and, together with the 2007A Bonds, the 2007B Bonds and the 2008D Bonds, the “Refunded Bonds”), (2) pay the costs of acquisition, rehabilitation, renovation, expansion and construction of certain improvements to the Airport (the “2017 Projects”), (3) pay capitalized interest on the 2017A Bonds and 2017B Bonds, (4) fund a deposit to the debt service reserve fund, and (5) pay the costs of issuance of the 2017 Bonds. The sale of the 2017 Bonds will be made by and with the approval of the Local Government Commission of North Carolina (the “Local Government Commission”). See APPENDIX G - “LOCAL GOVERNMENT COMMISSION OF NORTH CAROLINA.”

On April 24, 2017, the City Council of the City adopted the Amended and Restated Bond Order (the “Proposed Amended and Restated Bond Order”) approving certain amendments to the Bond Order

(the “Consent Amendments”) which will not become effective until the Consent Effective Date (as defined herein). See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER” attached hereto and “PROPOSED AMENDED AND RESTATED BOND ORDER” herein for more information regarding the Consent Amendments and the Consent Effective Date.

The 2017 Bonds are being issued under the existing Bond Order without regard to the proposed Consent Amendments.

Each original purchaser of 2017 Bonds will be required to execute a written consent to the adoption of the Proposed Amended and Restated Bond Order and the Consent Amendments, the form of which is attached hereto as APPENDIX I. The City expects to have the requisite amount of consents on or about June 2, 2017, after the 2017 Bonds are issued; however, the City has one year after the date of the first mailing of the notice to the owners of the Bonds (April 6, 2017) to gain the required amount of consent. If the City does not obtain the requisite amount of consent to the Consent Amendments in such time, then the Consent Amendments will not become effective.

The previously issued revenue bonds which remain Outstanding under the Bond Order are:

Principal Initial Par Currently Series of Bonds Amount Outstanding1 Airport Revenue and Refunding Revenue Bonds, Series 2007A (the “2007A $99,995,000 $82,425,000 Bonds”) Variable Rate Airport Revenue Bonds, Series 2007B (the “2007B Bonds” and $47,570,000 $19,375,000 collectively with the 2007A Bonds, the “2007 Bonds”) Variable Rate Airport Refunding Revenue Bonds, Series 2008D (the “2008D $40,585,000 $37,335,000 Bonds”) Airport Revenue Bonds, Series 2010A (the “2010A Bonds”) $130,100,000 $115,490,000 Airport Refunding Revenue Bonds, Series 2010B (the “2010B Bonds” and $67,770,000 $47,685,000 collectively with the 2010A Bonds, the “2010 Bonds”) Airport Revenue Bonds, Series 2011A (the “2011A Bonds”) $76,100,000 $69,500,000

Airport Revenue Bonds, Series 2011B (the “2011B Bonds”) $34,250,000 $31,305,000 Variable Rate Airport Revenue Bonds, Series 2011C (the “2011C Bonds” and $30,920,000 $6,925,000 collectively with the 2011A Bonds and the 2011B Bonds, the “2011 Bonds”) Airport Refunding Revenue Bonds, Series 2014A (the “2014A Bonds”) $74,290,000 $74,290,000 Airport Refunding Revenue Bonds, Series 2014B (the “2014B Bonds” and $31,100,000 $25,140,000 collectively with the 2014A Bonds, the “2014 Bonds”) Subtotal $632,230,000 $509,470,000 Maximum Airport Revenue Bond Anticipation Note, Series 2016 (the “2016 Note”) $97,545,408 $230,000,000 Maximum Total $862,230,000 $607,015,408 1 Includes the Refunded Bonds.

After the issuance of the 2017 Bonds and the refunding of the Refunded Bonds on July 1, 2017, the 2010 Bonds, the 2011A Bonds, the 2011B Bonds, the 2014 Bonds and the 2016 Note will be the “Prior Bonds.” The City expects to prepay the 2016 Note with proceeds of the 2017 Bonds and the 2017D Note (defined below), as well as PFC Revenues and other Airport funds.

Pursuant to the Bond Order and a Series Resolution regarding the 2017D Note adopted by the City Council on April 24, 2017 (the “2017D Resolution”), the City plans to authorize $175,000,000 principal amount of its Airport Revenue Bond Anticipation Note, Series 2017D (the “2017D Note”). Under the 2017D Note, the City will be authorized to draw amounts, from time-to-time, to finance and refinance the costs of the 2017 Projects. The draw schedule of the 2017D Note is uncertain at this time. The 2017 Bonds will be parity obligations with the Prior Bonds and the 2017D Note under the Bond Order. The City anticipates that the 2017D Note will be purchased by Bank of America, N.A. The 2017D Note is not being offered pursuant to this Official Statement.

After the issuance of the 2017 Bonds, the authorization of the 2017D Note and the refunding of the Refunded Bonds on July 1, 2017, Bonds in the principal amount of $841,190,000 will be authorized to be Outstanding under the Bond Order, consisting of Prior Bonds in the aggregate principal amount of $363,410,000, the 2017 Bonds in the aggregate principal amount of $302,780,000 and the 2017D Note in the maximum authorized principal amount of $175,000,000. The 2017 Bonds will be secured by and payable from the Net Revenues on a parity with the Prior Bonds, the 2017D Note and any Additional Bonds Outstanding from time to time under the Bond Order.

A portion of the debt service on the 2017 Bonds, the 2017D Note and the Prior Bonds which meet the definition of PFC Eligible Bonds (as defined in the Bond Order) may also be paid by certain PFC Revenues (as defined in the Bond Order) for PFC Eligible Projects (as defined in the Bond Order). Under the Aviation Safety and Capacity Act of 1990 (the “PFC Act”), as modified by the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR-21”) and pursuant to 14 CFR Part 158, airports may apply to the Federal Aviation Administration (the “FAA”) for authorization to impose a fee on every enplaning revenue passenger (“Passenger Facility Charge” or “PFC”) at the sponsored airport and to use the revenues derived from any such PFC to pay the allowable costs of PFC Eligible Projects. The FAA has granted the City authority to impose a $3.00 PFC, collect therefrom PFC revenues in an aggregate amount of approximately $1,626,829,008, and use such PFC revenues to pay the cost of PFC Eligible Projects. As of June 30, 2016, $606,637,670 of this PFC authority had been received ($585,817,571 of collections and $20,820,099 of interest earnings). The City is permitted to use revenues derived from its existing $3.00 PFC to pay debt service on that portion of the Prior Bonds and 2017 Bonds used to finance or refinance PFC Eligible Projects.

Pursuant to the Bond Order, the proceeds received by the City from PFCs will be applied by the City (although not legally and contractually pledged as Revenues) in the following order of priority (1) by transfer to the Bond Fund, to pay debt service on PFC Eligible Bonds, (2) to pay the capital costs of PFC Eligible Projects and (3) as otherwise permitted by federal statute or the regulations promulgated by the FAA, as amended or supplemented, with respect to PFCs. See “PASSENGER FACILITY CHARGES” and “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – SOURCE OF PAYMENT.”

Unless otherwise indicated, capitalized terms used in this Official Statement have the meanings established in the Bond Order and the 2017 Resolution. See APPENDIX C - “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS--DEFINITIONS OF CERTAIN TERMS.”

THE 2017 BONDS

GENERAL

The 2017 Bonds will be dated their date of issuance and will bear interest from their date payable semiannually on each January 1 and July 1, commencing January 1, 2018, with respect to the 2017A Bonds and 2017B Bonds, and commencing July 1, 2017, with respect to the 2017C Bonds, at the rates shown on the inside cover page. Principal of the 2017 Bonds will be payable, subject to redemption as described herein, on July 1 in the years and amounts shown on the inside cover page. The 2017 Bonds 3

will be issued in fully registered form in denominations of $5,000 and integral multiples thereof. U.S. Bank National Association, is the initial Trustee for the 2017 Bonds.

BOOK-ENTRY-ONLY FORM

The 2017 Bonds will be delivered as fully registered certificates in book-entry-only form without physical delivery of certificates to the beneficial owners of the 2017 Bonds. The Trustee will make payments of principal of and interest on the 2017 Bonds to DTC, which will in turn remit such payments to its direct participants for subsequent distribution to the beneficial owners of the 2017 Bonds. See APPENDIX H hereto.

REDEMPTION

Optional Redemption of 2017 Bonds. The 2017 Bonds maturing on or after July 1, 2028, may be redeemed prior to their maturities, at the option of the City, from any funds that may be available for such purpose, in whole or in part, on any date on or after July 1, 2027, at a redemption price equal to the principal amount of 2017 Bonds to be redeemed, together with accrued interest, if any, to the redemption date, without premium.

Extraordinary Optional Redemption. The 2017 Bonds are subject to redemption, in whole or in part on any date, at a Redemption Price equal to the principal amount thereof, without premium, plus accrued interest to the date of redemption, upon instructions from the City, from the Net Proceeds of insurance or Eminent Domain which are deposited in the related Series 2017 Subaccount of the Revenue Bond Redemption Account as provided in the Bond Order.

Sinking Fund Redemption. The 2017A Bonds maturing on July 1, 2042 are subject to mandatory sinking fund redemption in part on July 1 in each year by lot, from money required to be deposited in the Series 2017A Subaccount of the Revenue Bond Sinking Fund Account, at a redemption price equal to the principal amount of the 2017A Bonds being redeemed, without premium, plus accrued interest to the date of redemption in the years and in the amounts set forth below:

Year Principal Amount 2038 $6,820,000 2039 7,165,000 2040 7,520,000 2041 7,900,000 2042* 8,295,000 ______*Maturity

The 2017A Bonds maturing on July 1, 2047 are subject to mandatory sinking fund redemption in part on July 1 in each year by lot, from money required to be deposited in the Series 2017A Subaccount of the Revenue Bond Sinking Fund Account, at a redemption price equal to the principal amount of the 2017A Bonds being redeemed, without premium, plus accrued interest to the date of redemption in the years and in the amounts set forth below:

Year Principal Amount 2043 $ 8,705,000 2044 9,145,000 2045 9,600,000 2046 10,080,000 2047* 10,585,000 ______*Maturity

The 2017B Bonds maturing on July 1, 2042 are subject to mandatory sinking fund redemption in part on July 1 in each year by lot, from money required to be deposited in the Series 2017B Subaccount of the Revenue Bond Sinking Fund Account, at a redemption price equal to the principal amount of the 2017B Bonds being redeemed, without premium, plus accrued interest to the date of redemption in the years and in the amounts set forth below:

Year Principal Amount 2038 $675,000 2039 710,000 2040 745,000 2041 780,000 2042* 820,000 ______*Maturity

The 2017B Bonds maturing on July 1, 2047 are subject to mandatory sinking fund redemption in part on July 1 in each year by lot, from money required to be deposited in the Series 2017B Subaccount of the Revenue Bond Sinking Fund Account, at a redemption price equal to the principal amount of the 2017B Bonds being redeemed, without premium, plus accrued interest to the date of redemption in the years and in the amounts set forth below:

Year Principal Amount 2043 $ 860,000 2044 905,000 2045 950,000 2046 995,000 2047* 1,045,000 ______*Maturity

The 2017C Bonds maturing on July 1, 2041 are subject to mandatory sinking fund redemption in part on July 1 in each year by lot, from money required to be deposited in the Series 2017C Subaccount of the Revenue Bond Sinking Fund Account, at a redemption price equal to the principal amount of the 2017C Bonds being redeemed, without premium, plus accrued interest to the date of redemption in the years and in the amounts set forth below:

Year Principal Amount 2038 $30,000 2039 30,000 2040 40,000 2041* 40,000

______*Maturity

Notice of Redemption. Notice of redemption of any 2017 Bonds will be given by the Trustee not less than 30 days nor more than 60 days before the date fixed for redemption (1) to the North Carolina Local Government Commission by mail or facsimile transmission, (2)(a) to DTC or its nominee by registered or certified mail at the address provided to the Trustee by DTC or as otherwise permitted by DTC’s rules and procedures or (b) if DTC or its nominee is no longer the Owner of the 2017 Bonds, by Mail to the then-registered Owners of 2017 Bonds to be redeemed at the last address shown on the registration books kept by the Registrar and (3) to the Municipal Securities Rulemaking Board (the “MSRB”) in an electronic format as prescribed by the MSRB.

Selection of 2017 Bonds for Redemption. If less than all of the 2017 Bonds are called for redemption, the City will select the series of the 2017 Bonds and the maturity or maturities of the 2017 Bonds within a series to be redeemed and DTC will select the 2017 Bonds within the same maturity of a series pursuant to its rules and procedures or if a book-entry system is no longer in effect, the Registrar will select the 2017 Bonds to be redeemed by lot in such manner as the Registrar in its discretion may deem proper. If the 2017 Bonds are to be redeemed in part, they may be redeemed only in integral multiples of $5,000. If a portion of a 2017 Bond is called for redemption, a new 2017 Bond of such series in principal amount equal to the unredeemed portion thereof shall be issued to the Owner thereof upon surrender thereof.

Effect of Redemption. On the date fixed for redemption, notice having been given in the manner and under the conditions described above, the 2017 Bonds or portions thereof called for redemption will be due and payable at the Redemption Price provided therefor, plus accrued interest to the redemption date. If money or non-callable Government Obligations (that have maturity dates or redemption dates which, at the option of the holder of such Government Obligations, are not later than the dates on which money will be required to effect such redemption), or a combination of both, sufficient to pay the Redemption Price of the 2017 Bonds or portions thereof to be redeemed, plus accrued interest thereon to the redemption date, are held by the Trustee in trust for the Owners of the 2017 Bonds to be redeemed, interest on the 2017 Bonds or portions thereof called for redemption will cease to accrue; such 2017 Bonds or portions thereof will cease to be entitled to any benefits or security under the Bond Order or to be deemed Outstanding; and the Owners of such 2017 Bonds or portions thereof will have no rights in respect thereof except to receive payment of the Redemption Price thereof, plus accrued interest to the redemption date.

IF AN EVENT OF DEFAULT OCCURS AND IS CONTINUING, THERE WILL BE NO REDEMPTION OF LESS THAN ALL OF THE 2017 BONDS OUTSTANDING.

OWNERSHIP OF BONDS

The person in whose name any 2017 Bond is registered will be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of the principal of and premium, if any, and interest on, any such 2017 Bonds will be made only to or upon the order of the Owner thereof as its name and address appear on the registration books kept by the Bond Registrar at the close of business on the Record Date. All such payments will be valid and effectual to satisfy and discharge the liability upon such 2017 Bond to the extent of the sum or sums so paid. So long as the 2017 Bonds are issued in book-entry-only form, Cede & Co., as nominee for DTC, will be deemed and regarded as the absolute owner thereof for all purposes. See “THE 2017 BONDS - BOOK-ENTRY-ONLY FORM.”

PROPOSED AMENDED AND RESTATED BOND ORDER

THE PROPOSED AMENDED AND RESTATED BOND ORDER

On April 24, 2017, the City Council adopted the Proposed Amended and Restated Bond Order which approved the Consent Amendments. Attached as APPENDIX D is the Proposed Amended and Restated Bond Order which is blacklined against the Bond Order to show all of the Consent Amendments. Each original purchaser of the 2017 Bonds will be required to execute a written consent to the adoption of the Proposed Amended and Restated Bond Order and to the Consent Amendments, the form of which is attached hereto as APPENDIX I.

Some of the proposed Consent Amendments could be done without consent of the Owners of the Bonds under the Bond Order because they are meant to clarify existing provisions, rights and bondholder protections. However, because many of the amendments are interrelated in the City’s goal of modernizing the Bond Order from its origins over 30 years ago, the City has not sought to separate which provisions would require consent and which ones would not and has determined to seek the consent of the majority of the Owners of the Bonds for all of the Consent Amendments. Therefore, regardless of their nature, the Consent Amendments will not become effective until the later of June 2, 2017, or the date the City receives the written consent thereto of the Owners of not less than fifty-one percent (51%) of the aggregate principal amount of the Bonds then Outstanding (the “Consent Effective Date”). The City currently anticipates receiving the consent of the requisite percentage of the Owners to the Consent Amendments immediately after the closing of the 2017 Bonds and, accordingly, the Consent Effective Date is forecast to occur on or about June 2, 2017. However, it is not possible to predict the actual timing for receipt of the consent of the requisite percentage of the Owners, which could occur subsequent to the currently anticipated timing. The City expects to post a notice on the Electronic Municipal Market Access (EMMA) system when the Consent Amendments have received the required consents and that Proposed Amended and Restated Bond Order is in effect.

SUMMARY OF THE CONSENT AMENDMENTS

The primary goals of the proposed Consent Amendments are (1) eliminating what are now extraneous references, (2) modernizing provisions to reflect current market standards for airport revenue bonds, (3) conforming covenants and other provisions to reflect current operations of the Airport, (4) simplifying reporting and administrative responsibilities and (5) providing operational and financial flexibility for the future performance of the Airport. The Consent Amendments are described briefly below, but are subject in all respects to the actual text of the amendments shown by the blacklined changes contained in APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER” attached hereto. Section references are to specific sections of the Proposed Amended and Restated Bond Order attached hereto as APPENDIX D where the particular amendment may be found and all defined terms in the summary below shall have the definitions provided in the Proposed Amended and Restated Bond Order.

Proposed amendments to the definitions in the Bond Order, in addition to some discussed below under changes to the operative provisions, include:

• Deleting “Airport Agreements” which conforms with other changes in the Bond Order to disconnect the Bond Order from the Airport’s Airline Agreements.

• Revising “Balloon Long-Term Bonds” to provide that bonds or notes that are intended to be interim financings are treated, primarily for purposes of the additional bonds test, as amortizing over a 30-year period so that this treatment corresponds with the City’s expectations of how it will actually satisfy those obligations in the future.

• Revising “Current Expenses” to simplify the definition so that the City can rely on generally accepted accounting principles to be able to more easily identify what “Current Expenses” are directly from its financial statements. The City does not expect that this change in the definition will have a material effect on what have been treated historically as “Current Expenses.”

• Revising “Long-Term Debt Service Requirements” to clarify the treatment of Balloon Long-Term Bonds, Variable Rate Bonds and Capital Appreciation Bonds primarily for purposes of the additional bonds test.

• Deleting the “Renewal and Improvement Fund” which conforms with the deletion of this fund throughout the Bond Order. This fund has not historically been used.

• Revising “Revenues” to simplify the definition so that the City can rely on generally accepted accounting principles to be able to more easily identify what “Revenues” are directly from its financial statements with the exception of those items that are still specifically excluded. The City does not expect that this change in the definition will have a material effect on what have been treated historically as “Revenues” (unless and until the City were to take advantage of one of the specific carve- outs.

Changes to Article V “REVENUES AND FUNDS” of the Bond Order include:

• Section 503 – changes the need to reserve 33 1/3% of the annual budget up-front and instead provides one month reserve up-front and then adds at the bottom of the waterfall 25% of the annual budget be reserved. Incorporates the payment of Subordinate Indebtedness (discussed below) into the waterfall in subsection (e).

• Section 508 – clarifies that the City can choose to have a reserve fund or not for any particular series of bonds, can secure more than one series of bonds with a common reserve and can provide a “Qualified Reserve Fund Substitute” in a reserve fund.

• Section 516 – adds the ability to designate “Released Revenues” and sets forth the tests that the City can meet in order to release a particular stream of money that would otherwise be included in “Revenues” to presumably use that stream of money for some other purpose.

• Sections 517 and 518 – adds the concept of “Pledged PFC Revenues” that allows the City to pledge a certain amount of PFCs to a particular series of bonds.

• Section 519 – while there is no current intent to do so, this adds the concept and clarifies the treatment of swaps and hedging instruments in the context of the Bonds. Regularly scheduled swap payments would be treated on parity to regular interest payments (if so set forth in the hedging documents) and termination payments would be treated like Subordinate Indebtedness. There are numerous definitions added to the Bond Order related to this provision.

Various changes have been made to Article VII “GENERAL COVENANTS AND REPRESENTATIONS” to simplify and conform the provisions to current Airport operations and current market standards. The changes include:

• Section 704 – the change is only to the cross reference of the subsections in Section 503 which conforms what is in the calculation of the Rate Covenant to the flow of funds in Section 503.

• Section 715 – clarifies and updates the requirement for issuing Special Facility Bonds, including the ability to refund those type of bonds.

• Section 716 – modifications to clarify and add the concept of Subordinate Indebtedness in the calculations. Allows more Completion Bonds. Simplifies refunding tests to make consistent with current market requirements. Deletes the carve-out that permits additional Bonds within 10% of Total Operating Revenues.

• Section 718 – expressly creates the ability of the Airport to issue Subordinate Indebtedness and establishes the Bondholder protection tests that the City would have to meet in order to issue Subordinate Indebtedness. Subordinate Indebtedness would not be issued under the Bond Order, but rather under separate bond documents drafted for that purpose.

This summary is not intended to be definitive and is qualified in its entirety by reference to APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER” attached hereto. Potential purchaser of the 2017 Bonds should review Appendix D in its entirety before purchasing the 2017 Bonds and consenting to the Consent Amendments.

SECURITY AND SOURCES OF PAYMENT FOR THE 2017 BONDS

SOURCE OF PAYMENT

Pledge of Net Revenues. Pursuant to the Bond Order, the City irrevocably pledges to the payment of the principal of, interest on, Credit Support Payment Amounts for, sinking fund requirements for and any premium required to be paid on the redemption of all Bonds outstanding under the Bond Order, including the 2017 Bonds and the 2017D Note: (i) Net Revenues, (ii) the City’s right to receive Net Revenues, and (iii) any and all unencumbered funds in the Renewal and Improvement Fund. In addition, the City irrevocably pledges (i) to the payment of the principal of, interest on, sinking fund requirements for and any premium required to be paid on the redemption of the 2017A Bonds, all funds in the Series 2017A Subaccount of the Revenue Bond Fund, (ii) to the payment of the principal of, interest on, sinking fund requirements for and any premium required to be paid on the redemption of the 2017B Bonds, all funds in the Series 2017B Subaccount of the Revenue Bond Fund, and (iii) to the payment of the principal of, interest on, sinking fund requirements for and any premium required to be paid on the redemption of the 2017C Bonds, all funds in the Series 2017C Subaccount of the Revenue Bond Fund. Under the Bond Order, “Net Revenues” for any period means the excess, if any, of Revenues over Current Expenses for such period. See APPENDIX C - “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS--DEFINITIONS OF CERTAIN TERMS” for the definitions of Revenues and Current Expenses. Neither the PFCs nor the land and facilities comprising the Airport have been pledged to secure payment of the 2017 Bonds, the 2017D Note or the Prior Bonds.

The Proposed Amended and Restated Bond Order eliminates the Renewal and Improvement Fund and, as a result, there would be no funds in the Renewal and Improvement Fund to be pledged as security for Bonds outstanding under the Proposed Amended and Restated Bond Order. See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER.”

All Bonds outstanding under the Bond Order, including the 2017 Bonds and the 2017D Note, are special obligations of the City. The principal of and interest and premium, if any, on the 2017 Bonds, the 2017D Note and the Prior Bonds are not payable from the general funds of the City, nor do the 2017 Bonds, the 2017D Note or the Prior Bonds constitute a legal or equitable pledge, charge, lien or encumbrance on any of its property or on any of its income, receipts or revenues, except as provided in the Bond Order or the 2017 Resolution. Neither the credit nor the taxing power of the City is pledged for the payment of the principal of or interest and premium, if any, on the 2017 Bonds, the 2017D Note or the Prior Bonds and no Owner has the right to compel the exercise of the taxing power of the City or the forfeiture of any of its property in connection with any default under the Bond Order or the 2017 Resolution.

PFCs. The City has the authority to impose PFCs in accordance with the terms of the FAA approval. The FAA has granted the City authorization to collect approximately $1,626,829,008 in PFCs. The City’s PFC authorizations permit the City to use revenues derived from its existing $3.00 PFC to pay debt service on that portion of the Prior Bonds and the 2017 Bonds to be used to finance PFC Eligible Projects.

Pursuant to the Second Supplemental Bond Order, the proceeds received by the City from PFCs will be applied by the City (although not legally and contractually pledged as Revenues) in the following order of priority (1) by transfer to the Bond Fund, to pay debt service on PFC Eligible Bonds (2) to pay the capital costs of PFC Eligible Projects and (3) as otherwise permitted by federal statute or the regulations promulgated by the FAA, as amended or supplemented, with respect to PFCs. PFCs do not constitute Revenues as defined under the Bond Order. See “PASSENGER FACILITY CHARGES.”

The Proposed Amended and Restated Bond Order creates a new category of PFC revenues defined as “Pledged PFC Revenues.” Under the Proposed Amended and Restated Bond Order, PFC Revenues would be applied as described above and Pledged PFC Revenues would be pledged to the payment of a particular series of Bonds and would be applied by the City first, to the payment of such Bonds, second to pay the capital costs of PFC Eligible Projects and third, as otherwise permitted by federal statute or the regulations promulgated by the FAA. See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER.”

REVENUE BOND RESERVE ACCOUNT

The Bond Order provides for the creation of the Revenue Bond Reserve Account within the Revenue Bond Fund and further provides that the respective supplemental series resolution for each series of Bonds issued under the Bond Order may provide for the creation of a separate subaccount or common reserve subaccount of the Revenue Bond Reserve Account to be used for such series. In connection with the issuance of the Prior Bonds, separate subaccounts of the Revenue Bond Reserve Account were established in an amount equal to the reserve requirement for each series of the Prior Bonds other than the 2014 Bonds. The series resolution for the 2014 Bonds provided for the creation of a Common Reserve Subaccount of the Revenue Bond Reserve Account be established and maintained as additional security for (1) the 2014 Bonds in an amount equal to the reserve requirement for the 2014 Bonds and (2) any Additional Bonds as may be authorized in a subsequent resolution (the “Common Reserve Subaccount”).

The 2017 Resolution provides that the 2017 Bonds will be Common Reserve Bonds and will be secured by the Common Reserve Subaccount. The Trustee shall use money deposited in the Common Reserve Subaccount of the Revenue Bond Reserve Account solely for the purpose of paying the principal of and the interest on each Series of Common Reserve Bonds whenever and to the extent that (1) money in the applicable Subaccount of the Revenue Bond Interest Account created with respect to such Series of Common Reserve Bonds is insufficient to pay the interest on such Series of Common Reserve Bonds or (2) money in the applicable Subaccount of the Revenue Bond Principal Account or the applicable Subaccount of the Revenue Bond Sinking Fund Account created with respect to such Series of Common 10

Reserve Bonds is insufficient to pay the principal of such Series of Common Reserve Bonds. With respect to the 2017 Bonds, the Trustee shall withdraw such money in accordance with the order of priorities set forth in the 2017 Resolution, and with respect to any subsequent Series of Common Reserve Bonds, the Trustee shall withdraw such money in accordance with the order of priorities set forth in the corresponding section of the applicable Common Reserve Series Resolution; provided, however, if there is insufficient money in the Common Reserve Subaccount of the Revenue Bond Reserve Account to satisfy all deposits required by the 2017 Resolution, then any amounts remaining in the Common Reserve Subaccount of the Revenue Bond Reserve Account will be used to satisfy the deposits between each subaccount on a pro rata basis in accordance with the Outstanding aggregate principal amount of each corresponding Series of Common Reserve Bonds. If on any Interest Payment Date the amount on deposit in an account of the Common Reserve Subaccount of the Revenue Bond Reserve Account exceeds the Reserve Requirement therefor, the Trustee shall transfer such excess to (1) the applicable Subaccount of the Revenue Bond Interest Account created with respect to each Series of Common Reserve Bonds on a pro rata basis based on the Outstanding aggregate principal amount of each corresponding Series of the Common Reserve Bonds or (2) as the City otherwise directs as required by the City’s arbitrage and tax regulatory agreement executed and delivered in connection with any Series of Common Reserve Bonds. See APPENDIX C - “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS--DEFINITIONS OF CERTAIN TERMS” for the definition of “Reserve Requirement.”

EACH SEPARATE SUBACCOUNT OF THE REVENUE BOND RESERVE ACCOUNT PROVIDES ADDITIONAL SECURITY SOLELY FOR ITS DEDICATED SERIES OF BONDS. NO OTHER SERIES OF BONDS IS ENTITLED TO THE BENEFITS OF A DIFFERENT SERIES’ SUBACCOUNT OF THE REVENUE BOND RESERVE ACCOUNT.

Upon the issuance of the 2007A Bonds and the 2007B Bonds, Ambac Assurance Corporation delivered a surety bond to each respective subaccount of the Revenue Bond Reserve Account to meet the applicable Reserve Requirement for each series of 2007 Bonds. Each other subaccount of the Revenue Bond Reserve Account for the Prior Bonds was funded with bond proceeds or other available funds of the Airport. Upon the refunding of the Refunded Bonds, the surety bond securing the 2007 Bonds will be terminated.

Under the 2017 Resolution, there may be deposited to the credit of the Common Reserve Subaccount certain surety bonds or other insurance policies meeting the requirements of the Bond Order in lieu of or in substitution for all of the money or securities then to the credit of such subaccount. The Reserve Requirement for the 2017 Bonds will be funded by the Airport from separate funds concurrently with the issuance of the 2017 Bonds. The 2017D Resolution provides that the 2017D Note will not be secured by the Revenue Bond Reserve Account.

The following table lists the current requirement for each subaccount of the Revenue Bond Reserve Account except for the 2007 Bonds. Each Revenue Bond Reserve Account is fully funded with cash and/or investments. As described above, Ambac Assurance Corporation delivered a surety bond to each respective subaccount of the Revenue Bond Reserve Account to meet the applicable Reserve Requirement for each series of 2007 Bonds.

Series of Bonds Reserve Account Requirement

2008D Bonds $3,129,538.06 2010A Bonds 9,004,388.30 2010B Bonds 5,751,538.50 2011A Bonds 4,827,975.50 2011B Bonds 2,199,750.00 2011C Bonds 1,855,875.00 2014 Bonds 8,347,900.00

Under the Proposed Amended and Restated Bond Order, the City may, but is not required to, establish a reserve for a series of Bonds issued thereunder. See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER.”

RATE COVENANT

In the Bond Order, the City has covenanted to fix, charge and collect rates, fees, rentals and charges for the use of the Airport and to revise such rates, fees, rentals and charges as often as may be necessary or appropriate to produce Revenues in each Fiscal Year at least equal to the sum of the deposits required to be made in each Fiscal Year to (1) the Operating Fund, (2) the Revenue Bond Fund, and (3) the Renewal and Improvement Fund, plus an amount, if any, which provides an amount on deposit in the Revenue Fund as of the opening of business on the first day of the next Fiscal Year, equal to the Coverage Factor for such preceding Fiscal Year. The Coverage Factor for any Fiscal Year is defined as an amount equal to 25% of the sum of the amounts required to be deposited from Net Revenues into the Revenue Bond Interest Account, the Revenue Bond Principal Account and the Revenue Bond Sinking Fund Account for such Fiscal Year. Revenues for a Fiscal Year are deemed to include amounts retained by the City in the Revenue Fund as of the end of such Fiscal Year.

ADDITIONAL BONDS

The City may issue additional obligations on a parity with all Bonds outstanding under the Bond Order, including the 2017 Bonds and the 2017D Note, for Additional Facilities only if one of the following conditions is met:

(1) taking all outstanding Bonds (excluding any Bonds to be refunded by the Bonds to be issued) and the Bonds then to be issued into account as if they had been issued at the beginning of the most recent Fiscal Year for which audited financial statements are available, the Net Revenues for such Fiscal Year were not less than 1.50 times the Long- Term Debt Service Requirement with respect to all outstanding Bonds and the Bonds to be issued for such period; or

(2) (A) taking into account all outstanding Bonds, but not the Bonds then to be issued, for the most recent Fiscal Year for which audited financial statements are available, the requirements of the Rate Covenant have been satisfied; and (B) an Airport Consultant reports that the requirements of the Rate Covenant, taking the proposed Bonds into account, for (I) in the case of the Bonds to finance Additional Facilities, each of the first two full Fiscal Years succeeding the date on which such Additional Facilities are expected to be completed and in operation or (II) in the case of Bonds not financing Additional Facilities, each of the first two Fiscal Years succeeding the date on which such Bonds are issued, are projected to be satisfied; or

(3) without compliance with either of the tests mentioned in (1) and (2) above, Additional Bonds in an amount not to exceed 10% of Total Operating Revenues for the most recent Fiscal Year for which audited financial statements are available. The total amount of Bonds which may be issued by the City under this clause (3) and without compliance with one of the tests mentioned in (1) and (2) above may not in the aggregate exceed at any time the amount calculated in accordance with the provisions of this clause (3).

In addition, Bonds may be issued for the purposes of refunding all or any part of any Outstanding Bonds or other indebtedness issued for Airport purposes if before issuance thereof:

(i) The Trustee determines that the proceeds of such Bonds, together with interest earnings on the Government Obligations to be acquired and other available funds, will be sufficient to pay the principal of and interest and any premium on the Bonds to be refunded to the redemption or maturity date and the expenses incident to the refunding; and

(ii) The issuance of such Bonds will satisfy the requirements described in item (B) of paragraph (2) above.

Completion Bonds may be incurred without meeting the earnings test described above if the principal amount thereof does not exceed 5% of the principal amount of the Bonds initially issued therefor, and in excess of 5% of such principal amount, but only if any of the tests set forth in (1), (2) and (3) above are met.

Short-Term Bonds may be issued in the ordinary course of business if, immediately after the issuance of such Short-Term Bonds, the outstanding principal amount of all Short-Term Bonds does not exceed 10% of Total Operating Revenues for the most recent Fiscal Year preceding the date of issuance of such Short-Term Bonds for which audited financial statements are available; provided, however, that for a period of 20 consecutive calendar days in each Fiscal Year no such Short-Term Bonds may be outstanding.

See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER” for a description of the conditions under which additional Bonds may be issued under the Proposed Amended and Restated Bond Order.

SPECIAL PURPOSE FACILITIES BONDS

The Bond Order provides that the City may finance Special Purpose Facilities at the Airport only on the condition that such financing may not, directly or indirectly, be secured by Revenues or issued under or secured by the Bond Order or be payable from Revenues. There are currently no Special Purpose Facilities Revenue Bonds outstanding under the Bond Order. See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER” for a description of the conditions under which Special Purpose Facilities may be financed under the Proposed Amended and Restated Bond Order.

FLOW OF FUNDS

The Bond Order creates a special fund designated the Revenue Fund into which the City is required to set aside and deposit all Revenues on receipt thereof by the City. The Bond Order requires that money on deposit in the Revenue Fund be applied solely at such times and in accordance with the priorities established by the Bond Order.

In addition to the Revenue Fund, the Bond Order creates the following funds and accounts:

Operating Fund Interest Account Principal Account Sinking Fund Account Airport Renewal and Improvement Fund Revenue Bond Fund Capitalized Interest Account Redemption Account Reserve Account Airport Insurance and Condemnation Award Fund Airport Construction Fund Airport PFC Revenue Account Airport Discretionary Fund

Subaccounts are to be created for each account in the Revenue Bond Fund with respect to each Series of Bonds. The 2017 Resolution creates the following subaccounts with respect to the 2017 Bonds:

2017A Bonds (a) Series 2017A Subaccount of the Revenue Bond Interest Account; (b) Series 2017A Subaccount of the Revenue Bond Principal Account; (c) Series 2017A Subaccount of the Revenue Bond Redemption Account; (d) Series 2017A Subaccount of the Revenue Bond Sinking Fund Account; and (e) Series 2017A Construction Account of the Construction Fund.

2017B Bonds (a) Series 2017B Subaccount of the Revenue Bond Interest Account; (b) Series 2017B Subaccount of the Revenue Bond Principal Account; (c) Series 2017B Subaccount of the Revenue Bond Redemption Account; (d) Series 2017B Subaccount of the Revenue Bond Sinking Fund Account; and (e) Series 2017B Construction Account of the Construction Fund.

2017C Bonds (a) Series 2017C Subaccount of the Revenue Bond Interest Account; (b) Series 2017C Subaccount of the Revenue Bond Principal Account; (c) Series 2017C Subaccount of the Revenue Bond Redemption Account; (d) Series 2017C Subaccount of the Revenue Bond Sinking Fund Account; and (e) Series 2017C Costs of Issuance Account of the Construction Fund.

Money in the Revenue Bond Fund are held by U.S. Bank National Association, a national banking association, as trustee (the “Trustee”) for the Owners of the Bonds.

Money in the Revenue Fund are required by the Bond Order to be transferred and credited to the following funds and accounts at the following times and in the following order of priority:

(1) Monthly, to the Operating Fund, an amount sufficient to bring the balance in the Operating Fund to equal 1/3rd of the amount shown by the Annual Budget as Current Expenses for the then current Fiscal Year plus the amount of encumbered funds from previous Budgets;

(2) Monthly, to the subaccounts of the Interest Account on all Bonds after taking into account money transferred from the PFC Revenue Account or otherwise deposited therein by the City, an amount equal to 1/6th of the next maturing interest installment on Outstanding Bonds less any amount transferred from the Capitalized Interest Account for such series of Bonds; provided however, that for the 2010C Bonds, the 2011C Bonds, the 2016 Note and the 2017D Note, such amount is to be deposited on the fifth day before each Interest Payment Date into the applicable subaccount of the Revenue Bond Interest Account in an amount necessary to pay the next maturing installment of interest on such series of 2010C Bonds, the 2011C Bonds, the 2016 Note or the 2017D Note;

(3) Monthly, on the 25th day of each month, to the subaccounts of the Principal Account for such Bonds, after taking into account money transferred from the PFC Revenue Account or otherwise deposited therein by the City, an amount which is equal to 1/12th of the next maturing principal installment on such Bonds;

(4) Monthly, on the 25th day of each month, to the subaccounts of the Sinking Fund Account for such Bonds, after taking into account money transferred from the PFC Revenue Account or otherwise deposited therein by the City, an amount which is equal to 1/12th of the next Sinking Fund Requirement for such Bonds;

(5) On or prior to the date that the City provides the Trustee with written notice of redemption, to the subaccount of the Redemption Account for such Bonds to be redeemed, an amount equal to the principal of, and premium, if any, on such Bonds so called for redemption;

(6) In the event that there is not on deposit in any subaccount of the Reserve Account an amount equal to the Reserve Requirement for such subaccount, to such subaccount the amount equal to 1/24th of such deficiency if it has occurred by reason of a change in valuation of investments in such subaccount of the Reserve Account or 1/12th of such deficiency if it has occurred by reason of the withdrawal of funds from such subaccount in order to make payment of interest or principal on any Bonds; and

(7) Monthly, to the Renewal and Improvements Funds, an amount which is equal to 1/12th of the amount necessary to restore the Renewal and Improvement Fund to the Renewal and Improvement Fund Requirement during such Fiscal Year.

If, as of the opening of business on the first day of each Fiscal Year, there are any funds on deposit in the Revenue Fund in excess of the Coverage Factor, such excess will be transferred to the Airport Discretionary Fund on the 25th day of each Fiscal Year.

Amounts deposited to the various funds and accounts described above will be applied as provided in the Bond Order and the 2017 Resolution. See APPENDIX C - “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.” Generally, amounts on deposit in the Operating Fund will be used to pay Current Expenses; amounts on deposit in the subaccounts of the Capitalized Interest Account and the Interest Account will be used to pay interest on the Bonds on each Interest Payment Date; amounts on deposit in the subaccounts of the Principal Account and the Sinking Fund Account will be used to pay principal of the Bonds when due; amounts on deposit in the subaccounts of the Reserve Account will be used to pay principal of and interest on the applicable series of Bonds when due to the extent amounts otherwise on deposit for such purpose are insufficient therefor; amounts on deposit in the Renewal and Improvement Fund will be used to pay costs of capital items for improvements to, unusual or extraordinary maintenance and repairs, renewals and replacements to the Airport; and amounts on deposit in the Airport Discretionary Fund may be used for any lawful purpose.

Amounts on deposit in the Airport PFC Revenue Account will be applied by the City (although not legally and contractually pledged as Revenues) in the following order of priority (1) by transfer to the Bond Fund, to pay debt service on PFC Eligible Bonds (2) to pay the capital costs of PFC Eligible Projects and (3) as otherwise permitted by federal statute or the regulations promulgated by the FAA, as amended or supplemented, with respect to PFCs.

The Bond Order also creates a special account in the Revenue Fund designated the Rebate Account. The City will annually calculate the amount of money necessary to comply with the arbitrage rebate requirements of Section 148(f) of the Code. The City will direct the Trustee to withdraw money from any Series 2017 Subaccount of the Bond Fund for deposit into the appropriate Rebate Account if any deposit is required. Amounts in the Rebate Account will be used to satisfy the requirements of Section 148(f) of the Code, and neither the Trustee nor any Owner has a claim on any amounts on deposit therein.

The Bond Order and the 2017 Resolution provide that all interest earned or profit or loss realized on investments or deposits of money for all funds and accounts, except the Rebate Account, the Airport Construction Fund, and the Airport Discretionary Fund (which funds or accounts retain their own earnings), will be credited or charged to the Revenue Fund.

See APPENDIX D – “PROPOSED AMENDED AND RESTATED BOND ORDER” for a description of the funds and accounts to be established under the Proposed Amended and Restated Bond Order and the application of the proceeds therein.

THE PLAN OF FINANCE

The proceeds of the 2017 Bonds will be used to (1) to refund in advance of their maturities the Refunded Bonds, (2) pay the costs of acquisition, rehabilitation, renovation, expansion and construction of the 2017 Projects, as described below, (3) pay capitalized interest on the 2017A Bonds and the 2017B Bonds, (4) fund a deposit to the debt service reserve fund, and (5) pay the costs of issuance of the 2017 Bonds.

THE 2017 PROJECTS

The 2017 Projects consist of five major categories of improvements: (1) terminal complex improvements, (2) airfield improvements, (3) ground transportation projects, (4) Airport services and facilities projects, and (5) other projects.

Terminal Complex Improvements. The terminal complex improvements include the following:

Construction of Phase I of an Expansion of Concourse A. Design and construction of a new three-level, 237,400-square foot concourse pier and connector to the north of the existing Concourse A pier to accommodate the relocation of existing gates on the existing Concourse A pier, which is required to allow for the reconfiguration of the taxi-lanes/taxiways around Concourse A. This expansion will include nine passenger boarding gates, passenger hold-rooms, public restrooms, and circulation areas with moving sidewalks, concession areas, a baggage conveyor system, and other support areas. Four of the new gates will serve as replacements for the gates to be removed from the existing Concourse A pier. The additional five gates will provide extra capacity to serve existing demand. This project has begun and is expected to be completed in July 2018. The estimated cost of this project is $134,151,088, of which an estimated $70,080,528 is to be funded with proceeds of the 2017 Bonds.

Design of the Expansion of the Terminal Lobby. Design of an expansion to the existing main lobby, baggage claim, and security check point areas to accommodate current and future locally generated passenger growth. This project will provide for the design of the ultimate construction of the Terminal

Lobby Expansion which will include expansion of all four levels of the ticket lobby to the north and west and provide additional public circulation space, main lobby area, baggage claim lobby area, security check point areas and airline ticket counter queuing spaces, as well as associated mechanical and support areas. Design work is expected to commence in June 2017 and is expected to be completed by February 2018. The estimated cost of this project is $18,000,000, all of which is expected to be funded with proceeds of the 2017 Bonds.

Construction of a Concourse E Baggage Transfer Station. Construction of an approximately 41,000-square foot, enclosed common-use baggage processing and make-up facility on the western edge of the ramp serving Concourse E. This project also includes approximately 7,000 square feet of covered area to house baggage conveyors, three 115-foot long, flat loop bag conveyors, and approximately 1,000 feet of connection conveyors. Construction of this project commenced in August 2016 and is expected to be completed in April 2018. The estimated cost of this project is $24,456,000, of which approximately $3,834,700 is to be funded with proceeds of the 2017 Bonds.

Terminal Rehabilitation. Design of the rehabilitation of the public and passenger boarding areas in the main terminal building beyond the security checkpoint comprising Concourses A, B, C, and D and the South Atrium, including all connector corridors to the concourses. Design work for this project is expected to be completed in the Spring of 2018. The estimated cost for the design is $5,275,694, all of which is to be funded with proceeds of the 2017 Bonds.

Implementation of Phase II of Energy Infrastructure Improvements. Upgrade of the Airport’s energy infrastructure to convert the entire Airport power grid to the 24 kV energy standard as required by Duke Energy, the Airport’s energy provider, and necessary to maintain continuous power for Airport operations. This project will include construction of a 7,800-foot electric/communication duct bank from the primary Duke Energy substation to the passenger terminal area and to the Airport’s south campus. Construction is expected to commence in July 2017 and is expected to be completed in January 2018. The estimated cost of this project is $6,750,000, of which approximately $5,737,500 is to be funded with proceeds of the 2017 Bonds.

Phase II of an Expansion of the East Terminal. Design and construction of an approximately 53,000-square foot expansion of the passenger circulation, public restroom and concession areas at the connection of Concourses D and E, including replacement of two existing narrow escalators that provide passenger access to Concourse E with five wider escalators; replacement of the existing elevator with two public access elevators and one larger service elevator, replacement of the existing staircase to Concourse E with a wider staircase, and the addition of a service dock area for both concourses, a food court area to increase food, beverage and retail options, public restrooms, a mother’s room, children’s play area, and an ADA required, secured side animal relief area, and an office level for various tenants. Design for this project is complete and construction is expected to be completed in August 2019. The estimated cost of this project is $34,419,333, all of which is to be funded with proceeds of the 2017 Bonds.

Addition of Airline Space in Concourse E. Renovations to approximately 2,000 square-feet of existing areas on Concourse E and the construction of a 7,000-square foot addition to Concourse E to provide American Airlines a new break room and training areas that include offices, locker rooms, and restroom facilities. This project is expected to be completed in October 2017. The estimated cost of this project is $3,723,738, all of which is to be funded with proceeds of the 2017 Bonds.

Airfield Improvements. The airfield improvements include the following:

Design and Construction of Phase I of the Expansion of the West Ramp. Design and construction of an expansion of the West Ramp that will accommodate Phase I of the expansion of Concourse A and provide additional aircraft parking and taxi lanes. This project also includes reconfiguring taxi lanes/taxiways on the end of existing Concourse A to meet FAA design standards and to allow for the 17

bidirectional flow, which will be made possible by the construction of dual taxi lanes from Taxiway E 11 to the north end of Taxiway E. Design has been completed at a cost of $4,947,933. Approximately $1,236,983 of the proceeds of the 2017 Bonds will be used to provide permanent financing for this portion of the 2017 Projects. Construction of the West Ramp expansion commenced in May 2016 and is expected to be completed in February 2018. The estimated cost of this project is $41,750,376, of which approximately $10,437,594 is to be funded with proceeds of the 2017 Bonds.

Ground Transportation Projects. The ground transportation projects include the following:

Expansion of Long Term 2 Parking Lot. Design and construction of an expansion to the Long Term 2 Parking Lot to add approximately 1,500 new parking spaces. This project is expected to be completed in August 2017. The estimated cost of this project is $6,300,000, all of which is to be funded with proceeds of the 2017 Bonds.

Improvements to Long Term Parking Lots. Improvements to the Long Term parking lots which are necessary to accommodate changes associated with the new Airport Entrance Road, including combining Long Term Lots 2 and 3 into a single lot and construction of new toll plazas at the entrance and exit of each lot. This project was completed in November 2016 at a cost of $5,855,371 with interim financing. Proceeds of the 2017 Bonds will be used to provide permanent financing for this project.

Construction of the Business Valet Parking Deck II. Design, construction and equipping of a business valet parking deck to supplement the existing Business Valet Deck to satisfy the growing demand for Business Valet Parking at the Airport. This project was completed in 2015 and funded with interim financing. Approximately $40,000,000 of proceeds of the 2017 Bonds will be used to provide permanent financing for this project.

Airport Services and Facilities Projects. The Airport services and facilities projects include the following:

Construction of a Vehicle Maintenance Facility. Construction of an approximately 110,000 square-foot building on a paved 21.5-acre site at the corner of Airport Road and Sentry Post Road. This project will replace the existing primary maintenance facility located in the rear of the CLT Center and will include a vehicle wash facility for Aviation Department vehicles, such as parking shuttles and field vehicles. This project is expected to be completed in February 2018. The estimated cost for this project is $14,500,000, of which approximately $11,600,000 will be funded with proceeds of the 2017 Bonds.

Extension of Little Rock Road. Construction of a 500-yard, four-lane road segment from the intersection of Little Rock Road and Scott Futrell Drive to Wilkinson Boulevard to permit a direct connection from I-85 north of the Airport into the new Airport Roadway enabling a one-stop access to the Terminal from I-85. This project was completed in 2015 with interim financing. Approximately $4,190,400 of the 2017 Bonds will be used to provide permanent financing for this project.

Other Projects. The other projects include the following:

Design of a Concessions Distribution Warehouse. Design of a Concession Distribution Warehouse which will replace existing space within the main airport facility. The consultant selected for design will complete an analysis to properly size the new facility. Design work is expected to be completed in August 2017. The estimated cost of this 2017 Project is $2,100,000, all of which will be funded with proceeds derived from the sale of the 2017 Bonds.

THE REFUNDING

2007A Bonds. The 2007A Bonds maturing on and after July 1, 2018 are currently expected to be called for redemption on July 1, 2017, at a price equal to 100% of the outstanding principal amount of such 2007A Bonds, plus accrued interest to the date of redemption. To accomplish the refunding of the 2007A Bonds, (1) proceeds from the sale of the 2017C Bonds and (2) money released from funds and accounts maintained for the 2007A Bonds will be deposited in the Series 2007A Revenue Bond Redemption Subaccount created under the Bond Order.

2007B Bonds. All of the 2007B Bonds are currently expected to be called for redemption on the date the 2017 Bonds are issued, at a price equal to 100% of the outstanding principal amount of the 2007B Bonds, plus accrued interest to the date of redemption. To accomplish the refunding of the 2007B Bonds, (1) proceeds from the sale of the 2017C Bonds and (2) money released from funds and accounts maintained for the 2007B Bonds, if any, will be deposited in the Series 2007B Revenue Bond Redemption Subaccount created under the Bond Order.

2008D Bonds. All of the 2008D Bonds are currently expected to be called for redemption on the date the 2017 Bonds are issued, at a price equal to 100% of the outstanding principal amount of the 2008D Bonds, plus accrued interest to the date of redemption. To accomplish the refunding of the 2008D Bonds, (1) proceeds from the sale of the 2017C Bonds and (2) money released from funds and accounts maintained for the 2008D Bonds will be deposited in the Series 2008D Revenue Bond Redemption Subaccount created under the Bond Order.

2011C Bonds. All of the 2011C Bonds are currently expected to be called for redemption on the date the 2017 Bonds are issued, at a price equal to 100% of the outstanding principal amount of the 2011C Bonds, plus accrued interest to the date of redemption. To accomplish the refunding of the 2011C Bonds, (1) proceeds from the sale of the 2017C Bonds and (2) money released from funds and accounts maintained for the 2011C Bonds will be deposited in the Series 2011C Revenue Bond Redemption Subaccount created under the Bond Order.

ESTIMATED SOURCES AND USES OF FUNDS

The following table presents how the proceeds of the 2017 Bonds and certain Airport money are expected to be applied.

SOURCES OF FUNDS Par Amount of 2017A Bonds $167,385,000 Par Amount of 2017B Bonds 16,345,000 Par Amount of 2017C Bonds 119,050,000 Net Original Issue Premium 49,225,548 Trustee Held Funds 1,933,944 2007A Bond Money1 2,700,171 2008D Bond Money2 3,136,531 2009B Bond Money3 5,409,426 2011C Bond Money4 3,521,821 Total $368,707,441

USES OF FUNDS: Deposit to Pay Capitalized Interest on 2017A Bonds and 2017B Bonds $ 10,088,557 Deposit to 2017A Construction Account 92,114,275 Deposit to 2017B Construction Account 11,448,170 Deposit to 2007A Revenue Bond Redemption Subaccount 81,963,994 Deposit to 2007B Revenue Bond Redemption Subaccount 18,825,796 Deposit to 2008D Revenue Bond Redemption Subaccount 36,939,481 Deposit to 2011C Revenue Bond Redemption Subaccount 6,785,110 Prepayment of 2016 Note5 87,330,152 Deposit to Common Reserve Subaccount 20,434,093 Costs of Issuance of 2017 Bonds6 2,777,813 Total $368,707,441

1 Represents amounts released from the 2007A Construction Account of the Construction Fund. 2 Represents amounts released from the 2008D Subaccount of the Revenue Bond Reserve Account. 3 Represents amounts released from the 2009B Subaccount of the Revenue Bond Reserve Account. 4 Represents amounts released from the 2011C Subaccount of the Revenue Bond Reserve Account and the 2011C Construction Account of the Construction Fund. 5 The remaining balance of the 2016 Note will be prepaid with a portion of the proceeds of the 2017D Note, PFC Revenues and other Airport Funds. 6 Includes various professional fees and other financing costs, including underwriters’ discount.

DEBT SERVICE REQUIREMENTS

The following table presents information on the City’s debt service obligations on the 2017A Bonds, the 2017B Bonds, the 2017C Bonds, and the Prior Bonds. All amounts have been rounded to the nearest whole dollar. The City’s draw schedule for the 2017D Note is uncertain at this time. Under the 2017D Resolution, the City will pay interest only on the 2017D Note until August 2020. The maximum authorized principal amount of the 2017D Note is $175,000,000.

FISCAL YEAR PRIOR ENDING BONDS 2017A BONDS 2017B BONDS 2017C BONDS JUNE 30 TOTAL1 PRINCIPAL INTEREST PRINCIPAL INTEREST PRINCIPAL INTEREST TOTAL 2017 $ 36,134,699 - - - - - $ 450,584 $ 36,585,284 2018 29,659,806 - $ 9,066,688 - $ 885,354 $ 1,060,000 5,407,013 46,078,860 2019 29,663,256 $ 2,370,000 8,369,250 $ 155,000 817,250 3,050,000 5,364,613 49,789,369 2020 29,666,056 2,540,000 8,250,750 200,000 809,500 3,170,000 5,242,613 49,878,919 2021 29,659,056 2,730,000 8,123,750 210,000 799,500 3,350,000 5,084,113 49,956,419 2022 29,666,056 3,105,000 7,987,250 300,000 789,000 3,510,000 4,916,613 50,273,919 2023 29,587,556 3,280,000 7,832,000 325,000 774,000 3,675,000 4,776,213 50,249,769 2024 29,600,300 3,445,000 7,668,000 340,000 757,750 7,515,000 4,629,213 53,955,263 2025 29,592,000 3,620,000 7,495,750 355,000 740,750 7,925,000 4,253,463 53,981,962 2026 29,590,825 3,800,000 7,314,750 375,000 723,000 8,340,000 3,857,213 54,000,787 2027 29,593,569 3,990,000 7,124,750 395,000 704,250 8,790,000 3,440,213 54,037,781 2028 28,001,550 4,190,000 6,925,250 415,000 684,500 9,270,000 3,000,713 52,487,012 2029 23,695,763 4,400,000 6,715,750 435,000 663,750 9,760,000 2,537,213 48,207,475 2030 23,696,063 4,620,000 6,495,750 455,000 642,000 5,600,000 2,049,213 43,558,025 2031 23,694,050 4,850,000 6,264,750 480,000 619,250 5,895,000 1,769,213 43,572,263 2032 23,695,388 5,090,000 6,022,250 505,000 595,250 6,190,000 1,474,463 43,572,350 2033 23,693,613 5,345,000 5,767,750 530,000 570,000 6,470,000 1,226,863 43,603,225 2034 23,693,138 5,615,000 5,500,500 555,000 543,500 6,725,000 968,063 43,600,200 2035 15,424,938 5,895,000 5,219,750 580,000 515,750 5,950,000 749,500 34,334,938 2036 15,430,438 6,190,000 4,925,000 610,000 486,750 6,200,000 511,500 34,353,688 2037 15,424,500 6,495,000 4,615,500 640,000 456,250 6,465,000 263,500 34,359,750 2038 15,421,500 6,820,000 4,290,750 675,000 424,250 30,000 4,900 27,666,400 2039 15,431,750 7,165,000 3,949,750 710,000 390,500 30,000 3,850 27,680,850 2040 7,023,000 7,520,000 3,591,500 745,000 355,000 40,000 2,800 19,277,300 2041 7,024,500 7,900,000 3,215,500 780,000 317,750 40,000 1,400 19,279,150 2042 - 8,295,000 2,820,500 820,000 278,750 - - 12,214,250 2043 - 8,705,000 2,405,750 860,000 237,750 - - 12,208,500 2044 - 9,145,000 1,970,500 905,000 194,750 - - 12,215,250 2045 - 9,600,000 1,513,250 950,000 149,500 - - 12,212,750 2046 - 10,080,000 1,033,250 995,000 102,000 - - 12,210,250 2047 - 10,585,000 529,250 1,045,000 52,250 - - 12,211,500 Totals $ 593,763,368 $ 167,385,000 $ 163,005,188 $ 16,345,000 $ 16,079,854 $ 119,050,000 $ 61,985,047 $ 1,137,613,457

Note: Totals may not tie due to rounding. 1 Includes for Fiscal Year 2017, (i) principal and interest on the 2007A Bonds maturing on July 1, 2017 and (ii) interest paid on the Refunded Bonds. Excludes interest on the 2016 Note..

THE AIRPORT

GENERAL

The Airport is owned by the City and operated by the City of Charlotte Aviation Department. It is classified as a large hub by the FAA. According to the Airports Council International, the Airport was the nation’s 9th busiest airport and the world’s 27th busiest airport in terms of enplaned passengers for calendar year 2015.

On July 26, 2013, legislation was enacted by the North Carolina General Assembly which created the Charlotte Douglas International Airport Commission (the “Airport Commission”). The Airport Commission would be an agency of the City and composed of thirteen members appointed as follows: three by the Mayor of the City, four by the City Council, and one by each of the Boards of Commissioners of Mecklenburg County, Cabarrus County, Gaston County, Iredell County, Lincoln County and Union County. The Airport Commission would be responsible for operating the Airport. The City would be responsible for the issuance of revenue or refunding revenue bonds with respect to the Airport.

The City challenged the legislation’s validity under the State’s constitution and challenged the State’s authority to create the Airport Commission. Based on the judgment of the court in the underlying litigation, the rules promulgated by the Federal Aviation Administration on the subject, and other relevant facts and circumstances, the City does not reasonably anticipate any further development in the underlying litigation and believes the matter is resolved.

MANAGEMENT AND PERSONNEL

The Airport is under the supervision of Brent Cagle, aviation director, Jack Christine, chief operating officer, Haley Gentry, chief business and innovation officer, Michael Hill, chief financial officer, James Mynatt, assistant aviation director of operations, Chris Hazen, assistant aviation director of facilities, Jerry Schwinghammer, assistant aviation director of technology, Jeff McSwain, assistant aviation director of development, and Leila Lahbabi, lead counsel.

Brent Cagle, was appointed interim aviation director in July 2013, and aviation director effective on January 1, 2016. Prior to this appointment, Mr. Cagle was assistant aviation director, administration and finance, overseeing the Airport’s accounting functions as well as the development and management of the annual operating budget. Mr. Cagle also works closely with the Airport’s signatory airlines in the development and management of the Airport’s airline signatory carriers’ annual fees and charges budget and settlement. Mr. Cagle brings more than 20 years of experience in municipal government and 9 years of aviation experience, serving in various financial and aviation positions. Mr. Cagle holds a Master of Public Administration from Texas Tech University and completed his undergraduate work at Baylor University.

Jack L. Christine, chief operating officer, is responsible for complete oversight of three of the Airport’s divisions, which include development, operations and facilities. He began his career with the Airport in 1997 as a planning assistant and has worked on numerous development projects from terminal expansions to the design and construction of the third parallel runway. Mr. Christine holds a Master of Public Administration from the University of North Carolina at Charlotte and a Bachelor of Science degree in Airport Management and Aviation Safety from Embry-Riddle Aeronautical University. He is an accredited airport executive through American Association of Airport Executives (AAAE).

Haley Gentry, chief business and innovation officer, is responsible for all airport revenue contracts, including airline agreements, concession contracts and management agreements. Mrs. Gentry is also responsible for all aspects of the Airport’s internal and external communications, including

communications with the public, tenants, employees, media relations and marketing. She began as an airport intern and has worked in operations, public affairs, administration and the aviation director’s office. She has 24 years of experience at the Airport and is a member of Airports Council International (ACI), American Association of Airport Executives (AAAE) and North Carolina Airports Association (NCAA). Mrs. Gentry holds a Bachelor of Science degree from Appalachian State University.

Michael D. Hill, Jr., chief financial officer, oversees all financial and economic activities of the Airport including the accounting/financial reporting, accounts receivable/payable, budget and procurement. Mr. Hill is also responsible for formulating and recommending methods, calculation and reconciliation of tenant rates and charges, administration of the airport’s passenger facility charge program, and assisting in negotiation lease agreements with tenants, concessionaires and others. Mr. Hill has 18 years of professional airport experience and holds a Bachelor of Science degree in Airport Management and Business Administration from Indiana State University. He is an accredited airport executive through American Association of Airport Executives (AAAE).

James Mynatt, assistant aviation director of operations, is responsible for airside operations, terminal operations and security. Mr. Mynatt has been employed at the Airport for 15 years, and has served as Airport Operations Officer, Airport Operations Supervisor and Airport Operations Manager. Mr. Mynatt holds a Master of Business Administration from Embry-Riddle Aeronautical University and a Bachelor of Arts from the University of North Carolina at Charlotte. He is an accredited airport executive through American Association of Airport Executives (AAAE).

Chris Hazen, assistant aviation director of facilities, is responsible for all maintenance and operation of the Airport’s facilities and grounds. He also oversees vehicle maintenance and housekeeping for the Airport. Mr. Hazen has been employed at the Airport since January 2015. Prior to joining the City of Charlotte, he was employed as Deputy Manager for Engineering and Maintenance at Ronald Reagan National Airport (DCA) working for Metropolitan Washington Airports Authority for 11 years. Mr. Hazen retired from the United States Air Force after serving 28 years. Mr. Hazen holds a Master of Science in Engineering Management from the Air Force Institute of Technology and a Bachelor of Science in Civil Engineering from the University of Arizona. He is an accredited airport executive through American Association of Airport Executives (AAAE).

Jerry Schwinghammer, assistant aviation director of technology, oversees and directs the technology systems at the Airport that support tenant, TSA, and airline operations and provides guidance on future technology investments. Mr. Schwinghammer has been employed with the Airport since 2012 and brings 10 years of aviation experience and 17 years of experience with municipal and state government. Mr. Schwinghammer holds a Master of Planning Degree from the University of Minnesota, Humphrey Institute of Public Affairs, a Bachelor of Arts Degree from the University of Saint Thomas, Minnesota, and is a 2010 graduate of the UNC School of Government Municipal Administration Course. He is a member of American Institute of Certified Planners and holds certifications from Information Technology Service Management and Change Management from PROSCI. Mr. Schwinghammer is also a FIRST Robotics coach and mentor.

Jeff McSwain, assistant aviation director of development, is responsible for planning, community programs, engineering, and construction at the Airport. Mr. McSwain joined the Airport in 2011 as airport engineer and brings 14 years of experience with state and municipal government in the field of transportation. Mr. McSwain holds a Master of Business Administration from Pfeiffer University and a Bachelor of Science degree in Civil Engineering from NC State University. He is also certified as a Professional Engineer (NC), and an accredited airport executive through American Association of Airport Executives (AAAE).

Leila Lahbabi, serves as the lead counsel for the Airport. Ms. Lahbabi provides counsel and advice on a wide range of legal issues and also manages the Airport’s legal and regulatory team. She has 23

been employed at the Airport for over 12 years and holds a Bachelor of Arts with Honors in History and a J.D. from the University of North Carolina at Chapel Hill.

PHYSICAL FACILITIES

The Airport occupies approximately 6,000 acres of land within the City and is located approximately seven miles west of the City’s central business district. The Airport currently has four runways, all equipped with precision instrument landing systems. Three of the Airport’s runways are parallel and have lengths of 10,000 feet, 9,000 feet and 8,646 feet. Simultaneous independent departures are authorized on these parallel runways. The fourth runway is 7,500 feet long.

The terminal complex consists of the passenger terminal building, aircraft parking apron, fuel farm, parking facilities, a consolidated rental car facility, roadways, and the FAA air traffic control tower. The passenger terminal building was originally constructed in 1982 and has been renovated and expanded to include approximately 1,600,000 square feet, with five concourses and 102 passenger boarding gates.

Parking facilities include both surface and multi-level garage facilities and provide approximately 29,821 public parking spaces. Upon completion of ongoing parking projects, the number of public parking spaces will increase to approximately 31,300 spaces. The Airport completed construction of a new consolidated rental car facility in 2015, which provides approximately 2,900 ready-return and quick turn-around spaces.

AIR SERVICE AREA

The Airport serves a significant and growing air service area. The City is the core of the Charlotte-Concord, NC-SC Combined Statistical Area, a region with over 2.5 million people in 2016, that includes the Charlotte-Concord-Gastonia, NC-SC metropolitan statistical area (the “MSA”), the Albemarle, NC micropolitan statistical area, and the Shelby, NC micropolitan statistical area. The City is also part of a larger geographic area, identified by the Office of Management and Budget as the Charlotte- Gastonia-Salisbury NC-SC Economic Area, which encompasses 20 counties in North Carolina and South Carolina – Alexander, Anson, Burke, Cabarrus, Caldwell, Catawba, Cleveland, Gaston, Iredell, Lincoln, McDowell, Mecklenburg, Rowan, Rutherford, Stanly, and Union Counties in North Carolina, and Chester, Chesterfield, Lancaster, and York Counties in South Carolina. This 20-county area has been identified as the primary air service area (“ASA”) for the Airport.

The City and the ASA have experienced significant population growth over the past several decades. The population of the City and the ASA have been estimated to be as follows:

1990 2000 2010 2015 City 395,934 540,828 731,424 827,097 ASA 1,935,954 2,398,851 2,934,259 3,127,502

Sources: City population – United States Department of Commerce, Bureau of the Census. ASA population – Woods & Poole Economics, Inc.

The combination of population growth and location reinforces the City’s role as a regional center in the Southeast. The nature and location of the major cities of origin and destination for passengers using the Airport underline the central location of the Airport. The 28 major markets listed below represent 58.9% of total origin and destination enplanements in Fiscal Year 2016. All but seven are less than 1,000 miles from the Airport.

PERCENT OF SCHEDULED DISTANCE FROM ORIGIN AND DESTINATION CITY OF ORIGIN AIRPORT AIRLINE PASSENGERS, OR DESTINATION (AIR MILES) FISCAL YEAR 2016 New York Area 544 11.8% Chicago, IL 599 4.2 Washington, DC Area 350 4.0 Boston, MA 727 3.8 Dallas/Ft. Worth Area 937 3.3 Los Angeles 2,125 3.0 South Florida 650 2.3 Philadelphia 447 2.1 Bay Area 2,296 2.1 Orlando/Sanford 468 1.7 Las Vegas 1,917 1.6 Phoenix 1,774 1.5 Houston 912 1.5 Detroit 500 1.4 Minneapolis/St. Paul 930 1.4 Denver 1,338 1.4 Tampa 508 1.3 Hartford 643 1.2 Atlanta 227 1.1 Pittsburgh 366 1.0 Seattle 2,279 0.9 Nashville 329 0.9 St. Louis 575 0.9 San Diego 2,193 0.9 New Orleans 652 0.9 Indianapolis 428 0.9 Kansas City 809 0.9 Cleveland 431 0.8 Total 58.9%

Source: U.S. Department of Transportation Origin & Destination Survey of Airline Passenger Traffic

AIRLINES SERVING THE AIRPORT

As of June 30, 2016, 35 airlines provided regularly scheduled passenger and cargo service at the Airport, providing approximately 724 daily departures to 155 destinations in 32 countries around the world. The Airport is served by six domestic carriers, 15 regional carriers, and five foreign flag carriers. The Airport is also served by several cargo airlines and is the base for approximately 84 general aviation aircraft. The Airport operates the single fixed base operator at the Airport. A unit of the North Carolina Air National Guard and other aviation support facilities are also located at the Airport.

Airlines Serving the Airport – Scheduled Passenger Service1 Domestic: International: American Airlines Air Georgian Airlines Delta Air Lines Insel Air International B.V. Frontier Airlines Interjet Airlines JetBlue Airways Lufthansa German Airlines Southwest Airlines Sunwing Airlines United Airlines

1 Service may be provided by regional affiliates. Source: Charlotte Douglas International Airport

HISTORICAL ENPLANED PASSENGERS

The City’s central location on the eastern seaboard makes it a natural site as a connecting point in the national aviation system. In 1981, the predecessor of US Airways began to develop its primary hub at the Airport. Since that time, the Airport has experienced significant growth as a transfer point. Connecting enplanements grew from 15 million in Fiscal Year 2012 to 16.2 million in Fiscal Year 2016, a compound annual growth rate over that period of 2.1%.

Total enplanements (origin and destination enplanements, connecting enplanements and international enplanements) at the Airport have grown at a compound annual rate of approximately 2.93% from Fiscal Year 2012 through Fiscal Year 2016. During this same period, the number of origin and destination passengers grew from approximately 4.8 million to an estimated 5.8 million, a compound annual growth rate over that period of 4.97%. See Table IV-4 “Historical CLT Originating and Connecting Enplanement” and the corresponding discussions in the Report of the Airport Consultant attached hereto as Appendix B.

The following table sets forth the total passenger enplanement traffic at the Airport:

TOTAL AIRPORT ENPLANEMENTS

Fiscal Year Originating Percent of Connecting Percent of Total Total Total 2007 4,539,832 29.1% 11,075,490 70.9% 15,615,322 2008 4,689,278 27.6 12,313,662 72.4 17,002,940 2009 4,330,516 25.2 12,880,020 74.8 17,210,536 2010 4,497,467 25.8 12,948,428 74.2 17,445,895 2011 4,788,801 24.9 14,408,687 75.1 19,197,488 2012 4,771,967 24.5 14,700,660 75.5 19,472,627 2013 5,032,803 24.5 15,548,479 75.6 20,581,282 2014 5,166,046 24.0 16,386,228 76.0 21,552,274 2015 5,339,578 24.7 16,283,011 75.3 21,622,589 2016 5,793,262 26.5 16,059,994 73.5 21,853,256

During the Fiscal Year ended June 30, 2016, American Airlines, and their regional affiliates enplaned approximately 20,426,061 domestic and international passengers at the Airport, representing 91.3% of the total number of passengers enplaned at the Airport during such Fiscal Year. See Table IV-6 “Historical Enplaned Passengers and Airline Market Share by Brand” and the corresponding discussions in the Report of the Airport Consultant attached hereto as Appendix B.

PROJECTED AIR TRAFFIC

The projections of future growth of airline traffic during the period beginning July 1, 2017 and ending June 30, 2022 were prepared by Newton & Associates, Inc. and appear in the Report of the Airport Consultant attached hereto as Appendix B. In the Report of the Airport Consultant, total enplanements (origin and destination enplanements plus connecting enplanements) were projected to increase at a rate of 2.04% during such period. See Table IV-15 “Forecast of Enplaned Passengers” and the corresponding discussions of such projections and the assumptions and rationale underlying such projections in the Report of the Airport Consultant attached hereto as Appendix B.

ROLE OF THE AIRPORT AS A HUB FOR AMERICAN AIRLINES

The Airport historically has served as the largest hub for US Airways. On December 9, 2013, the parent companies of US Airways and American Airlines merged to form the American Airlines Group, Inc. The Airport currently serves as the second largest hub airport for the combined American-US Airways system, after Dallas-Ft. Worth International and ahead of the merged airline’s hubs in Chicago, Miami, New York, Philadelphia, Phoenix, and Washington D.C. See “American Airlines and the Airport as a Connecting Hub” in the Report of the Airport Consultant attached hereto as Appendix B.

In Fiscal Year 2016, the combined American-US Airways (including regional affiliates) served 91.3% of the Airport’s enplaned passengers. As of July 1, 2016, the combined airline serves 149 continental US and 31 foreign airports from the Airport.

American Airlines completed the final phase of its merger with US Airways in October 2015, becoming the world’s largest airline. Although American continues making adjustments to their route network, the Airport maintained its position as the carrier’s second largest hub. In July 2016, American Airlines entered into a new Airline Use and Lease Agreement, reaffirming its commitment to the Airport.

AIRLINE INFORMATION

The Signatory Airlines and certain other airlines operating at the Airport (or their respective parent corporations) file reports and other information (collectively, the “SEC Reports”) with the United States Securities and Exchange Commission (the “SEC”). Certain information, including financial information, as of particular dates concerning each of the Signatory Airlines (or their respective parent corporations) is included in the SEC Reports. The SEC Reports can be read and copied at the SEC’s Public Reference Rooms, which can be located by calling the SEC at 1-800-SEC-0330. In addition, electronically filed SEC Reports can be obtained from the SEC’s web site at http://www.sec.gov. Each Signatory Airline and certain other airlines are required to file periodic reports of financial and operating statistics with the United States Department of Transportation. Such reports can be inspected at the Office of Airline Information, Bureau of Transportation Statistics, Department of Transportation, Room 4201, 400 Seventh Street S.W., Washington, DC 20590, and copies of such reports can be obtained from the Department of Transportation at prescribed rates. Non-U.S. airlines also provide certain information concerning their operations and financial affairs, which may be obtained from the respective airlines.

CAPITAL IMPROVEMENT PLAN

The Airport has developed an updated capital improvement program to accommodate existing and forecast passenger demand at the Airport (the “2017 - 2024 Capital Improvement Program”). The 2017 – 2024 Capital Improvement Program was defined to capture the Airport’s anticipated cashflow needs for the projects included in the Airport’s recently adopted 2018 - 2022 5-year CIP, as well as completed or on-going projects that will be funded with permanent or interim financing as part of the 2017 Bonds or 2017D Note transactions and/or have expenditures in Fiscal Year 2017. The estimated aggregate cost of the 2017 - 2024 Capital Improvement Program totals $2.1 billion.

The 2017 - 2024 Capital Improvement Program consists of: (a) approximately $944 million in expansion and improvements to the Terminal Complex, including the Terminal Lobby Expansion (approximately $235 million), Phases I (9 gates, approximately $146 million) and II (16 gates, approximately $300 million) of the Expansion of Concourse A, and the Terminal Rehabilitation improvements (approximately $75 million); (b) approximately $589 million in airside improvements, including the design and construction of a fourth parallel runway ($422 million); and (c) approximately $567 million of other projects to maintain, improve and enhance the Airport. The 2017 - 2024 Capital Improvement Program includes the 2017 Projects.

The 2017 - 2024 Capital Improvement Program includes on-going and future projects in varying stages of execution. The actual timing of construction or implementation of such projects will depend on the achievement of forecast demand or other justification of need, and the receipt of required environmental and other regulatory approvals. The 2017 - 2024 Capital Improvement Program is expected to be funded through a combination of the proceeds of the 2017 Bonds, outstanding Bonds and additional Bonds to be issued in the future, Federal grants in aid, PFC Revenues, and other Airport funds. The Airport may elect to defer, or to change, the funding plan for any of the projects.

The following table provides a summary of the Airport’s current expectations regarding the funding sources for the various portions of the 2017 - 2024 Capital Improvement Program (in thousands).

PFC Total FAA/TSA Revenues Airport Outstanding 2017 Additional Funding Grants (PAYGO) Funds Bonds Bonds Bonds Sources

$323,323 $520,693 $322,973 $40,000 $190,886 $702,109 $2,099,983

Source: Charlotte Douglas International Airport as of April 2017. Totals may not foot due to rounding.

For more information regarding the Airport’s 2017 – 2024 Capital Improvement Program, including the 2017 Projects, see “THE PLAN OF FINANCE – THE 2017 PROJECTS” and APPENDIX B – “REPORT OF THE AIRPORT CONSULTANT” herein.

PASSENGER FACILITY CHARGES

PFCs are available to airports to finance specific eligible projects that (1) preserve or enhance capacity, safety or security of the national air transportation system, (2) reduce noise resulting from an airport or (3) furnish opportunities for enhanced competition among air carriers. PFCs may also be used to pay PFC eligible debt service on outstanding bonds. The City has received FAA approval to impose and use the revenues derived from a $3.00 PFC to pay the PFC eligible costs of the PFC Eligible Projects, including the payment of a portion of the debt service on the Prior Bonds and the 2017 Bonds.

In accordance with the PFC approvals, the City’s PFC authority is $1,626,829,008. As of June 30, 2016, $606,637,670 of this PFC authority had been received ($585,817,571 of collections and

$20,820,099 of interest earnings). The authority to collect PFCs expires once collections reach the amount approved by the FAA. As of June 30, 2016, the Airport’s PFC fund balance was approximately $299,093,000.

The Administrator of the Federal Aviation Administration (the “Administrator”) may terminate a public agency’s authority to impose PFCs if the Administrator determines a public agency is in violation of certain provisions of the Airport Noise and Capacity Act (the “Noise Act”) relating to noise and access restrictions or if the Administrator determines that the PFC Revenue is excessive or cannot determine that such revenue is being used for approved projects in accordance with the approval or with the PFC Act, or, if project implementation does not commence within the time period specified in the PFC Act or if the public agency is otherwise in violation of the PFC Act. PFCs do not constitute Revenues under the Bond Order and are not pledged to the payment of any Bonds outstanding under the Bond Order. See “INVESTMENT CONSIDERATIONS – PASSENGER FACILITY CHARGES.”

HISTORICAL AND PROJECTED PFC COLLECTIONS

Total Enplanements Revenue Enplanements PFC Revenue Total Fiscal Annual PFC Revenue Year O&D Connecting Total Growth O&D Connecting Enplanements CollectionsInterestTotal Actual 2005 3,595,120 9,950,937 13,546,057 1,662,541 4,601,751 6,264,292 $18,103,805 $76,963 $18,180,768 2006 4,106,020 10,143,073 14,249,093 5.2% 3,806,937 9,404,252 13,211,189 38,180,336 815,600 38,995,936 2007 4,788,700 10,923,295 15,711,995 10.3% 4,580,667 10,448,760 15,029,427 43,435,045 2,645,071 46,080,116 2008 4,932,010 12,091,050 17,023,060 8.3% 4,656,072 11,414,576 16,070,649 46,444,175 4,156,154 50,600,329 2009 4,517,040 12,787,971 17,305,011 1.7% 4,163,143 11,786,072 15,949,215 46,093,232 3,632,401 49,725,633 2010 4,697,900 13,026,990 17,724,890 2.4% 5,144,241 14,264,668 19,408,909 56,091,747 2,350,232 58,441,979 2011 5,012,280 14,698,486 19,710,766 11.2% 4,814,307 14,117,931 18,932,237 54,714,166 1,539,409 56,253,575 2012 5,005,300 15,004,271 20,009,571 1.5% 4,144,439 12,423,687 16,568,126 47,881,884 659,388 48,541,272 2013 5,254,600 15,853,105 21,107,705 5.5% 4,450,099 13,425,930 17,876,029 51,661,723 1,049,949 52,711,672 2014 5,418,670 16,558,396 21,977,066 4.1% 5,420,027 16,562,543 21,982,570 63,529,628 1,189,571 64,719,199 2015 5,787,510 16,402,492 22,190,002 1.0% 5,460,951 15,476,985 20,937,936 60,510,635 1,270,042 61,780,676 2016 6,117,759 16,262,685 22,380,444 0.9% 5,772,566 15,345,066 20,474,462 59,171,195 1,435,320 60,606,515

Subtotal $585,817,571 $20,820,099 $606,637,670

CAGR1 2006-2016 3.69% 4.39% 4.19% 3.86% 4.55% 4.06% 4.06% 5.27% 4.09%

Projected 2017 6,294,744 16,536,831 22,831,575 2.02% 5,939,564 15,603,744 21,220,680 $61,327,766 $1,487,632 $62,815,398 2018 6,477,896 16,816,043 23,293,938 2.03% 6,112,382 15,867,201 21,650,421 62,569,717 1,517,758 64,087,475 2019 6,667,463 17,100,419 23,767,881 2.03% 6,291,252 16,135,531 22,090,925 63,842,773 1,548,639 65,391,411 2020 6,863,703 17,390,060 24,253,764 2.04% 6,476,420 16,408,830 22,542,526 65,147,899 1,580,297 66,728,196 2021 7,066,888 17,685,071 24,751,959 2.05% 6,668,141 16,687,195 23,005,571 66,486,099 1,612,758 68,098,858 2022 7,277,299 17,985,556 25,262,856 2.06% 6,866,679 16,970,725 23,480,420 67,858,415 1,646,047 69,504,462

Subtotal $387,232,669 $9,393,131 $396,625,800

Estimated Total $973,050,239 $30,213,230 $1,003,263,469

CAGR 2017-2022 2.95% 1.70% 2.05% 2.95% 1.70% 2.05% 2.05% 2.05% 2.05%

Notes: - Revenue Enplanements estimated to be 91.4% of total enplanements in FY 2016. - PFC Level = $3.00. PFC Level net of airline handling fee = $2.89. - PFC collections began on November 1, 2004. - Estimated Charge Expiration Date for PFC No. 6 is December 1, 2031. 1 CAGR is from FY 2006 to FY 2016. FY 2015 reflects partial year of collections.

Source: Historical PFC Collections from City of Charlotte May 2, 2017 Projections prepared by Newton & Associates, Inc. Section V Tables - Final.xlsx

See Table V-8 and the corresponding discussions in the Report of the Airport Consultant attached hereto as Appendix B.

THE AIRLINE AGREEMENTS

The City entered into a new Airline Use and Lease Agreement effective July 1, 2016 (the “Airport Agreement”), with American Airlines, Delta Airlines, JetBlue Airways, Southwest Airlines, and United Airlines. These five airlines are currently classified as “Signatory Airlines” under the Airport Agreement, which is defined as any operator of an air transport system at the Airport with an Airport Agreement in effect. The term of the Airport Agreement expires June 30, 2026.

The Airport Agreement maintains the rates and charges methodology already in place, while modernizing the facilities usage and adding additional bondholder protections. The Airport Agreement establishes a framework for management to continue producing financial results while expanding the Airport. It is an industry standard agreement presenting lease terms and formulas that enhance airport access, airline competition, and provide the Airport the opportunity to recover certain terminal operating costs that were not recoverable under the prior airport agreement. The new Airport Agreement eliminates exclusive-use gates, provides the Airport control over common use gates and ticket counters, permits the Airport to recapture underutilized preferential gates, and outlines the capital project approval process. The new Airport Agreement also provides additional bondholder protections, including a 25% debt service coverage factor included in annual airline rates and charges and then returned to the airlines at year-end, if not needed. The Airport Agreement also includes an extraordinary debt service coverage provision obligating the Signatory Airlines to make payments to the City in any Fiscal Year in which the amount of Net Revenues (as defined by the Bond Order) are forecasted to be less than 125% of Revenue Bond Debt Service.

AIRPORT FEES AND CHARGES

The Airport Agreement defines Airport Fees and Charges as all rents, charges and fees payable by all Signatory Airlines and Affiliates for the Fiscal Year. The Airport Agreement provides for the rate setting methodologies, types of fees and charges, annual adjustments and settlements, and sharing of Net Remaining Terminal Complex Revenues.

TERMINAL BUILDING CHARGES

Under the Airport Agreement, each Signatory Airline is required to pay Terminal Building Charges for its use of the terminal building. The Terminal Building Charges effective July 1st of each Fiscal Year are determined according to the rate setting methodology contained in the Airport Agreement. Each Signatory Airline is required to pay a Terminal Rental Rate for any Exclusive Use Premises, Preferential Use Premises, Common Use Premises, and Joint Use Premises assigned to such Airline.

The Airline Terminal Revenue Requirement is calculated by computing the sum of the following budgetary items for each Fiscal Year:

• The Operations & Maintenance (O&M) Expenses and Capital Equipment Depreciation allocable to the Terminal Building, excluding costs billed directly to and paid by Air Carriers; plus • Fifty percent (50%) of the change in the O&M Reserve; plus • 1.25 times the Revenue Bond Debt Service allocable to the Terminal Building; plus • Amortization of City Investment allocable to Terminal Building Capital Improvement Projects; plus • The Airport Services Facilities Costs allocable to the Terminal Building; minus • The FIS Facility Requirement (to be recovered through the FIS Facility Fee); minus 30

• The costs of the Shared Use Terminal Equipment (to be recovered through the Common Use Gate and PLB Fee).

The Gross Terminal Rental Rate shall be divided by the Total Terminal Revenue Requirement by total Rentable Terminal Space. The Airline Terminal Revenue Requirement shall be determined by multiplying the Gross Terminal Rental Rate by total Airline Leased Terminal Space, and then subtracting the Inline Baggage Handling System Requirement and the Passenger Loading Bridge Requirement.

LANDING FEES

The Airport Agreement authorizes the City to charge the Signatory Airlines a landing fee each time a Signatory Airline lands an aircraft at the Airport. The landing fee is equal to the product of the maximum approved landing weight of that aircraft multiplied by the landing fee rate then in effect. The landing fee rate is determined by dividing the Airfield Revenue Requirement for the Fiscal Year by the total of the maximum approved landing weight of all aircraft landed by Signatory Airlines during the Fiscal Year.

Under the Airport Agreement, the Airfield Revenue Requirement is calculated by computing the sum of the following budgetary items for each Fiscal Year:

• The O&M Expenses and Capital Equipment Depreciation allocable to the Airfield; plus • Fifty percent (50%) of the change in the O&M Reserve; plus • 1.25 times the Revenue Bond Debt Service allocable to the Airfield; plus • Amortization of City Investments allocable to Airfield Capital Improvement Projects; plus • The Airport Services Facilities Costs allocable to the Airfield; minus • Ancillary Airfield Revenues.

SHARING OF NET REMAINING TERMINAL COMPLEX REVENUES

The Airport Agreement obligates the City to pay to each Signatory Airline its pro-rata share of forty percent (40%) of Net Remaining Terminal Complex Revenue (if any) for each Fiscal Year in connection with the City’s annual settlement with each Airline. Each Signatory Airline’s pro-rata share is determined by dividing the total amount of such Signatory Airline’s payments made by the total amount of all such payments made by all Signatory Airlines during the immediately preceding Fiscal Year. Each Airline’s pro-rata amount, if any, owed by the City to the Airline for each Fiscal Year is determined at the time of the Final Audit for such Fiscal Year. The City has the right to set off against any such pro-rata amount the amounts, if any, then due and owing by the Airline to the City under the Airport Agreement or otherwise owing by the Airline to the City.

EXTRAORDINARY COVERAGE PROTECTION

In addition to the Landing Fees and Terminal Building Charges established in the Airport Agreement, each Signatory Airline is required to make extraordinary coverage protection payments in any Fiscal Year in which the amount of Revenues (as defined in the Bond Order) less O&M Expenses is forecasted to be less than one hundred twenty-five percent (125%) of the Revenue Bond Debt Service or is otherwise insufficient to make any deposit required by the Bond Order. Any amounts that must be collected for such extraordinary coverage protection payments shall be allocated in a fair and not unjustly discriminatory manner to the Airfield Revenue Requirement or the Airline Terminal Revenue Requirement or both in the reasonable discretion of the Aviation Director. Should Extraordinary Coverage Protection payments be made in any given Fiscal Year, the City shall subsequently refund to the Signatory Airlines such payments made by the Signatory Airlines as soon as uncommitted funds become available in the Airport Discretionary Fund (as defined in the Bond Order).

PRE-APPROVED CAPITAL PROJECTS AND MII APPROVALS

By executing the Airport Agreement, the Signatory Airlines approved a list of Capital Improvement Projects defined in the Airport Agreement (the “Pre-Approved Projects”). The City may proceed with the Pre-Approved Projects without further review or approval of a majority-in-interest (“MII Approval”) of the Signatory Airlines, unless there is a material change in the scope or budget for such Pre-Approved Projects.

The Airport Agreements requires that a Capital Improvement Project shall be subject to MII Approval by the Signatory Airlines unless defined as a Pre-Approved Project or an Exempt Project. However, the Airport Agreement does not restrict the City’s ability to issue airport revenue bonds to fund the costs of designing, constructing and equipping Capital Improvement Projects and related financing costs and costs of issuance.

The City obtained MII Approval from the Signatory Airlines to fund the Capital Improvements comprising the 2017 Projects which are not Pre-Approved Projects or Exempt Projects under the Airport Agreement and related financing costs to be funded by the proceeds of the 2017 Bonds. The City also notified the Signatory Airlines of any proposed Exempt Project including a statement as to why it was determined to be an Exempt Project. There is no MII Approval required in connection with the issuance of refunding bonds authorized by the Bond Order.

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AIRPORT FINANCIAL INFORMATION

HISTORICAL REVENUES AND EXPENSES

Revenues. Historical Airport revenues for the Fiscal Years 2012 through 2016 were prepared by Newton & Associates, Inc. and appear in the Report of the Airport Consultant attached hereto as Appendix B. The Report of the Airport Consultant indicates that Revenues increased from $128,550,000 in Fiscal Year 2012 to $183,276,527 in Fiscal Year 2016, a compound annual growth rate of 9.3%. See Table V-1 and the corresponding discussions in the Report of the Airport Consultant attached hereto as Appendix B.

Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year CAGR 2012 2013 2014 2015 2016 2012 - 2016 Included Cost Center Revenues: Terminal Complex Subtotal $112,504,439 $123,078,214 $128,481,192 $139,225,995 $156,029,199 8.5% Public Aircraft Facilities Subtotal 14,289,735 20,245,395 21,226,232 23,753,661 25,275,183 15.3 Other Included Cost Center Revenues 1,755,826 1,369,540 1,423,190 1,362,033 1,972,145 2.9 Total Included Cost Center Revenues $128,550,000 $144,693,149 $151,130,614 $164,341,689 $183,276,527 9.3% Source: Charlotte Douglas International Airport Compiled by Newton & Associates, Inc.

Expenses. Historical Airport expenses for the Fiscal Years 2012 through 2016 were prepared by Newton & Associates, Inc. and appear in the Report of the Airport Consultant attached hereto as Appendix B. Current expenses increased from $60,234,672 in Fiscal Year 2012 to $103,082,170 in Fiscal Year 2016, a compound annual growth rate of 14.4%. See Table V-2 and the corresponding discussions in the Report of the Airport Consultant attached hereto as Appendix B.

Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year CAGR 2012 2013 2014 2015 2016 2012 - 2016 Current Expenses – Included Cost Center Expenses Operations, Maintenance & Repair $59,942,000 $67,843,000 $76,766,000 $87,680,000 $101,279,000 14.0% Capital Items 292,672 377,245 5,083,272 929,011 1,803,170 57.5 Total Current Expenses $60,234,672 $68,220,245 $81,849,272 $88,609,011 $103,082,170 14.4% Source: Charlotte Douglas International Airport Compiled by Newton & Associates, Inc.

HISTORICAL DEBT SERVICE COVERAGE

A historical application of revenues under the provisions of the Bond Order for the Fiscal Years 2012 through 2016 was prepared by Newton & Associates, Inc. and appears in the Report of the Airport Consultant attached hereto as Appendix B. Although Current Expenses increased at a compound annual growth rate of 14.4% for this period, Debt Service Coverage was not below 3.10 times and reached a high of 3.44 times in Fiscal Year 2016. See Table V-3 and the corresponding discussions in the Report of the Airport Consultant attached hereto as Appendix B.

Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2012 2013 2014 2015 2016 Included Cost Center Revenues: Beginning Balance (Retained Balance in Revenue Fund) $11,408,000 $12,101,000 $12,101,000 $12,101,000 $12,101,000 Terminal Complex Subtotal 112,504,439 123,078,214 128,481,192 139,225,995 156,029,199 Public Aircraft Facilities Subtotal 14,289,735 20,245,395 21,226,232 23,753,661 25,275,183 Other Included Cost Center Revenues 1,755,826 1,369,540 1,423,190 1,362,033 1,972,145 Total Included Cost Center Revenues: $139,958,000 $156,794,149 $163,231,614 $176,442,689 $195,377,527

Application of Revenues: Current Expenses $60,234,672 $68,220,245 $81,849,272 $88,609,011 $103,082,170 Operating Fund Reserves 1,769,000 3,893,000 473,000 4,107,000 3,728,000 Total Application of Revenues: $62,003,672 $72,113,245 $82,322,272 $92,716,011 $106,810,170 Net Revenues Available for Revenue Bond Debt Service [A] $77,954,328 $84,680,904 $80,909,342 $83,726,678 $88,567,357 Total Revenue Bond Fund Deposit [B] $24,289,000 $26,071,000 $26,072,000 $25,733,000 $25,722,000 Debt Service Coverage [A/B] 3.21 3.25 3.10 3.25 3.44 Source: Charlotte Douglas International Airport Compiled by Newton & Associates, Inc.

HISTORICAL AIRLINE COST PER ENPLANED PASSENGER

The table set forth below shows the cost per enplaned passenger for the Fiscal Years ended June 30, 2012 through 2016.

Fiscal Year 2012 Fiscal Year 2013 Fiscal Year 2014 Fiscal Year 2015 Fiscal Year 2016 Cost Per Enplaned Passenger $0.96 $1.13 $1.16 $1.33 $1.35 Source: City of Charlotte; Charlotte Douglas International Airport

REPORT OF THE AIRPORT CONSULTANT

Newton & Associates, Inc. prepared the Report of the Airport Consultant which is included as APPENDIX B.

The Report of the Airport Consultant describes key factors that will affect future air traffic, presents airline traffic and financial forecasts for the Fiscal Years 2018 through Fiscal Year 2022 and sets forth the assumptions upon which the forecasts are based. The Report of the Airport Consultant should be read in its entirety for an understanding of the forecasts and the underlying assumptions.

As noted in the Report of the Airport Consultant, any forecast is subject to uncertainties. Some of the assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances could occur. Therefore, there are likely to be differences between the forecast and actual results, and those difference may be material. See “INVESTMENT CONSIDERATIONS.”

The Report of the Airport Consultant has been included herein in reliance upon the knowledge and experience of Newton & Associates, Inc. as an airport feasibility consultant.

INVESTMENT CONSIDERATIONS

The following section describes certain risk factors affecting the payment of and security for all Bonds outstanding under the Bond Order, including the 2017 Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of the 2017 Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following special factors along with all other information described elsewhere or incorporated by reference in this Official Statement in evaluating the 2017 Bonds.

GENERAL FACTORS AFFECTING LEVEL OF AIRLINE TRAFFIC AND REVENUES

Pursuant to the Bond Order, the principal of and interest on all Bonds outstanding under the Bond Order, including the Prior Bonds and the 2017 Bonds, are payable solely from Net Revenues. The ability to pay debt service on the Prior Bonds and the 2017 Bonds will depend on the receipt of sufficient Net Revenues. In addition, the Bond Order provides that the proceeds received by the City from PFCs will be applied by the City (although not legally and contractually pledged as Revenues) in the following order of priority (1) by transfer to the Bond Fund, to pay debt service on PFC Eligible Bonds, (2) to pay the capital costs of PFC Eligible Projects and (3) as otherwise permitted by federal statute or the regulations promulgated by the FAA, as amended or supplemented, with respect to PFCs.

The City’s ability to generate Net Revenues or any potential PFC Revenues from its operation of the Airport depends upon many factors which affect the airlines’ operations at the Airport, many of which are outside the City’s control, including (i) population growth and the economic and political conditions of the region and the nation, (ii) the financial health of the airline industry and of individual airlines, (iii) airline service and route networks, (iv) capacity of the national air traffic control system and of the Airport and other competing airports, (v) national and international disasters and hostilities, (vi) safety concerns arising from international conflicts, the possibility of terrorist or other attacks, and (vii) various other local, regional, national and international economic, political and other factors. See APPENDIX B- “REPORT OF THE AIRPORT CONSULTANT.” If aviation activity at the Airport does not meet forecast levels, a corresponding reduction in Net Revenues may occur.

UNCERTAINTIES OF THE AIRLINE INDUSTRY

Generally. Historically, the financial performance of the airline industry generally has correlated with the strength of the national and global economy. Certain factors that may materially affect the Airport and the airlines include, but are not limited to, (i) growth of population and the economic health of the region and the nation, (ii) airline service and route networks, (iii) national and international economic and political conditions, (iv) changes in demand for air travel, (v) service and cost competition, (vi) mergers and bankruptcy of any airlines, (vii) the availability and cost of aviation fuel and other necessary supplies, (viii) levels of air fares, fixed costs and capital requirements, (ix) the cost and availability of financing, (x) the capacity of the national air traffic control system, (xi) national and international disasters and hostilities, (xii) public health concerns, such as the spread of influenza and severe acute respiratory syndrome, (xiii) the cost and availability of employees and labor relations within the airline industry, (xiv) regulation by the federal government, (xv) environmental risks, noise abatement concerns and regulation, (xvi) acts of war or terrorism, (xvii) aviation accidents, and (xviii) other risks. As a result of these and other factors, many airlines have operated at a loss in the past and many (including some that served the Airport) have filed for bankruptcy, ceased operations and/or merged with other airlines. In addition, the so-called legacy carriers have taken many actions to restructure and reduce costs including reducing their workforce, renegotiating their labor agreements, reducing routes served, consolidating connecting activity and replacing mainline jets with regional jets. The City cannot predict the likelihood of future terrorist incidents or air transportation disruptions or the impact on the Airport or the airlines from such incidents or disruptions.

Financial Condition of Airlines Serving the Airport. Many of the airlines serving the Airport were impacted by the global economic downturn and recession that occurred between 2008 and 2009, and most major domestic airlines suffered significant financial losses. While the U.S. and global economies generally have rebounded, there can be no assurances that any such rebound will continue, or that other national or international fiscal concerns will not have an adverse effect on the airline industry. Current and future financial and operational difficulties encountered by the airlines serving the Airport (most notably American Airlines and its regional affiliates, which accounted for approximately 91.3 percent of the enplaned passengers at the Airport in Fiscal Year 2016), could have a material adverse effect on operations at, and the financial condition of, the Airport. If American Airlines were to cease operations at the Airport for any reason or eliminate or reduce the Airport status as a connecting hub, the current level of activity of such airline may not be replaced by other airlines.

Cost of Aviation Fuel. Airline earnings are significantly affected by the price of aviation fuel. Any increase in fuel prices results in an increase of airline operating costs. Fuel prices continue to be impacted by, among other things, political unrest in oil-producing parts of the world, increased demand for fuel caused by rapid growth in certain global economies, such as China and India, currency fluctuations and changes in demand for and supply of oil worldwide. Significant fluctuations and prolonged periods of increases in the cost of aviation fuel have had material adverse effects on airline profitability, causing airlines to reduce capacity, fleet and personnel, as well as increase fares and institute additional fees, such as checked baggage fees, all of which may decrease demand for air travel. Although, at present, aviation fuel prices have stabilized, no assurance can be given that such fuel prices will not increase in the future, thereby negatively impacting airline earnings and operations.

AIRLINE BANKRUPTCIES

The Airport derives a substantial portion of its operating revenues from landing, facility rental and concession fees. The financial strength and stability of the airlines using the Airport, together with numerous other factors, influence the level of aviation activity and revenues at the Airport. In addition,

individual airline decisions regarding level of service, particularly hubbing activity at the Airport and aircraft size such as use of regional jets, can affect total enplanements.

American Airlines and other airlines operating at the Airport have emerged from bankruptcy reorganization over the last several years. The cessation of operations by an airline with significant operations at the Airport, such as American Airlines, could have a material adverse effect on operations, Revenues (with the resultant effect on repayment of the 2017 Bonds) and the cost to the other airlines of operating at the Airport.

In the event of bankruptcy proceedings involving one or more of the airlines operating at the Airport, the debtor or its bankruptcy trustee must determine within a time period determined by the court whether to assume or reject the applicable Airline Agreement or other lease agreements or operating agreements. In the event of assumption, the debtor would be required to cure any prior defaults and to provide adequate assurance of future performances under the relevant agreements. Rejection of a lease or an executory contract by any of such airlines would give rise to an unsecured claim of the Airport for damages, the amount of which in the case of a lease is limited by the Bankruptcy Code.

CONSOLIDATIONS AND MERGERS

In response to competitive pressures and increased costs, airlines have merged and acquired competitors in an attempt to combine operations in order to increase cost synergies and become more competitive. In 2009, Delta merged with Northwest Airlines. In 2010, United Airlines and Continental Airlines merged. In April 2015, American and US Airways completed their merger which created the largest airline in the world in terms of operating revenue and revenue passenger miles. In 2016, Alaska Airlines merged with Virgin America. In addition, all of the large U.S. airlines are members of alliances with foreign-flag airlines, which alliances, and other marketing arrangements, provide airlines with many of the advantages of mergers. Alliances typically involve marketing, code-sharing, and scheduling arrangements to facilitate the transfer of passengers between the airlines.

Further airline consolidation is possible and could change airline service patterns, particularly at the connecting hub airports of the merged airlines. The Airport cannot predict what impact, if any, such consolidations will have on airline traffic at the Airport.

GROWTH OF LOW COST CARRIERS

Low cost carriers (“LCCs”) are carriers that take advantage of an operating cost structure that is significantly lower than the cost structure of the network carriers. These advantages can include lower labor costs, greater labor flexibility, a streamlined aircraft fleet (i.e. fewer different types of aircraft in a given airline’s fleet) and generally more efficient operation. These low costs suggest that LCCs can offer a lower fare structure to the traveling public than network carriers while still maintaining profitability.

As the larger U.S. carriers consolidated and became more focused on capacity discipline, fare increases took hold. LCCs began to emerge in larger markets where passenger levels were high enough for the LCCs to overcome certain barriers to entry caused by the larger carriers, such as control of the majority of airport gates and slots. The cost structure of LCCs allows for lower fares, which has stimulated traffic and driven LCCs into more and larger markets. One result of the consolidation of carriers and their capacity discipline and the associated fare increases is that certain price-sensitive travelers are flying less. Recently, these budget conscious flyers have emerged as an underserved segment which has helped to expand the LCC market to include the ultra-low cost carriers, such as Frontier Airlines. See “THE AIRPORT – AIRLINES SERVING THE AIRPORT” and “HISTORICAL

ENPLANED PASSENGERS” herein for more information about historical airline market shares at the Airport.

CERTAIN RISKS RELATED TO MARKET DOMINANCE BY AMERICAN AIRLINES

A merger of US Airways Group (parent of US Airways) and AMR Corporation (parent of American Airlines) to form a new parent company, American Airlines Group, was completed in April 2015. American Airlines currently accounts for approximately 90% of the Airport’s approximately 1,400 daily flights. The City does not have any knowledge of, nor can it predict, any challenges for the merged airline; however, as a result of the market dominance by the airline, any such challenge could adversely impact the Airport.

NATIONAL AND INTERNATIONAL ECONOMIC AND POLITICAL CONDITIONS

Historically, the financial performance of the air transportation industry has correlated with the state of the national and global economy. Past recessions in the U.S. economy and associated high unemployment reduced discretionary income and negatively impacted airline travel demand. With the globalization of business and the increased importance of international trade and tourism, the U.S. economy has become more closely tied to worldwide economic, political, and social conditions. As a result, international economics, trade balances, currency exchange rates, political relationships, and hostilities all influence passenger traffic at major U.S. airports. Aviation security precautions and safety concerns arising from international political conflicts can also affect air carrier travel demand. As a result of the conflicts in the Middle East and related terrorist threats immediately following the events of September 11, 2001, airlines significantly reduced the number of transatlantic flights and consequently, airline revenues and cash flow were adversely affected. Although passenger traffic in the last five years has exceeded the pre-September 11, 2001 levels, uncertainty associated with war, unrest in the Middle East, reduction of economic activities in Europe, and the threats of future terrorist attacks may have an adverse impact on air travel in the future. Sustained future increases in passenger traffic at the Airport will depend on stable international conditions as well as national and global economic growth.

CAPACITY OF NATIONAL AIR TRAFFIC CONTROL AND AIRPORT SYSTEMS

Demands on the national air traffic control system continue to cause aircraft delays and restrictions, both on the number of aircraft movements in certain air traffic routes and on the number of landings and takeoffs at certain airports. These restrictions affect airline schedules and passenger traffic nationwide. The FAA is gradually automating and enhancing the computer, radar, and communications equipment of the air traffic control system and assisting in the development of additional airfield capacity through the construction of new runways and the more effective use of existing runways. However, increasing demands on the national air traffic control and airport systems could cause increased delays and restrictions in the future.

AIR CARRIER SERVICE AND ROUTES

While passenger demand at an airport depends on the population and the economy of the region served, air carrier service and the number of passengers enplaned also depend on the route networks of the air carriers serving that airport. Domestic air carriers are free to enter or leave individual air traffic markets, and to increase or decrease service, at will.

AIR TRAVEL SECURITY AND HEALTH CONCERNS

Concerns about the safety of airline travel and the effectiveness of security precautions, particularly in the context of potential international hostilities (such as those that have occurred and continue to occur in the Middle East), terrorist attacks and increased threat levels declared by the Department of Homeland Security may influence passenger travel behavior and air travel demand. Travel behavior may also be affected by anxieties about the safety of flying, the inconveniences and delays associated with more stringent security screening procedures, and world health concerns (such as the severe acute respiratory syndrome (SARS) outbreak in 2003, the H1N1 influenza outbreak in 2009 and 2010 and the current outbreak of the Zika virus in more than 50 countries and parts of Florida), all of which could lead to the avoidance of airline travel or the use of alternate modes of transportation. Prospective investors should take into consideration the impact that such developments may have on activity levels at the Airport and the potential financial impact on the airlines that serve the Airport.

PASSENGER FACILITY CHARGES

Application. The Second Supplemental Bond Order provides that the proceeds received by the City from PFCs will be applied by the City (although not legally and contractually pledged as Revenues) in the following order of priority (1) by transfer to the Bond Fund, to pay debt service on PFC Eligible Bonds (2) to pay the capital costs of PFC Eligible Projects and (3) as otherwise permitted by federal statute or the regulations promulgated by the FAA, as amended or supplemented, with respect to PFCs. However, federal law dictates that PFC revenues may only be used to pay for, or provide reimbursement for the payment of, projects specifically authorized in the application authorizing the collection and use of the PFCs ("PFC Eligible Projects"). As a result, notwithstanding the City’s option to use PFC revenues, those revenues may only be applied to pay all or a portion of the debt service on the Prior Bonds or the 2017 Bonds to the extent that Prior Bonds proceeds are or have been used to pay for PFC Eligible Projects.

Sufficiency. The City’s ability to collect PFC revenues will vary depending on the actual number of passenger enplanements at the Airport. If the number of enplaned passengers at the Airport falls below the estimate used by the Airport Consultant to project annual PFC revenues to be collected in the future, actual PFC revenues will fall short of projections. Such a shortfall in PFC collections could have an adverse impact on the timely payment of principal of or interest on the 2017 Bonds. This adverse impact could be direct, or indirect, which could occur if the PFC shortfall resulted in a sufficient increase in landing fees to impact negatively the Airport’s desirability to the airline industry, thus ultimately impacting the City’s collection of landing fees. There can be no assurance as to what passenger traffic, and revenues of the Airport, will be in the future.

Availability. The authority to impose and use PFCs is subject to the terms and conditions of the PFC Act, AIR-21 and the related regulations and statutes. Failure to comply with the requirements of applicable law, such as the failure to use PFCs strictly for the approved PFC Eligible Projects, may cause the FAA to terminate or reduce the City’s authority to impose and collect PFCs. In addition, notwithstanding FAA regulations requiring airlines that collect PFCs to account for PFC collections separately and indicating that those PFC collections are to be regarded as funds held in trust by the collecting airline for the beneficial interest of the public agency imposing the PFC, in the event of a bankruptcy proceeding involving a collecting airline, there is the possibility that a bankruptcy court could hold that the PFCs in the airline’s custody are not to be treated as trust funds and that the Airport is not entitled to any priority over other creditors of the collecting airline as to such funds. Also, there is no assurance that the PFC Act or any other relevant legislation or regulation will not be repealed or amended as to adversely affect the City’s ability to collect PFCs or to apply them to pay for the PFC Eligible Projects. The occurrence of any of these events could have an adverse impact on the timely payment of

principal of or interest on the 2017 Bonds, as noted above. See "PASSENGER FACILITY CHARGES."

FEDERAL LEGISLATION AFFECTING THE AIR TRANSPORTATION INDUSTRY

The City depends upon federal funding for the Airport not only in connection with grants and PFC authorizations but also because it is federal funding that provides for the Transportation Security Administration (“TSA”), air traffic control and other FAA staffing and facilities. On July 15, 2016, President Obama signed the “FAA Extension, Safety and Security Act of 2016” into law. This law reauthorizes FAA operations and programs through September 30, 2017. In the event that the FAA Extension, Safety and Security Act of 2016 were to expire without a long-term reauthorization or another short-term extension, during such period FAA programs would be unauthorized, including FAA programs providing funding for the Airport. The City is unable to predict whether legislation to extend or reauthorize this statute or otherwise continue FAA programs will be adopted prior to the scheduled expiration date, if not so adopted, the duration of any resulting period of de-authorization, and the impact on the Airport finances which might result therefrom.

Federal funding is also impacted by sequestration, a budgetary feature first introduced under the federal Budget Control Act of 2011. Unless changed by the United States Congress from time to time, sequestration is a multi-year process and could continue to affect FAA, TSA and Customs and Border Control (“CBP”) budgets and staffing, resulting in staffing shortages and traffic delays and cancellations at airports across the United States. The full impact of sequestration on the aviation industry and the Airport, generally, resulting from potential layoffs or further furloughs of federal employees responsible for federal airport security screening, air traffic control and CBP, is unknown at this time.

FEDERAL REGULATION REGARDING RATES AND CHARGES DISPUTES

The FAA Authorization Act of 1994 establishes that airline rates and charges set by airports be "reasonable" and mandates an expedited administrative process by which the Secretary of Transportation (the "Secretary") shall review rates and charges complaints. An affected air carrier may file a written complaint requesting a determination of the Secretary as to reasonableness within 60 days after such carrier receives written notice of the establishment or increase of such fee. During the pendency of the review, the airlines must pay the disputed portion of the fee to the airport under protest, subject to refund to the extent such fees are found to be unreasonable by the Secretary. The airport must obtain a letter of credit, surety bond or other suitable credit facility equal to the amount in dispute unless the airport and the complaining carriers agree otherwise. Application of these provisions could adversely impact the amount of airline rates and charges received by airports.

REGULATIONS AND RESTRICTIONS AFFECTING THE AIRPORT

The operations of the Airport and its ability to generate revenues are affected by a variety of contractual, statutory and regulatory restrictions and limitations, including, without limitation, the provisions of the Airport Agreements, the PFC Act and other extensive federal legislation and regulations applicable to all airports in the United States. There is no assurance that there will not be any change in, interpretation of, or addition to any such applicable laws, regulations and provisions. Any such change, interpretation or addition may have a material adverse effect, either directly or indirectly, on the Airport, which could materially adversely affect the Airport’s operations or financial condition.

Climate change concerns have led, and may continue to lead, to new laws and regulations at the federal and state levels that could have a material adverse effect on the operations of the Airport and on the airlines operating at the Airport. The United States Environmental Protection Agency (the “EPA”)

has taken steps toward regulation of greenhouse gas (“GHG”) emissions under existing federal law. These steps may lead to further regulation of aircraft GHG emissions. No assurances can be given as to what any EPA emissions standards governing the Airport or the airlines could be or what effect those standards may have on the Airport or the airlines operating at the Airport.

COST OF CAPITAL IMPROVEMENT PLAN

The estimated costs of, and the projected schedule for, the Airport’s capital projects are subject to a number of uncertainties. The ability of the City to complete the Airport’s capital projects may be adversely affected by various factors including: (1) estimating errors, (2) design and engineering errors, (3) changes to the scope of the projects, (4) delays in contract awards, (5) material and/or labor shortages, (6) delays due to airline operational needs, (7) unforeseen site conditions, (8) adverse weather conditions, (9) contractor defaults, (10) labor disputes, (11) unanticipated levels of inflation, (12) litigation and (13) environmental issues. No assurance can be made that the existing projects will not cost more than the current budget for these projects or that the completion will not be delayed beyond the current projected completion dates. Any schedule delays or cost increases could result in the need to issue Additional Bonds and may result in increased costs per enplaned passenger to the airlines, thereby making the Airport less economically competitive. At present, the City is unable to estimate the costs associated with each of the risks identified above and the total impact of these risks if such events were to occur. In addition, the City may ultimately decide not to proceed with certain capital projects or may proceed with them on a different schedule, resulting in different results than those included in the projections shown in the Report of the Airport Consultant.

FORCE MAJEURE EVENTS AFFECTING THE CITY AND THE AIRPORT

There are certain unanticipated events beyond the City’s control that could have a material adverse effect on the City’s operations and financial condition, or on the Airport’s operations and financial condition, if they were to occur. These events include fire, flood, earthquake, epidemic, adverse health conditions or other unavoidable casualties or acts of God, freight embargo, labor strikes or work stoppages, civil commotion, new acts of war or escalation of existing war conditions, sabotage, enemy action, pollution, unknown subsurface or concealed conditions affecting the environment, and any similar causes. No assurance can be provided that such events will not occur, and, if any such events were to occur, no prediction can be provided as to the actual impact or severity of the impact on the City's operations and financial condition or on the Airport’s operations and financial condition, as applicable.

MUNICIPAL BANKRUPTCY

State Law Authorization. Under North Carolina law, a local governmental unit such as the City may not file for bankruptcy protection without (1) the consent of the Local Government Commission and (2) satisfaction of the requirements of § 109(c) of the United States Bankruptcy Code. If the City were to initiate bankruptcy proceedings with the consent of the Local Government Commission and satisfy the requirements of 11 U.S.C. § 109(c), the bankruptcy proceedings could have material and adverse effects on holders of the 2017 Bonds, including (a) delay in enforcement of their remedies, (b) subordination of their claims to claims of those supplying goods and services to the City after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings and (c) imposition without their consent of a plan of reorganization reducing or delaying payment of the 2017 Bonds. The effect of the other provisions of the United States Bankruptcy Code on the rights and remedies of the holders of the 2017 Bonds cannot be predicted and may be affected significantly by judicial interpretation, general principles of equity (regardless of whether considered in a proceeding in equity or at law) and considerations of public policy. In addition to its consent to bankruptcy filings by local government units, North Carolina law vests authority in the Local Government Commission to intervene in the financial

affairs, including taking full control of the financial affairs, of local government units, including the City, if the unit defaults, or in the opinion of the Local Government Commission will default, on a future debt service payment if financial policies and practices are not improved.

Special Revenues. Although the City can provide no assurances, the City believes that Revenues currently pledged by the City under the Bond Order constitute “special revenues,” as defined in Section 902(2) of the U.S. Bankruptcy Code, and therefore, pursuant to Section 928(a) of the U.S. Bankruptcy Code, any and all of such pledged Revenues currently pledged by the City under the Bond Order acquired by the City after the commencement of a case by the City under Chapter 9 of the U.S. Bankruptcy Code would remain subject to the lien of the Bond Order and could not lawfully be used by the City other than in compliance with the Bond Order. Under Section 922(d) of the U.S. Bankruptcy Code, the application by the City of “special revenues” under the terms of the Bond Order would not be subject to stay after the commencement by the City of a case under Chapter 9 of the U.S. Bankruptcy Code. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

ASSUMPTIONS IN THE REPORT OF THE AIRPORT CONSULTANT

The Report of the Airport Consultant included as APPENDIX B to this Official Statement contains certain assumptions and forecasts. Actual results are likely to differ, perhaps materially, from those forecasts. Accordingly, the forecasts contained in the Report of the Airport Consultant are not necessarily indicative of future performance, and neither the Airport Consultant nor the City assumes any responsibility for the failure to meet such forecasts. In addition, certain assumptions with respect to future business and financing decisions of the City are subject to change. If actual results are less favorable than the results forecast or if the assumptions used in preparing such forecasts prove to be incorrect (and, so long as the current Airport Agreements remain in effect, the Signatory Airlines fail to meet their Airport Agreement obligations), the amount of Net Revenues may be materially less than expected and consequently, the ability to make timely payments of the principal of and interest on the Bonds from Net Revenues may be materially adversely affected. See the Report of the Airport Consultant attached hereto as APPENDIX B.

FORWARD-LOOKING STATEMENTS

This Official Statement contains statements relating to future results that are "forward-looking statements." When used in this Official Statement, the words "estimate," "anticipate," "intend," "expect" and similar expressions identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward- looking statements. See "FORWARD-LOOKING STATEMENTS."

FINANCIAL STATEMENTS

The separate audited financial statements of the Airport enterprise for the Fiscal Year ended June 30, 2016, which have been audited by an independent firm of certified public accountants, are included as Appendix A to this Official Statement. These audited statements do not present the Airport financial data by cost centers and include certain revenues and expenses attributable to Excluded Cost Centers. Net Revenues, which are pledged to secure the Bonds, are the net revenues of only the Included Cost Centers. No revenues attributable to the Excluded Cost Centers are pledged to the payment of the Bonds.

The debt service reflected in the audited financial statements included as Appendix A is debt service attributable to obligations of the City issued to fund projects at the Airport, including debt service attributable to the Prior Bonds.

UNDERWRITING

The Underwriters are offering the 2017 Bonds pursuant to a firm underwriting contract. The Underwriters have agreed to purchase the 2017 Bonds at a price equal to $350,381,284.74 representing the par amount of the 2017 Bonds, plus net original issue premium of $49,225,548.20, less an underwriting discount of $1,624,263.46. The Underwriters’ contract is subject to certain terms and conditions, including the approval of certain legal matters by counsel. The Underwriters may offer and sell the 2017 Bonds to certain dealers (including dealers depositing the 2017 Bonds into investment trusts) and others at prices different from the public offering prices shown on the cover. The Underwriters may change the public offering prices from time to time at their discretion.

The Underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the Underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the City, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the City (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the City.

The Underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

Merrill Lynch, Pierce, Fenner & Smith Incorporated, an Underwriter of the 2017 Bonds, and Bank of America, N.A, which is the letter of credit provider and the remarketing agent for the 2007B Bonds, the 2008D Bonds, and the 2011C Bonds and the expected purchaser of the 2017D Note, are both wholly-owned, indirect subsidiaries of Bank of America Corporation.

J.P. Morgan Securities LLC (“JPMS”), one of the Underwriters of the 2017 Bonds, has entered into negotiated dealer agreements (each, a “Dealer Agreement”) with each of Charles Schwab & Co., Inc. (“CS&Co.”) and LPL Financial LLC (“LPL”) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to each Dealer Agreement, each of CS&Co. and LPL may purchase 2017 Bonds from JPMS at the original issue price less a negotiated portion of the selling concession applicable to any 2017 Bonds that such firm sells.

PNC Capital Markets LLC, an Underwriter of the 2017 Bonds, and PNC Bank, National Association are both wholly-owned subsidiaries of PNC Financial Services Group, Inc. PNC Capital Markets LLC is not a bank, and is a distinct legal entity from PNC Bank, National Association. PNC Bank, National Association has banking and financial relationships with the City.

LEGAL MATTERS

LITIGATION

No litigation is now pending or, to the best of the City’s knowledge, threatened, against or affecting the City which seeks to restrain or enjoin the authorization, issuance or delivery of the 2017 Bonds, the Bond Order or the 2017 Resolution, or which contests the validity or the authority or proceedings for the adoption, authorization, execution or delivery of the 2017 Bonds, or the City’s creation, organization or corporate existence, or the title of any of the present officers thereof to their respective offices or the authority or proceedings for the City’s authorization, execution and delivery of the Bond Order, the 2017 Resolution or the 2017 Bonds, or the City’s authority to carry out its obligations thereunder, or which would have a material adverse impact on the City’s condition, financial or otherwise.

OPINIONS OF COUNSEL

All legal matters related to the authorization, execution, sale and delivery of the 2017 Bonds are subject to Bond Counsel’s approval. The proposed form of Bond Counsel’s opinion is included as Appendix E.

RELATED PARTIES

Parker Poe Adams & Bernstein LLP serves as bond counsel for the City and, from time to time it and McGuireWoods LLP, counsel to the Underwriters, have represented the Underwriters as counsel in other financing transactions. Neither the City nor the Underwriters have conditioned the future employment of either of these firms in connection with any proposed financing issues for the City or for the Underwriters on the successful issuance of the 2017 Bonds.

The spouse of a partner at McGuireWoods LLP serves as the City Mayor.

TAX TREATMENT

GENERAL

On the date of issuance of the 2017 Bonds, Parker Poe Adams & Bernstein LLP, Charlotte, North Carolina (“Bond Counsel”), will render an opinion that, under existing law (1) assuming compliance by the City with certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”), (a) interest on the 2017A Bonds and the 2017C Bonds (i) is excludable from gross income for federal income tax purposes, and (ii) is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (b) interest on the 2017B Bonds (i) is excludable from gross income for federal income tax purposes, except for interest on a 2017B Bond for any period during which such 2017B Bond is held by a person who is a “substantial user” of the facilities financed or refinanced by the 2017B Bonds or a “related person” within the meaning of Section 147(a) of the Code, and (ii) is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations.

The interest on the 2017A Bonds and the 2017C Bonds will be taken into account in determining adjusted current earnings of certain corporations (as defined for federal income tax purposes) and such corporations are required to include in the calculation of federal alternative minimum taxable income 75% of the excess of such corporation’s adjusted current earnings over its federal alternative minimum taxable

income (determined without regard to this adjustment and prior to reduction for certain net operating losses).

The Code imposes various restrictions, conditions and requirements relating to the exclusion of interest on obligations, such as the 2017 Bonds, from gross income for federal income tax purposes, including, but not limited to, the requirement that the City rebate certain excess earnings on proceeds and amounts treated as proceeds of the 2017 Bonds to the United States Treasury, restrictions on the investment of such proceeds and other amounts, and restrictions on the ownership and use of the facilities financed or refinanced with proceeds of the 2017 Bonds. The foregoing is not intended to be an exhaustive listing of the post-issuance tax compliance requirements of the Code, but is illustrative of the requirements that must be satisfied by the City subsequent to the issuance of the 2017 Bonds to maintain the excludability of the interest on the 2017 Bonds from gross income for federal income tax purposes. Bond Counsel’s opinion is given in reliance on certifications by representatives of the City as to certain facts material to the opinion and the requirements of the Code.

The City has covenanted to comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2017 Bonds in order that the interest on the 2017 Bonds be, or continues to be, excludable from gross income for federal income tax purposes. The opinion of Bond Counsel assumes compliance by the City with such covenants, and Bond Counsel has not been retained to monitor compliance by the City with such covenants subsequent to the date of issuance of the 2017 Bonds. Failure to comply with certain of such requirements may cause the interest on the 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017 Bonds. No other opinion is expressed by Bond Counsel regarding the federal tax consequences of the ownership of or the receipt or accrual of interest with respect to the 2017 Bonds.

If the interest on the 2017 Bonds subsequently becomes included in gross income for federal income tax purposes due to a failure by the City to comply with any requirements described above, the City is not required to redeem the 2017 Bonds or to pay any additional interest or penalty.

The Internal Revenue Service has established an ongoing program to audit tax-exempt obligations to determine whether interest on such obligations is includible in gross income for federal income tax purposes. Bond Counsel cannot predict whether the Internal Revenue Service will commence an audit of the 2017 Bonds. Prospective purchasers and owners of the 2017 Bonds are advised that, if the Internal Revenue Service does audit the 2017 Bonds, under current Internal Revenue Service procedures, at least during the early stages of an audit, the Internal Revenue Service will treat the City as the taxpayer, and the owners of the 2017 Bonds may have limited rights, if any, to participate in such audit. The commencement of an audit could adversely affect the market value and liquidity of the 2017 Bonds until the audit is concluded, regardless of the ultimate outcome.

Prospective purchasers of the 2017 Bonds should be aware that ownership of the 2017 Bonds and the accrual or receipt of interest on the 2017 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property or casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain Subchapter S Corporations with “excess net passive income,” foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry the 2017 Bonds. Bond Counsel does not express any opinion as to any such collateral tax consequences. Prospective purchasers of the 2017 Bonds should consult their own tax advisors as to the collateral tax consequences.

Proposed legislation is considered from time to time by the United States Congress that, if enacted, would affect the tax consequences of owning the 2017 Bonds. No assurance can be given that

any future legislation, or clarifications or amendments to the Code, if enacted into law, will not contain provisions which could cause the interest on the 2017 Bonds to be subject directly or indirectly to federal or State of North Carolina income taxation, adversely affect the market price or marketability of the 2017 Bonds or otherwise prevent the owners of the 2017 Bonds from realizing the full current benefit of the status of the interest on the 2017 Bonds.

Bond Counsel is further of the opinion that, under existing law, the interest on the 2017 Bonds is exempt from State of North Carolina income taxation.

Bond Counsel’s opinion is based on existing law, which is subject to change. Such opinion is further based on factual representations made to Bond Counsel as of the date thereof. Bond Counsel assumes no duty to update or supplement its opinion to reflect any facts or circumstances that may thereafter come to Bond Counsel’s attention, or to reflect any changes in law that may thereafter occur or become effective. Moreover, Bond Counsel’s opinion is not a guarantee of a particular result, and is not binding on the Internal Revenue Service or the courts; rather, such opinion represents Bond Counsel’s professional judgment based on its review of existing law, and in reliance on the representations and covenants that Bond Counsel deems relevant to such opinion. Bond Counsel’s opinion expresses the professional judgment of the attorneys rendering the opinion regarding the legal issues expressly addressed therein. By rendering its opinion, Bond Counsel does not become an insurer or guarantor of the result indicated by that expression of professional judgment, of the transaction on which the opinion is rendered, or of the future performance of the City, nor does the rendering of such opinion guarantee the outcome of any legal dispute that may arise out of the transaction.

ORIGINAL ISSUE DISCOUNT

As indicated on the inside cover page, the 2017C Bonds maturing on July 1, 2034 and July 1, 2041 (collectively, the “OID Bonds”), are being sold at initial offering prices which are less than the principal amount payable at maturity. Under the Code, the difference between (a) the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of each maturity of the OID Bonds is sold and (b) the principal amount payable at maturity of such OID Bonds, constitutes original issue discount treated as interest which will be excluded from the gross income of the owners of such OID Bonds for federal income tax purposes.

In the case of an owner of the OID Bond, the amount of original issue discount on such OID Bond is treated as having accrued daily over the term of such OID Bond on the basis of a constant yield compounded at the end of each accrual period and is added to the owner’s cost basis of such OID Bond in determining, for federal income tax purposes, the gain or loss upon the sale, redemption or other disposition of such OID Bond (including its sale, redemption or payment at maturity). Amounts received upon the sale, redemption or other disposition of an OID Bond which are attributable to accrued original issue discount on such OID Bonds will be treated as interest exempt from gross income, rather than as a taxable gain, for federal income tax purposes. It should be noted that with respect to certain corporations (as defined for federal income tax purposes), a portion of the original issue discount that accrues to such corporate owners of an OID Bonds in each year will be taken into account in determining the adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on such corporations and may result in other collateral federal income tax consequences for certain taxpayers in the year of accrual. Consequently, corporate owners of an OID Bond should be aware that the accrual of original issue discount on any OID Bond in each year may result in a federal alternative minimum tax liability or other collateral federal income tax consequences, even though such corporate owners may not have received any cash payments attributable to such original issue discount in such year.

Original issue discount is treated as compounding semiannually (which yield is based on the initial public offering price of such OID Bond) at a rate determined by reference to the yield to maturity of each individual OID Bond. The amount treated as original issue discount on an OID Bond for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such OID Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such OID Bond at the beginning of the particular accrual period if held by the original purchaser, less (b) the amount of interest payable on such OID Bond during the particular accrual period. The tax basis is determined by adding to the initial public offering price on such OID Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior accrual periods. If an OID Bond is sold between semiannual compounding dates, original issue discount which would have accrued for that semiannual compounding period for federal income tax purposes is to be appointed in equal amounts among the days in such compounding period.

The Code contains additional provisions relating to the accrual of original issue discount in the case of owners of the OID Bonds who subsequently purchase any OID Bonds after the initial offering or at a price difference from the initial offering price during the initial offering of the 2017 Bonds. Owners of OID Bonds should consult their own tax advisors with respect to the precise determination for federal and state income tax purposes of the amount of original issue discount accrued upon the sale, redemption or other disposition of an OID Bond as of any date and with respect to other federal, state and local tax consequences of owning and disposing of an OID Bond. It is possible that under the applicable provisions governing the determination of state or local taxes, accrued original issue discount on an OID Bond may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment attributable to such original issue discount until a later year.

ORIGINAL ISSUE PREMIUM

As indicated on the inside cover page, the 2017A Bonds, the 2017B Bonds, and the 2017C Bonds maturing on July 1, 2018 through 2033, inclusive, and July 1, 2035 through 2037, inclusive (collectively, the “Premium Bonds”), are being sold at initial offering prices which are in excess of the principal amount payable at maturity. The difference between (a) the initial offering prices to the public (excluding bond houses and brokers) at which a substantial amount of the Premium Bonds is sold and (b) the principal amount payable at maturity of such Premium Bonds constitutes original issue premium, which original issue premium is not deductible for federal income tax purposes. In the case of an owner of a Premium Bond, however, the amount of the original issue premium which is treated as having accrued over the term of such Premium Bond is reduced from the owner’s cost basis of such Premium Bond in determining, for federal income tax purposes, the taxable gain or loss upon the sale, redemption or other disposition of such Premium Bond (whether upon its sale, redemption or payment at maturity). Owners of Premium Bonds should consult their tax advisors with respect to the determination, for federal income tax purposes, of the “adjusted basis” of such Premium Bonds upon any sale or disposition and with respect to any state or local tax consequences of owning a Premium Bond.

CONTINUING DISCLOSURE OBLIGATION

In accordance with the requirements of Rule 15c2-12 promulgated by the SEC under the Securities Exchange Act of 1934 (“Rule 15c2-12”), the City has undertaken in the 2017 Resolution to provide to the Municipal Securities Rulemaking Board (the “MSRB”):

(1) by not later than seven months after the end of each Fiscal Year, beginning with the Fiscal Year ending June 30, 2017, the audited financial statements of the City for the preceding Fiscal Year, if available, prepared in accordance with Section 159-34 of the General Statutes of North Carolina, as it may be amended from time to time, or any successor statute, or if such

audited financial statements are not then available, unaudited financial statements of the City for such fiscal year to be replaced subsequently by audited financial statements of the City to be delivered within 15 days after such audited financial statements become available for distribution;

(2) by not later than seven months after the end of each Fiscal Year, beginning with the Fiscal Year ending June 30, 2017, the financial and statistical data as of a date not earlier than the end of the preceding Fiscal Year (which data will be prepared at least annually, specify the date as to which such information was prepared and will be delivered together with any subsequent material events notices specified in paragraph (3) below) for the type of information included in the tables under the captions “THE AIRPORT -- AIRLINES SERVING THE AIRPORT,” “AIR SERVICE AREA,” and “HISTORICAL ENPLANED PASSENGERS,” to the extent such items are not included in the financial statements referred to in paragraph (1) above.

(3) in a timely manner not in excess of 10 Business Days, notice of the occurrence of any of the following events with respect to the 2017 Bonds:

(a) principal and interest payment delinquencies;

(b) non-payment related defaults, if material;

(d) unscheduled draws on any credit enhancements reflecting financial difficulties;

(e) substitution of any credit or liquidity providers, or their failure to perform;

(f) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the 2017 Bonds or other material events affecting the tax status of the 2017 Bonds;

(g) modification of the rights of the Beneficial Owners of the 2017 Bonds, if material;

(h) call of any of the 2017 Bonds, if material, and tender offers;

(i) defeasance of any of the 2017 Bonds;

(j) release, substitution or sale of any property securing repayment of the 2017 Bonds, if material;

(k) rating changes;

(l) bankruptcy, insolvency, receivership or similar event of the City;

(m) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake

such an action or the termination of a definitive agreement relating to such actions, other than pursuant to its terms, if material; and

(n) the appointment of a successor or additional trustee, or the change in the name of a trustee, if material;

(4) in a timely manner, notice of a failure of the City to provide the required annual financial information described in (1) and (2) above on or before the date specified.

At present, Section 159-34 of the General Statutes of North Carolina requires that the City’s financial statements be prepared in accordance with generally accepted accounting principles and that they be audited in accordance with generally accepted auditing standards.

The City has acknowledged in the 2017 Resolution that its undertaking pursuant to Rule 15c2-12 is intended to be for the benefit of the Owners and the beneficial owners of the 2017 Bonds and is enforceable by the Trustee or by any Owner or beneficial owner of the 2017 Bonds. The right to enforce the provisions of the City’s Rule 15c2-12 undertakings is limited to a right to obtain specific performance of the City’s obligations and a failure by the City to comply with its Rule 15c2-12 undertakings will not be an event of default under the Bond Order or the 2017 Resolution and will not result in acceleration of the 2017 Bonds. All actions shall be instituted, had and maintained in the manner provided in the 2017 Resolution for the benefit of all Owners and beneficial owners of the 2017 Bonds.

During the previous five years, the City has not knowingly failed to comply in all material respects with its previous continuing disclosure obligations. The rating agencies have periodically modified the claims-paying ability of municipal bond insurers and the ratings of financial institutions providing credit or liquidity support to governmental financings several times without giving notice of such modifications to the City. The City has learned of some rating changes through general sources and, when it did so, filed the appropriate material event notice related to such ratings change to the extent they are applicable to the City’s indebtedness; however it is possible that the City either was unaware of a change or did not learn of a change in order to file a notice in a timely fashion.

The City may modify from time to time, consistent with Rule 15c2-12, the information provided or the format of the presentation of such information to the extent necessary or appropriate in the judgment of the City, but: (1) any such modification may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of the City; (2) the information to be provided, as modified, would have complied with the requirements of Rule 15c2-12 as of the date of this Official Statement, after taking into account any amendments or interpretations of Rule 15c2-12 as well as any changes in circumstances; and (3) any such modification does not materially impair the interest of the Owners or the beneficial owners, as determined by the Trustee or nationally recognized bond counsel or by the approving vote of the Owners of a majority in principal amount of the 2017 Bonds. Any annual financial information containing modified operating data or financial information will explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided. The City’s Rule 15c2-12 undertakings will terminate on payment, or provision having been made for payment in a manner consistent with the Rule 15c2-12, in full of the principal of and interest on the 2017 Bonds.

All documents provided to the MSRB as described above will be provided in an electronic format as prescribed by the MSRB and accompanied by identifying information as prescribed by the MSRB. The City may discharge its undertaking described above by providing such information in a manner that the SEC subsequently authorizes in lieu of the manner described above.

FORWARD-LOOKING STATEMENTS

The statements contained in the Official Statement, and in any other information provided by the City or the Airport, that are not purely historical, are forward-looking statements, including statements regarding the City or the Airport’s expectations, hopes, intentions or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in the Official Statement are based on information available to the City and the Airport on the date hereof, and the City and the Airport assume no obligation to update any such forward-looking statements. It is important to note that the Airport’s actual results could differ materially from those in such forward-looking statements.

The forward-looking statements herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the City and the Airport. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement would prove to be accurate.

MISCELLANEOUS

RATINGS

The 2017 Bonds have been rated “Aa3” by Moody’s Investors Service (“Moody’s”) and “AA-” by Fitch Ratings (“Fitch”). Both rating agencies have indicated that the outlook for its respective rating is stable. Further explanation of the significance of such ratings may be obtained from Moody’s and Fitch. The ratings are not a recommendation to buy, sell or hold the 2017 Bonds and should be evaluated independently. There is no assurance that such ratings will not be withdrawn or revised downward by Moody’s or Fitch. Any such action may have an adverse effect on the market price of the 2017 Bonds. Neither the City nor the Underwriters have undertaken any responsibility after the execution and delivery of the 2017 Bonds to assure maintenance of the ratings or to oppose any such revision or withdrawal.

FINANCIAL ADVISORS

DEC Associates, Inc., Charlotte, North Carolina, is serving as financial advisor to the City. Frasca & Associates, LLC, New York, New York is serving as financial advisor to the Airport.

APPROVAL

The Local Government Commission and the City have each duly authorized the delivery of this Official Statement.

Members of the Local Government Commission staff have participated in the preparation of this Official Statement and other documents related to the issuance of the 2017 Bonds, but the Local Government Commission and its staff assume no responsibility for the accuracy or completeness of any representation or statement in this official statement, other than those in Appendix G.

APPENDIX A

CITY OF CHARLOTTE, NORTH CAROLINA AUDITED FINANCIAL STATEMENTS OF THE AIRPORT FOR THE YEAR ENDED JUNE 30, 2016

[THIS PAGE INTENTIONALLY LEFT BLANK] CHARLOTTE DOUGLAS InternationalCLT Airport

For the fiscal years ended June 30, 2016 & 2015

Comprehensive ANNUAL Financial REPORT of the Airport Enterprise Fund

An enterprise fund of the City of Charlotte, Charlotte, NC

Photography courtesy of: Charlotte Douglas International Airport, Rob McKenzie Photography and Patrick Schneider Photography CHARLOTTE DOUGLAS International Airport NORTH CAROLINA

Comprehensive Annual Financial Report For the fiscal years ended June 30, 2016 and 2015

Mayor and City Council Jennifer W. Roberts, Mayor Vi Lyles, Mayor Pro Tem Julie Eiselt, Council At-Large Claire Fallon, Council At-Large James Mitchell, Council At-Large Patsy Kinsey, District 1 Al Austin, District 2 LaWana Mayfield, District 3 Greg Phipps, District 4 Dimple Ajmera, District 5 1 Kenny Smith, District 6 Ed Driggs, District 7

City Manager’s Office Marcus Jones, City Manager 2 Sabrina Joy-Hogg, Deputy City Manager 2 Randy Harrington, Chief Financial Officer

Aviation Department Brent Cagle, Aviation Director Michael Hill, Aviation Chief Financial Officer

An enterprise fund of the City of Charlotte, Charlotte, NC

NOTES: 1Effective January 23, 2017. 2Effective December 1, 2016.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 3 TABLE OF CONTENTS

7 INTRODUCTORY SECTION

8 LETTER OF TRANSMITTAL

23 FINANCIAL SECTION

24 REPORT OF INDEPENDENT AUDITOR 25 MANAGEMENT’S DISCUSSION & ANALYSIS

26 MANAGEMENT’S DISCUSSION & ANALYSIS

26 FINANCIAL HIGHLIGHTS

27 OVERVIEW OF THE FINANCIAL STATEMENTS 37 FINANCIAL STATEMENTS

38 COMPARATIVE STATEMENTS OF NET POSITION

41 COMPARATIVE STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

42 COMPARATIVE STATEMENTS OF CASH FLOWS

44 NOTES TO THE FINANCIAL STATEMENTS 69 REQUIRED SUPPLEMENTARY INFORMATION 73 ADDITIONAL INFORMATION

4 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | Year ending June 30, 2016 TABLE OF CONTENTS continued

92 STATISTICAL SECTION

94 SCHEDULE 1: NET POSITION

96 SCHEDULE 2: CHANGES IN NET POSITION

98 SCHEDULE 3: RECONCILIATION OF CASH BALANCES, NON-GAAP

100 SCHEDULE 4: BOND INDENTURE DEBT SERVICE COVERAGE

102 SCHEDULE 5: NET REVENUES AND EXPENSES (INCLUDED/EXCLUDED)

106 SCHEDULE 6: RECONCILED LANDING FEE RATES

107 SCHEDULE 7: NET AVERAGE COST PER ENPLANED PASSENGER

108 SCHEDULE 8: TOP REVENUE PRODUCERS

110 SCHEDULE 9: OPERATING EXPENSES PER ENPLANED PASSENGER

112 SCHEDULE 10: GENERAL AIRPORT REVENUE BONDS (GARBS) AND REVENUE BOND ANTICIPATION NOTES (BANS) OUTSTANDING

113 SCHEDULE 11: GENERAL AIRPORT REVENUE BONDS AND REVENUE BOND ANTICIPATION NOTES DEBT SERVICE REQUIREMENTS

114 SCHEDULE 12: OUTSTANDING DEBT PAYABLE FROM GENERAL AIRPORT REVENUES PER ENPLANED PASSENGER

116 SCHEDULE 13: ANNUAL DEBT SERVICE PAID FROM GENERAL AIRPORT REVENUES PER ENPLANED PASSENGER

118 SCHEDULE 14: TAXABLE AIRPORT SPECIAL FACILITY REVENUE BONDS OUTSTANDING CONSOLIDATED RENTAL CAR FACILITY PROJECT

119 SCHEDULE 15: TAXABLE AIRPORT SPECIAL FACILITY REVENUE BONDS DEBT SERVICE REQUIREMENTS CONSOLIDATED RENTAL CAR FACILITY PROJECT

120 SCHEDULE 16: DOMESTIC AND INTERNATIONAL ENPLANEMENTS

121 SCHEDULE 17: ENPLANEMENTS BY TYPE OF PASSENGER

122 SCHEDULE 18: ENPLANED PASSENGERS BY AIRLINE

126 SCHEDULE 19: LANDED WEIGHT BY AIRLINE

132 SCHEDULE 20: AIRCRAFT OPERATIONS

133 SCHEDULE 21: AVERAGE LOAD FACTOR

134 SCHEDULE 22: CARGO ENPLANED BY POUND

135 SCHEDULE 23: CSMA (OR AIR TRADE AREA) POPULATION

136 SCHEDULE 24: TOTAL PERSONAL INCOME (MSA)

137 SCHEDULE 25: PER CAPITA PERSONAL INCOME (MSA)

139 SCHEDULE 26: UNEMPLOYMENT RATE (MSA)

140 SCHEDULE 27: 10 LARGEST CHARLOTTE-AREA NON-GOVERNMENT EMPLOYERS (RANKED BY NUMBER OF FULL TIME EMPLOYEES)

142 SCHEDULE 28: EMPLOYEE TREND

144 SCHEDULE 29: CAPITAL ASSETS

146 SCHEDULE 30: PFC APPROVALS AND REMAINING AUTHORITY

149 SCHEDULE 31: PFC COLLECTIONS

150 SCHEDULE 32: PFC FUND ACTIVITY

152 SCHEDULE 33: DOMESTIC O&D DEPLANEMENTS

153 SCHEDULE 34: CFC COLLECTIONS

154 SCHEDULE 35: CFC SPECIAL FACILITIES DEBT SERVICE COVERAGE

156 SCHEDULE 36: CFC FUND ACTIVITY

158 SCHEDULE 37: RENTAL CAR MARKET SHARE

Year ending June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 5

©Raymond Kaskey

INTRODUCTORY SECTION

The Introductory Section contains unaudited information about the Airport Enterprise Fund (Airport). LETTER OF TRANSMITTAL MESSAGE FROM THE AVIATION DIRECTOR AND THE CITY OF CHARLOTTE CHIEF FINANCIAL OFFICER

Brent Cagle Aviation Director Randy Harrington Charlotte Douglas Chief Financial Officer International Airport City of Charlotte

January 26, 2017 Honorable Mayor, City Council and City Manager:

We are honored to present the Charlotte Douglas International Airport Comprehensive Annual Financial Report (an enterprise fund of the City of Charlotte, North Carolina) for the fiscal year ended June 30, 2016. The financial statements in this report are prepared and presented in conformity with the Generally Accepted Accounting Principles (GAAP) in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB).

This report consists of management’s representations concerning the finances of the Airport, an Enterprise Fund of the City of Charlotte. Consequently, management assumes full responsibility for the preparation and fair presentation of the information presented in this report. To provide a reasonable basis for making these representations, management of the City and the Airport have established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City and the Airport’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement.

To the best of our knowledge, we believe this report to be accurate in all material respects and reported in a manner designed to present the financial position and results of the City of Charlotte, Charlotte Douglas International Airport Enterprise Fund.

Management’s Discussion and Analysis (MD&A) begins on page 25 and provides a narrative introduction, overview, and analysis of the Financial Statements and Notes. This transmittal letter is designed to complement the MD&A and should be read in conjunction with it. Starting on page 92, the Statistical Section provides additional relevant unaudited information.

8 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 FISCAL YEAR 2016 HIGHLIGHTS

FY 2016 was a successful year! We completed renegotiation of the Airline Use and Lease Agreement (AUA) securing our rates and charges methodology while adding additional bondholder protections. The agreement provides management a strong and secure financial platform for the next 10 years. Our capacity enhancement and modernization program – Destination CLT (see page xx) – is well underway, with additional new facilities scheduled to open beginning in FY 2018.

The recently completed Consolidated Rental Car Facility (CONRAC), has been well received by local and visiting passengers. Situated directly across from the terminal, it provides efficient access for public parking and allows for pick up and drop off of rental cars inside the deck. Rental car transaction days have increased by 364,525 days.

Airport management is very focused on the future, contracting with an external consultant to create an Airport Area Strategic Development Plan. This 20-year commercial development plan will guide the airport’s land reuse plan and ensure compatible use development around the airport. The creation of this plan has included feedback from multiple shareholders, including area residents, business and civic leaders, City of Charlotte staff, and other partners. This plan will be complete in FY 2017 and Aviation staff will determine implementation steps at that time.

Operationally, during FY 2016, the Airport experienced its 13th consecutive fiscal year of enplanement growth. In FY 2016, enplaned passengers increased by approximately 1.0%; however, O&D passengers increased at a higher rate of 8.4%. Twelve new domestic destinations and two seasonal international destinations were added during the year, providing better connectivity for the 2.4 million people residing in the Airport’s service area.

American Airlines, the Airport’s largest and world’s largest carrier, completed the final phase of its merger with US Airways in October 2015. Although American continued making adjustments to its overall route network, CLT maintains its position as the carrier’s second largest hub and American added six new domestic destinations and two seasonal international 1.0% 8.4% 6.6% Largest2nd American Airlines Hub routes in FY 2016. Enplaned Increased Increased Passengers O&D Operating Passengers Revenues As a result of various successful initiatives, operating revenues totaled $206.4 million in FY 2016 exceeding FY 2015 results by 6.6%. This increase was led by Better Connectivity for strong increases in terminal, concessions and parking revenues. Net revenues available for debt service remained extremely strong at $90.5 million resulting in 3.5x general airport revenue bond debt service 2.4mRegional coverage. Furthermore, the Airport’s liquidity remains Residents far above the median for comparable airports at 1,391 Days of Cash on Hand. Management is very focused on maintaining strong financial metrics and market access. In June 2016, the City issued $230 million of Bond Anticipation Notes (BANs) as part of its $1.6 billion 5-year capital development program. Proceeds from the BANs were used to retire $43 million of 3.5xGeneral Airport outstanding 2014 BANs, fund ongoing development of Revenue Bond the Elevated Roadway and Terminal Curb Front project, Debt Service Coverage and provide liquidity to fund additional projects.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 9 PROFILE OF THE REPORTING ENTITY

Charlotte Douglas International Airport (CLT or the puts citizens first Airport) is strategically located in the U.S., a two-hour and makes this a flight from 60% of the nation’s population and within a community of choice thriving regional economic center. The Airport served for living, working approximately 44.8 million passengers in FY 2016, and leisure. The ranking as the 9th busiest in the nation and 27th busiest mission of the City in the world according to Airports Council International’s is to ensure the calendar year 2015 traffic summary. The Airport is owned delivery of quality by the City of Charlotte, North Carolina (the City) and public services and operated by the City of Charlotte Aviation Department to promote the (Aviation Department). safety, health, and quality of life of its Charlotte is the core of the service area that is the citizens. The City Charlotte-Gastonia-Concord Metropolitan Statistical Area, operates under a an area with over 2.4 million people that includes seven City Council-City counties in North Carolina and three in South Carolina. Manager form of The City, incorporated in 1768, became the county seat government. The of Mecklenburg County in 1774 and has grown to a City Council, eleven present area covering 306 square miles, with an estimated members elected population of 827,097, in a county of over 1 million in every two years on a partisan basis, has policy-making 2016. Charlotte strives to be a model of excellence that and legislative authority. The Mayor and four council members are elected at-large by a citywide vote. The remaining seven Council members are elected by district, from voters residing in each district. The Mayor and City City Manager Council are responsible for appointing the City Manager, Marcus Jones City Attorney, City Clerk and members of the various boards and commissions. The City Council reviews and approves CITY OF all departments’ annual budgets, sets Deputy City Aviation CHARLOTTE the tax rate, approves the financing of all Manager Director AVIATION City operations and capital investments, Sabrina Joy-Hogg Brent Cagle DEPARTMENT and authorizes contracts on behalf of the City. The City Manager is responsible for carrying out the policy decisions made by the City Council for the community Deputy Aviation Director Deputy Aviation Director (Operations) (Business & Finance) and providing vision and leadership Jack Christine (VACANT) to the organization. City department directors, including the Aviation Director, report to the City Manager. Operations Finance Jimmy Mynatt Michael Hill Within the city structure, the Aviation Director heads the Airport’s leadership Facilities Technology team overseeing operations of the Jerry Chris Hazen Airport and long-term strategic Schwinghammer planning. The leadership team includes two Deputy Aviation Directors Development Business Jeff McSwain & Revenue overseeing six Assistant Aviation Haley Gentry Directors that manage the six divisions of the airport: Operations, Facilities, Development, Finance, Technology Legal Public Affairs and Business & Revenues. Managers Leila Lahbabi Lee Davis overseeing the Administration, Public Affairs, and Economic Affairs report directly to the Aviation Director and the Administrative Economic Airport’s chief legal counsel reports to Services Affairs Babette Boone Stuart Hair the City Attorney with a dotted line to the Aviation Director.

10 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 Back row: Jimmy Mynatt, Chris Hazen, Stuart Hair, Jerry Schwinghammer, Brent Cagle, Michael Hill Front row: Jeff McSwain, Lee Davis, Babette Boone, Leila Lahbabi, Haley Gentry, Jack Christine

Airport financial operations are accounted for in a separate Aviation Enterprise Fund according to GAAP for governmental entities. CLT is a self-supporting business and does not use local tax money to fund its daily operating costs. Funds come from airport generated revenues, including parking, concessions, landing fees, rental cars, advertising, cargo, Fixed Base Operator, and airline rentals.

Airport STRATEGIC PRINCIPLES management utilizes six core Strategic & SECURITY Principles to devising safety practices manage and run reduce harm/loss to people & property the nation’s 9th largest airport, SAFETY CUSTOMER FOCUS including: Safety providing superior travel experience and Security; southern hospitality & ease and efficiency of Customer Focus; Strategic Growth; Asset Preservation; Value movement GROWTH Employees; and Strong Partnerships. The first priority and STRATEGIC principle is Safety and Security, which emphasizes devising ensures facility development safety practices to reduce the likelihood of harm or loss to continued growth & global competitiveness people and property. Customer Focus is providing a superior travel experience, one that blends southern hospitality ASSET PRESERVATION with ease and efficiency of movement. Strategic Growth, against service disruptions, safeguard also known as demand driven growth, ensures facility to expand aviation pursing technology development is targeted for continued growth and global capabilities & business vitality competitiveness. Asset Preservation includes proactively VALUE EMPLOYEES maintaining equipment and facilities to safeguard against promoting employee’s development, service disruptions, as well as pursing technology to expand education & training, accountability & ownership, aviation capabilities and business vitality. Value Employees competitive compensation & quality working focuses on promoting development, education and training, conditions accountability and ownership, competitive compensation and quality working conditions for the Airport’s employees. The PARTNERSHIPS final principle is Strong Partnerships, fostering a financially fostering a financially self- self-sustaining and cost-competitive environment with our sustaining & cost-competitive business partners built on trust and integrity. This principle environment with our business partners, also applies to the community, assuring the community that the Airport will act in a responsible way providing STRONG assuring the community that the Airport will act in a responsible way information, seeking engagement and permissible solutions for those most affected in the community.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 11 AIRPORT FACILITIES

The Airport, located approximately seven miles from the City’s central business district, was established in 1935 as Charlotte Municipal Airport. It occupies approximately 5,800 acres of land located within the City, and is accessible within minutes from Interstate 85 and Interstate 77. It is the only large hub airport (designated by the Federal Aviation Administration (FAA) as a commercial or primary airport serving 1% or more of annual passenger boardings) in North Carolina and South Carolina. The closest commercial service airports are Concord Regional Airport (30 miles), Greenville-Spartanburg International Airport (88), Columbia Metropolitan Airport (102), Piedmont Triad International Airport (103), Asheville Regional Airport (111), Florence Regional Airport (118) and Raleigh-Durham International Airport (161).

The Airport has a 1.8 million square foot terminal with 5 concourses and 97 gates. The terminal includes 28,000 square feet of concession space, including fine dining, casual, and fast food options, as well as a variety of retail shops and services to meet passenger needs. The airfield has three parallel runways and one crosswind runway. Runway 18C/36C (north/south) is 10,000 ft., 18R/36L (north/south) is 9,000 ft., 18L/36R (north/south) is 8,676 ft., and 5/23 (crosswind) is 7,500 ft. Runway 5/23 has limited daytime operations and is primarily used for noise abatement.

There are 28,720 public parking spaces at the Airport, comprised of short-term and long-term parking spaces, and spaces for Curbside and Business Valet operations. This represents an increase of 7.5%, or more than 2,000 new spaces compared to FY 2015, and is the result of multiple parking facility projects developed to accommodate increased O&D passenger demand. The new Hourly Parking Deck located directly across from the terminal houses the Airport’s Consolidated Rental Car Facility (CONRAC) in the bottom three levels providing approximately 2,000 spaces for the rental car operators and a quick-turn facility for fueling and cleaning operations. The upper levels provide 3,896 short-term parking spaces for travelers.

CLT’s Fixed Based Operator (FBO) Wilson Air Center – Charlotte, manages private and corporate aircraft operations for the Airport. Wilson Air Center has more than 50 acres of facilities including an executive terminal and aircraft storage and offers corporate support services.

The North Carolina Army Guard and North Carolina Air National Guard also have active facilities at the Airport.

Norfolk Southern Corporation maintains its 200-acre Regional Intermodal Facility at the Airport. This facility is located between the south ends of Runways 18R/36L and 18C/36C and transfers containers between trucks and trains; it is capable of 200,000 lifts per year. The facility provides unique connectivity for regional businesses facilitating cargo movement between all modes of transportation. C 15 ALENDAR YEAR 20

12 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 28,000 square feet of concessions dining: fine, casual, and fast food retail shops services

1.8 million square foot terminal 5 concourses 97 gates Year ending June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 13 AIRPORT OPERATIONS

As of June 30, 2016, 35 airlines offered regularly scheduled passenger and cargo service at the Airport, providing approximately 724 daily departures to 155 destinations in 32 countries around the world. Additional detail regarding airline market share is available in the Statistical Section, Schedules 18-19 on pages 122 through 126.

The Table below lists the passenger and cargo airlines providing service at the Airport in FY 2016.

AIRLINES PROVIDING SERVICE AT CLT (Fiscal Year Ended June 30, 2016) Major/National Regional/Commuter Foreign Flag All Cargo American Airlines Air Wisconsin Air Canada/Air Georgian ABX Air, Inc. Delta Air Lines ExpressJet Airlines Airlines Airnet Systems Frontier Airlines GoJet Airlines Insel Air International B.V. CSA, Inc. JetBlue Airways Mesa Airlines Interjet Airlines FedEx Corp. Southwest Airlines Miami Air Lufthansa German Airlines Kalitta Air, LLC United Airlines Piedmont Airlines Sunwing Airlines Mountain Air Cargo, Inc. Pinnacle Airlines United Parcel Service PSA Airlines USA Jet Republic Airlines Republic Airways Skywest Airlines Shuttle America Trans States Airlines World Atlantic 724 ViaAir Departures airlines35 daily average XTRA Airways destinations155

The composition of traffic in FY 2016 shifted slightly from prior years, with approximately 27% O&D and 73% connecting. During FY 2016, total enplaned passengers increased 1.0% to 22.4 million, countries32 and growth in O&D passengers exceeded that of connecting passengers at 8.4%. CLT primarily provides domestic service, as only 6.3% of overall enplanements are international. For more detailed information on enplaned passengers please refer to Schedules 16-17 on pages 120 through 121 in the Statistical Section.

The Airport serves as a major domestic hub in American Airlines’ system. In December 2013, American Airlines merged with US Airways to create the world’s largest airline – American Airlines Group and then in October 2015 the merged airline began operating under a single operating agreement. Post merger, operations of the consolidated airline at CLT continued to expand. However, during the last two fiscal years enplanement growth has slowed to approximately 1.0% annually, as American aligns its hubs and right-sizes its overall operation. Furthermore, the Airport is currently operating at capacity until the proposed development projects create additional capacity for all the airlines.

In FY 2016, American Airlines enplaned 91.3% of total enplanements at CLT; this was down slightly from 92% in FY 2015. American offers an average of 6,700 daily flights to 350 destinations in 50 countries system-wide, and employs 10,800 people in Charlotte, including flight crews based in Charlotte, ground agents, as well as employees at the carrier’s heavy maintenance and line maintenance hangars and training center.

During FY 2016, several airlines added new destinations including: Frontier Airlines to Chicago O’Hare, IL, Orlando, FL, and Philadelphia, PA; Southwest Airlines to Dallas-Love Field, TX; United Airlines to Denver, CO; as well as ViaAir to Myrtle Beach, SC. American expanded its service offerings to Albuquerque, NM; Burlington, VT; Springfield-Branson, MO;

14 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 DESTINATIONS ADDED

Portland, ME; San Jose, CA; and Madison, WI. American also added seasonal service to Curacao, Dutch Caribbean and Puerto Plata, Dominican Republic.

United Airlines and Southwest Airlines both increased their enplanements at CLT in FY 2016, with year-over-year increases of 38.73% and 18.96% respectively. These increases were due to the new destinations served from Charlotte as well as United utilizing larger aircraft to serve the Charlotte market.

Below is a FY 2016 list of the top 25 O&D markets served from CLT.

TOP 25 DOMESTIC O&D MARKETS Percent of Total Domestic City FY 2016 Enplanements Enplanements Distance from Airport (miles)

1 New York Area1 704,977 12.9% 534

2 Washington DC Area2 257,630 4.7% 330

3 Chicago3 257,295 4.7% 599

4 Boston 239,023 4.4% 727

5 Dallas4 203,661 3.7% 937

6 Los Angeles5 186,410 3.4% 2,125

7 Philadelphia 162,883 3.0% 447

8 San Francisco6 144,674 2.7% 2,296

9 South Florida7 143,130 2.6% 650

10 Houston8 114,849 2.1% 913

11 Orlando 112,677 2.1% 468

12 Las Vegas 108,520 2.0% 1,917

13 Denver 104,547 1.9% 1,338

14 Phoenix 98,844 1.8% 1,774

15 Detroit 91,736 1.7% 500

16 Minneapolis/St. Paul 90,907 1.7% 930

17 Tampa 77,633 1.4% 508

18 Hartford 73,674 1.3% 643

19 Atlanta 67,610 1.2% 227

20 Seattle 66,209 1.2% 2,279

21 Pittsburgh 63,942 1.2% 366

22 Providence 60,229 1.1% 683

23 Nashville 57,611 1.1% 329

24 St. Louis 56,518 1.0% 575

25 Indianapolis 55,300 1.0% 428

Total Top 25 3,600,489 65.9%

CITY LEGEND 1LaGuardia (LGA), John F Kennedy (JFK) and Newark (EWR) Airports 2Ronald Reagan (DCA), Dulles (IAD) and Baltimore (BWI) Airports 3O’Hare (ORD) and Midway (MDW) Airports 4Dallas/Ft. Worth (DFW) and Dallas Love Field (DAL) Airports 5Los Angeles (LAX), John Wayne (SNA), Ontario (ONT), Long Beach (LGB) and Burbank (BUR) Airports 6San Francisco (SFO), San Jose (SJC) and Oakland (OAK) Airports 7Fort Lauderdale (FLL) and Miami (MIA) Airports 8George Bush International (IAH) and Hobby (HOU) Airports

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 15 DEVELOPMENT INITIATIVES

DESTINATION CLT Strategic Growth, one of the Airport’s strategic principles, led management to undertake a thorough master planning process resulting in the Airfield Capacity Enhancement Plan and Terminal Capacity Enhancement Plan, a 20-year $6 billion plan. These two plans were used in the development of Destination CLT – the current 10-year $2.5 billion capital investment program. Destination CLT is targeted to enhance capacity based on the Airport’s growth forecast through 2035 while remaining demand driven or scalable to respond to airline and passenger demand.

Destination CLT is well underway and the status of each major component is listed below, as of June 30, 2016:

Destination CLT Projects Description of Project Status Elevated Roadway and Terminal Curb Front Expansion of roadway and curb front facilities to Construction Underway meet growing local passenger demand and reduce congestion

Terminal Lobby Expansion Expansion to the ticketing and security areas for local Design Underway passengers

Terminal Renovations Updates and refurbishment of the 33-year-old Design Underway terminal building, including infrastructure replacement and upgrades to finishes such as walls, ceilings and flooring

Concourse Expansions (A, B, C, E) Additional holdroom, public circulation and Design Underway concession space to meet passenger demand

Fourth Parallel Runway Increase efficiency and capacity of the airfield Planning Underway

OTHER CONSTRUCTION PROJECTS In addition to the capacity creating Destination CLT projects, other construction projects are underway to address routine maintenance and safety and security needs. The expansion of the cargo ramp on the south side of the airfield will provide additional ramp space for future tenants and for CLT’s deicing operations. Improvements to the long- term parking lots will provide additional capacity and improve customer experience. Rehabilitation of the pavement to Runway 18L/36R is expected to finish in FY 2017, extending the useful life of the runway. In April 2016, CLT also undertook construction of a high-speed taxiway that is expected to expedite taxiing times, saving the airlines fuel and mitigating environment impact. Construction of the high-speed taxiway is expected to conclude in September 2017. Another important project is the $50 million inline baggage system, which when complete will expedite the scanning and movement of checked bags.

OTHER DEVELOPMENT INITIATIVES The Federal Aviation Administration (FAA) and National Aeronautics and Space Administration (NASA) are currently undertaking projects at CLT. In June 2016, the FAA broke ground on a new FAA Air Traffic Control (ATC) tower. The 376 ft tower is necessary for ATC to meet CLT’s growing demand and is expected to be complete in 2018 and operational by 2020. The FAA is also involved in NextGen work at the Airport. NextGen is a multi-billion dollar federal initiative to modernize the US air transport system. The system will allow ATC to communicate with pilots via texts, expediting communications, allowing for analysis of changes to flight procedures, and a technology platform that will allow airlines and FAA to coordinate aircraft departures from the gate. As part of the NextGen work, NASA opened a lab in June 2016. The lab is working on techniques to streamline arrival and departure time of aircraft. These initiatives will help the Airport better accommodate future passengers and participate in the modernization of the national air traffic control system.

16 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 THE ECONOMY OF THE METROPOLITAN STASTICAL AREA (MSA)

The dynamic and growing region, with the City of Charlotte at its core, is fueling the Airport’s strong O&D growth. The Charlotte- Gastonia-Concord Metropolitan Statistical Area (MSA), with an estimated 2015 population of 2.4 million, is strategically located within a 24-hour drive of 50% of the nation’s population. The MSA has 10 Fortune 1000 companies headquartered within it, and the City ranks as the nation’s second largest financial center in headquartered banking assets. There are also 977 foreign-owned firms in the region, representing 46 countries, which have spawned the creation of several international and cultural organizations. The MSA’s 2015 economic growth of 7.2% exceeded the state (5.3%) and the nation (3.5%), during the same period. Trucking, rail and transportation arrangement firms are major industries in the region. Two interstate highways pass through the City limits, Interstate Highways 77 and 85, running north/south and northeast/southwest, respectively. The City is also the center of the country’s largest consolidated rail system. Norfolk Southern Railway and CSX Transportation bring approximately 300 trains through Charlotte weekly and link it to 23 states, Washington D.C. and Canada. Norfolk Southern’s 200-acre intermodal facility is expected to bring the region an economic boost of $7.6 billion over the next two decades. During July 2016, the first regular direct rail service from the Port of Wilmington was announced. The “Queen City Express” aims to reduce trucks on the road and provide a more cost effective movement of goods.

The City and region are also a destination. The City’s 8.0% hotel & motel and 1.0% prepared food and beverage taxes have provided a dedicated resource for the purpose of promoting Charlotte and helping draw visitors to the region. Recreational opportunities abound with the NASCAR Hall of Fame complex, Charlotte Motor Speedway, the National Football League’s Carolina Panthers, the National Basketball Association’s Charlotte Hornets, as well as others. The U.S. National Whitewater Center is located nearby on the Catawba River and is the world’s largest artificial whitewater river and U.S. Olympic Training site. Charlotte also offers diverse facilities for culture, the arts, nature and science. Educational opportunities also draw people to the region; there are 23 public and private secondary institutions offering degrees.

Charlotte Douglas International Airport continues to be a major economic driver to Charlotte’s regional economy with the continuous growth and expansion of its aviation facilities and infrastructures. In FY 2016, the Airport and UNC Charlotte completed a study on the economic impact and contribution of CLT. This report shows the regional economic impact is driven by additional jobs in the economy, as businesses choose Charlotte and the surrounding areas as their base for operations.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 17 AIRLINE RATES & CHARGES AND FINANCIAL POLICIES

Through the end of FY 2016, the Airport calculated rates and charges pursuant to the requirements of the 1985 Airline Use and Lease Agreement (AUA), as amended. Starting July 1, 2016 or FY 2017, the Airport will calculate rates and charges per the new modernized AUA. Similar to the old AUA, the new AUA will govern the use of the Airport by the five Signatory Airlines and the establishment of rates, fees and charges payable annually. These fees and charges generate revenues sufficient to compensate the City for debt service on bonds and operation and maintenance expenses. The new AUA preserves the 40% share of Excess Non-Airline Terminal Revenues with the Signatory Airlines.

The new AUA establishes a strong framework for management to continue producing healthy financial results while expanding the Airport. It is a modern, industry standard agreement presenting lease terms and formulas in simple terms that enhances airport access, airline competition, and provides the City the opportunity to recover certain terminal operating costs that were not recoverable under the old AUA. The new AUA eliminates exclusive-use gates, provides the City control over common use gates and ticket counters, permits the City to recapture underutilized preferential gates, and clearly outlines the capital project approval process. The new AUA also provides additional bondholder protections, including a 25% debt service coverage factor included in annual airline rates and charges and then returned to the airlines at year-end, if not needed. The agreement includes an extraordinary debt service coverage provision obligating the Signatory Airlines to make payments to the City in any Fiscal Year in which the amount of Net Revenues (as defined by the Bond Order) are forecasted to be less than 125% of Revenue Bond Debt Service.

As management proceeds with Destination CLT - the capital improvement program partially funded with debt, they remain focused on bondholder security. During FY 2016, management issued $230 million of Bond Anticipation Notes (BAN) with Bank of America N.A. and retired the outstanding $43.3 million BAN with PNC Bank. The 2016 BAN will fund certain projects and provide additional liquidity. All capital project funding plans and debt issuances are evaluated using the Airport’s financial targets listed below. Management fully assesses risk and cost impacts before undertaking projects.

18 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 MANAGEMENT’S FINANCIAL TARGETS & ACTUAL RESULTS FY 2016 Targets FY 2016 Actual Results Debt Service Coverage:

1. Debt Service Coverage - Bond Ordinance (PFC Offset Method) ≥2.0x 3.5x

2. Debt Service Coverage - PFCs Classified as Revenues ≥1.50x 2.39x

Airport Revenue Bond Debt Per Enplanement ≤$60 $27

Liquidity – Days Cash on Hand1 ≥800 1,391

Net Cost Per Enplanement - $1.35

1Days Cash on Hand calculation is unrestricted cash/operating expenses (excluding depreciation) x365

During FY 2016, the rating agencies affirmed the Airport’s strong General Airport Revenue Bonds ratings of ‘A+/Aa3/A+’ Stable Outlook by Fitch Ratings, Moody’s and Standard & Poor’s Ratings Services, respectively.

Year ending June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 19 AWARDS

JD Power: The Airport was 11th place in JD Power’s 2015 North American Airport Satisfaction Survey.

Airport Revenue News (ARN): HMSHost received the award for “Best New Food and Beverage Concept”, in the larger food and beverage division for the Airport’s 1897 Market.

USA Today: Whisky River took home 1st place for “Best Airport Bar in America” award.

Pro Pilot: Wilson Air Center – Charlotte ranked 18th best FBO in the US in FY 2016.

Aviation International News: Wilson Air Center – Charlotte is the 2nd best FBO in the Americas

HMSHost received USA Today rated Whisky River Best Airport Bar in America st ARNBest New Food andaward Beverage Concept for the Airport’s 1897 Market 1 Place

Aviation International News th ranked Wilson Air Center 11JD Power’s 2015Place North American nd Airport Satisfaction Survey 2 FBO in Bestthe Americas

Pro Pilot ranked Wilson Air Center th 18 FBO in the BestUS in FY 2016

20 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 ACKNOWLEDGEMENTS

We hope you find this report to be informative and helpful. Our management philosophy is grounded in sound financial stewardship, as evidenced by FY 2016’s financial results and production of this report. We greatly appreciate all the team members who work tirelessly providing excellent airport operations, including those who assisted in the preparation of this report.

Respectively submitted,

Brent Cagle Randy Harrington Aviation Director City of Charlotte Chief Financial Officer

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 21

FINANCIAL SECTION

8 LETTER OF TRANSMITTAL

24 REPORT OF INDEPENDENT AUDITOR

25 MANAGEMENT’S DISCUSSION & ANALYSIS

37 FINANCIAL STATEMENTS

69 REQUIRED SUPPLEMENTARY INFORMATION

73 ADDITIONAL INFORMATION

The Financial Section contains audited information about the Airport Enterprise Fund (Airport). Report of independent auditor REPORT OF INDEPENDENT AUDITOR

Report of Independent Auditor

To the Honorable Mayor and Members of City Council Charlotte, North Carolina

Report on the Financial Statements We have audited the accompanying comparative statements of net position of the Charlotte Douglas International Airport (the “Airport”), an enterprise fund of the City of Charlotte, North Carolina (the “City”), as of June 30, 2016 and 2015, and the comparative statements of revenues, expenses and changes in net position and cash flows for the years then ended and the related notes to the financial statements, which collectively comprise the Airport’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Airport’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Airport’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of the Airport as of June 30, 2016 and 2015, and the changes in its financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

OTHER MATTERS Emphasis of a Matter As discussed in Note 1, the financial statements present only the Airport and do not purport to, and do not present fairly the financial position of the City as of June 30, 2016 and 2015, and the changes in its financial position and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and the Required Supplementary Information, as listed in the table of contents in the Financial Section, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the Airport as a whole. The Introductory Section, Additional Information, and the Statistical Section, as listed in the accompanying table of contents, are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The Additional Information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, based on our audit this information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The Introductory and Statistical Sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it.

Raleigh, North Carolina January 26, 2017

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24 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 MANAGEMENT’S DISCUSSION & ANALYSIS

The Financial Section contains audited information about the Airport Enterprise Fund (Airport). MANAGEMENT’S DISCUSSION & ANALYSIS Management’s Discussion & Analysis (MD&A) provides a narrative introduction, overview and analysis of the financial activities of Charlotte Douglas International Airport (the Airport), an Enterprise Fund of the City of Charlotte. The information contained herein pertains to the financial performance of the Airport for the Fiscal Year (FY) ended June 30, 2016. Prior years’ financial performance is included for comparison purposes. This MD&A should be read in conjunction with the Financial Statements and Notes sections that follow.

FINANCIAL HIGHLIGHTS

FISCAL YEAR 2016 • Total net position for the Airport Enterprise Fund on June 30, 2016 was $1.58 billion, and 26% or $407.4 million of that total was unrestricted. The net position increased $85.1 million from total net position on June 30, 2015. • Operating revenues increased by $12.7 million to $206.4 million in FY 2016. The increase was related to increased terminal, concessions and parking revenues. • Total operating expenses, excluding depreciation and amortization, also increased by $12.7 to $118.0 million in FY 2016. This increase was related to the increased costs of services and asset preservation (terminal and airfield cost centers). • Non-operating revenues decreased by $117.8 million to $76.0 million in FY 2016, consistent with prior years excluding FY 2015 when non-operating revenues increased dramatically due to the inclusion of private contributions for the American Airlines lease pay-off when the Special Facilities Bonds were retired. Additional changes in non-operating revenues included, Contract Facility Charges (CFCs) increasing by $2.1 million to $12.3 million while Passenger Facility Charges (PFCs) declined slightly by $1.1 million to $59.2 million. • Interest and other charges decreased by $9.1 million to $18.9 million in FY 2016 because of increased interest capitalization. • Other expenses increased by $18.1 million to $30.5 million in FY 2016 because of $11.0 million on non-capital expensed items. • Capital contributions decreased ever-so-slightly by $0.3 million to $20.7 million in FY 2016. This category is mostly comprised of grants used to fund capital projects. FY 2016 represented the third consecutive year of reduced grant accruals.

FISCAL YEAR 2015 • Total net position for the Airport Enterprise Fund on June 30, 2015 was $1.50 billion, and 25% or $373.6 million of that total was unrestricted. The net position increased $214.3 million from total net position on June 30, 2014. • Operating revenues increased by $8.9 million to $193.7 million in FY 2015. The increase was primarily due to increased airfield, parking and concession revenues. • Total operating expenses, excluding depreciation and amortization, increased by $4.5 million to $105.3 million in FY 2015. This slight increase was due to increased costs of services and asset preservation. • Non-operating revenues increased by $118.8 million to $193.8 million in FY 2015. The increase is mostly due to the inclusion of private contributions of $116.5 million related to the American Airlines (US Airways) lease pay-off when the Special Facilities Bonds were retired in July 2014 and $2.6 million of remote facility expansion contributions. • Interest and other charges decreased by $4.2 million to $28.0 million in FY 2015, because of early redemption of debt. • Capital contributions decreased by $19.3 million to $21.0 million in FY 2015. This category is mostly comprised of grants used to fund capital projects. FY 2015 represented the second consecutive year of reduced grant accruals.

26 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Section of this report consists of three parts: Management’s Discussion and Analysis (this section), the Financial Statements, Required Supplementary Information and Additional Information pertaining to the changes in net position for included and excluded cost centers as well as schedules of cash deposits and withdrawals by bond issue. The Financial Statement section includes Notes to the Financial Statements that provide explanations and detailed data on page 44 through 67.

The Airport Enterprise Fund is an enterprise fund of the City of Charlotte. This fund is used to account for the Airport’s ongoing operations. The City uses the accrual basis of accounting, so revenues are recognized when earned and expenses are recognized when incurred.

The following is a summary of the Airport’s Net Position as of June 30:

NET POSITION (Fiscal Years Ending June 30; $000)

2016 2015 2014 ASSETS Current and other assets $ 1,010,891 $ 965,191 $ 968,265 Capital assets, net 1,302,865 1,272,397 1,193,335

Total assets 2,313,756 2,237,588 2,161,600

Deferred outflows of resources 2,582 2,836 1,608

LIABILITIES Current liabilities 74,034 77,464 103,940 Noncurrent liabilities 658,829 660,318 775,553

Total Liabilities 732,863 737,782 879,493

Pension deferrals 347 4,614 -

Net position: Net investment in capital assets 732,366 696,987 555,990 Restricted 443,384 427,423 388,656 Unrestricted 407,378 373,618 339,069

TOTAL NET POSITION $ 1,583,128 $ 1,498,028 $ 1,283,715

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 27 The analysis below explains the Net Position.

FISCAL YEAR 2016 COMPARED TO FISCAL YEAR 2015 Total assets increased by $76.2 million or 3.4%, in FY 2016 compared to FY 2015. This was due to an increase in current assets attributable to cash and cash equivalents growth and capital assets related to building additions and the development of the Airport entrance road, fuel farm expansion and the Little Rock Road extension.

Total liabilities decreased $4.9 million or 1.0%, in FY 2016 compared to FY 2015. This modest decline was related to declining long-term revenue bond liabilities offset with slightly increasing revenue bond anticipation note liabilities. Pension deferrals decreased by $4.3 million or 92.5%, in FY 2016 compared to FY 2015. Pension reporting varies from year to year based on actuarial valuations of the City of Charlotte’s pension plan compared on a statewide perspective. In FY 2016, the Airport Enterprise’s net pension liability was $1.9 million. For more detail, please see Note 6 on page 59.

Total net position increased by $85.1 million or 5.68%, in FY 2016 compared to FY 2015. As of June 30, 2016, $732.3 million was invested in capital assets, $443.4 million was restricted for debt service reserves, PFCs, CFCs, etc., and $407.4 million was unrestricted and available for short-term operational needs. This increased net position is primarily due to ongoing capital development and growing cash balances.

FISCAL YEAR 2015 COMPARED TO FISCAL YEAR 2014 Total assets increased by $76.0 million or 3.5%, in FY 2015 compared to FY 2014. This was primarily due to an increase in capital assets related to development of the hourly parking deck, as well as renovations to the Airport staff building and land acquisition.

Total liabilities decreased substantially by $141.7 million or 16.1%, in FY 2015 compared to FY 2014. This decrease was largely attributable to the refunding of the Series 2004 Bonds with the Series 2014 Bonds resulting in present value savings, and American Airlines paying off the leases associated with the (US Airways) Special Facilities Bonds.

Pension Deferrals are related to the new General Accounting Standards Board (GASB) Statement 68, which pertain to the treatment of pension expenses, as described above. For more detail, please see Note 6 on page 59.

Total net position increased by $214.3 million or 16.7% in FY 2015, compared to FY 2014. As of June 30, 2015, $697.0 million was invested in capital assets, $427.4 million was restricted for debt service reserves, PFCs, CFCs, etc., and $373.6 million was available for short-term operational needs. This increased net position is primarily due to ongoing capital development, the US Airways debt repayment, as well as growing CFC and PFC fund balances.

28 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 CHANGES IN NET POSITION The following is a summary of Changes in Net Position as of June 30:

CHANGES IN NET POSITION (Fiscal Years Ending June 30; $000)

2016 2015 2014 REVENUES Operating revenues: Terminal rents & fees $ 42,091 $ 31,267 $ 33,576 Airfield 25,275 26,880 22,644 Concessions 48,527 41,008 40,372 Rental cars 14,111 13,608 12,756 Parking 51,674 47,624 40,824 Maintenance facility - - 7,068 Fixed base operator area (FBO) 13,732 15,885 17,429 Miscellaneous 11,037 17,442 10,127

Total operating revenues 206,447 193,714 184,796 Nonoperating revenues: Passenger facility charges 59,171 60,238 59,526 Contract facility charges 12,273 10,187 10,009 Private contributions - 119,057 - Investment earnings 4,595 4,321 5,438

Total nonoperating revenues 76,039 193,803 74,973 Total revenues 282,486 387,517 259,769

EXPENSES Operating expenses before depreciation 118,015 105,278 100,745 Depreciation 50,681 45,897 38,066 Interest and other charges 18,898 27,958 32,149 Other expenses 30,498 12,428 16,198

Total expenses 218,092 191,561 187,158 CAPITAL CONTRIBUTIONS 20,706 20,960 40,246 Change in net position 85,100 216,916 112,857

NET POSITION - beginning previously reported 1,498,028 1,283,715 1,170,858 Restatement (Note 15) - (2,603) - NET POSITION - beginning (July 1) 1,498,028 1,281,112 1,170,858 NET POSITION - ending (June 30) $ 1,583,128 $ 1,498,028 $ 1,283,715

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 29 OPERATING REVENUES The following is a summary of Operating Revenues as of June 30:

OPERATING REVENUES (Fiscal Years Ending June 30; $000)

2016 2015 2014 AIRLINE REVENUES Terminal rents & fees $ 42,091 $ 31,267 $ 33,576 Airfield 25,275 26,880 22,644

Total airline revenues 67,366 58,147 56,220

CONCESSIONS, RENTAL CARS AND PARKING REVENUES Concessions 48,527 41,008 40,372 Rental cars 14,111 13,608 12,756 Parking 51,674 47,624 40,824

Total concessions, rental cars and parking revenues 114,312 102,240 93,952

FBO, MAINTENANCE FACILITY & OTHER REVENUES FBO 13,732 15,885 17,429 Maintenance facility - - 7,068 Other 11,037 17,442 10,127

Total FBO, maintenance facility & other revenues 24,769 33,327 34,624 TOTAL OPERATING REVENUES $ 206,447 $ 193,714 $ 184,796

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

This chart depicts all primary revenue categories.

30 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 The analysis below explains the increases and decreases in operating revenues.

FISCAL YEAR 2016 COMPARED TO FISCAL YEAR 2015 Operating revenues increased by $12.7 million or 6.6%, to $206.4 million in FY 2016 from $193.7 in FY 2015. This increase was partly attributable to terminal revenues expanding $10.8 million or 34.6% because of additional airline terminal related fees, amortization of prior City investments and bag fees. Concession revenues also increased by $7.5 million or 18.3% in FY 2016.

Airline revenues increased $9.2 million or 15.9%, to $67.4 million in FY 2016. As stated above, terminal revenues experienced a large increase while airfield revenues declined by $1.6 million or 6.0% largely related to the changes in cost allocation methodology, which more accurately represents where financial activities occur. Airline revenues only comprised 33% of operating revenues in FY 2016.

Concessions, rental cars and parking revenues increased $12.1 million or 11.8%, to $114.3 million in FY 2016. The growth in concessions is related to a $5 million increase in advertising revenues (60% of those advertising revenues are one-time revenues and will not be reoccurring) and a $2.3 million increase in food and beverage revenue. Parking revenues also increased a strong $4.1 million or 8.5% reflecting a full year of additional capacity and increased rates. Concessions, rental cars and parking revenues compromised a healthy 55% of operating revenues in FY 2016.

Fixed Base Operator (FBO), maintenance facility and cargo and other revenues decreased $8.6 million or 25.7%, to $24.8 million in FY 2016. FBO decreased $2.2 million or 13.6% related to the declining volume of fuel sold. Cargo and other revenues declined $6.4 million or 36.7% because this category used to include rent for the American Airlines maintenance facility, but the lease was paid off so no rent was paid in FY 2016. FBO, maintenance facility and other revenues comprised 12% of operating revenues in FY 2016.

FISCAL YEAR 2015 COMPARED TO FISCAL YEAR 2014 Operating revenues increased $8.9 million or 4.8%, to $193.7 million in FY 2015 from $184.8 million in FY 2014. The increase was largely attributable to parking revenues expanding at $6.8 million or 16.7% because of higher parking rates and new parking options that provided consumers with additional parking alternatives.

Airline revenues increased $1.9 million or 3.4%, to $58.1 million in FY 2015. FY 2015’s modest increase is primarily due to a change in allocating methodology, which more accurately represents where revenues occur. Airfield revenues increased because of the cost recovery methodology and recent airfield investments. Airline revenues only comprised 30% of operating revenues in FY 2015.

Concession, rental cars and parking revenues increased $8.3 million or 8.8% to $102.2 million in FY 2015. As stated above, a significant portion of this growth was due to increased parking rates and options, but concessions and rental car revenues increased, as well, albeit at slower rates. Growth in those areas was related to O&D enplanement growth. Concession, rental cars and parking revenues represented a healthy 53% of operating revenues in FY 2015.

FBO, maintenance facility, and cargo and other revenues decreased $1.3 million or 3.7%, to $33.3 million in FY 2015. The decrease is attributable to a decline in the FBO’s cost of fuel sold and the end of debt service payments related to the American Airlines (US Airways) Special Facilities lease and debt service accounted for in the maintenance facility. This is offset to the positive by a change in allocating methodology, which increased other revenues by $7.3 million, the majority of which is $3.3 million of operating reserve funds moved and now accounted for here. FBO, maintenance facility and other revenues represented 17% of operating revenues in FY 2015.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 31 OPERATING EXPENSES BEFORE DEPRECIATION The following is a summary of Operating Expenses before depreciation as of June 30:

OPERATING EXPENSES BEFORE DEPRECIATION (Fiscal Years Ending June 30; $000)

2016 2015 20141 TERMINAL & AIRFIELD EXPENSES Terminal $ 72,073 $ 59,895 $ 59,202 Airfield 8,452 5,898 4,690

Total terminal & airfield expenses 80,525 65,793 63,892

AIRPORT SERVICES FACILITY EXPENSES 24,534 25,683 24,580

FBO, CARGO AND OTHER EXPENSES FBO 9,711 10,985 10,906 Cargo 2,909 2,817 1,367 Other 336 - -

Total FBO, cargo and other expenses 12,956 13,802 12,273 TOTAL OPERATING EXPENSES BEFORE DEPRECIATION $ 118,015 $ 105,278 $ 100,745

1Amounts have been restated between categories (Note 14)

$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

This chart depicts all primary expense categories.

32 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 The analysis below explains the increases and decreases in operating expenses.

FISCAL YEAR 2016 COMPARED TO FISCAL YEAR 2015 Operating expenses before depreciation increased $12.7 million or 12.1%, to $118.0 million in FY 2016. This increase was primarily due to expenses related to terminal improvements including the bag system, utilities, building maintenance and technology expenses. The airline lease is cost recovery, such that a portion of the City’s investments in facilities are charged to the airlines.

Terminal and airfield expenses increased $14.7 million or 22.4%, to $80.5 million in FY 2016. Terminal expenses increased by $12.2 million or 20.3% related to several large line-items including: $2.4 million in baggage system operating costs, $1.7 million for increased utilities, $1.1 million in increased building maintenance, $1.7 million additional CONRAC expenses, $0.8 million parking costs, and $2.9 million for increased technology expenses. Airfield expenses expanded $2.6 million or 43.3% and a significant portion, $1.2 million, of that was related to the increased cost of public safety. Terminal and airfield expenses comprised 68% of operating expenses in FY 2016.

Airport Services Facility (ASF) expenses (the Airport’s indirect overhead expense allocation) decreased $1.1 million or 4.5%, to $24.5 million FY 2016. ASF’s minor decline is due to a change in allocation methodology, which more accurately represents where expenses occur. During FY 2016 some expenses traditionally accounted for in ASF were shifted to the terminal cost center to better reflect the real source. ASF expenses comprised 21% of operating expenses in FY 2016.

FBO, cargo and other expenses declined $0.8 million or 6.1%, to $13.0 million in FY 2016. FBO accounts for the decrease, $1.3 million or 11.6%, in this category, reflecting the declining volume of fuel sold. Other expenses illustrate a $0.3 million or 100% increase from prior years reflecting the increased costs of deicing and capital outlay. FBO, cargo and other expenses accounted for 11% of operating expenses in FY 2016.

FISCAL YEAR 2015 COMPARED TO FISCAL YEAR 2014 Operating expenses before depreciation increased $4.5 million or 4.5%, to $105.3 million in FY 2015. This increase was primarily due to making investments necessary to preserve the Airport infrastructure, safety requirements and making innovative investments requested by tenants.

Terminal and airfield expenses increased $1.9 million or 3.0%, to $65.8 million in FY 2015. This modest growth was related to investments in facilities maintenance. The increase in airfield expenses was due to a change in allocation methodology, to more accurately represent where expenses occur. Terminal and airfield expenses comprised 63% of operating expenses in FY 2015.

Airport Services Facility expenses (the Airport’s indirect overhead expense allocation) increased $1.1 million or 4.5%, to $25.7 million in FY 2015. Overhead expenses grew primarily because of increased security expenses. The category represents 24% of the operating expenses in FY 2015.

FBO, cargo and other expenses increased $1.5 million or 12.5%, to $13.8 million in FY 2015. The increase in cargo expenses was due to a change in allocation methodology, to more accurately represent where expenses occur. FBO, cargo, and other expenses represented 13% of operating expenses in FY 2015.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 33 CAPITAL ASSETS The Airport Enterprise Fund’s net capital assets were $1.30 billion in FY 2016 and $1.27 billion in FY 2015. FY 2016’s increase of $30.5 million or 2.4% and FY 2015’s increase of $79.1 million or 6.6% were primarily due to ongoing construction at the Airport requiring additional machinery and equipment and resulting in new facilities, including parking facilities, bus purchases and other improvements. Fewer additional capital projects were ongoing and booked in FY 2016; thus, reflecting the lower increase in FY 2016.

CAPITAL ASSETS (Fiscal Years Ending June 30; $000)

2016 2015 2014 Land $ 306,101 $ 308,623 $ 302,868 Buildings 910,665 747,494 670,508 Runways 415,382 393,153 392,982 Other improvements 148,865 106,180 100,066 Intangibles 3,317 3,317 3,317 Machinery & equipment 114,134 102,669 54,207 Construction in progress 104,147 261,145 279,094

TOTAL CAPITAL ASSETS 2,002,611 1,922,581 1,803,042

Less: Accumulated depreciation 699,746 650,184 609,707

NET CAPITAL ASSETS $ 1,302,865 $ 1,272,397 $ 1,193,335

Significant capital asset additions during FY 2016 include the following: • Continued construction of the Airport Entrance Road for $27.2 million • Continued construction of Fuel Farm expansion phase II of $9.2 million • Little Rock Road extension of $3.6 million

Significant capital asset additions during FY 2015 include the following: • Continued construction and completion of the Hourly Parking Deck at $72.4 million • Renovations to the Airport Staff Building of $1.4 million • Master Plan land acquisition of $1.1 million • Continued construction of the Concourse B and C Elevators of $0.8 million

Additional information on the Airport Enterprise Fund’s Capital Assets can be found in Note 2 in the Notes to the Financial Statements page 50.

34 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 DEBT ADMINISTRATION CITY OF CHARLOTTE, NORTH CAROLINA CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT GENERAL AIRPORT REVENUE BONDS

City of Charlotte, North Carolina Charlotte Douglas International Airport General Airport Revenue Bonds (GARBs) are issued pursuant to the State and Local Government Revenue Bond Act and the Bond Order adopted by the City of Charlotte City Council on November 18, 1985 and as subsequently amended. Pursuant to the Bond Order, the City irrevocably pledges (i) Net Revenues, (ii) the City’s right to receive Net Revenues and (iii) money and investments in certain funds and accounts held under the Bond Order, including the Renewal and Improvement Fund. PFCs are excluded from the definition of Net Revenues; however, pursuant to the second supplemental bond order, PFCs transferred to the bond fund to pay debt service on PFC eligible bonds provide an offset to the City’s debt service payable from Net Revenues.

As of June 30, 2016 and 2015, the Airport had $532.8 and $554.1 million, respectively, of GARB principal outstanding.

The debt service reserve requirements for GARBs are fully funded. See Note 3 in the Notes to the Financial Statements page 52 for details.

For more information regarding the GARBs, please refer to Note 3 in the Notes to the Financial Statements, page 52. Additionally, the City of Charlotte, North Carolina Charlotte Douglas International Airport has Bond Anticipation Notes (BANs) outstanding. Net Revenues on parity with the outstanding GARBs secure the BANs.

As of June 30, 2016 and 2015, the Airport had $65.6 and $43.3 million, respectively, of BANs outstanding. The Airport’s BAN program was expanded to $230 million with Bank of America Merrill Lynch (BAML) in FY 2016 from a $100 million program started with PNC Bank in FY 2013. The BAML program matures in June 2018 and has a variable interest rate. The Airport utilizes the BANs as an interim funding source for its capital improvement program.

CITY OF CHARLOTTE, NORTH CAROLINA TAXABLE AIRPORT SPECIAL FACILITIES REVENUE BONDS (CONSOLIDATED CAR RENTAL FACILITIES PROJECT) SERIES 2011

The City of Charlotte, North Carolina Taxable Airport Special Facilities Revenue Bonds (CONRAC) are issued pursuant to The State and Local Government Revenue Bond Act and a General Trust Indenture dated November 1, 2011. The Series 2011 CONRAC Bonds are special obligations of the City, secured solely by Contract Facility Charges (CFCs) and Contingent Rent and money and investments in certain funds and accounts held under the General Trust Indenture. Amounts paid by the rental car companies as ground rent or concession fees are not included as pledged revenues.

The CFC was imposed on July 1, 2007 at a rate of $3.50 per transaction day and was increased to $4.00 per-transaction- day on October 1, 2011. The City may, at its discretion, raise the CFC per-transaction-day rate. At this time, the City does not anticipate raising the CFC. The CONRAC project opened in April 2015.

As of June 30, 2016 and 2015, there was $58.2 and $59.3 million, respectively, outstanding in CONRAC principal. The debt service reserve requirement for the CONRAC bonds is $4.5 million and is fully funded in cash. In addition to the CONRAC Debt Service Reserve Fund, this transaction also benefits from a fully funded CFC Rolling Coverage Fund ($1.1 million) and a CFC Supplemental Reserve Fund ($2.2 million).

For more information regarding the CONRAC Bonds, please refer to Note 3 in the Notes to the Financial Statements, page 52.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 35 ECONOMIC FACTORS AFFECTING THE AIRPORT ENTERPRISE FUND • The Airport experienced its 13th consecutive fiscal year of continued passenger enplanement growth FY 2016. Passenger enplanements increased 1.0% and 1.0% in fiscal years (FYs) 2016 and 2015, respectively. O&D passengers expanded by a strong 8.4% and 3.7%, respectively, during the same time periods. • The Airport’s O&D service area is the Charlotte-Concord-Gastonia Metropolitan Statistical Area (MSA, defined as the seven counties in North Carolina and three in South Carolina). According to U.S. Census estimates, the MSA’s estimated 2015 population was 2.4 million. • The MSA’s unemployment rate is similar to the State and lower than the Nation. According to the U.S. Department of Labor, as of July 2016, the MSA’s unemployment rate was 4.8% compared to 4.7% for North Carolina and 4.9% growth for the Nation. • American Airlines is the Airport’s largest airline with 91.3% of total enplaned passengers in FY 2016. For the FY ending June 30, 2016, American Airlines and its affiliates provided 21.7% of the Airport’s operating revenues. • On July 26, 2013, Senate Bill 380 was enacted into law by the North Carolina General Assembly. The legislation would create the Charlotte Douglas International Airport Commission (the “Airport Commission”). The Airport Commission would be an agency of the City and composed of 13 members that would be appointed as follows: three by the Mayor of the City, four by the City Council and one by each of the Boards of Commissioners of Mecklenburg County, Cabarrus County, Gaston County, Iredell County, Lincoln County and Union County. The Airport Commission would be responsible for operating the Airport. The City would be responsible for the issuance of revenue or refunding revenue bonds with respect to the Airport. The City challenged the legislation’s validity under the State constitution and challenged the State’s authority to create the Airport Commission. Based on the judgment of the court in the underlying litigation, the rules promulgated by the FAA on the subject, and other relevant facts and circumstances, the City does not reasonably anticipate any further development in the underlying litigation and the matter is resolved.

REQUESTS FOR FINANCIAL INFORMATION This comprehensive annual financial report is designed to provide a general overview of the Airport’s finances.

Questions concerning any of the information provided in this report or requests for additional financial information should be directed City of Charlotte’s Department of Management & Financial Services, 600 East Fourth Street, Charlotte, NC 28202-2848 or [email protected].

For prior Airport financial reporting or other City financial information please visit our Investor Website at: http://charlottenc.gov/mfs/finance/pages/publications.aspx.

36 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 FINANCIAL STATEMENTS

38 COMPARATIVE STATEMENTS OF NET POSITION

41 COMPARATIVE STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION

42 COMPARATIVE STATEMENTS OF CASH FLOWS

44 NOTES TO THE FINANCIAL STATEMENTS

The Financial Section contains audited information about the Airport Enterprise Fund (Airport). COMPARATIVE STATEMENTS OF NET POSITION JUNE 30, 2016 AND 2015, $000

ASSETS 2016 2015 Current assets: Cash and cash equivalents1 $ 523,696 $ 475,683 Receivables, net of allowance for uncollectibles ($268 and $228 respectively) Accounts 32,941 29,791 Other 1,460 1,093

Total receivables 34,401 30,884 Due from other governmental agencies 20,835 24,705 Restricted assets - Cash and cash equivalents1 392,492 403,802 Investments 32,575 21,202

Total restricted assets 425,067 425,004 Total current assets 1,003,999 956,276 Noncurrent assets: Net pension asset - 1,893 Other postemployment benefit assets 6,892 7,022 Capital assets (Note 2) - Land 306,101 308,623 Buildings 910,665 747,494 Runways 415,382 393,153 Other improvements 148,865 106,180 Intangibles 3,317 3,317 Machinery and equipment 114,134 102,669 Construction in progress 104,147 261,145

Total capital assets 2,002,611 1,922,581 Less accumulated depreciation 699,746 650,184

Total capital assets, net 1,302,865 1,272,397 Total noncurrent assets 1,309,757 1,281,312 Total assets 2,313,756 2,237,588

DEFERRED OUTFLOWS OF RESOURCES Pension Deferrals 11 - Contributions to pension plan in current year 1,501 1,497 Unamortized bond refunding charges 1,070 1,339

Total deferred outflows of resources 2,582 2,836

38 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 continued

LIABILITIES 2016 2015 Current liabilities: Accounts payable $ 28,388 $ 29,159 Deposits and retainage payable 4,672 6,433 Due to component unit 60 50 Current maturities of long-term liabilities 1,166 948 Current liabilities payable from restricted assets - Accounts payable 275 1,015 Deposits and retainage payable 575 2,377 Accrued interest payable 12,992 13,424 Revenue bonds payable 25,906 24,058

Total current liabilities payable from restricted assets 39,748 40,874 Total current liabilities 74,034 77,464 Noncurrent liabilities (Note 3): Revenue bonds payable - net of unamortized premiums of $24,686 and 589,765 615,671 $26,359 respectively Revenue bond anticipation notes payable 65,621 43,295 Net pension liability 1,944 - Compensated absences payable 1,499 1,352

Total noncurrent liabilities 658,829 660,318 Total liabilities 732,863 737,782

DEFERRED INFLOWS OF RESOURCES Pension Deferrals 347 4,614

NET POSITION Net investment in capital assets 732,366 696,987 Restricted for - Debt service 60,397 60,397 Passenger facility charges 317,283 308,710 Contract facility charges 30,116 26,456 Working capital 35,588 31,860 Unrestricted 407,378 373,618

Total net position $ 1,583,128 $ 1,498,028

The notes to the financial statements are an integral part of this statement.

NOTE: 1Cash and cash equivalents and Restricted cash and cash equivalents have been restated to restrict PFC and CFC cash. PFC cash and CFC cash are now part of Restricted cash and cash equivalents.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 39 This page intentionally left blank

40 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 COMPARATIVE STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEARS ENDED JUNE 30, 2016 AND 2015, $000

2016 2015 OPERATING REVENUES: Terminal rents & fees $ 42,091 $ 31,267 Airfield 25,275 26,880 Concessions 48,527 41,008 Rental cars 14,111 13,608 Parking 51,674 47,624 Fixed base operator area 13,732 15,885 Other 11,037 17,442

Total operating revenues 206,447 193,714 OPERATING EXPENSES: Terminal area 72,073 59,895 Public airfield facilities 8,452 5,898 Airport services facility 24,534 25,683 Fixed base operator area 9,711 10,985 Cargo area 2,909 2,817 Depreciation 50,681 45,897 Other 336 -

Total operating expenses 168,696 151,175 Operating income 37,751 42,539 NONOPERATING REVENUES (EXPENSES): Passenger facility charges 59,171 60,238 Contract facility charges 12,273 10,187 Private contributions - 119,057 Investment earnings 4,595 4,321 Interest expense and other charges (18,898) (27,958) Non-airline terminal revenue distribution (18,525) (10,631) Other (11,973) (1,797)

Total nonoperating revenues (expenses) 26,643 153,417 Income before contributions 64,394 195,956

CAPITAL CONTRIBUTIONS 20,706 20,960 Change in net position 85,100 216,916 Total net position - beginning, previously reported 1,498,028 1,283,715

Restatement (Note 15) - (2,603) Total net position - beginning, restated 1,498,028 1,281,112 Total net position - ending $ 1,583,128 $ 1,498,028

The notes to the financial statements are an integral part of this statement.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 41 COMPARATIVE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2016 AND 2015, $000

2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers $ 202,847 $ 189,554 Payments to suppliers (70,787) (69,770) Payments to other City funds for services (21,591) (20,502) Payments to employees (23,572) (21,217) Payments to airlines for non-airline terminal revenue distribution (14,808) (15,621) Other receipts (payments) (9,676) 1,737

Net cash provided by operating activities 62,413 64,181

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from capital debt 22,326 43,295 Passenger facility charges 63,676 56,062 Contract facility charges 12,148 10,070 Acquisition and construction of capital assets (90,920) (137,352) Principal paid on capital debt (22,385) (157,775) Interest and other charges paid on capital debt (27,406) (34,558) Private contributions - 119,057 Capital contributions 23,996 26,587

Net cash used by capital and related financing activities (18,565) (74,614)

CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investments (53,851) (64,230) Proceeds from sale and maturities of investments 42,504 120,273 Interest received 4,202 4,198

Net cash (used) provided by investing activities (7,145) 60,241

Net increase in cash and cash equivalents 36,703 49,808 Cash and cash equivalents - beginning of year 879,485 829,677 Cash and cash equivalents - end of year $ 916,188 $ 879,485

42 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 continued

2016 2015 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income $ 37,751 $ 42,539 Adjustments to reconcile operating income to net cash provided by operating activities - Depreciation 50,681 45,897 Pension expense - 118 Other receipts (payments) (9,676) 1,737 Non-airline terminal revenue distribution (14,808) (15,621) Change in assets and liabilities - (Increase) in receivables (3,600) (4,160) (Increase) in due from other governmental agencies (271) (201) Decrease in net pension asset 1,893 - (Increase) in deferred outflows of resources for pensions (15) (1,497) (Increase) decrease in other postemployment benefit assets 130 (14) Increase (decrease) in accounts payable 2,205 (2,988) Increase (decrease) in deposits and retainage payable 70 (2,166) Increase (decrease) in due to component unit 10 (12) Increase in net pension liability 1,944 - (Decrease) in deferred inflows of resources for pension (4,267) - Increase in compensated absences payable 366 549

Total adjustments 24,662 21,642 Net cash provided by operating activities $ 62,413 $ 64,181

NONCASH INVESTING, CAPITAL AND FINANCING ACTIVITIES Proceeds from refunding bonds $ 43,295 $ 122,670 Payment to refunded bond escrow agent (43,295) (122,670)

Net noncash investing, capital and financing activities $ - $ -

The notes to the financial statements are an integral part of this statement.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 43 NOTES TO THE FINANCIAL STATEMENTS June 30, 2016 and 2015 (Dollar amounts in $000)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Reporting Entity

The accompanying financial statements present only the activities and resources of the Charlotte Douglas International Airport (Airport), an enterprise fund of the City of Charlotte (City), North Carolina, and accordingly, do not purport to and do not present the financial position of the City of Charlotte, North Carolina.

b. Basis of Presentation

The Airport is an Enterprise Fund of the City that accounts for the operations of Charlotte Douglas International Airport. All assets and liabilities associated with the Airport’s activities are included on the Comparative Statements of Net Position. The Airport financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred.

c. Cash and Cash Equivalents/Investments

The City maintains a cash management pool (pool) that is used by the Airport and other funds of the City. The pool facilitates disbursement and investment and maximizes investment income. Earnings on the pooled funds are apportioned and credited to the funds monthly based on the average daily balance of each fund. Since the Airport may deposit additional amounts at any time and may withdraw funds at any time without prior notice or penalty, the pool is used essentially as a demand deposit account. Therefore, for the Comparative Statements of Net Position and Comparative Statements of Cash Flows, pooled cash is considered cash and cash equivalents. The restricted cash includes PFC, CFC, and cash equivalents/investments held by trustees as required by revenue bond covenants. All restricted money market funds are considered cash and cash equivalents. The remaining amount of restricted assets is considered investments.

DEPOSITS

All deposits of the City are made in board-designated official depositories and are secured as required by State statutes. The City may designate as an official depository any bank or savings and loan association whose principal office is located in North Carolina. Also, the City may establish time deposit accounts such as NOW and SuperNOW accounts, money market accounts and certificates of deposit.

All of the City’s deposits are either insured or collateralized by using the Pooling Method. Under the Pooling Method, a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer’s agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for the City, these deposits are considered to be held by the City’s agent in the City’s name. The amount of the pledged collateral is based on an approved averaging method for non-interest bearing deposits and the actual current balance for interest bearing deposits. Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with the City or the escrow agent. Because of the inability to measure the exact amount of collateral pledged for the City under the Pooling Method, the potential exists for under collateralization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the Pooling Method. The City has no policy regarding custodial credit risk for deposits.

44 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

INVESTMENTS

State statute 159-30 authorizes the City to invest in obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States; obligations of the State of North Carolina; bonds and notes of any North Carolina local government or public authority; obligations of certain non-guaranteed federal agencies; certain high quality issues of commercial paper and bankers’ acceptances; repurchase agreements having third-party safekeeping; and the North Carolina Capital Management Trust (NCCMT), an SEC registered mutual fund. The City is not authorized to enter into reverse repurchase agreements.

The restricted investments at June 30, 2016 and 2015, stated at fair value, were $32,575 and $21,202 respectively, and investments were as follows:

2016 Investment Maturities (in Years) Fair Value Less than 1 1-3 More than 3 Investment type U.S. Agencies $ 15,516 $ 15,516 $ - $ - NCCMT Cash Portfolio 17,059 17,059 - -

Total $ 32,575 $ 32,575 $ - $ -

2015 Investment Maturities (in Years) Fair Value Less than 1 1-3 More than 3 Investment type U.S. Agencies $ 4,177 $ 4,177 $ - $ - NCCMT Cash Portfolio 17,025 17,025 - -

Total $ 21,202 $ 21,202 $ - $ -

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 45 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs.

The following is a summary of the fair value hierarchy of the fair value of investments as of June 30, 2016 and 2015.

Fair Value Measurements Using Quoted Prices in Active Markets 6/30/2016 for Identical Assets (Level 1) Investments by fair value level Debt securities U.S. Agencies securities $ 15,516 $ 15,516

Total investments by fair value level 15,516 $ 15,516

Investments measured at the net asset value (NAV) NCCMT Cash Portfolio 17,059

Total investments measured a fair value $ 32,575

Fair Value Measurements Using Quoted Prices in Active Markets 6/30/2015 for Identical Assets (Level 1) Investments by fair value level Debt securities U.S. Agencies securities $ 4,177 $ 4,177

Total investments by fair value level 4,177 $ 4,177

Investments measured at the net asset value (NAV) NCCMT Cash Portfolio 17,025

Total investments measured a fair value $ 21,202

Investments classified in Level 1 of the fair value hierarchy, valued at $15,516 and $4,177, respectively, are valued using quoted prices in active markets.

46 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

Interest Rate Risk. Although the City does not have a formal investment policy, internal investment guidelines prohibit maturities longer than five years, which helps manage exposure to fair value losses in rising interest rate environments.

Concentration of Credit Risk. The City’s informal investment policy limits the amount of commercial paper or bankers acceptances to a maximum of 25% of the portfolio. For commercial paper, a maximum of $20 million may be invested in any one issuer. For bankers’ acceptances, the maximum investment is limited to 10% of the portfolio for any one issuer.

Credit Risk. State law limits investments in commercial paper to the top rating issued by nationally recognized statistical rating organizations (NSRO’s). Although the City had no formal policy on managing credit risk, internal investment guidelines for commercial paper require at least two ratings from either Standard & Poor’s (S&P), Fitch Ratings (Fitch) or Moody’s Investors Service (Moody’s).

At June 30, 2016 and 2015, the Airport’s investment in the NCCMT Cash Portfolio carried a credit rating of AAAm by S&P. The Airport’s investments in U.S. Agencies (Federal Home Loan Bank) are rated AA+ by S&P and Aaa by Moody’s.

Custodial Credit Risk. For an investment, custodial credit risk is the risk that in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. At June 30, 2016 and 2015, the City had no investments subject to custodial credit risk. The City had no formal policy on custodial credit risk. However, the City’s internal policy limits custodial credit risk by providing that security in the collateral be delivered to a third party safekeeping bank designated by the City. d. Capital Assets

Capital assets are assets with an initial, individual cost of more than $5, except intangible assets which have a minimum cost of $100, and are reported at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:

Buildings 25 years Runways 33 years Other Improvements 25 years Intangibles 5 years Machinery and Equipment 3–30 years

Net interest cost on debt issued to finance the construction of capital assets was capitalized during the construction period in the amount of $6,672 and $1,215 respectively, for the years ended June 30, 2016 and June 30, 2015.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 47 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

e. Deferred Outflows and Deferred Inflows of Resources

In addition to assets, the Comparative Statements of Net Position will sometimes report a separate section for deferred outflows of resources. The Deferred Outflows of Resources financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense until then. The Airport has pension deferrals, contributions to the pension plan in the current fiscal year and unamortized bond refunding charges that meet this criterion in the following amounts:

2016 2015 Pension Deferrals $ 11 $ - Contributions to the pension plan in the current fiscal year 1,501 1,497 Unamortized bond refunding charges 1,070 1,339

Total $ 2,582 $ 2,836

In addition to liabilities, the Comparative Statements of Net Position will sometimes report a separate section for deferred inflows of resources. The Deferred Inflows of Resources financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The Airport has deferrals of pension expense of $347 and $4,614 as of June 30, 2016 and 2015 respectively, that result from the implementation of GASB Statement 68 that meets this criterion.

f. Noncurrent Liabilities

Bond premiums are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of applicable premiums. Bond issuance costs are expensed in the reporting period in which they are incurred.

g. Compensated Absences

Employees earn vacation leave at the rate of 10-20 days per year and can accrue a maximum of 20-40 days, depending on length of service. Unused vacation days are payable upon termination, resignation, retirement or death.

Employees accumulate sick leave at the rate of one day per month and can accrue an unlimited number of days. Sick leave can be taken for personal illness or illness of a member of the immediate family. Sick leave is lost upon termination or resignation, unless the employee’s effective date of retirement is within 365 days of the termination or resignation. However, twenty percent of outstanding sick leave, with a maximum of 43.5 days, is payable upon retirement or death.

Compensated absences payable includes accumulated unpaid vacation leave and sick leave.

h. Net Position

Net position is classified as net investment in capital assets; restricted; and unrestricted. Restricted net position represents constraints on resources that are externally imposed by creditors, grantors, contributors, bond covenants or regulations of other governments.

48 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

i. Revenues

The primary sources of revenue at the Airport are fees and charges paid by the airlines and revenues paid by concessionaires providing services to the general public. Signatory airline terminal and airfield rates and charges are governed by 25 or 30 year lease agreements, and concession revenues are established by leases of varying methodologies and terms. The airlines are assessed four categories of fees and charges: rent, airport services, maintenance and operation fees, and landing fees. Airline fees and charges are established at a level adequate to recover the related services and facilities costs. Concession revenues are generated either through fixed annual charges or on the basis of a percentage of sales generated by the tenants’ operations.

The Airport distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the Airport’s principal ongoing operations. The principal operating revenues of the Airport result from exchange transactions associated with the principal activity of the Airport. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as investment earnings, result from nonexchange transactions or ancillary activities. j. Pensions

For purposes of measuring the net pension asset, deferred outflows of resources and deferred inflows of resources related to pensions and pension expense, information about the fiduciary net position of the Local Governmental Employees’ Retirement System (LGERS) and additions to / deductions from LGERS’ fiduciary net position have been determined on the same basis as they are reported by LGERS. For this purpose, plan member contributions are recognized in the period in which the contributions are due. The City of Charlotte’s employer contributions are recognized when due and there is a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of LGERS. Investments are reported at fair value.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 49 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

2. CAPITAL ASSETS:

Capital asset activity for the year ended June 30, 2016, was as follows:

Beginning Ending Balance Balance July 1, 2015 Increases Decreases June 30, 2016 Capital assets, not being depreciated: Land $ 308,623 $ - $ 2,522 $ 306,101 Construction in progress 261,145 92,679 249,677 104,147

Total capital assets, not being depreciated 569,768 92,679 252,199 410,248 Capital assets, being depreciated: Buildings 747,494 163,171 - 910,665 Runways 393,153 22,229 - 415,382 Other improvements 106,180 42,685 - 148,865 Intangibles 3,317 - - 3,317 Machinery and equipment 102,669 14,881 3,416 114,134

Total capital assets being depreciated 1,352,813 242,966 3,416 1,592,363 Less accumulated depreciation for: Buildings 436,373 23,431 - 459,804 Runways 146,206 11,652 - 157,858 Other improvements 41,761 4,550 - 46,311 Intangibles 1,329 663 - 1,992 Machinery and equipment 24,515 10,385 1,119 33,781

Total accumulated depreciation 650,184 50,681 1,119 699,746 Total capital assets, 702,629 192,285 2,297 892,617 being depreciated, net Capital assets, net $ 1,272,397 $ 284,964 $ 254,496 $ 1,302,865

50 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

Capital asset activity for the year ended June 30, 2015, was as follows:

Beginning Ending Balance Balance July 1, 2014 Increases Decreases June 30, 2015 Capital assets, not being depreciated: Land $ 302,868 $ 5,755 $ - $ 308,623 Construction in progress 279,094 141,381 159,330 261,145

Total capital assets, not being depreciated 581,962 147,136 159,330 569,768 Capital assets, being depreciated: Buildings 670,508 76,986 - 747,494 Runways 392,982 171 - 393,153 Other improvements 100,066 6,114 - 106,180 Intangibles 3,317 - - 3,317 Machinery and equipment 54,207 57,031 8,569 102,669

Total capital assets being depreciated 1,221,080 140,302 8,569 1,352,813 Less accumulated depreciation for: Buildings 413,667 22,706 - 436,373 Runways 134,548 11,658 - 146,206 Other improvements 37,824 3,937 - 41,761 Intangibles 995 334 - 1,329 Machinery and equipment 22,673 7,262 5,420 24,515

Total accumulated depreciation 609,707 45,897 5,420 650,184 Total capital assets, 611,373 94,405 3,149 702,629 being depreciated, net Capital assets, net $ 1,193,335 $ 241,541 $ 162,479 $ 1,272,397

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 51 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

3. NONCURRENT LIABILITIES:

A summary of changes in noncurrent liabilities for the year ended June 30, 2016, follows by type:

Beginning Ending Original Balance Balance Due Date Final Issue July 1, June 30, Within Interest Rates Issued Maturity Amount 2015 Additions Reductions 2016 One Year

General Airport Revenue Bonds: 2007 Refunding Series A 4.00% - 5.00% 8/16/2007 2038 $ 99,995 $ 86,935 $ - $ 2,210 $ 84,725 $ 2,300

2007 Series B Variable 8/16/2007 2038 47,570 20,510 - 555 19,955 580

2008 Refunding Series D Variable 11/5/2008 2035 40,585 38,280 - 465 37,815 480

2009 Refunding Series B 2.50% - 5.00% 2/17/2009 2017 51,180 16,120 - 7,885 8,235 8,235

2010 Series A 2.00% - 5.50% 2/10/2010 2040 130,100 120,715 - 2,550 118,165 2,675

2010 Refunding Series B 1.25% - 5.50% 2/10/2010 2029 67,770 53,835 - 3,025 50,810 3,125

2011 Series A 2.00% - 5.00% 11/9/2011 2042 76,100 72,470 - 1,450 71,020 1,520

2011 Series B 2.00% - 5.00% 11/9/2011 2042 34,250 32,630 - 650 31,980 675

2011 Series C Variable 11/9/2011 2042 30,920 7,225 - 145 7,080 155

2014 Refunding Series A 5.00% 11/6/2014 2035 74,290 74,290 - - 74,290 -

2014 Refunding Series B 2.00% - 5.00% 11/6/2014 2024 31,100 31,100 - 2,390 28,710 3,570

Subtotal General Airport Revenue Bonds 554,110 - 21,325 532,785 23,315

Consolidated Rental Car Facilities: 2011 Series CONRAC 2.48% - 6.06% 11/9/2011 2042 60,295 59,260 - 1,060 58,200 1,090

Total bonds 613,370 - 22,385 590,985 24,405 Plus unamortized premiums 26,359 - 1,673 24,686 1,501

Total bonds payable net of unamortized premiums 639,729 - 24,058 615,671 25,906 Revenue Bond Anticipation Notes 43,295 65,621 43,295 65,621 -

Compensated absences 2,300 1,953 1,588 2,665 1,166

Net Pension Liability (LGERS) (Note 6.a.) - 1,944 - 1,944 -

Total noncurrent liabilities net of unamortized premiums $ 685,324 $ 69,518 $ 68,941 $ 685,901 $ 27,072

52 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

A summary of changes in noncurrent liabilities for the year ended June 30, 2015, follows by type:

Beginning Ending Original Balance Balance Due Date Final Issue July 1, June 30, Within Interest Rates Issued Maturity Amount 2014 Additions Reductions 2015 One Year

General Airport Revenue Bonds: 2004 Series A 4.75% - 5.25% 9/15/2004 2035 $ 87,095 $ 87,095 $ - $ 87,095 $ - $ -

2004 Series B 4.75% - 5.25% 9/15/2004 2024 48,465 39,050 - 39,050 - -

2007 Refunding Series A 4.00% - 5.00% 8/16/2007 2038 99,995 89,060 - 2,125 86,935 2,210

2007 Series B Variable 8/16/2007 2038 47,570 21,045 - 535 20,510 555

2008 Refunding Series D Variable 11/5/2008 2035 40,585 38,725 - 445 38,280 465

2009 Refunding Series B 2.50% - 5.00% 2/17/2009 2017 51,180 23,630 - 7,510 16,120 7,885

2010 Series A 2.00% - 5.50% 2/10/2010 2040 130,100 123,205 - 2,490 120,715 2,550

2010 Refunding Series B 1.25% - 5.50% 2/10/2010 2029 67,770 56,755 - 2,920 53,835 3,025

2010 Series C Variable 2/10/2010 2040 31,145 8,875 - 8,875 - -

2011 Series A 2.00% - 5.00% 11/9/2011 2042 76,100 73,865 - 1,395 72,470 1,450

2011 Series B 2.00% - 5.00% 11/9/2011 2042 34,250 33,255 - 625 32,630 650

2011 Series C Variable 11/9/2011 2042 30,920 18,660 - 11,435 7,225 145

2014 Refunding Series A 5.00% 11/6/2014 2035 74,290 - 74,290 - 74,290 -

2014 Refunding Series B 2.00% - 5.00% 11/6/2014 2024 31,100 - 31,100 - 31,100 2,390

Subtotal General Airport Revenue Bonds 613,220 105,390 164,500 554,110 21,325

Consolidated Rental Car Facilities: 2011 Series CONRAC 2.48% - 6.06% 11/9/2011 2042 60,295 60,295 - 1,035 59,260 1,060

Special Facility Bonds: 1998 Refunding Series 5.60% 3/1/1998 2028 86,000 86,000 - 86,000 - -

2000 Series 7.75% 8/15/2000 2028 34,700 28,910 - 28,910 - -

Subtotal Special Facility Bonds 114,910 - 114,910 - -

Total bonds 788,425 105,390 280,445 613,370 22,385 Plus unamortized premiums 10,012 17,581 1,234 26,359 1,673

Total bonds payable net of unamortized premiums 798,437 122,971 281,679 639,729 24,058 Revenue Bond Anticipation Notes - 43,295 - 43,295 -

Compensated absences 1,751 1,862 1,313 2,300 948

Net Pension Liability (LGERS) (Note 6.a.) 3,877 - 3,877 - -

Total noncurrent liabilities net of unamortized premiums $ 804,065 $ 168,128 $ 286,869 $ 685,324 $ 25,006

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 53 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

Bond debt service requirements to maturity are as follows:

General Airport Revenue Bonds Year Ended June 30 Principal Interest Total 2017 $ 23,315 $ 22,142 $ 45,457 2018 15,675 21,572 37,247 2019 16,355 20,882 37,237 2020 17,145 20,218 37,363 2021 17,780 19,529 37,309 2022-2026 109,685 84,683 194,368 2027-2031 132,345 58,861 191,206 2032-2036 118,155 32,339 150,494 2037-2041 75,205 9,097 84,302 2042 7,125 169 7,294

Total $ 532,785 $ 289,492 $ 822,277

Consolidated Car Rental Facilities Year Ended June 30 Principal Interest Total 2017 $ 1,090 $ 3,342 $ 4,432 2018 1,125 3,299 4,424 2019 1,175 3,246 4,421 2020 1,225 3,191 4,416 2021 1,285 3,134 4,419 2022-2026 7,460 14,563 22,023 2027-2031 9,880 12,070 21,950 2032-2036 13,140 8,697 21,837 2037-2041 17,630 4,067 21,697 2042 4,190 127 4,317

Total $ 58,200 $ 55,736 $ 113,936

54 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

REFUNDING GENERAL AIRPORT REVENUE BONDS (GARBs)

2007 Refunding Series A. In August 2007, the City issued $99,995 of fixed rate Airport Revenue Bonds with an average interest rate of 4.82% to advance refund $7,950 of outstanding Airport Revenue Bonds Series 1999A with an average interest rate of 5.75%.

Airport Revenue Bonds in the amount of $191,060 were issued in December 1999 for the purpose of financing or reimbursing the cost of improvements and expansion of the Airport. Of the $191,060 revenue bonds, $102,255 had fixed interest rates and $88,805 had variable interest rates. The 1999 bonds were refunded and replaced with Airport Refunding Revenue Bonds 2007 Refunding Series A, 2008 Refunding Series D and 2010 Refunding Series B.

2008 Refunding Series D. In November 2008, the City issued $24,480 variable rate Airport Revenue Bonds to refund $28,805 of outstanding variable rate Airport Revenue Bonds Series 1999D. The net proceeds of $24,258 and $6,439 in debt service reserve funds of the 1999D bonds were used to purchase U.S. government securities and fund the debt service reserve fund for the 2008 bonds. The City completed the refunding to reduce its total debt service payments over a period of 21 years by $26,683 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $19,310.

In November 2008, the City issued $16,105 of variable rate Airport Revenue Bonds to refund $14,845 of outstanding variable rate Airport Revenue Bonds Series 2004D. The net proceeds of $15,958 and $125 in debt service funds of the 2004D bonds were used to purchase U.S. government securities and fund the debt service reserve fund for the 2008 bonds. The City completed the refunding to reduce its total debt service payments over a period of 26 years by $11,646 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $8,190.

Airport Revenue Bonds in the amount of $166,935 were issued in September 2004 for the purpose of financing or reimbursing the cost of improvements and expansion of the Airport. Of the $166,935 revenue bonds, $150,775 had fixed interest rates and $16,160 had variable interest rates. The 2004 bonds were refunded and replaced with Airport Refunding Revenue Bonds 2008 Refunding Series D and 2014 Refunding Series A and B.

2009 Refunding Series B. In February 2009, the City issued $51,180 fixed rate Airport Revenue Bonds with interest rates ranging from 2.50 to 5.00% to refund $62,100 of outstanding variable rate Airport Revenue Bonds Series 1993A. The net proceeds of $52,995 (after payment of $941 in underwriting fees, insurance and other issuance costs) and $14,502 in debt service funds of the 1993A bonds were used to purchase U.S. government securities and fund the debt service reserve fund for the 2009 bonds. The City completed the refunding to reduce its total debt service payments over a period of eight years by $38,877 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $35,620.

Airport Revenue Bonds in the amount of $108,780 were issued in December 1985 for the purpose of financing or reimbursing the cost of improvements and expansion of the Airport and to redeem bond anticipation notes. The 1985 bonds were advance refunded in June 1993 and replaced with 1993 Airport Refunding Revenue Bonds. The 1993 bonds were refunded in February 2009 and replaced with 2009 Airport Refunding Revenue Bonds.

2010 Refunding Series B. In February 2010, the City issued $197,870 fixed rate Airport Revenue bonds with interest rates ranging from 1.25 to 5.50% to refund $69,750 of outstanding Airport Revenue Bonds, Series 1999B. The net proceeds of $199,074 (after payment of $2,039 in underwriting fees, insurance and other issue costs) were used to purchase U.S. government securities, acquire and construct certain improvements to the Airport, and fund the debt service reserve fund for the 2010 bonds. The City completed the refunding to reduce its total debt service payments over a period of 19 years by $7,105 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $4,645.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 55 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

2014 Refunding Series A and B. In November 2014, the City issued $105,390 in Airport Revenue Refunding Bonds, Series 2014A and 2014B with interest rates ranging from 2.00 to 5.00%. The net proceeds of $121,544 (after payment of $1,427 in underwriting fees, insurance and other costs) were used to refund $122,670 of outstanding fixed rate Airport Revenue Bonds, Series 2004A and 2004B. The City completed the refunding to reduce the total debt service payments over a period of 20 years by $30,376 and to obtain an economic gain (difference between the present values of the old and new debt service payments) of $ 23,883.

On December 1, 2014, the City fully redeemed $8,680 of variable rate Airport Revenue Bonds, Series 2010C.

On December 1, 2014 and April 1, 2015 the City early extinguished $5,075 and $6,000 respectively of variable rate Airport Revenue Bonds, Series 2011C.

Interest on the variable-rate bonds is determined by a remarketing agent based upon market conditions.

The Revenue Bonds do not constitute a legal or equitable pledge, charge, lien or encumbrance upon any of the City’s property or upon any of its income, receipts or revenues, except as provided in the Revenue Bond Order or Lease. Neither the credit nor the taxing power of the City is pledged for the payment of the principal or interest and no owner has the right to compel the exercise of the taxing power of the City or the forfeiture of any of its property in connection with any default under the Revenue Bond Order or Lease.

The Revenue Bond Order provided for the establishment of a special fund designated the Revenue Fund into which the City is required to deposit most Airport revenues upon receipt. Moneys on deposit in this fund will be applied at such times and in accordance with the priorities established by the Revenue Bond Order. Moneys in the Revenue Fund are required to be transferred to the following funds, established pursuant to the Revenue Bond Order, in the following order of priority: the Operating Fund, the Revenue Bond Fund and the Renewal and Improvement Fund.

The principal and interest on the Revenue Bonds are payable from net revenues of the Airport. Pursuant to the Revenue Bond Order, the City has covenanted to fix, charge and collect rates, fees, rentals and charges for the use of the Airport and to revise such rates, fees, rentals and charges as often as necessary to produce revenues at least equal to the amounts required to be transferred to the funds indicated above plus an amount sufficient to have on deposit in the Revenue Fund, as of the first business day of the next fiscal year, an amount equal to the Coverage factor for the preceding fiscal year. The Coverage factor is equal to 25% of the amounts required to be deposited to the Revenue Bond Fund for the principal and interest payments for the fiscal year. In addition, the Revenue Bond Order provided for the establishment of the following reserves: (1) In the Revenue Bond Fund an amount equal to the maximum principal and interest requirements for the Revenue Bonds for any current or succeeding fiscal year, $48,297. (2) In the Operating Fund an amount equal to 1/3 of the annual budget for current expenses, $34,088 in 2016 and $30,360 in 2015.

The debt service reserve requirements for the GARBs are fully funded. See the table below for details:

Reserve Account Requirement Bond Series (in thousands) 2008D $ 3,130 2009B $ 5,394 2010A $ 9,004 2010B $ 5,752 2011A $ 4,828 2011B $ 2,200 2011C $ 1,856 2014AB $ 8,348

56 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

CONSOLIDATED RENTAL CAR FACILITY

In November 2011, the City issued $60,295 of Airport Special Facility Revenue Bonds to finance the design, equipping, development, construction, and furnishing of a new consolidated rental car facility (CONRAC) at the Airport. The debt service reserve requirement for Special Facility Revenue Bonds is $7,786.

REVENUE BOND ANTICIPATION NOTES

The City has available an Airport revenue bond anticipation note program to finance the cost of Airport improvements. The aggregate principal amount of the note outstanding at any one time shall not exceed $230,000. The note is payable from net revenues of the Airport. The note does not constitute a legal or equitable pledge, charge, lien or encumbrance upon any of the City’s property or upon any of its income, receipts or revenues, except as provided in the Revenue Bond Orders. Neither the credit nor the taxing power of the City is pledged for the payment of the principal or interest, and no owner has the right to compel the exercise of the taxing power of the City or the forfeiture of any of its property in connection with any default on the note. In addition, the City has entered into a Note Purchase and Advance Agreement. The note will be replaced by general Airport revenue bonds. The note will mature no later than the second anniversary of the closing date or June 8, 2018. The City had Airport revenue bond anticipation notes payable of $65,621 and $43,295 outstanding at June 30, 2016 and 2015 respectively. Interest rates are based upon market conditions.

Revenue bond anticipation note debt service requirements to maturity are as follows:

Year Ended June 30 Principal Interest 2017 $ - $ 481 2018 65,621 452

Total $ 65,621 $ 933

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 57 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

4. LEASE AGREEMENTS: AIRPORT LEASE

Airport facilities are leased primarily to the signatory airlines under agreements having terms of 25 or 30 years. Fees and charges under these agreements are computed in a manner designed to recover the cost of operating the Airport. Provisions in these agreements give the airlines the right to approve future expansion of the Airport facilities and any issuance of new debt affecting the fees and charges to the airlines. Other provisions ensure that sufficient fees and charges will be collected to meet Airport debt service requirements. In addition, the agreements provide for a distribution to the airlines of a portion of the non-airline terminal revenues.

A new Airport Use Agreement was signed by the Signatory Airlines in FY16 to become effective 7/1/16.

The following is a schedule of minimum future rental income on noncancelable operating leases subsequent to June 30, 2016:

2017 $ 60,123 2018 60,535 2019 60,950

2020 61,370 2021 61,793

Total minimum future rental income $ 304,771

Of the $304,771 minimum future rental income on noncancelable operating leases, $79,985 relates to agreements with American Airlines, Inc. See Note 9 for additional information related to American Airlines, Inc.

The following is a schedule of minimum future rental income on noncancelable operating leases subsequent to June 30, 2015:

2016 $ 44,628 2017 45,133 2018 45,425 2019 45,723 2020 46,026

Total minimum future rental income $ 226,935

Of the $226,935 minimum future rental income on noncancelable operating leases, $63,769 relates to agreements with American Airlines, Inc. See Note 9 for additional information related to American Airlines, Inc.

Contingent rentals that may be received under certain leases based on the tenant’s revenues, fuel flow or usage are not included above. Contingent rentals of approximately $68,476 and $68,815 were received during the years ended June 30, 2016 and 2015, respectively.

58 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

AIRPORT LEASING ARRANGEMENTS WITH TENANTS

A major portion of the Airport’s assets are leased under operating agreements with airlines and other tenants.

The total cost and accumulated depreciation of the assets at June 30 follows:

2016 2015 Land $ 306,101 $ 308,623 Buildings 910,665 747,494 Runways 415,382 393,153 Improvements other than buildings 148,865 106,180 Intangibles 3,317 3,317 Machinery and equipment 114,134 102,669 Total 1,898,464 1,661,436 Less accumulated depreciation 699,746 650,184

Total $ 1,198,718 $ 1,011,252

5. TRANSACTIONS WITH THE CITY OF CHARLOTTE:

Expenses include certain costs charged to the Airport by other funds of the City. These charges are as follows:

2016 2015 Administrative and other City services $ 15,721 $ 15,418 Crash, fire and rescue services 5,870 5,084

Total $ 21,591 $ 20,502

6. PENSION PLANS AND OTHER BENEFITS: a. Local Governmental Employees’ Retirement System (LGERS)

The Airport, as an enterprise fund of the City, participates in the North Carolina Local Governmental Employees’ Retirement System (LGERS), administered by the State of North Carolina.

Plan Description. The City of Charlotte is a participating employer in the statewide Local Governmental Employees’ Retirement System (LGERS), a cost-sharing multiple-employer defined benefit pension plan administered by the State of North Carolina. LGERS membership is comprised of general employees and local law enforcement officers (LEOs) of participating local governmental entities. Article 3 of G.S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. Management of the plan is vested in the LGERS Board of Trustees, which consists of 13 members – nine appointed by the Governor, one appointed by the State Senate, one appointed by the State House of Representatives, and the State Treasurer and State Superintendent, who serve as ex-officio members. The Local Governmental Employees’ Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State’s CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699-1410, by calling (919) 981-5454, or at www.osc.nc.gov.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 59 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

Benefits Provided. LGERS provides retirement and survivor benefits. Retirement benefits are determined as 1.85% of the member’s average final compensation times the member’s years of creditable service. A member’s average final compensation is calculated as the average of a member’s four highest consecutive years of compensation. Plan members are eligible to retire with full retirement benefits at age 65 with five years of creditable service, at age 60 with 25 years of creditable service, or at any age with 30 years of creditable service. Plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service. Survivor benefits are available to eligible beneficiaries of members who die while in active service or within 180 days of their last day of service and who have either completed 20 years of creditable service regardless of age or have completed five years of service and have reached age 60. Eligible beneficiaries may elect to receive a monthly Survivor’s Alternate Benefit for life or a return of the member’s contributions. The plan does not provide for automatic post-retirement benefit increases. Increases are contingent upon actuarial gains of the plan.

Contributions. Contribution provisions are established by General Statute 128-30 and may be amended only by the North Carolina General Assembly. Airport employees are required to contribute 6% of their compensation. Employer contributions are actuarially determined and set annually by the LGERS Board of Trustees. The contractually required contribution rate for the year ended June 30, 2016, was 6.67% for general employees for the Airport, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year. Contributions to the pension plan from the Airport were $1,501 and $1,512 for the years ended June 30, 2016 and 2015, respectively.

Refunds of Contributions. Airport employees who have terminated service as a contributing member of LGERS, may file an application for a refund of their contributions. By state law, refunds to members with at least five years of service include 4% interest. State law requires a 60 day waiting period after service termination before the refund may be paid. The acceptance of a refund payment cancels the individual’s right to employer contributions or any other benefit provided by LGERS.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions. At June 30, 2016, the Airport reported a liability of $1,944 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of December 31, 2014. The total pension liability was then rolled forward to the measurement date of June 30, 2015 utilizing update procedures incorporating the actuarial assumptions. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of future payroll covered by the pension plan, relative to the projected future payroll covered by the pension plan of all participating LGERS employers, actuarially determined. At June 30, 2015, the City’s proportion was 5.895%, which was an increase of 0.013% from its proportion measured as of June 30, 2014.

For the year ended June 30, 2016, the Airport recognized pension expense of $445. At June 30, 2016, the Airport reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows of of Resources Resources Differences between expected and actual experience $ - $ 347 Changes of assumptions - - Net difference between projected and actual earnings on pension plan investments - - Changes in proportion and differences between Airport contributions and proportionate share of contributions 11 - Airport contributions subsequent to the measurement date 1,501 -

Total $ 1,512 $ 347

60 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

$1,501 reported as deferred outflows of resources related to pensions resulting from Airport contributions subsequent to the measurement date will be recognized as an increase of the net pension asset in the year ended June 30, 2017. Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ended June 30: 2017 $ (375) 2018 (375) 2019 (375) 2020 789 2021 - Thereafter -

Total $ (336)

Actuarial Assumptions. The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation 3.00% Salary increases 4.25 to 8.55%, including inflation and productivity factor Investment rate of return 7.25%, net of pension plan investment expense, including inflation

The plan currently uses mortality tables that vary by age, gender, employee group (i.e. general, law enforcement officer) and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements.

The actuarial assumptions used in the December 31, 2014 valuation were based on the results of an actuarial experience study for the period January 1, 2005 through December 31, 2009.

Future ad hoc COLA amounts are not considered to be substantively automatic and are therefore not included in the measurement.

The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical performance of investment strategies. Fixed income return projections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are established through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies’ return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class as of June 30, 2015 are summarized in the following table: Long-Term Expected Asset Class Target Allocation Real Rate of Return Fixed Income 29.0% 2.2% Global Equity 42.0% 5.8% Real Estate 8.0% 5.2% Alternatives 8.0% 9.8% Credit 7.0% 6.8% Inflation Protection 6.0% 3.4%

Total 100%

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 61 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

The information in the previous table is based on 30-year expectations developed with the consulting actuary for the 2014 asset, liability and investment policy study for the North Carolina Retirement Systems, including LGERS. The long- term nominal rates of return underlying the real rates of return are arithmetic annualized figures. The real rates of return are calculated from nominal rates by multiplicatively subtracting a long-term inflation assumption of 3.00%. All rates of return and inflation are annualized.

Discount rate. The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the proportionate share of the net pension asset to changes in the discount rate. The following presents the Airport’s proportionate share of the net pension asset calculated using the discount rate of 7.25%, as well as what the Airport’s proportionate share of the net pension asset or net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.25%) or one percentage point higher (8.25%) than the current rate:

1% Decrease Discount Rate 1% Increase (6.25%) (7.25%) (8.25%) Airport’s proportionate share of the net pension liability (asset) $ 11,558 $ 1,944 $ (6,684)

Pension plan fiduciary net position. Detailed information about the pension plan’s fiduciary net position is available in the separately issued Comprehensive Annual Financial Report (CAFR) for the State of North Carolina.

b. Other Postemployment Benefits

The Airport, as an enterprise fund of the City, participates in the City of Charlotte employee Benefit Trust Plan (EBTP).

Description: The EBTP is a single-employer defined benefit healthcare plan administered by the City of Charlotte. The EBTP provides health and welfare benefit plans for the benefit of eligible retired employees of the City. Section 4.05 of the Charlotte City Code assigns the authority to establish benefit provisions for EBTP to the City Council. The EBTP is included in the Comprehensive Annual Financial Report (CAFR) for the City of Charlotte. The City’s CAFR includes financial statements and required supplementary information for EBTP. That report may be obtained by writing to City of Charlotte, Department of Management and Financial Services – Financial Reporting, Charlotte-Mecklenburg Government Center, 600 East Fourth Street, 10th Floor, Charlotte, North Carolina 28202-2848.

Membership of the EBTP for the City consisted of the following at July 1, 2015, the date of the latest actuarial valuation:

Retirees and beneficiaries receiving benefits $ 2,125 Active plan members 4,206

Total $ 6,331

Funding Policy. The contribution requirements of plan members and the City are established and may be amended by the City Council. The City Council set the employer contribution rate to contribute the projected pay-as-you-go-financing requirements, with additional amounts to prefund benefits as determined annually.

For the years ended June 30, 2016 and 2015, the Airport contributed $585 and $424 respectively to the plan. Plan members receiving benefits contributed through their required contribution. The required contribution rates for plan members were dependent on the years of service and the coverage selected. Monthly rates ranged from $209 to $1,625 per retiree.

62 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

Summary of Significant Accounting Policies. The Airport’s financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Short-term money market debt instruments, and deposits, are reported at cost or amortized cost, which approximates fair value. Certain longer term U.S. Government and U.S. Agency securities are valued at the last reported sales price. Administration costs of the plan are financed through contributions and investment earnings.

Annual OPEB Cost and Net OPEB Asset: The Airport’s proportionate share of the annual other postemployment benefit (OPEB) cost (expense) and net OPEB asset for the current and prior years were as follows:

2016 2015 Annual required contribution $ 593 $ 431 Interest on net OPEB obligation (40) (42) Adjustment to annual required contribution 32 35 Annual OPEB cost (expense) 585 424 Contributions made (455) (438) Decrease (increase) in net OPEB asset 130 (14) Net OPEB asset, beginning of year 7,022 7,008

Net OPEB asset, end of year $ 6,892 $ 7,022

Trend Information for Airport’s Proportionate Share Percentage of Annual Year Ended June 30 Annual OPEB Cost OPEB Cost Contributed Net OPEB Asset 2014 $ 421 93.35% $ 7,008 2015 424 100.03% 7,022 2016 585 77.78% 6,892

Funded Status and Funding Progress for the City’s Plan: As of July 1, 2015, the most recent actuarial valuation date, the City’s plan was 18.09 percent funded. The actuarial accrued liability for benefits was $299,259. The actuarial value of assets was $54,126, resulting in an unfunded actuarial accrued liability (UAAL) of $245,133. The covered payroll (annual payroll of active employees covered by the plan) was $356,621 and the ratio of the UAAL to the covered payroll was 68.74 percent.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.

The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 63 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

c. Deferred Compensation Plan

The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, which is available to all City employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. The plan assets are placed in trust for the exclusive benefit of the participants and their beneficiaries and therefore are not included in the City’s financial statements.

7. INSURANCE:

a. Employee Health and Life

The City provides health and life benefits to employees and retirees. Private companies administer these benefits pursuant to administrative services agreements. The City maintained insurance coverage with private carriers for life claims, vision claims, and excess coverage for health claims in excess of $425 per year per person for June 30, 2016 and 2015.

The Airport participates in the City’s employee health and life insurance program which is accounted for in the Employee Health and Life Insurance Fund (EHLIF), an internal service fund, of the City. The Airport makes payments to the EHLIF for both an amount per employee and a proportionate share of the administrative cost. The amount per employee is based on actuarial estimates of amounts needed to pay prior and current year claims. The employees and retirees contribute a portion of the cost for health coverage. The City provides life insurance for employees in the amount of two times the employees’ salary up to a maximum of $200. Employees may purchase additional life insurance up to a maximum of four times their salary. The Airport made payments to the EHLIF for the years ended June 30, 2016 and 2015 in the amount of $3,399 and $2,846 respectively.

b. Risk Management

The Airport is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Airport participates in the risk management program of the City. The City has a Risk Management Fund (RMF), an internal service fund, to account for and finance its insured and uninsured risks of loss. Currently, insurance coverage is purchased for excess property damage for buildings and contents, excess workers’ compensation, excess vehicle and general liability, and airport liability. Insurance coverage includes vehicle and general liability claims in excess of $2,000 but less than $22,000 per occurrence, workers’ compensation claims in excess of $2,000, property damage claims in excess of $100 and flood insurance $100,000 in all flood zones, except $10,000 in flood zone A in excess of federal flood program maximums. The finance officer is bonded for $100. Employees who handle funds are bonded under a blanket bond for $250. Settled claims have not exceeded insurance coverage in the past three years. The actuarially determined losses for the remaining risks and deductible amounts are funded in the RMF. The Airport makes payments to the RMF based on historical cost information or actuarial estimates of the amounts needed to pay prior and current year claims and establish a reserve for catastrophic losses. The Airport made payments to the RMF for the year ended June 30, 2016 and 2015 in the amounts of $1,544 and $1,482 respectively.

8. COMMITMENTS AND CONTINGENCIES:

Noise litigation suits have been filed against the City in connection with the operation of the Airport. In the opinion of the City’s attorney and management, the ultimate outcome of the suits is not expected to have a significant impact upon the financial position or results of operations of the Airport.

The Airport has received a number of federal and state grants for specific purposes that are subject to review by the grantor agencies. Such reviews could lead to requests for reimbursement to the grantor agencies for expenditures disallowed under terms of the grants. The City management believes that such disallowances, if any, would not be significant.

64 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

The Airport had authorized capital projects at June 30 as follows:

2016 2015 Project Authorization $ 1,085,436 $ 902,309 Expended 818,120 732,113

Unexpended $ 267,316 $ 170,196

Financial resources are available to fund the total amount of unexpended authorizations.

The Airport had construction and other contractual commitments of approximately $131 million and $34 million at June 30, 2016 and 2015, respectively.

9. MAJOR CUSTOMER:

American Airlines Group, Inc. (American Airlines), is the major passenger airline serving Charlotte Douglas International Airport (Airport). For the fiscal years ended June 30, 2016 and 2015, American and its affiliates provided 21.74% and 24.4%, respectively, of the Airport’s operating revenues.

American Airlines conducts its passenger air carrier operations at the Airport pursuant to several agreements, the most significant of which is the City of Charlotte’s 1985 Airport Agreements and Lease (Airport Agreement), which has also been executed by JetBlue Airlines, Southwest Airlines, Delta Air Lines, and United Airlines (collectively, the Signatory Airlines). Pursuant to the Airport Agreement, the Signatory Airlines lease certain premises in the passenger terminal building (terminal) and are obligated to pay landing fees and terminal rentals which, in the aggregate, are sufficient to enable the City to pay the annual operating expenses of the airfield and terminal, and the annual debt service on General Airport Revenue Bonds (GARBs) issued by the City to fund airfield and terminal improvements.

As of June 30, 2016 and 2015, the City had $532,785 and $554,110, respectively of GARBs outstanding, the proceeds of which were used for airfield and terminal improvements. In addition, as of June 30, 2016 and 2015, the City has $65,621 and $43,295 respectively, in Bond Anticipation Notes (BANs). The GARBs and BANs are not general obligations of the City and are payable solely from revenues generated by the City in the airfield and terminal. The City had $60,397 in reserve to pay principal and interest on GARBs.

10. AIRPORT COMMISSION:

On July 26, 2013, Senate Bill 380 was enacted into law by the North Carolina General Assembly. The legislation would create the Charlotte Douglas International Airport Commission (the “Airport Commission”). The Airport Commission would be an agency of the City and composed of 13 members that would be appointed as follows: three by the Mayor of the City, four by the City Council, and one by each of the Boards of Commissioners of Mecklenburg County, Cabarrus County, Gaston County, Iredell County, Lincoln County and Union County. The Airport Commission would be responsible for operating the Airport. The City would be responsible for the issuance of revenue or refunding revenue bonds with respect to the Airport.

The City challenged the legislation’s validity under the State constitution and challenged the State’s authority to create the Airport Commission. Based on the judgment of the court in the underlying litigation, the rules promulgated by the FAA on the subject, and other relevant facts and circumstances, the City does not reasonably anticipate any further development in the underlying litigation and the matter is resolved.

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 65 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

11. DEBT SERVICE COVERAGE:

The 1985 Revenue Bond Order provided that Revenues pledged under the Bond Order be sufficient to meet Revenue Bond Debt Service, current expenses, and other required deposits to funds and accounts established by the Bond Order. Net Revenues for calculation of coverage as defined by the 1985 Bond Order are determined as follows:

Debt Service Coverage 2016 2015 Revenues: Included operating revenues $ 182,774 $ 163,655 Included non-operating revenues 503 687 Coverage factor 12,101 12,101

Total revenues 195,378 176,443

Application of revenues: Included operating expense (101,279) (87,680) Change in operating fund reserve (3,728) (4,107) Debt service fees (32) (125)

Total application of revenues (105,039) (91,912)

Net revenues available for revenue bond debt service (1) $ 90,399 $ 84,531

Requirement for revenue bond fund (2) $ 25,722 $ 25,733

Debt Service Coverage (1)/(2) 3.5 3.3

12. PASSENGER FACILITY CHARGES:

The Federal Aviation Administration (FAA) authorized the Airport to collect Passenger Facility Charges (PFC) of $3 per qualifying enplaned passenger commencing November 1, 2004. The net receipts from PFC are accounted for on the accrual basis of accounting and are restricted to use on FAA approved projects. The Airport has been authorized to collect PFC in the aggregate amount of $1,068,640.

2016 2015 Aggregate PFC Collections, Beginning $ 532,028 $ 471,790 PFC Collections 59,171 60,238

Aggregate PFC Collections, Ending $ 591,199 $ 532,028

66 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT | For the fiscal year ended June 30, 2016 NOTES TO THE FINANCIAL STATEMENTS continued June 30, 2016 and 2015 (Dollar amounts in $000)

13. CONTRACT FACILITY CHARGES:

Beginning July 1, 2007 Contract Facility Charges (CFCs) were imposed on rental car companies at a rate of $3.50 per transaction per day. On October 1, 2011 the rate was increased to $4.00 per transaction per day. The City may, at its discretion, raise the CFC per-transaction-per-day rate. In 2016 and 2015, the City received $12,273 and $10,187 in CFC revenue, respectively.

14. CHANGE IN CLASSIFICATION OF INCLUDED / EXCLUDED REVENUE AND EXPENSES:

As of June 30, 2015, the City implemented a change in the classification of included and excluded revenues and expenses. The distribution of revenues and expenses among categories changed but neither revenues nor expenses changed in total.

Included and Excluded Revenues were changed to categorize Cargo revenue as excluded revenue. Rental Car and Fixed Base Operator revenues were separated into individual categories rather than being combined with Miscellaneous, Terminal and Concessions revenue.

Included and Excluded Expenses were changed to categorize capital outlay as a reduction to excluded expense in the Cargo and Fixed Base Operator expense categories.

When comparative amounts are displayed, those amounts have been restated to reflect these changes.

15. CHANGE IN ACCOUNTING PRINCIPLES / RESTATEMENT:

The City and its component units implemented Governmental Accounting Standards Board (GASB) statement 72, Fair Value Measurement and Application.

Statement No. 72 requires the City to use valuation techniques which are appropriate under the circumstances and are either a market approach, a cost approach or an income approach. Statement No. 72 establishes a hierarchy of inputs used to measure fair value consisting of three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs, such as management’s assumption of the default rate among underlying mortgages of a mortgage-backed security.

Statement No. 72 also contains note disclosure requirements regarding the hierarchy of valuation inputs and valuation techniques that was used for the fair value measurements. There was no material impact on the City’s financial statement as a result of the implementation of Statement No. 72. All required disclosures were added to Note 1.c.

In the fiscal year ending 2015, the City implemented Government Accounting Standards Board (GASB) statement 68, Accounting and Financial Reporting for Pensions (an amendment of GASB Statement 27), as well as GASB Statement 71, Pension for Transition for Contributions Made Subsequent to the Measurement Date (an amendment of GASB Statement 2016 2015 68). The implementation of statements required the Airport to record beginning net pension liability and the effects on Aggregate PFC Collections, Beginning $ 532,028 $ 471,790 net position of contributions made by each, respectively, during the measurement period (fiscal year ending June 30, PFC Collections 59,171 60,238 2014) in the amount of $2,603 for fiscal year 2015.

Aggregate PFC Collections, Ending $ 591,199 $ 532,028

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 67

REQUIRED SUPPLEMENTARY INFORMATION

The Required Supplementary Information (RSI) contains audited information about the Airport Enterprise Fund (Airport). CITY OF CHARLOTTE, NORTH CAROLINA LOCAL GOVERNMENT EMPLOYEES’ RETIREMENT SYSTEM PROPORTIONATE SHARE OF NET PENSION LIABILITY (ASSET) FOR THE CITY OF CHARLOTTE LAST THREE FISCAL YEARS1 (Dollar amounts in $000)

2016 2015 2014 City of Charlotte’s proportion of the net pension liability (asset) (%) 5.89% (5.88149%) 5.89%

City of Charlotte’s proportion of the net pension liability (asset) ($) $ 26,455 $ (32,461) $ 71,032 Airport’s proportion of the net pension liability (asset) ($) $ 1,944 $ (1,893) $ 3,877

City of Charlotte’s covered-employee payroll $ 350,856 $ 338,026 $ 327,094

City of Charlotte’s proportionate share of the net pension liability 7.54% ( 9.60%) 21.72% (asset) as a percentage of its covered-employee payroll

Plan fiduciary net position as a percentage of the total pension 94.35% 102.64% 94.35% liability2

NOTES: 1The amounts presented for each fiscal year were determined as of the prior fiscal year ending June 30. 2This will be the same percentage for all participant employers in the LGERS plan.

70 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT |For the fiscal year ended June 30, 2016 CITY OF CHARLOTTE, NORTH CAROLINA LOCAL GOVERNMENT EMPLOYEES’ RETIREMENT SYSTEM CITY OF CHARLOTTE’S CONTRIBUTIONS LAST THREE FISCAL YEARS ENDED JUNE 30 (Dollar amounts in $000)

2016 2015 2014 City of Charlotte’s contractually required contribution $ 23,959 $ 24,288 $ 23,348

City of Charlotte’s contributions in relation to the contractually required contribution 23,959 24,288 23,348

Contribution deficiency (excess) $ - $ - $ -

City of Charlotte’s covered-employee payroll $ 350,856 $ 338,026 $ 327,094

City of Charlotte’s contributions as a percentage of covered- 6.83% 7.19% 7.14% employee payroll

Airport’s proportion of contractually required contribution $ 1,501 $ 1,497 $ 1,274

Airport’s proportion of contributions in relation to the contractually required contribution 1,501 1,497 1,274

Contribution deficiency (excess) $ - $ - $ -

For the fiscal year ended June 30, 2016 | CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT 71 CITY OF CHARLOTTE, NORTH CAROLINA OTHER POSTEMPLOYMENT BENEFITS SCHEDULE OF FUNDING PROGRESS FOR THE CITY OF CHARLOTTE THE YEAR ENDED JUNE 30, 2016 (Dollar amounts in $000)

Actuarial Accrued UAAL as a % Liability (AAL) - of Covered Actuarial Actuarial Value Projected Unit Unfunded AAL Funded Ratio Covered Payroll Valuation Date of Assets (a) Credit (b) (UAAL) (b - a) (a/b) Payroll (c) ((b - a)/c)

1/1/2007 $ - $ 229,764 $ 229,764 -% $ 275,955 83.26% 7/1/2009 33,006 207,301 174,295 15.92% 322,162 54.10% 7/1/2011 40,742 224,184 183,442 18.17% 294,793 62.23% 7/1/2013 44,129 241,293 197,164 18.29% 276,853 71.22% 7/1/2015 54,126 299,259 245,133 18.09% 356,621 68.74%

Schedule of Employer Contributions

City of Charlotte Airport’s Proportionate Share Annual Annual Year Ended Required Percentage Required Percentage June 30 Contribution Contributed Contribution Contributed

2011 $ 14,405 80.94% $ 463 69.76% 2012 15,656 98.21% 491 72.71% 2013 15,656 98.84% 491 76.37% 2014 16,096 106.04% 431 91.18% 2015 16,096 85.25% 431 100.02% 2016 20,212 63.36% 593 76.73%

Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

Methods and assumptions used include: Actuarial valuation date 7/1/2015 Actuarial cost method Projected unit credit Amortization method Level percent of projected payroll, Closed Remaining amortization period 22 years Asset valuation method Market value Actuarial assumptions: Investment rate of return 7.75% Projected salary increases 4.50% Annual healthcare cost trend rate 7.00 to 5.00% (year of ultimate trend rate 2020) Includes inflation at 4.50% Cost of living adjustments None

72 CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT |For the fiscal year ended June 30, 2016

APPENDIX B

REPORT OF THE AIRPORT CONSULTANT

[THIS PAGE INTENTIONALLY LEFT BLANK]

REPORT OF THE AIRPORT CONSULTANT

Prepared for

CITY OF CHARLOTTE

In Connection With The Proposed Issuance of its Airport Revenue Bonds, Series 2017 and 2017 Bond Anticipation Notes

CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT

May 3, 2017

Prepared by:

May 3, 2017

Mr. Randy Harrington Director of Management and Financial Services Chief Financial Officer City of Charlotte 600 East 4th Street Charlotte, NC 28202

Re: Report of the Airport Consultant City of Charlotte Airport Revenue Bonds & Bond Anticipation Notes – Series 2017

Dear Mr. Harrington:

Newton & Associates, Inc. (“NAI”) is pleased to submit herewith its report of the airport consultant (“Report”)1 which has been prepared for the City of Charlotte, North Carolina (“City”) by NAI in connection with the City’s issuance of its Airport Revenue Bonds (“Bonds”), in two series of new money Bonds (“2017 New Money Bonds”) and one series of refunding Bonds (“2017 Refunding Bonds” and together with the 2017 New Money Bonds, the “2017 Bonds”), as well as its 2017 Bond Anticipation Notes (the “2017 BANs”), as hereinafter described, and which are to be secured by and paid from Net Revenue derived from the City’s operation of the Charlotte Douglas International Airport (“Airport”). Terms not otherwise defined herein have the meanings ascribed to them in the City’s 1985 Bond Order and the 2016 Airline Use Agreement and Lease (“2016 Airline Agreement”).

Revised Bond Order

NAI has been advised that the City is proposing and seeking majority bondholder consent for certain amendments to the Bond Order in conjunction with the issuance of the 2017 Bonds. The City expects to receive majority bondholder consent, including the consent of the purchasers of the 2017 Bonds, upon the issuance of the 2017 Bonds. Therefore, the 2017 Bonds are being issued under the terms and conditions of the existing Bond Order, but will be subject to the amended Bond Order after the requisite consents are received. NAI does not expect that the proposed amendments to the Bond Order, if adopted, will have any material impact on the operations, expenses or Revenue of the Airport, the application of Revenue by the City or the feasibility of the City issuing the 2017 Bonds and 2017 BANs as set forth in this Report. The proposed amended and restated Bond Order is included in Appendix D to the Official Statement for the 2017 Bonds and to which this Report forms a part.

1 This letter and the attached report titled BACKGROUND, ASSUMPTIONS AND RATIONALE FOR FINANCIAL FORECASTS comprise the REPORT OF THE AIRPORT CONSULTANT.

Mr. Randy Harrington May 3, 2017 Page 2

The purpose of this Report is to examine and opine as to the financial feasibility of the City’s issuance of: (i) the 2017 New Money Bonds; (ii) the 2017 Refunding Bonds; and (iii) the 2017 BANs. Proceeds of the 2017 New Money Bonds and the 2017 BANs will be used to fund, in part, certain improvements at the Airport (the collectively, the “2017 Project” and individually the “2017 Project Elements”) as described herein. Proceeds of the 2017 Refunding Bonds will be used to refund the outstanding principal amount of the City’s Series 2007A Bonds, Series 2007B Bonds, Series 2008D Bonds and Series 2011C Bonds.

The test of feasibility is the Airport’s forecasted ability to generate Revenue sufficient to pay: (1) expenses of operating and maintaining the Airport; (2) debt service on Outstanding Bonds and related expenses; (3) debt service on the 2017 Bonds and 2017 BANs; (4) non-operating expenses of the Airport; (5) costs of any other capital assets required during the Forecast Period (as defined below) necessary for the operation of the Airport but not included in the 2017 Project; and (6) to otherwise satisfy the requirements of the Bond Order adopted by the City Council on November 18, 1985, as amended (“Bond Order”).

In applying the test of feasibility, NAI has considered, and this Report describes, the Airport, the demographic and economic characteristics of the primary geographic area served by the Airport (“Air Service Area”), the demand for air service at the Airport and the financial performance of the Airport, all for the period from July 1, 2011 to June 30, 2016, or, the most recent five-year period for which complete data were available (“Study Period”). This Report also examines, discusses and forecasts the future demand for air service at the Airport, passenger enplanements at the Airport, Revenue and expenses of the Airport, Passenger Facility Charges (“PFC”) to be collected by the Airport, the Net Revenue of the Airport available for debt service, debt service requirements and debt service coverage for the period July 1, 2018 to June 30, 2022 (“Forecast Period”). This Report concludes with NAI’s findings regarding the feasibility of the City proceeding with financing a portion of the cost of the 2017 Project with proceeds of the 2017 Bonds and 2017 BANs.

Based upon these assumptions and certain assumptions contained in the Airport Financial Plan (defined below) regarding future projects identified in Section II of the Report, and NAI’s analysis, NAI projects Net Revenue, estimated debt service coverage and airline costs per enplaned passenger for each year of the Forecast Period as set forth below:2

2 See Section V in the body of the Report and Tables V-9 and V-11 therein.

Newton & Associates, Inc. B - 2 Report of the Airport Consultant

Mr. Randy Harrington May 3, 2017 Page 3

Debt Service Airline Coverage Cost per Enplaned Fiscal Year Net Revenue Passenger 2018 $89,380,840 4.62x $1.61 2019 $94,049,777 3.90x $2.21 2020 $99,124,922 4.22x $2.15 2021 $102,902,946 3.45x $2.33

2022 $101,710,781 3.06x $2.78

The 2017 Project

The 2017 Project is needed by the City to: (i) address inadequacies of Airport facilities to accommodate existing demand; (ii) provide additional facilities to meet projected demand; and, (iii) replace, repair or refurbish existing facilities that have deteriorated over time and with usage. When completed, the 2017 Project is expected to have a total estimated cost of $695.5 million and is to be funded with federal AIP grants, PFCs, Airport cash, proceeds of the 2017 Bonds and 2017 BANs, and future Bonds (subject to the future test of feasibility of issuing future bonds).

The following summarizes the individual 2017 Project Elements comprising the 2017 Project. See Section II of the Report for a more complete description of the 2017 Project.

Terminal Complex Improvements: Estimated Project Cost

- Concourse A Expansion Ph I $ 134,151,088 - Expand Terminal Lobby $ 235,000,000 - Concourse E Baggage Transfer Station $ 24,456,007 - Terminal Rehabilitation $ 75,418,694 - Energy Infrastructure-Ph II $ 6,750,000 - Fuel Farm Expansion - Ph III $ 10,000,000 - East Terminal Expansion – Ph II $ 34,419,333 - Concourse E – Airline Space Addition $ 3,723,738

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Airfield Improvements:

- West Ramp Expansion – Ph I $ 46,698,309

Ground Transportation Projects

- Long Term Parking Lot # 2 Expansion $ 6,300,000 - Other Long Term Parking Improvements $ 5,855,371 - Business Valet Parking Deck # 2 $ 40,000,000

Airport Services and Facilities Projects

- Joint Operations Center $ 24,075,000 - Vehicle Maintenance Facility $ 14,500,000 - Little Rock Road Extension $ 4,190,402

Other Projects

- Concessions Distribution Warehouse $ 30,000,000

Total 2017 Project $695,537,942

Feasibility Analysis

At your request, NAI has examined the feasibility of the issuance of the 2017 Bonds and 2017 BANs by the City to finance the 2017 Project. The test of feasibility is whether it is reasonable to expect the City to be able to satisfy the requirements of Section 704(a) of the Bond Order after the issuance of the 2017 Bonds, and the 2017 BANs for a period beginning with the date of issuance and continuing for two years after the expected completion of the 2017 Project. In conducting its study, NAI has examined the operational and financial performance of the Airport and the economic characteristics of the Air Service Area for the Study Period and has prepared a forecast of passenger enplanement activity and Net Revenue for the Forecast Period.

Under the Bond Order, the City must fix, charge and collect rates, fees, rentals and charges for the use of the Airport and must revise such rates, fees, rentals and charges as often as may be necessary or appropriate to produce Revenue in each Fiscal Year at least equal to the sum of deposits required to be made to the funds and accounts created under the Bond Order plus an amount on deposit in the Revenue Fund created under the Bond Order as of the first day of the following Fiscal Year equal to 25% of the principal and interest on the Outstanding Bonds for the immediately preceding Fiscal Year. The Bond Order provides that amounts retained in the Revenue Fund as of the end of each Fiscal Year are to be deemed Revenues. The amount on deposit in the Revenue Fund with respect to the Coverage Requirement at June 30, 2017 is estimated by the City to be $9,167,362.

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The Airport

The Airport is a large hub airport3 located in the western part of Charlotte, Mecklenburg County, North Carolina. The Airport was built by the City of Charlotte in 1932. In 1940, the United States took over use of the Airport and expanded it into the Morris Field Army Air Corps Bomber Training Base. After World War II, it was returned to the City and put into service as a commercial airport. It has experienced much growth since 1946 and today comprises more than 3,786 acres of land, on which is located an airfield that includes four runways, (including one of ten thousand feet in length), a passenger terminal building of more than 1.6 million square feet and including 97 aircraft gates, an air cargo center, an aircraft maintenance base, and public automobile parking facilities for more than 26,000 automobiles comprising a combination of structured and surface, self-parking and valet facilities. See Section I of the Report for a more detailed discussion of the Airport, its management and its facilities.

Financial Structure of the Airport

The Airport operates as a self-sustaining enterprise of the City. No general fund revenue of the City is used for Airport purposes. The City operates the Airport so that Revenue in each Fiscal Year is, at a minimum, sufficient to pay the expenses of operating and maintaining the Airport and to pay the debt service on all parity Outstanding Bonds and any subordinate indebtedness of the Airport Enterprise Fund in such Fiscal Year.

Existing Revenue Bond Indebtedness

The Bond Order was adopted in 1985 in conjunction with the City’s first issuance of Bonds. The Outstanding Bonds are parity obligations under the Bond Order (collectively, the “Prior Bonds”) which are secured by a pledge by the City of the Net Revenue of the Airport and include:

(i) $99,995,000 Airport Revenue and Refunding Bonds, Series 2007A (non-AMT) (the “2007A Bonds”), of which $82,425,000 are currently outstanding;

(ii) $47,570,000 Variable Rate Airport Revenue Bonds, Series 2007B (non-AMT) (the “2007B Bonds” and collectively with the 2007A Bonds, the “2007 Bonds”), of which $19,375,000 are currently outstanding;

3 An airport is classified by the FAA as a large hub if it has boarded at least 1% of the total passengers that boarded commercial passenger aircraft within the United States in the most current calendar year ending before the start of the current federal fiscal year. The federal government's fiscal year commences on October 1 and ends on September 30 of the following calendar year. Therefore, calendar year 2015 data are used for federal fiscal year 2017. In Calendar Year 2015, 22.2 million passengers boarded commercial passenger aircraft at the Airport, representing 2.4% of the 911.7 million passengers that boarded commercial passenger aircraft in the United States for the same period.

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(iii) $40,585,000 Airport Revenue Refunding Bonds, Series 2008D (non-AMT) (the “2008D Bonds”), of which $37,335,000 are currently outstanding;

(iv) $130,100,000 Airport Revenue Bonds, Series 2010A (non-AMT) (the “2010A Bonds”), of which $115,490,000 are currently outstanding;

(v) $67,770,000 Airport Refunding Revenue Bonds, Series 2010B (AMT) (the “2010B Bonds”), of which $47,685,000 are currently outstanding;

(vi) $76,100,000 Airport Revenue Bonds, Series 2011A (non-AMT) (the “2011A Bonds”) of which $69,500,000 are currently outstanding;

(vii) $34,250,000 Airport Revenue Bonds, Series 2011B (AMT) (the “2011B Bonds”) of which $31,305,000 are currently outstanding;

(viii) $30,920,000 Variable Rate Airport Revenue Bonds, Series 2011C (non-AMT) (the “2011C Bonds”) of which $6,925,000 are currently outstanding;

(ix) $74,290,000 Airport Revenue Refunding Bonds Series, 2014A (non-AMT) (the “2014A Bonds”) of which $74,290,000 are currently outstanding; and

(x) $31,100,000 Airport Revenue Refunding Bonds, Series 2014B (AMT) (the “2014B Bonds”) of which $25,140,000 are currently outstanding.

The total principal of the Prior Bonds currently outstanding is $509,470,000. Not included in this amount is $97,545,408 outstanding under the Revenue Bond Anticipation Note.

Historical Airport Financial Performance

NAI has reviewed the financial performance of the Airport during the Study Period, including estimated Fiscal Year 2017 Revenue and expenses. During each year of the Study Period, Airport Revenue has been more than sufficient to meet the requirements of the Bond Order. During this time, the ratio of Net Revenue to Bond Fund Deposits net of PFCs (“Net Bond Fund Deposits”), ranged from a low of 3.10 times the Net Bond Fund Deposit in FY 2014 to a high of 3.45 times in FY 2016. For 2017, we estimate the debt service coverage will be 4.99 times. During the Study Period, deposits to the Discretionary Fund, net of Signatory Airline Credits, totaled $150.7 million. Credits to Signatory Airlines over the Study Period totaled $77.9 million.

Airport Financial Plan

The Airport has developed a multi-year financial plan (“Airport Financial Plan”) for the purpose of tracking the timing, funding and financing strategies for current and future Airport capital improvement projects included in its multi-year capital improvement plan (“CIP”). The Airport Financial Plan also estimates the financial impacts of implementing the CIP including impacts on

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operating Revenue, operating expenses, airline and other rates, fees and charges, airline cost per enplaned passenger and debt service coverages; and forecasts those impacts through its multi- year planning period. The Airport adjusts the Airport Financial Plan on an ongoing basis to capture necessary changes as needed. The Airport Financial Plan is the source for the 2017 Project Elements, the plan of finance for the 2017 Project and future projects identified in Section II of the Report.

The Airline Agreements

The City has entered into the 2016 Airline Agreement with American Airlines, Delta Air Lines, JetBlue Airways, United Airlines and Southwest Airline Company (the “Signatory Airlines”) regarding the use of the Airport and the establishment of rates, fees, rentals and charges (“Airline Rates and Charges”) payable by the Signatory Airlines for use of the Airport.

The 2016 Airline Agreement replaced and superseded earlier agreements the City had entered into with the Signatory Airlines (“1978 Agreement" and "1985 Amended and Restated Airport Agreement and Lease”). The term of the 2016 Airline Agreement expires on June 30, 2026.

The following features of the 2016 Airline Agreement are important to understanding the financial structure of the Airport and in determining the ability of the City to satisfy the requirements of the Rate Covenant under the Bond Order.

Airport Cost Centers

The activities, facilities, revenue and costs related to the major operational activities of the Airport are accounted for by the City as “Cost Centers.” For this purpose, a Cost Center is an operational and/or physical area of the Airport into which the revenue and expenses generated by such Cost Centers are accumulated. There are two major types of Cost Centers: revenue producing and non-revenue producing. The revenue producing Cost Centers established in the 2016 Airline Agreement for the purpose of calculating the Airline Rates and Charges (“Included Cost Centers”) are the Airfield Cost Center (“Airfield”) and the Terminal Complex Cost Center. The 2016 Airline Agreement defines the Airfield as those portions of the Airport which provide for the landing, takeoff and taxiing of aircraft, including navigational aids, hazard designation and warning devices, airfield security roads, fencing, lighting, clear zone areas and all modifications, additions and expansions thereto.

The 2016 Airline Agreement defines the Terminal Complex as the Terminal Building, the Concourses, the Leased Ramp Areas, the Non-Leased Ramp Areas, the Employee Vehicular Parking Facilities, the Aviation Fuel Facilities, the Public Parking Facilities, the Rental Car Facilities, the portions of the Airport roadway systems immediately adjacent to and contiguous with the arrival and departure curbs of the Terminal Building, and the Commercial Lane, all as the same presently exist or may be expanded, modified or relocated in the future. The Terminal Complex also includes any equipment or personal property acquired or owned by the City for

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use in connection with the Terminal Complex including passenger loading bridges, preconditioned air units and 400 Hz ground power supply units purchased by the City.

Airport Services Cost Center

The total costs of the City providing: (i) certain administration and operation and maintenance services (“Airport Services”) including security and crash, fire and rescue; and (ii) those properties, property rights and facilities, the costs of which are not attributable to the revenue producing Cost Centers (“Airport Services Facilities”) are defined as the Airport Services Costs. These Airport Services Costs are accounted for in the Airport Services Cost Center. The Airport Services Costs are allocated to the revenue producing Cost Centers in accordance with a cost distribution formula.

Excluded Cost Centers

The City has also established Cost Centers to account for economic activity at the Airport other than the Terminal Complex and Airfield. These include the Fixed Based Operator Cost Center, the Cargo Cost Center, the Aircraft Maintenance Cost Center and the Catering Cost Center (“Excluded Cost Centers”). Pursuant to the 2016 Airline Agreement, only the Terminal Complex and the Airfield are used to establish the rates, fees, rentals and charges payable to the City by the Signatory Airlines for their use of the Airport. The City may not take into account any costs associated with the Excluded Cost Centers in establishing Airline Rates and Charges nor does it include revenue from these Cost Centers in calculating Excess Non-Airline Terminal Revenue. Under the Bond Order, only the revenue from the Included Cost Centers (the Airfield and the Terminal Complex Cost Centers) is Revenue pledged to the payment of the principal of the Bonds and the interest thereon. All other Cost Centers are Excluded Cost Centers. Airport Revenue generated in the Excluded Cost Centers is not pledged to the payment of the Bonds or the interest thereon and is not considered as Revenue for the purposes of the Rate Covenant.

Airline Rates and Charges

The Signatory Airlines collectively have agreed to make payments to the City for the use of the Airport and the lease of exclusive, preferential, joint and common use airline areas in the Terminal Complex that will enable the City to meet the requirements of the Rate Covenant each Fiscal Year. These payments are made in the form of Landing Fees and Terminal Complex Charges. The sum of Signatory Airline Landing Fees and Terminal Complex Charges are referred to as Airport Fees and Charges.

Terminal Complex Charges

The Signatory Airlines each lease a certain amount of exclusive use premises, preferential use premises and joint use premises the Terminal Building, Concourses and Leased Ramp Areas (collectively “Terminal”) of the Terminal Complex Cost Center. In addition, they all use certain areas in common with each other. Collectively, they pay to the City rentals and use fees

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(“Terminal Complex Charges”) for the exclusive and common airline areas that equal the cost to the City of providing, operating and maintaining the premises assigned to and used by the airlines in and at the Terminal. Initial Terminal Complex rates are calculated pursuant to a compensatory rate setting formula based upon an allocation of budgeted costs and anticipated airline activity and are then reconciled based upon actual costs and airline activity following the close of each Fiscal Year (July 1-June 30). In addition, the City provides a credit to the signatory Airline of 40% of any Included Cost Center Revenue that remains in the Revenue Fund after the payment of all operating costs and debt service requirements for the Included Cost Centers. This arrangement follows closely the rates and charges methodology followed under the 1985 Airline Agreement.

Landing Fees

Under the 2016 Airline Agreement, the Signatory Airlines pay compensatory Landing Fees for the use of the Airfield calculated to recover to the City its full cost of providing, operating and maintaining the Airfield, including an allocation of Airport Services Costs. The amount of Landing Fees payable by each airline is the product of the weight (expressed in 1,000 pound units) of the aircraft landed at the Airport during a Fiscal Year multiplied by the landing fee rate in effect for such Fiscal Year.

The landing fee rate is calculated by the City each Fiscal Year by estimating the total costs it will incur in providing, operating and maintaining the Airfield less the amount of any ancillary Airfield Revenue (the “Net Cost of Airfield”) and dividing the Net Cost of Airfield by the number of one thousand pound units of aircraft landed weight (“Landed Weight”) anticipated to be landed by the Signatory Airlines at the Airport during such Fiscal Year (“Landing Fee Rate”). If necessary, in any Fiscal Year the Airport may adjust the Landing Fee Rate if it appears such an adjustment will be necessary to recover the full amount of the Net Cost of the Airfield for such Fiscal Year.

At the end of each Fiscal Year, the Airport reconciles its actual landing fee Revenue for the Fiscal Year with its actual costs for the Fiscal Year and if there is a difference, either collects the additional amounts from the Signatory Airlines or makes a payment to the Signatory Airlines. The effect of this is that Revenue from landing fees each Fiscal Year equals the Net Cost of the Airfield for such Fiscal Year.

Additional Capital Projects - Majority-In-Interest Approval

Under certain circumstances and with specific exceptions, the 2016 Airline Agreement requires approval by a Majority-In-Interest (“MII”) of Signatory Airlines for additions or improvements to the Airport's physical plant or equipment, and the acquisition by the City of land or rights in land for expansion or operation of the Airport ("Capital Improvement Project"). No MII Approval is required for Capital Projects already approved by the Signatory Airlines through their execution of the 2016 Airline Agreement (“Pre-Approved Projects”) or for certain other Capital Projects that are paid for with PFCs, or that meet certain other criteria (collectively, the

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“Exempt Projects”). The Airport received the MII approval of all but two of the 2017 Project Elements requiring MII approval on June 6, 2016. MII approval of the Joint Operations Center and the Concession Distribution Warehouse, which are elements of the 2017 BANs Project, are pending as of the date hereof. The City has stated that it will not make draws on the 2017 BANs to fund these projects if MII approval is not ultimately received.

Funding of the 2017 Project – Plan of Finance

The plan of finance for the 2017 Project is to provide permanent financing with 2017 Bonds for those 2017 Project Elements which are complete or expected to be completed by FY 2020. The funding requirement for the balance of the 2017 Project Elements is to be temporarily funded with 2017 BANs and additional bond anticipation notes (“BANs”) the City expects to issue in FY 2019 and FY 2021. The City expects to replace the 2017 BANs with proceeds of permanent financing in the form of Bonds the City expects to issue in FY 2019, that 2019 BANs will be replaced with proceeds of permanent financing in the form of future Bonds the City expects to issue in FY 2021, and that the 2021 BANs will be replaced with proceeds of permanent financing in the form of future Bonds the City expects to issue in FY 2023.

The details and timing of the future issuances to fund the CIP after the 2017 Bonds and the 2017 BANs are issued are preliminary and subject to change.

2017 Bonds and 2017 BANs

The estimated cost of the 2017 Project is approximately $695.5 million. This includes the $235 million Lobby Expansion of which only $33.7 million is being funded with the 2017 Bonds and 2017 BANs. This will fund the design ($18 million) with 2017 Bonds and the initiation of construction in FY 2019 or FY 2020 ($15.7 million) with the proceeds of the 2017 BANs. The City intends to fund the balance of the Terminal Lobby Expansion with a future financing. The total cost of the 2017 Project Elements that are completely funded in the 2017 financing is estimated to be $489.4 million. Funding of this amount is to be from a combination of Airport cash on hand, Airport Improvements Program (“AIP”) Grants-In-Aid and the proceeds of the 2017 Bonds and 2017 BANs. The City intends to fund $190.1 million of project costs with 2017 Bonds proceeds and $174.9 million with 2017 BANs. See Section II of the Report for the details of the funding and financing plan.

Forecast of Application of Revenue and Debt Service Coverage Requirement

NAI has prepared a forecast Application of Revenue Under Provisions of the Bond Order considering: (i) a forecast of Revenue and expenses based on current Airport Operations; and (ii) the estimated impacts of the Airport Financial Plan which would occur over the Forecast Period. These impacts include: (i) estimates of additional Revenue to be generated from the use of the completed 2017 Project; (ii) estimated incremental Revenue to be generated by certain 2017 Project Elements; (iii) estimated, additional Current Expenses to be incurred as a result of certain

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2017 Project elements; (iv) the estimated debt service on the 2017 Bonds and the 2017 BANs; and (v) the estimated debt service on the 2019 BANs, 2019 Bonds, and the 2021 BANs.4

As shown on Table V-9, over the Forecast Period, the ratio of Net Revenue to Bond Fund Deposits, net of PFCs, is projected to be no less than 2.95 times the Net Bond Fund Deposits. The results of this Coverage Forecast are based on the Revenue the City is projected to generate from the operation of the Included Cost Centers and the projected costs of operating the Included Cost Centers.

With respect to the Revenue projected to be generated from the Signatory Airlines, under the Extraordinary Coverage Provision of the 2016 Airline Agreement the City may impose additional rental requirements on the Signatory Airlines in any Fiscal Year that such additional rentals are required to enable the City to meet the obligations of the rate covenant of the Bond Order. No such additional rentals were found to be necessary during the Forecast Period.

NAI has also estimated the cost to the airlines operating at the Airport during the Forecast Period as shown on Table V-11 of the Report. The airline cost per enplaned passenger is forecast to be $1.61 in FY 2018 and to increase to $2.78 in FY 2022. See Table V-11 for the details.

Airport Liquidity

Although not strictly a component of the test of feasibility, the amount of unrestricted cash on hand can be an important cushion to allow an airport to endure unforeseen and temporary periods of business interruption. Debt service reserve funds, PFC funds and unrestricted cash can enable an airport to meet its debt service obligations and pay operating expenses for a temporary period when airport Revenue is diminished or non-existent.

As shown on Table V-10, according to the City’s Annual Report for the Airport, for FY 2016 the City held unrestricted cash and cash equivalents for the Airport Enterprise Fund totaling $449 million, as of June 30, 2016. According to the City, this amounted to enough cash for FY 2016 to fund Airport operations for approximately 1,390 days.

In addition, the PFC Fund had a balance of $299.1 million as shown on Table V-7.

The Airport is also projected to deposit $32.6 million in net surplus Revenue from its Included Cost Center operations for FY 2017, which amount will also increase the amount of unrestricted cash on hand as of July 1, 2017 (See Table V-9).

4 The estimated debt service on the 2017 Bonds and the 2017 BANs were provided by the Series 2017 Bonds underwriter Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”). The debt service assumptions on the 2019 BANs, 2019 Bonds, and 2021 BANs were provided by the City.

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Air Service Area and Demand for Air Service

Although under the 2016 Airline Agreement the Signatory Airlines are obligated to pay all amounts necessary to operate the Included Cost Centers, such obligation is not the basis of our analysis regarding the feasibility of the 2017 Project. Rather, NAI has analyzed the demand for air service at the Airport. It is this demand for air service and the potential Revenue derived therefrom by the airlines, which compels airlines to serve the Airport. This activity generates a level of Revenue which enables the Airport to operate the Included Cost Centers self- sufficiently.

Origin and destination (“O&D”) passengers are largely responsible for the Airport’s parking Revenues ($51.6 million in FY 2016) and the rental car Revenues ($14.1 million in FY 2016).5 Together, these two activities generated approximately $65.7 million which was approximately 36% of total estimated Included Cost Center Revenues in FY 2016. By comparison, Signatory Airlines paid the City approximately $42.4 million in Airline Rates and Charges during FY 2016, approximately 23.0% of the total Included Cost Center Revenue. Furthermore, the Signatory Airlines received a credit payment from the City in the amount of $18.5 million as their share of FY 2016 Revenue available for Revenue Sharing.6

NAI believes that locally generated demand for air service at the Airport is created by air travelers from a large geographic area, known by the Office of Management and Budget as the Charlotte Gastonia Salisbury NC, SC Economic Area and which comprises 20 counties in North Carolina and South Carolina. NAI has defined this 20 county area as the Airport’s primary air service area (“Air Service Area”) for this Report. Mecklenburg County is the largest county in the Air Service Area.

Section III of the Report examines the economic base of the Air Service Area and Section IV examines the current and expected future demand for air service at the Airport. These Sections show that the local demand for air service at the Airport has been strong and growing over the Study Period at a CAGR of 5%, accounting for approximately 6.1 million enplanements, or approximately 27.3% of total Airport enplanements in FY 2016. NAI believes this level of demand for local air service is a function of the growing economy in the Charlotte region during the Study Period.

Charlotte is the largest financial center in the southeastern United States and the second largest financial center in the United States in terms of assets held by banks (second to New York). Of the top 50 insured chartered commercial banks, six have operations in Charlotte, one of which is headquartered here (Bank of America Corporation) and, collectively, have assets of

5 See Table V-1. 6 See Tables V-1 and V-3.

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approximately $4 trillion. In addition to banks, a branch of the Federal Reserve is also located in Charlotte.

In addition to banking, Charlotte and the region have long been a prosperous center of manufacturing and wholesale and retail trade. Economic indicators suggest that the region will remain strong and continue to grow economically. NAI therefore believes that it is reasonable to expect that the Air Service Area’s economy will continue to grow and generate increased demand for air service at the Airport during the Forecast Period.

Population in the Air Service Area has experienced stronger annual growth during the Study Period compared to the State of North Carolina and the United States (1.40%, 1.14% and 0.82% CAGRs, respectively). Growth in Population in the Air Service Area is expected to continue during the Forecast Period at rates greater than that of North Carolina and the United States.

Growth in Personal Income in the Air Service Area compared favorably with North Carolina and the United States over the Study Period (1.94%, 1.59% and 1.95% CAGRs, respectively).

Retail Sales in the Air Service Area outpaced that of the State of North Carolina and the United States during the Study Period. Mecklenburg County Retail Sales experienced the greatest increase in retail sales at 3.34% compared to the Air Service area at 2.71%, North Carolina at 2.43% and the United States at 2.11%. Retail Sales for Mecklenburg County and the Air Service Area are projected to grow during the Forecast Period at rates greater than the State of North Carolina and the United States.

Visitors and tourism are important measures of the economy since these visitors consume goods and services in the Air Service Area, which supports employment and the local tax base. Visitor and tourism spending has grown in the Mecklenburg County during the Study Period. Total spending has increased at a CAGR of 5.18% from $4.1 billion in CY 2011 to over $5 billion in CY 2015. Local tax receipts from visitors and tourism have increased at a CAGR of 4.37% from $103.7 million in CY 2011 to $122.42 million in CY 2015. The Charlotte Regional Visitors Authority reports that for 2016 visitors spent $6.5 billion in the Charlotte area.

The data set forth in Section III indicates that the economic base of the Air Service Area is a stable component of the economy in North Carolina and the United States. The projections portray growth in population, employment, personal income, retail sales and tourism during the Forecast Period. NAI believes it is reasonable to expect that the Air Service Area’s economy will remain vibrant and continue to generate demand for air service at the Airport during the Forecast Period.

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American Airlines Hubbing Activity

In addition to the airline activity generated by the Air Service Area, the Airport boarded approximately 16.3 million connecting passengers in FY 2016 due largely to the activities of American Airlines, which operates its second largest hub at the Airport.7

The City believes that American Airlines hub at the Airport has a much greater impact on the economy of the region than the Revenues generated by the connecting passengers at the Airport or the Airline Rates and Charges paid by American Airlines at the Airport. This greater impact includes the economic value to local residents and businesses of having access to a much greater number of non-stop destinations from the Airport than would be justified by only the O&D passenger demand. American Airlines together with its Affiliates and non-Affiliate partners operate daily flights to 121 continental U.S. and 32 airports outside of the U.S., including, Canada, the Middle East, the Caribbean, Latin America and Europe. NAI believes that this level of air service has contributed greatly to the success the Charlotte region has enjoyed in attracting national businesses to the area and the resulting economic vitality of the region.

Although American Airlines has executed the 2016 Airline Agreement, American Airlines is not obligated to operate any flights to the Airport. In spite of its investment in facilities at the Airport, the low cost of operations at the Airport and the financial value of its share of the local market, it is possible that American Airlines could decide to reduce or eliminate its hubbing activities at the Airport.

NAI believes that the loss of American Airlines connecting passengers would likely result in a considerable reduction in the amount of Revenue generated by in-terminal food, beverage and retail concessions. Public parking Revenue and rental car Revenue (which are generated by local passengers), however, would not be expected to be similarly reduced.

If American Airlines were to cease operations at the Airport, the other airlines serving the Airport could not be expected to carry the local passengers being carried by American Airlines at their present level of operations. Airport management expects, and NAI believes it is reasonable to assume, that these airlines would add the gates and other terminal facilities and flights necessary to serve the locally generated demand. With respect to PFCs, the City would apply for FAA approval to increase its PFC level from $3.00 to $4.50 per enplaned passenger. A sensitivity analysis assuming the loss of the American Airlines hub and its potential impact on the additional bonds test, forecast debt service coverage factor and the airline cost per enplaned passenger is included in Section V of the Report (see Table V-12). The Sensitivity analysis concludes that the City would continue to be able to satisfy its obligations under the Bond Order

7 Second to DFW. The term “hub” in this context has a different meaning than the FAA term hub under which the Airport is a large “hub” airport. The American hub at Charlotte means that it uses the Airport as a central location at which to aggregate passengers from flights from many different locations and to reroute these passengers on different aircraft to their eventual destinations.

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with a loss of connecting traffic from American Airlines ceasing operations and that airline costs per enplaned passenger would increase to $10.21 in FY 2022.

The Report of the Airport Consultant

A detailed report on our examination of these issues is attached hereto in the document entitled BACKGROUND, ASSUMPTIONS AND RATIONALE FOR FINANCIAL FORECASTS. Said document along with this letter comprise the REPORT OF THE AIRPORT CONSULTANT.

In connection with this Report, NAI has studied and analyzed, among other things, the 2017 Project, the plan of finance, the issuance of the 2017 Bonds and 2017 BANs, the future traffic and earnings prospects of the Airport during the Forecast Period and has considered whether, in its opinion, the City will be able to satisfy the requirements of the Rate Covenant with respect to the 2017 Project, the 2017 Bonds, 2017 BANs and the Prior Bonds during the Forecast Period. In addition, NAI has projected the impacts of future BANs and Bonds which are planned to be issued during the Forecast Period. In conducting the study NAI has:

1) examined the historical financial performance of the Airport from FY 2012 through FY 2016;

2) determined the historical relationship between Airport passenger enplanements and related Airport Revenues;

3) performed an analysis of the Air Service Area of the Airport and estimated the demand for air service at the Airport through FY 2022;

4) estimated future Current Expenses at the Airport, considering the scope of the 2017 Project, and projected general price-level increases;

5) estimated Revenue and Net Revenue to be generated at the Airport during the Forecast Period if the 2017 Project is completed and the assumptions underlying the projections are realized; and

6) prepared a Forecast Application of Revenues under Provisions of the Bond Order and projected debt service coverages for the Included Cost Centers for the Forecast Period to test the sufficiency of forecasted Revenue during the Forecast Period to pay Current Expenses and make the debt service payments on the 2017 Bonds and 2017 BANs and to otherwise satisfy the requirements of Section 704(a) of the Bond Order with respect to the 2017 Bonds and 2017 BANs.

A discussion of our study and a report of our findings are set forth in the body of this Report.

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ASSUMPTIONS UNDERLYING CASH FLOW PROJECTIONS

In preparing the Report and our analysis of the feasibility of the 2017 Project, NAI has estimated Revenue, Current Expenses and Debt Service requirements of the Airport based upon the following assumptions:

1) Total 2017 Project cost of approximately $489.4 million including payments to contractors, architects and engineers, owner’s cost and consulting fees, escalation and phasing costs, general conditions and contingency (excluding approximately $201 million of estimated future project costs associated with the Terminal Lobby Expansion 2017 Project Element and approximately $4.8 million of estimated future project cost associated with the Joint Ops Center 2017 Project Element);

2) Total 2017 Bonds Project funding requirement (uses of funds) of approximately $217.8 million of 2017 New Money Bonds including the project funding requirement, and 2017 Bonds financing costs;

3) The sources and uses of funds of approximately $154.8 million for the 2017 Refunding Bonds;

4) The issuance of the $174.9 million in 2017 BANs to fund the 2017 BANs 2017 Project Elements; and

5) The continued growth of airline passenger enplanements during the Forecast Period as set forth in Section IV of the Report.

In NAI’s opinion, the techniques employed for this analysis are consistent with industry practice for airport facilities and in support of issuances of airport revenue bonds and other Revenue supported debt.

In making these projections and formulating this Report, NAI has relied upon certain information and estimates provided by the City and their financial advisor, the Airport and their financial advisor, and the 2017 Bonds underwriter MLPF&S. Historical Airport financial data and estimates of 2017 Project costs and construction schedules were provided by the City. 2017 Bonds amortization, estimated interest rate assumptions and resulting sources and uses of funds were provided by MLPF&S.

While NAI believes the information and assumptions relied upon in formulating its opinion are accurate and reasonable, actual variations from these assumptions, estimated costs, estimated interest rates, Revenue and trends are inevitable, and such variations may be material.

Subject to the foregoing, however, NAI expects the Airport to generate Net Revenue, as defined in the Bond Order, in amounts which will be sufficient for the City to make all payments required under the Bond Order with respect to the Outstanding Bonds, the 2017 Bonds and the

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Mr. Randy Harrington May 3, 2017 Page 17

2017 BANs and to satisfy the Rate Covenant with respect to such debt obligations in each Fiscal Year of the Forecast Period and to satisfy the requirements of Section 7.04(a) of the Bond Order concerning the proposed issuance of the 2017 New Money Bonds, the 2017 Refunding Bonds and the 2017 BANs.

Accordingly, NAI concludes it is feasible to proceed with issuance of the 2017 New Money Bonds in the approximate principal amount of $199.4 million, and the 2017 Refunding Bonds in the approximate principal amount of $128.3 million and the 2017 BANs in the approximate principal amount of $174.9 million and to use the proceeds thereof, along with other funds, for the purposes described herein.

Sincerely,

NEWTON & ASSOCIATES, INC.

Nancy Newton President

Attachment

Newton & Associates, Inc. B - 17 Report of the Airport Consultant

BACKGROUND ASSUMPTIONS AND RATIONALE FOR FINANCIAL FORECASTS

Airport Revenue Bonds, Series 2017 and 2017 Bond Anticipation Notes

CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT

May 3, 2017

Prepared by:

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TABLE OF CONTENTS

I. INTRODUCTION ...... 24 A. PURPOSE AND SCOPE OF THIS REPORT ...... 24 B. THE AIRPORT ...... 25 1. General Description/Location of the Airport...... 25 2. The City ...... 25 3. Airport Ownership and Management ...... 25 4. The Land Comprising the Airport ...... 26 5. Existing Facilities ...... 26 C. THE STATE AND LOCAL GOVERNMENT REVENUE BOND ACT ...... 31 D. THE BOND ORDER ...... 31 E. THE SIGNATORY AIRLINE AGREEMENTS ...... 33 F. NON-SIGNATORY AIRLINES...... 35 II. THE 2017 PROJECT ...... 37 A. NEED FOR THE 2017 PROJECT ...... 37 B. DESCRIPTION AND COSTS OF THE 2017 PROJECT ...... 37 1. Terminal Complex Improvements ...... 37 2. Airfield Improvements ...... 39 3. Ground Transportation Projects...... 40 4. Airport Services and Facilities Projects ...... 40 5. Other Projects ...... 41 C. 2017 PROJECT COST AND FUNDING ...... 42 D. THE 2017 REFUNDING ...... 44 E. THE 2017 BONDS...... 44 F. BOND DEBT SERVICE ...... 46 G. SOURCE OF PAYMENT FOR THE 2017 BONDS...... 49 H. AIRPORT IMPROVEMENT PROGRAM GRANTS ...... 49 1. Airport Improvement Program – Entitlement Grants ...... 50 2. Airport Improvement Program – Discretionary Grants ...... 50 3. Status of the Airport Improvement Program ...... 50 I. PASSENGER FACILITY CHARGES ...... 51 J. ADDITIONAL FUTURE CAPITAL IMPROVEMENT PROJECTS ...... 52 III. ECONOMIC BASE OF THE AIR SERVICE AREA ...... 54 A. AIR SERVICE AREA DESCRIPTION ...... 54 B. POPULATION ...... 56 1. Historical Population ...... 56 2. Population Projection ...... 57 C. EMPLOYMENT ...... 57 1. Labor Force...... 58 2. Unemployment Rates ...... 59 3. Industry Group Employment ...... 61 D. INCOME/SALES ...... 69 1. Personal Income ...... 69 2. Personal Income Projection ...... 70

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3. Income Per Capita ...... 70 4. Income Per Capita Projection ...... 70 5. Retail Sales ...... 72 6. Retail Sales Projection ...... 72 E. AIR SERVICE AREA VISITORS AND TOURISM ...... 73 F. THE CITY ...... 75 G. SUMMARY ...... 77 IV. AIR TRAFFIC ANALYSIS ...... 79 A. IMPORTANCE OF AIR TRAFFIC ...... 80 B. LEVEL OF EXISTING SCHEDULED PASSENGER AIRLINE SERVICE ...... 80 1. Domestic Air Service ...... 82 2. International Air Service ...... 83 C. HISTORICAL PASSENGER TRAFFIC ...... 85 1. Airline Market Share Enplanements...... 88 2. Airline Market Share – Available Seats ...... 91 D. ENPLANED AIR CARGO AND AIRLINE MARKET SHARE ...... 94 E. AIRCRAFT OPERATIONS AND MARKET SHARE ...... 95 F. HISTORICAL SCHEDULED PASSENGER AIRLINE LANDED WEIGHT ...... 96 G. FACTORS AFFECTING FUTURE AIR TRAFFIC ...... 98 1. National Economic Conditions ...... 98 2. State of the Airline Industry ...... 100 5. Airport Capacity ...... 107 6. Air Fares and Airline Competition ...... 108 7. Role of Regional Airlines ...... 109 8. Aviation Taxes and Security Costs ...... 110 9. American Airlines and the Airport as a Connecting Hub ...... 112 10. Competition From Other Air Carrier Airports ...... 113 H. FORECAST OF PASSENGER ENPLANEMENT ACTIVITY ...... 114 V. FINANCIAL ANALYSIS ...... 118 A. GENERAL ...... 118 B. APPLICATION OF REVENUE UNDER PROVISIONS OF THE BOND ORDER . 118 C. RATE COVENANT ...... 122 D. HISTORICAL AIRPORT REVENUE ...... 122 1. Historical Included Cost Center Revenue ...... 122 2. Historical Excluded Cost Center Revenue ...... 122 E. HISTORICAL AIRPORT CURRENT EXPENSES...... 124 1. Operations, Maintenance and Repair Expenses ...... 124 2. Capital Items Expenses ...... 124 3. Existing Debt Service ...... 124 F. HISTORICAL APPLICATION OF REVENUE ...... 125 G. FORECAST OF AIRPORT REVENUE AND EXPENSES ...... 127 1. Included Cost Centers Revenue ...... 127 2. Included Cost Centers Expense ...... 132 H. IMPACT OF PASSENGER FACILITY CHARGES ...... 133 I. FORECAST APPLICATION OF REVENUE UNDER PROVISIONS OF THE BOND ORDER ...... 136

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J. AIRPORT LIQUIDITY ...... 139 K. AIRLINE COST PER ENPLANED PASSENGER ...... 140 L. SENSITIVITY ANALYSIS ...... 141

LIST OF TABLES

TABLE II-1 2017 Project Cost and Funding Plan ...... 43 TABLE II-2 2017 BANs Project Funding Plan ...... 44 TABLE II-3 Estimated 2017 New Money Bonds Sources & Uses ...... 45 TABLE II-4 Estimated Sources and Uses of Funds – 2017 Refunding ...... 46 TABLE II-5 Estimated 2017 New Money Bonds Debt Service ...... 47 TABLE II-6 Estimated 2017 Bonds Debt Service -Refunding ...... 48 TABLE II-7 Planned Additional Future Capital Improvements ...... 53 TABLE III-1 ASA Population ...... 56 TABLE III-2 Historical ASA Employment ...... 58 TABLE III-3 ASA Labor Force ...... 59 TABLE III-4 Historical ASA Unemployment Rates ...... 60 TABLE III-5 Non-Agricultural Employment by Industry Sector ...... 61 TABLE III-6 Mecklenburg County Annual Building Permit Activity ...... 67 TABLE III-7 Largest Employers ...... 69 TABLE III-8 Personal Income ...... 70 TABLE III-9 Income Per Capita ...... 71 TABLE III-10 Total Retail Sales ...... 72 TABLE III-11 Visitor Impact ...... 75 TABLE IV-1 Large Hub Enplanement Rankings ...... 79 TABLE IV-2 Airlines Serving the Airport ...... 81

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TABLE IV-3 Domestic and International Passenger Revenue Enplanements ...... 85 TABLE IV-4 Historical CLT Originating and Connecting Enplanements ...... 87 TABLE IV-5 Historical Enplaned Passengers and Market Share ...... 89 TABLE IV-6 Historical Enplaned Passengers and Airline Market Share by Brand...... 90 TABLE IV-7 Airline Market Share - Available Seats ...... 92 TABLE IV-8 Top Origin and Destination Markets ...... 93 TABLE IV-9 Historical Domestic Enplaned Cargo and Market Share ...... 95 TABLE IV-10 Historical Scheduled Passenger Airline Operations ...... 96 TABLE IV-11 Historical Scheduled Passenger Airline Landed Weight ...... 97 TABLE IV-12 Historical Airline Ancillary Revenues ...... 106 TABLE IV-13 Historical Trends in Aviation Taxes ...... 111 TABLE IV-14 Comparison of American Airlines Hubs...... 113 TABLE IV-15 Forecast of Enplaned Passengers ...... 115 TABLE V-1 Historical Airport Revenues ...... 123 TABLE V-2 Historical Airport Expenses ...... 124 TABLE V-3 Historical Application of Revenues Under the Provisions of the Bond Order ...... 126 TABLE V-4 Forecast Airport Revenue - Included Cost Center ...... 130 TABLE V-5 Forecast - Airport Expenses ...... 133 TABLE V-6 PFC Authorization Summary ...... 134 TABLE V-7 PFC Fund Activity ...... 135 TABLE V-8 Forecast of Passenger Facility Charge Collections ...... 136 TABLE V-9 Forecast Application of Revenues Under Provisions of the Bond Order ...... 138 TABLE V-10 Projected Airport Unrestricted Cash ...... 140

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TABLE V-11 Airline Cost Per Enplaned Passenger ...... 141 TABLE V-12 Sensitivity Analysis ...... 143

LIST OF FIGURES

FIGURE III-1 ...... 55 FIGURE III-2 ...... 57 FIGURE III-3 ...... 60 FIGURE III-4 ...... 61 FIGURE III-5 ...... 63 FIGURE III-6 ...... 67 FIGURE III-7 ...... 71 FIGURE III-8 ...... 73 FIGURE IV-1...... 84 FIGURE IV-2...... 99 FIGURE IV-3...... 100 FIGURE IV-4...... 102 FIGURE IV-5...... 103 FIGURE IV-6...... 105 FIGURE IV-7...... 109 FIGURE V-1 ...... 121

EXHIBITS

EXHIBIT A………………………………………………………………………………………30

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I. INTRODUCTION

A. PURPOSE AND SCOPE OF THIS REPORT

This Report of the Airport Consultant (“Report”) has been prepared for the City of Charlotte, North Carolina (“City”) by Newton & Associates, Inc. (“NAI”) in connection with the City’s issuance of its Airport Revenue Bonds (“Bonds”), in two series of new money Bonds (“2017 New Money Bonds”) and one series of refunding Bonds (“2017 Refunding Bonds” and together with the 2017 New Money Bonds, the “2017 Bonds”) and the City’s short term bond anticipation notes (“2017 BANs”), as hereinafter described, and which are to be secured by and paid from Net Revenue derived from the City’s operation of the Charlotte Douglas International Airport (“Airport”). Terms not otherwise defined herein have the meanings ascribed to them in the City’s Bond Order defined below and the 2016 Airline Use and Lease Agreement (as discussed in Section I subsection E).

The purpose of this Report is to examine and opine as to the financial feasibility of the City issuing the 2017 Bonds, the proceeds of which will be used to fund, in part, certain improvements at the Airport (the “2017 Bonds Project,” as described in Section II herein) and to refund other General Airport Revenue Bonds. Certain other improvements at the Airport are planned which will be initially funded in part with proceeds of the 2017 BANs (“2017 BANs Project” and together with the 2017 Bonds Project, collectively the, “2017 Project”).

The test of financial feasibility is the Airport’s forecast ability to generate Revenue sufficient to pay: (1) expenses of operating and maintaining the Airport; (2) debt service and related expenses on Outstanding Bonds; (3) debt service and related expenses on the 2017 Bonds and 2017 BANs; (4) non-operating expenses of the Airport; (5) costs of any other capital assets required during the Forecast Period (as defined below) necessary for the operation of the Airport but not included in the 2017 Project; and (6) to otherwise satisfy the requirements of Section 704(a) of the Bond Order adopted by the City Council on November 18, 1985, as amended (“Bond Order”).

In applying the test of feasibility, NAI has considered, and this Report describes, the Airport, the demographic and economic characteristics of the primary geographic area served by the Airport (“Air Service Area”), the demand for air service at the Airport and the financial performance of the Airport, all for the period from July 1, 2011 to June 30, 2016, or, the most recent five-year period for which complete data were available (“Study Period”). This Report also examines, discusses and forecasts the future demand for air service at the Airport, passenger enplanements at the Airport, revenues and expenses of the Airport, Passenger Facility Charges (“PFC”) to be collected by the Airport, the Net Revenue of the Airport available for debt service, debt service requirements and debt service coverage for the period July 1, 2018 to June 30, 2022 (“Forecast Period”). This Report concludes with NAI’s findings regarding the feasibility of the City proceeding with financing a portion of the cost of the 2017 Project with proceeds of the 2017 Bonds and the 2017 BANs.

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B. THE AIRPORT

1. General Description/Location of the Airport

The Airport is a large hub1 commercial airport served primarily by commercial passenger and cargo airlines. It is the second largest connecting hub for American Airlines in terms of passenger traffic, which was the largest airline in the world in 2016 in terms of revenue passenger miles. American Airlines, together with its subsidiaries and affiliates, currently account for approximately 90% of the passenger activity at the Airport.

The Airport is located within the city limits of Charlotte, in Mecklenburg County, North Carolina and approximately seven miles west of the City’s central business district. The Airport is bounded by I-85, U.S. 74 (Wilkinson Boulevard) and the Norfolk Southern Railroad to the north, Billy Graham Parkway to the east, West Boulevard to the south and I-485 to the west.

2. The City The City is a municipal corporation of the State of North Carolina. The City is governed by a mayor and an 11-member Council elected biennially on a partisan basis. The mayor presides over all Council meetings and can vote only in case of a tie, but does have limited veto power. The Council enacts all general and technical ordinances, including budgetary appropriations and construction and zoning ordinances, approves contracts and originates general management policies. The Council employs a City Manager who directs the daily operations of the City through department heads appointed by the City Manager.

3. Airport Ownership and Management The Airport is owned and operated as a department (“Aviation Department”) of the City and, for accounting purposes, is treated as a self-supporting enterprise fund. The Airport’s financial accounting system is on a full accrual basis in accordance with generally accepted accounting principles for government entities.

Management of the Airport is vested by the City in the Aviation Director who reports directly to the City Manager. The Aviation Director is supported by such staff as is deemed necessary by the Aviation Director and the City Manager to properly operate, develop and maintain the Airport. The current Aviation Director is Mr. Brent D. Cagle. He is assisted by Mr. Jack Christine, A.A.E., Chief Operating Officer; Ms. Haley Gentry, Chief Business and Innovation Officer; Mr. Michael Hill, Chief Financial Officer; Mr. Chris Hazen, P.E., Assistant Aviation Director – Facilities; Mr. Jeff McSwain, P.E., Assistant Aviation Director – Development; Mr. Jimmy Mynatt, A.A.E., Assistant Aviation Director - Operations; Mr. Jerry Schwinghammer, Assistant Aviation Director – Technology and Ms. Leila Lahbabi, Lead Counsel. The Airport management team also includes a position for Assistant Aviation Director for Business and Revenue which is presently unfilled.

1 There are four categories of airports: commercial service, cargo service, reliever and general aviation. Commercial service airports are publicly owned airports that have at least 2,500 passenger boardings each calendar year and receive scheduled passenger service. The Airport is classified as a primary large hub airport meaning it enplanes at least 1% of all annual passenger boardings in the U.S.

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The City challenged the legislation’s validity under the State’s constitution and challenged the State’s authority to create the Airport Commission. Based on the judgement of the court in the underlying litigation, the rules promulgated by the Federal Aviation Administration on the subject, and other relevant facts and circumstances, the City does not reasonably anticipate any further development in the underlying litigation and believes the matter is resolved. For the purposes of this Report, NAI assumes the Airport will continue to be operated by the City, through its Aviation Department, throughout the Forecast Period.

4. The Land Comprising the Airport

The Airport is located on approximately 3,786 contiguous acres of land (“Contiguous Land”) located seven miles west of the City’s central business district. (See Exhibit “A” attached hereto and made part hereof.) Located on the Contiguous Land are the Airfield; Terminal Complex; Cargo area; General Aviation area; NC Air National Guard base; NC National Guard facilities; Airport roadways; automobile parking areas; land between the two westernmost runways leased to Norfolk Southern Railway for use as a truck/rail intermodal area; and an office park located immediately south of the airfield. In addition to the Contiguous Land, the City owns 1,882 acres of land in the vicinity of the Airport but separated from the Contiguous Land by one or more roadways (“Non-Contiguous Land”). The Non-Contiguous Land was acquired in part by the City for noise abatement purposes which the City hopes to use for development of airport-compatible operational, business commercial uses. A part of the Non-Contiguous Land has already been redeveloped by the City and is assigned to the Airport rental car concessionaires for use as remote rental automobile storage and service facilities.

5. Existing Facilities

The existing facilities of the Airport are described in general below and depicted on Exhibit “A”.

a. Airfield

The largest portion of Airport land (1,596 acres) consists of the airfield ("Airfield" formerly referred to under the 1985 Airport Agreement as "Public Aircraft Facilities" or “P.A.F.”). The Airfield has four runways, associated taxiways, runway safety areas and runway protection zones. Runways 18L/36R, 18C/36C and 18R/36L are parallel runways. Runways 18L/36R and 18C/36C have a separation of 5,000 feet and are 10,000 feet long and 150 feet wide, and 8,646 feet long and 150 feet wide, respectively. Runway 18R/36L is 4,300 feet west of Runway 18C/36C and is 150 feet wide and 9,000 feet long. Simultaneous independent parallel departures

Newton & Associates, Inc. B - 26 Report of the Airport Consultant are authorized on these parallel runways. Runway 5/23 is 7,500 feet long, 150 feet wide and intersects Runway 18L/36R. Runway 5/23 serves primarily as the noise abatement runway to accommodate late night aircraft arrivals and departures.

b. Terminal Complex

The Terminal Complex consists of the passenger terminal building, aircraft parking apron, public automobile parking facilities, rental car facilities, employee parking lots, Airline fueling facilities, and public roadways. It occupies 377 acres.

i. Passenger Terminal Building

The existing passenger terminal building (“Terminal”) was originally constructed in 1982. Since its initial construction of approximately 325,000 square feet, the Terminal has been renovated and expanded to approximately 1,600,000 square feet.

The Terminal consists of a main terminal building and five passenger concourses with 102 passenger boarding gates2 and 78 passenger loading bridges.3

The main terminal building has five levels: (i) the basement level consists mainly of building maintenance equipment and vendor storage and receiving areas; (ii) the ground or ramp level consists of passenger baggage claim areas and baggage conveyor devices and ground transportation services; (iii) the ticketing level consists of airline ticket counters and offices and food, beverage and retail merchandise concessions; (iv) the administrative level consists of some Aviation Department, airline and concessionaire offices and conference rooms; and (v) the ramp control level which contains two ramp control towers to facilitate airline control over aircraft movements on the Terminal aircraft parking apron and taxi lanes.

ii. Aircraft Parking Apron The Terminal aircraft parking apron is 184 acres of paved concrete contiguous to the terminal building and includes in-ground hydrant aircraft fueling stations. It accommodates up to102 aircraft parked at the concourses and 15 remote parking positions for remain overnight ("RON") parking.

iii. Automobile Parking Facilities

The existing public automobile parking facilities include both surface and multi-level parking facilities. Together, the parking facilities comprise 29,821 parking spaces made up of a combination of structured and surface, self-parking and valet parking. The structured parking comprises three parking decks with a total of 16,246 spaces. The largest of these decks has seven levels and is located directly across the terminal roadway from the Terminal Building ("Short Term Deck"). Three levels of the Short Term Deck are dedicated to rental car parking and operations and four levels are used for short term public parking with a total of 4,000 spaces. The two other decks are located on Wilkinson Boulevard adjacent to the CLT Center and include

2 Source: Exhibit D to 2016 Airline Agreement. 3 Source: CLT Passenger Boarding Bridge Inventory as of 12/21/2016.

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6,200 business valet public parking spaces and some employee parking. Patrons of these decks are transported to and from the terminal by courtesy buses operated by the Airport. The second of these decks is a 2017 Project element, the Business Valet Parking Deck II.

iv. Rental Car Ready/Return Parking and Service Facilities

The rental car facilities are located on the three lower levels of the Short Term Deck and comprise a quick turn-around service facility ("QTA") on the ground level and two levels of rental car parking with approximately 2,900 ready/return and quick-turn-around parking spaces. The rental car facilities also include a remote storage and service facility on Non-Contiguous Land located off Wilkinson Boulevard.

c. The CLT Center

The CLT Center is a multi-purpose building containing 279,590 square feet located on Wilkinson Boulevard which houses some of the Aviation Department’s administrative, financial, planning, engineering and maintenance functions. The CLT Center also serves as the Airport’s motor pool, storage facility and maintenance warehouse for equipment and supplies. One of the 2017 Project elements – Vehicle Maintenance Facility, will replace the motor pool area of the CLT Center.

d. General Aviation Facilities

The Airport’s general aviation facilities are located east of Runway 18L/36R and include approximately 82 acres of land, 44,000 square feet of general aviation terminal facilities and 480,120 square feet of aircraft hangars and operations space. The general aviation facilities include a full service fixed base operator (“FBO”) which is operated for the City by Wilson Air Center - North Carolina, LLC under a management contract with the City. They also include 10 large aircraft storage hangars, 11 small aircraft storage hangars and 17 T-hangars and 25 acres of aircraft parking apron sufficient to accommodate 50 to 70 aircraft. Seven of the large storage hangars are leased to long term tenants for their exclusive use. The other hangars are group storage hangars licensed to individual aircraft owners on a month to month basis. The general aviation facilities also include aircraft fuel storage and delivery facilities.

e. Other Aviation Facilities

The Airport’s other aviation leased facilities consist of cargo facilities, airline maintenance and training facilities, an airline flight kitchen facility, Army National Guard and North Carolina Air National Guard facilities.

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f. Aircraft Rescue and Fire Fighting Facilities

The Airport has two aircraft rescue and firefighting facilities: one is located east of the intersection of Taxiway “D” and Taxiway “R”, approximate to the general aviation facilities and the other is located between Runway 18C/36C and Runway 18R/36L and southwest of the intersection of Runway 5/23 and Runway 18C/36C.

g. Airline Fueling Facilities

Commercial airlines serving the Airport obtain their fuel from a consolidated airline fuel storage and distribution facility located on Airport property. The fuel farm is owned and operated by the City. This facility has 180,000 barrels of fuel storage capacity and is connected to pavement hydrant fueling stations in the aircraft parking apron by underground transmission lines. The facility includes pumping and filtration systems, and allows airlines to obtain the fuel directly into the wing at the Terminal gates without the need for fuel tankers on the Terminal apron. Airlines receiving fuel from the fuel storage system at locations other than the Terminal are fueled by tankers that draw the fuel directly from the fuel storage system.

(Remainder of Page Intentionally Left Blank)

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Exhibit “A” Airport Facilities Plan

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C. THE STATE AND LOCAL GOVERNMENT REVENUE BOND ACT

Under the provisions of the North Carolina State and Local Government Revenue Bond Act, the City is empowered to undertake the obligations and commitments related to the issuance of the proposed 2017 Bonds. The 2017 Bonds are being issued with the approval of the Local Government Commission of North Carolina.

D. THE BOND ORDER

The Bond Order was adopted in 1985 in conjunction with the issuance of the City’s Series 1985 Airport Revenue Bonds. The proposed 2017 Bonds are to be issued under the terms and conditions of the Bond Order, as amended, and Series Resolution describing the terms for the sale of the 2017 Bonds and adopted by the City Council of the City on April 24, 2017.

The City is proposing and seeking 51% bondholder consent for certain amendments to the Bond Order in conjunction with the issuance of the 2017 Bonds. The City expects to receive 51% bondholder written consent, including the consent of the purchasers of the 2017 Bonds, upon issuance of the 2017 Bonds. Therefore, the 2017 Bonds are being issued under the terms and conditions of the existing Bond Order, but will be subject to the amended Bond Order after the requisite bondholder consents are received. NAI does not expect that the proposed amendments to the Bond Order will have any material impact on the operations or the financial feasibility of the Airport as set forth in this Report. The proposed changes to the Bond Order are set forth in Appendix D of the Official Statement for the 2017 Bonds and to which this Report forms a part.

As described in Section E below, the 1985 Amended and Restated Airport Agreement and Lease required the City to separately account for revenue and expenses of the City by Cost Centers. It established two broad categories of Cost Centers – Included Cost Centers and Excluded Cost Centers. It is the revenue and expenses in the Included Cost Centers that are used to determine rates, fees and charges payable by passenger airlines using the Terminal Complex and all airlines using the Airfield. The Included Cost Centers are the Terminal Complex Cost Center and the Airfield Cost Center.

The concept and the requirements for separately accounting for revenue and expenses of the Included Cost Center is embodied in the Bond Order and the City has established separate funds, accounts and sub-accounts to record revenue, expenses and debt service obligations and payments in the Included Cost Center Accounts.

Revenue is defined in the Bond Order as income derived by the City from the Included Cost Centers of the Airport plus any amounts that the City may authorize to transfer but is not obligated to transfer to the Revenue Fund. Revenue does not include income from the Excluded Cost Centers, Passenger Facility Charges or Contract Facility Charges (see discussion of Passenger Facility Charges in Section II hereof and of Contract Facility Charges in Section V hereof). For any Fiscal Year (ending June 30), Net Revenue is the sum of Revenue for such Fiscal Year and Revenue retained in the Revenue Fund from the prior Fiscal Year as required coverage, less Current Expenses for such Fiscal Year. Current Expenses for any Fiscal Year is the sum of operation, maintenance and repair expenses for such Fiscal Year. Current Expenses

Newton & Associates, Inc. B - 31 Report of the Airport Consultant do not include depreciation expense for assets in the Included Cost Centers, certain expenses accrued under accounting rules but paid in future years or any costs or expense in the Excluded Cost Centers.

The Bonds and the Revenue Bond Anticipation Note currently outstanding ("Outstanding Bonds") are parity obligations under the Bond Order (collectively, the “Prior Bonds”) which are secured by a pledge by the City of the Net Revenue of the Airport. The Prior Bonds include: