Comprehensive Annual Financial Report The
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COMPREHENSIVE ANNUAL FINANCIAL REPORT THE AIRPORT SYSTEM FUND FISCAL YEARS ENDED AN ENTERPRISE FUND OF THE CITY OF HOUSTON, TX JUNE 30, 2020 PREPARED BY OFFICE OF THE CITY CONTROLLER, CHRIS BROWN JUNE 30, 2019 AIRPORT SYSTEM FUND An Enterprise Fund of the City of Houston, Texas COMPREHENSIVE ANNUAL FINANCIAL REPORT Fiscal Years Ended June 30, 2020 and June 30, 2019 Prepared by: Office of City Controller Chris Brown City Controller Beverly Riggans Deputy City Controller CONTENTS INTRODUCTORY SECTION (UNAUDITED) i Airport Locations and Service Area ii Certificate of Achievement iii Transmittal Letter viii List of Principal Officials x Awards, Accolades and Recognitions xii Snapshot of the Houston Airports xiv Organizational Chart FINANCIAL SECTION 1 Independent Auditors’ Report 4 Management’s Discussion and Analysis (Unaudited) Financial Statements: 14 Statements of Net Position 16 Statements of Revenues, Expenses and Changes in Net Position 17 Statements of Cash Flows 21 Notes to the Financial Statements 56 Required Pension System and Other Post-Employment (OPEB) cost and Net OPEB Obligation Supplementary Information (Unaudited) STATISTICAL SECTION (UNAUDITED) 60 Total Annual Revenues and Total Annual Expenses Charts 61 Total Annual Revenues and Expenses 62 Changes in Net Position and Passenger Facility Charge Collections 63 Pledged Revenues 65 Reconciliation of Historical Financial Results 66 Pledged Revenues for Consolidated Rental Car Facility 67 Outstanding Debt 68 Summary of Certain Fees and Charges 69 Passenger Statistics 70 Passenger Statistics by Carrier 72 Originating Passenger Enplanements 73 Aircraft Operations, Landing Weight and Cargo Activity 74 Performance Measures 75 Cash Available by Days Funded 76 Airport Information 77 Employee Staffing by Function 78 Service Area/Service Area Population/Principal Employers 79 Demographic and Economic Statistics COMPLIANCE SECTION 80 Independent Auditors’ Report on Compliance with Requirements Applicable to the Passenger Facility Charge Program and Internal Control over Compliance in Accordance with Requirements Issued by the Federal Aviation Administration INTRODUCTORY SECTION(UNAUDITED) COMPREHENSIVE ANNUAL FINANCIAL REPORT INTRODUCTORY SECTION(UNAUDITED) COMPREHENSIVE ANNUAL FINANCIAL REPORT HOUSTON AIRPORT SYSTEM INTRODUCTION IAH HOUSTON HOU EFD GULF OF MEXICO Metropolitan Statistical Area (MSA) of Houston- The Woodlands-Sugar Land, TX includes 9 counties. Consolidated Statistical Area (CSA) of Houston- The Woodlands, TX adds Matagorda, Trinity, Walker, Washington, and Wharton counties. Houston Airport System CAFR • For fiscal years ended June 30, 2020 and 2019 i Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Houston, Texas Airport System Fund For its Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2019 Executive Director/CEO ii OFFICE OF THE CITY CONTROLLER CITY OF HOUSTON, TEXAS INTRODUCTION Chris B. Brown December 11, 2020 To the Citizens, Mayor and Members of the City Council of the City of Houston, Texas: I am pleased to present you with the Comprehensive Annual Financial Report (CAFR) for the City of Houston, Texas, Airport System Fund (the Fund) for the fiscal years ended June 30, 2020 and June 30, 2019, including the independent auditor’s reports. The Controller’s Office and the Houston Airport System share responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of operations of the Fund. The CAFR includes four sections: Introductory, Financial, Statistical, and Compliance. The Introductory Section includes this transmittal letter, a list of principal officials, and the Fund’s organizational chart. The Financial Section includes Management’s Discussion and Analysis and financial statements with accompanying notes, as well as the independent auditor’s report on the financial statements. The Statistical Section includes selected financial trends, revenue capacity, debt capacity, demographic, economic, and operating information, generally presented on a ten-year basis. The Compliance Section includes the independent auditor’s report on HAS’ compliance with the requirements of the Federal Aviation Administration’s (FAA) Passenger Facility Charge Program. The Financial Section described above is prepared in accordance with Generally Accepted Accounting Principles (GAAP) for governments as prescribed by the Governmental Accounting Standards Board (GASB). The Management’s Discussion and Analysis offers readers an overview and analysis of the financial activities of the Fund and should be read as an introduction to the financial statements. In addition, the notes to the financial statements offer additional important information and are essential to a full understanding of the financial statements. The Reporting Entity and Its Services The Houston Airport System (HAS), under the administrative control of the Mayor, manages and operates the Fund. The City Controller, as the chief financial officer of the City of Houston (City), maintains the books of account, prepares financial statements, and, with the Mayor, co-signs all warrants, contracts, and orders for payment of any public funds or money relating to the Fund. The Fund is an enterprise fund of the City and is included in the City’s Comprehensive Annual Financial Report, which is a matter of public record. An enterprise fund is used to account for services provided to the general public on a continuing basis with costs recovered primarily through user charges. The City’s Airport System includes the following: George Bush Intercontinental Airport (Intercontinental); William P. Hobby Airport (Hobby); and Ellington Airport. United Airlines is the dominant air carrier operating at Intercontinental and Southwest Airlines is the dominant air carrier operating at Hobby. iii Economic Conditions and Major Initiatives Economic Conditions Houston is the nation’s fourth most populous city and lies within the fifth largest metropolitan statistical area in the United States. The primary service region for the Houston Airport System, the nine county Houston-The Woodlands-Sugar Land Metropolitan Statistical Area, has a diverse economic base. Leading industries include energy, petrochemical, engineering and construction, real estate, aerospace, commerce, medicine and health INTRODUCTION care, transportation, biotechnology, and computer technology. Widely recognized as the “Energy Capital of the World,” Houston is a global center for virtually every segment of the oil-and-gas industry. Houston is home to the Texas Medical Center, the world’s largest concentration of biomedical research and healthcare institutions, and to the Lyndon B. Johnson Space Center, NASA’s center for human spaceflight training, research, and flight control, and to related support firms specializing in aircraft and space vehicle manufacturing, research, and technology. The deepwater Port of Houston is the nation’s busiest port as ranked by foreign tonnage and the second-busiest port as ranked by total tonnage. The Houston Airport System is comprised of three airports: George Bush Intercontinental (IAH), William P. Hobby (HOU) and Ellington (EFD). IAH is the nation’s 14th busiest airport (as measured by enplaned passengers in calendar year 2019) and is classified as a “large hub airport” by the FAA. IAH serves as an international gateway airport and a primary connecting point in the national air transportation system, and was the second busiest hub for United Airlines in calendar year 2019. Additionally, IAH is the primary air cargo airport for the region. HOU is the nation’s 36th busiest airport (as measured by enplaned passengers in calendar year 2019) and is classified as a “medium hub airport” by the FAA. HOU is a primary station for Southwest, which offers domestic service and international service to destinations in Mexico, Central America, and the Caribbean. EFD is currently used for general aviation, military, and NASA operations, but has no commercial passenger service. HAS obtained a spaceport license for EFD in June 2015 from the FAA, allowing EFD to accommodate horizontal-launch commercial spaceflight operations. Key factors that will affect future airline traffic at the Houston Airport System include (1) the ability of the US and other nations to recover from the COVID-19 pandemic; (2) growth in the population and economy of the service region; (3) national and international economic and political conditions; (4) airline economics and airfares; (5) the price of aviation fuel; (6) airline service decisions; (7) the capacity of the air traffic control system; and (8) the capacity of our airports. During Fiscal Year 2020, HAS systemwide passengers decreased 27% from Fiscal Year 2019, driven by the impact of the COVID-19 pandemic which began materially affecting passenger traffic in mid-March 2020. International passenger traffic for Fiscal Year 2020 was down 28% from Fiscal Year 2019, again, attributed to the COVID-19 pandemic. IAH saw a 26% decrease in domestic passengers and a 27% decrease in international passengers. International passenger traffic at HOU decreased by 39% from Fiscal Year 2019 and domestic passenger traffic decreased 27%. Capital Improvement Program The Houston Airport