GASB 87 and Airport Leases: What Finance Officers Miss

Abstract

1. Introduction

An airport is an unusual government. Most state and local entities that implemented Statement 87 did so principally as lessees, worrying about what would appear on the liability side of the balance sheet. An airport sponsor is the opposite. It leases hangars, terminal space, gates, cargo facilities, and ground to dozens or hundreds of counterparties, and leasing is frequently its principal ongoing operation.

That asymmetry matters because the general implementation literature is lessee literature. The principal professional guidance from the government finance community addresses the lessor only in passing and does not address the provisions written for airports at all. The result is that airport preparers implemented a standard using guidance written for a different problem.

This paper sets out the lessor requirements with paragraph citations, then takes up the three questions that distinguish an airport from any other government lessor: the regulated lease exception in paragraphs 42 and 43, the scope boundary with Statement 94, and the short-term exemption as it applies to arrangements that look month to month on paper.

Section 2 states what the standard requires. Section 3 addresses the short-term exemption. Section 4 addresses regulated leases and the boundary that has never been settled. Section 5 addresses the scope problem created by build-to-suit ground leases. Section 6 sets out what has changed since implementation, which is more than most practitioners realize. Section 7 addresses the federal reporting overlay and corrects a citation that is now to repealed law. Section 8 sets out where preparers get caught. Section 9 states limitations.

2. What the Standard Requires of a Lessor

2.1 The Definition, and the Test Underneath It

The standard defines a lease as a contract that conveys control of the right to use another entity's nonfinancial asset, as specified in the contract, for a period of time in an exchange or exchange-like transaction (paragraph 4).

The definition is not where airport analysis turns. Paragraph 5 supplies the control test, and it has two elements that must both be present: the right to obtain the present service capacity from use of the underlying asset as specified in the contract, and the right to determine the nature and manner of use of the underlying asset as specified in the contract.

The second element is what separates an exclusive-use hangar or gate lease, which conveys control, from a preferential or per-use arrangement, which frequently does not. An airport with a mixed portfolio of exclusive, preferential, and common-use arrangements has to run that test arrangement by arrangement before it reaches any measurement question.

2.2 Recognition and Measurement

At the commencement of the lease term a lessor recognizes a lease receivable and a deferred inflow of resources, subject to the exceptions for short-term leases, transfers of ownership, investment assets, and certain regulated leases (paragraph 40). Initial direct costs are expensed as outflows of the period.

The receivable is measured at the present value of lease payments expected to be received over the lease term, reduced by any provision for estimated uncollectible amounts (paragraph 44). It includes fixed payments, variable payments that depend on an index or a rate measured using the index or rate as of the commencement of the lease term, payments that are fixed in substance, in-substance fixed residual value guarantees, and lease incentives payable to the lessee. The discount is amortized as interest revenue, and payments received are applied first to accrued interest and then to the receivable (paragraph 48).

The deferred inflow is measured as the initial receivable amount, plus payments received at or before commencement that relate to future periods, less incentives paid to the lessee at or before commencement (paragraph 53). It is recognized as inflows of resources in a systematic and rational manner over the term of the lease (paragraph 54).

2.3 The Discount Rate, and a Correction

This is the provision most often misapplied, and the error is common enough to be worth stating as a correction rather than as guidance.

A lessor discounts the future lease payments using the interest rate the lessor charges the lessee, which may be the interest rate implicit in the lease (paragraph 47). Lessors are not required to apply the imputation of interest guidance in Statement 62 but may do so as a means of determining the implicit rate.

There is no fallback. The lessee provision at paragraph 23 contains one: if the rate cannot be readily determined by the lessee, the lessee's estimated incremental borrowing rate is used. Paragraph 47 has no counterpart to that sentence, and the phrase incremental borrowing rate appears nowhere in the lessor sections of the standard. The asymmetry is deliberate, because the lessor sets the rate and therefore knows it.

The remeasurement provisions confirm the reading. A lessor updates the rate only for a change in the lease term or a change in the rate the lessor charges the lessee (paragraphs 51 and 52). A lessee is expressly not required to reassess the discount rate solely for a change in its own incremental borrowing rate (paragraph 28). Again, no lessor analogue exists, because there is nothing to reassess.

An airport that has no stated rate in a lease must derive the implicit rate from the contract. It may not substitute its own revenue bond yield, which is the number preparers reach for because it is the number they have. Any practice guidance instructing an airport lessor to use its incremental borrowing rate is describing the lessee provision.

The Board answered both objections a preparer will raise, and the answers sit in the basis for conclusions where nobody looks. On using a market index: the Board “considered a discount rate based on a municipal bond index. However, it determined that the interest rate the lessor charges the lessee or the lessee’s estimated incremental borrowing rate is more specific to the transaction and the parties to the lease and is a better representation of the actual transaction than a more generic market rate” (B41). On the objection that a ground rent set by comparison to market rents contains no interest rate at all, which is the airport case exactly: respondents raised it at the preliminary views stage, “citing examples of leases in which lease payments are set using a method that does not involve an interest rate (for example, comparison of market rents for similar pieces of real estate). Nevertheless, the Board believes that a discount rate can be imputed on any future payment stream, even if it was not explicitly factored into the determination of the payment amounts” (B69). The answer is to impute a rate, not to substitute a generic one.

Imputation is a valuation exercise, and the implementation guidance describes it in valuation language. Question 4.31 of Implementation Guide 2019-3 explains that discounting the lease payments at the rate the lessor charges arrives at “the fair value of the right to use” the asset, which is not necessarily the fair value of the asset, and that where those differ because the lease term is shorter than the useful life, the fair value of the right to use “may be estimated using professional judgment, maximizing the use of observable information.” That last phrase is Statement 72 fair value language, and it is the only formal bridge in the corpus between Statement 87 lessor measurement and appraisal practice.

One structural point belongs with all of this. Statement 87 does not require the discount rate to be disclosed. Neither paragraph 57 nor paragraph 60 contains a discount rate disclosure requirement, so a rate appearing in an airport’s financial report is there voluntarily, and its absence is not a deficiency. Section 6 shows what that produces in practice.

2.4 Variable Payments

The treatment splits on what the payment varies with, and the split is the one that governs minimum annual guarantees against percentage rent.

Payments that vary with an index or a rate are included in the receivable, initially measured using the index or rate as of commencement (paragraph 44(b)). Payments that are fixed in substance are included (paragraph 44(c)). Payments that depend on the future performance of the lessee or the usage of the underlying asset are excluded and are recognized as inflows of resources in the period to which those payments relate (paragraph 45).

A minimum annual guarantee is a fixed payment and enters the receivable. Percentage rent above the guarantee, landing fees, and enplanement-based payments are performance or usage payments and do not. A receivable is not required to be remeasured solely for a change in an index or a rate, though if it is remeasured for another trigger it is also adjusted for index and rate changes (paragraph 50).

2.5 The Lease Term

The lease term is the noncancelable period, plus periods covered by a lessee or lessor extension option that is reasonably certain to be exercised, plus periods covered by a lessee or lessor termination option that is reasonably certain not to be exercised (paragraph 12).

The closing language of paragraph 12 governs the arrangements most common at general aviation airports. Periods for which both the lessee and the lessor have an option to terminate without permission from the other party are cancelable periods and are excluded from the lease term. A rolling month-to-month lease, or a lease that continues into a holdover period until a new contract is signed, would not be enforceable where both parties may terminate. Provisions allowing termination on purchase of the underlying asset, payment of all sums due, or default on payments are not termination options.

The factors in paragraph 14 are where a hangar analysis usually turns. The standard directs attention to a significant economic disincentive to terminate, expressly including abandonment of significant leasehold improvements and costs associated with returning the underlying asset in a contractually specified condition, and to the history of exercising options, and to the extent to which the asset is essential to the provision of government services.

A tenant who built the hangar faces exactly the disincentive paragraph 14 describes. A tenant who reached the front of a multi-year waiting list faces a version of it. A reasonably certain conclusion frequently comes out affirmative on those facts even where the document reads as terminable at will, and the sponsor's own history of renewing is evidence the standard directs the preparer to consider.

2.6 The Asset Stays, and Sometimes Stops Depreciating

A lessor does not derecognize the asset underlying the lease and continues to depreciate it and test it for impairment, with one exception that is easy to miss and common at airports: if the lease contract requires the lessee to return the asset in its original or enhanced condition, the lessor does not depreciate the asset during the lease term (paragraph 55).

Return-in-condition and maintenance covenants are routine in hangar and ground leases. Where one is present in the terms paragraph 55 describes, depreciation stops for the term. Note the limit: land is not depreciated in any event, so for a pure ground lease the exception is inert. It bites on improvements and structures the airport owns and leases out.

2.7 Disclosures

Lessor disclosures under paragraph 57 may be grouped and cover a general description of the leasing arrangements including the basis, terms and conditions on which variable payments not included in the receivable are determined; total lease-related inflows if not determinable from the face of the statements; inflows from variable and other payments not previously included in the receivable; and the existence, terms and conditions of lessee options to terminate or abate payments where the lessor has issued debt secured by the lease payments.

That last item is not boilerplate at an airport. Special facility revenue bonds secured by lease payments from a hangar, maintenance base, or cargo facility are exactly the arrangement it targets.

Paragraph 59 is the provision most airports owe and some overlook. Where a lessor's principal ongoing operations consist of leasing assets to other entities, it must disclose a schedule of future payments included in the receivable, with principal and interest shown separately, for each of the five subsequent fiscal years and in five-year increments thereafter. Most commercial airports meet that condition by description.

3. The Short-Term Exemption

The exemption is widely understood as covering leases of twelve months or less. That is not the test, and the difference determines whether a large share of a general aviation airport's hangar portfolio sits on the balance sheet.

A short-term lease is one that, at the commencement of the lease term, has a maximum possible term under the lease contract of twelve months or less, including any options to extend, regardless of their probability of being exercised. For a lease cancelable by either the lessee or the lessor, such as a rolling month-to-month or year-to-year lease, the maximum possible term is the noncancelable period including any notice periods (paragraph 16).

Four features of that sentence do the work.

Options to extend count in full without regard to probability. This is a different test from the lease term test in paragraph 12, which uses reasonable certainty. Maximum possible term and lease term are not the same quantity and frequently differ.

Cancelable by either means cancelable by both. Statement 99 settled this: periods for which both parties have an option to terminate without the other's permission, or where both must agree to extend, are cancelable and excluded from the maximum possible term. Implementation guidance had already reached the same result, holding that a sixteen-month lease the government alone may cancel after six months has a maximum possible term of sixteen months, because the provision intends that both parties have a right to cancel.

A conditional right is not an option. A lessor's right to terminate only on lessee default is not a termination option, and does not shorten the maximum possible term.

A modification reopens the question from inception. Where a short-term lease is modified to extend it, the maximum possible term is reassessed from inception of the lease, and if the reassessed term exceeds twelve months the lease ceases to be short-term.

The implementation guidance works the fact patterns directly. A twelve-month noncancelable term with forty-nine twelve-month renewal options is not short-term. A six-month noncancelable term with a twelve-month extension option that is not reasonably certain is not short-term, though the lease term is six months. Two consecutive one-year contracts negotiated as a package with a single objective are combined into a two-year lease and are not short-term, which is the serial renewal pattern familiar from hangar waiting lists.

The practical conclusion for an airport is narrower than the general framing and points the opposite way from the intuition. A genuine rolling licence, where the airport and the tenant may each cancel on notice, is short-term and stays off the balance sheet. The common variant, where only the tenant may cancel, or the airport may cancel only for default, or a stated multi-year term is billed monthly, is not short-term and produces a receivable and a deferred inflow. The test is mutuality of the cancellation right, not the billing cycle.

4. Regulated Leases

4.1 The Provision Written for Airports

The standard contains an exception addressed to airports, and it names them.

Paragraph 42 provides that certain leases are subject to external laws, regulations, or legal rulings, and gives as its example that the United States Department of Transportation and the Federal Aviation Administration regulate aviation leases between airports and air carriers and other aeronautical users. Lessors do not apply paragraphs 44 through 59 to leases meeting paragraph 43.

Paragraph 43 sets three criteria, all of which must be met. Lease rates cannot exceed a reasonable amount, with reasonableness subject to determination by an external regulator. Lease rates should be similar for lessees that are similarly situated. And the lessor cannot deny potential lessees the right to enter into leases if facilities are available, provided the lessee's use complies with generally applicable use restrictions.

The basis for conclusions grounds each criterion in federal aviation law: fees on aeronautical users must be fair and reasonable, the Department must rule on reasonableness in response to complaints, federal law prohibits unjust discrimination and requires a consistent methodology for similarly situated aeronautical users, and the practical effect is that airports cannot prevent air carriers from entering leases where facilities are available.

4.2 What the Exception Does

Where the criteria are met, the lessor recognizes inflows of resources based on the payment provisions of the lease contract. No receivable. No deferred inflow. No present value computation and no discount rate question.

The Board's reasoning is that these arrangements are not in the nature of a financing of a right to use an asset, that they almost always require payments varying from period to period because of their cost-recovery nature, and that many contain revenue sharing provisions.

The relief is from measurement, not from effort. Paragraph 60 substitutes a different disclosure set: a general description of the agreements; the extent to which capital assets are subject to preferential or exclusive use by counterparties, by major class of assets and by major counterparty; total lease-related inflows if not determinable from the face of the statements; a schedule of expected future minimum payments for each of the subsequent five years and in five-year increments thereafter; inflows from variable payments not included in expected future minimum payments; and the same secured-debt disclosure as paragraph 57.

The second of those has no counterpart in paragraph 57 and requires a preferential and exclusive use analysis by asset class and by counterparty that an airport does not otherwise produce. Implementation guidance confirms that carrying value is not required, and that the number of gates under exclusive use by major counterparty, the percentage of gate square footage, or the carrying amount are each acceptable presentations.

4.3 The Boundary Nobody Has Settled

Two ends of the range are clear. Airline use and lease agreements are the paradigm, named in paragraph 42 and discussed throughout the basis for conclusions. Terminal leases to restaurants and other non-aviation vendors are excluded, and the basis for conclusions says so expressly, comparing them to leases of vendor stalls at a government-owned stadium.

The middle is not settled. Whether hangar leases, fixed-base operator leases, and aeronautical ground leases qualify has never been addressed by the standard setter or by the agency.

The argument for inclusion has three parts. Paragraph 42 extends past air carriers to other aeronautical users. The basis for conclusions records that the exposure draft's criteria were rewritten after consultation with subject matter experts so that they would apply to all regulated aviation leases at airports. And for a federally obligated airport the grant assurances supply the criteria directly: economic nondiscrimination supplies similar rates for similarly situated lessees and the inability to deny available facilities, and the fee and rental structure assurance supports the reasonableness constraint. The agency's compliance manual confirms the predicate, treating hangars and tie-down space for individual aircraft owners as aeronautical use subject to the nondiscrimination assurance and requiring nondiscriminatory waiting lists for hangar spaces.

The argument for a narrow reading is that qualification is determined by whether external law imposes all three criteria on that specific agreement, not by the label or by aeronautical classification. Implementation guidance addressing a contract covering both aeronautical and non-aeronautical space holds that the non-aeronautical component is not expected to meet the criteria and that the components must be separated, which shows the test operating below the level of the agreement.

The honest statement is that the inclusion of hangar and fixed-base operator leases is a strong inference advanced principally by industry counsel and audit practitioners, and that it has not been confirmed by the body that wrote the provision. An airport relying on it should document the reasoning rather than assume it, because the consequence of being wrong is the absence of a receivable and deferred inflow that should have been recognized.

4.4 The Airport Without a Regulator

One complication receives no attention in the practice literature and deserves it.

Criterion (a) requires that reasonableness be subject to determination by an external regulator. At a federally obligated airport the grant assurances and the federal rates and charges policy supply that regulator. At an airport with no active grant obligations, there may be none.

The consequence is that two otherwise identical hangar leases at two different airports can receive opposite accounting treatment, turning on the sponsor's federal grant history rather than on anything about the lease. General aviation airports are where this bites, and a sponsor that has not taken a grant in many years should not assume the exception is available to it.

5. The Scope Problem

Before any of the foregoing applies, the arrangement has to be a lease under this standard rather than under Statement 94, and a common airport arrangement is not.

Statement 94 governs public-private and public-public partnerships and availability payment arrangements. Its paragraph 9 sets the boundary: a government with a partnership meeting the definition of a lease applies Statement 87 only if existing assets of the transferor are the only underlying assets, improvements are not required to be made by the operator to those existing assets as part of the arrangement, and the arrangement does not meet the definition of a service concession arrangement.

A lease of existing hangar or terminal space with no required improvements stays in Statement 87. A ground lease requiring the tenant to construct a hangar fails the second condition, because improvements are required of the operator. A terminal concession where the airport approves the prices charged to the public and retains a significant residual interest fails the third.

Two features of paragraph 9 make this consequential. It contains no materiality or probability escape. And Statement 94 contains no regulated lease exception. The word regulated does not appear in it.

A threshold step comes first, and omitting it produces the wrong answer for the most common airport arrangement. Paragraph 9 engages only for a government that has a public-private partnership, and whether an arrangement is one at all is decided by paragraph 5: a partnership is “an arrangement in which a government (the transferor) contracts with an operator to provide public services by conveying control of the right to operate or use a nonfinancial asset ... for a period of time in an exchange or exchange-like transaction.” The Board set that threshold deliberately high. Basis for conclusions paragraph B3: “First, the operator in a PPP provides public services. The Board believes that providing public services is a higher threshold of involvement than the mere participation of a government in a transaction.” Asked at exposure to define public services, the Board declined, saying at B6 that “governments understand that the services provided through a PPP are considered public services and that the term does not need to be defined.”

The consequence is that the ordinary corporate hangar ground lease does not reach Statement 94 at all. A company that ground-leases a parcel and builds a hangar for its own aircraft is not providing public services. There is no partnership, paragraph 9 never engages, and the arrangement stays inside Statement 87 with the paragraph 42 relief available if its criteria are met. A sponsor that reads the boundary the other way will deconsolidate a portfolio of private hangar ground leases that belongs on its balance sheet.

The risk is real but it attaches to operator arrangements rather than to tenant arrangements, and it runs in three steps.

A fixed base operator ground lease carrying a construction obligation is the strong case. An FBO provides services to the flying public, frequently under a minimum standards obligation to serve all comers, so the public services limb of paragraph 5 is at least arguable. Paragraph 9(b) then fails, because improvements are required of the operator, and footnote 2 to paragraph 8 confirms that assets newly purchased or constructed by the operator are underlying partnership assets.

If the operator also collects and is compensated by fees charged to third parties, the arrangement is a service concession arrangement under paragraph 6, and it is excluded from Statement 87 twice over: by paragraph 9(c) of Statement 94 and independently by paragraph 8(d) of Statement 87.

A terminal concession where the airport approves the prices charged to the public and retains a significant residual interest fails paragraph 9(c) on the same reasoning.

So the scope problem is narrower than it first appears and it is not hypothetical. It is a question about FBO and operator agreements, and the answer decides whether an agreement generating material revenue sits in Statement 87 with a measured receivable, in Statement 94 as a partnership, or outside both as a service concession. No treatment of the interaction could be located in the accounting or aviation literature.

A third standard completes the scope boundary. Statement 96 governs subscription-based information technology arrangements. They sit outside Statement 87 not because there is no underlying asset but because paragraph 8(a) of Statement 87 expressly excludes leases of intangible assets, naming “licensing contracts for computer software.” Airports carry unusually heavy software estates, including the property and lease management systems purchased to comply with Statement 87 itself, and those fall under Statement 96.

6. What Airports Actually Report

Everything above is what the standard requires. This section reports what a sample of airport sponsors disclosed under it, taken from eight annual comprehensive financial reports for fiscal 2024. The sample is not random and is not a survey; it is the set of airport reports located with sufficient lease disclosure to compare. It is nonetheless the first assembled comparison of airport Statement 87 lessor measurement that could be found, and three of the paper’s open questions turn out to have observable answers.

6.1 The Measured Numbers

Four of the eight disclose no rate at all. Every one of the four that does disclose a rate discloses the airport’s own cost of borrowing. That is the lessee rule at paragraph 23, applied by a lessor, and it is the error Section 2.3 identifies. The correction is not hypothetical. On this sample it is the majority practice among airports that disclose anything.

Salt Lake City is the exception worth reading closely, because it is the only disclosure in the sample that engages paragraph 47 on its own terms. Its rate is a municipal bond index, which is exactly what the Board considered and rejected at B41 as a more generic market rate. But the Authority supplies a reason no other sponsor supplies: it uses the thirty-year bond buyer index rate in its Airline Use Agreement to record the return on the unamortized portion of capitalized assets received from signatory airlines, and “considered this rate to be the most appropriate for leases of Airport property to match the return received from the airlines.” That is an argument that the index is the rate the lessor charges, because the lessor’s own rate-setting contract uses it. Whether it survives is a separate question. It is at least the right question.

6.2 The Receivable Is a Minority of the Lease Economics

Section 2.4 explains why variable payments stay outside the receivable. The sample shows the size of what stays outside.

Charlotte is the extreme case: $70.4 million of variable revenue sitting outside a $147.6 million receivable. Detroit reports $108.5 million of variable revenue on its regulated leases against $7.6 million of regulated fixed revenue. A reader who takes the lease receivable as a measure of an airport’s leasing economics will be wrong by a wide margin at several of these sponsors, and the direction of the error is always the same.

6.3 The Regulated Lease Boundary, as Airports Draw It

Section 4.3 sets out the boundary question paragraph 42 leaves open: which airport assets are regulated leases. The sample answers it, and the answers do not agree.

Six of the eight, including three large hubs, apply the regulated lease provisions to hangars, fixed base operators or ground parcels. One large hub confines them to airline terminal assets. Two large hubs of comparable standing reach opposite conclusions on general aviation hangars.

The magnitude is what makes the divergence worth stating. Detroit reports a total lease receivable of $4.0 million. Tampa reports $439.8 million. Portfolio composition explains some of that. The classification choice explains a great deal of it.

This changes the character of the claim in Section 4.3. It is no longer that nobody has settled the boundary. It is that the unsettled boundary is producing materially different balance sheets at comparably situated airports, and that a user comparing two airports’ lease disclosures is comparing two different accounting policies before comparing any economics.

6.4 The Disclosure Preparers Actually Miss

Paragraph 60(b) requires a lessor to disclose the extent to which assets are subject to exclusive or preferential use by counterparties. Three sponsors in the sample produce a schedule that meets it squarely. Columbus discloses that twenty-three of thirty-one jet bridges are designated preferential use, with percentages for hold rooms, baggage service, ticket counter, ticket office and concourse operations space. Detroit gives separate schedules for each terminal. Reno-Tahoe states that leased land and hangars are exclusive use while several terminal locations are preferential or joint use, then gives a schedule.

Salt Lake City, which has the broadest regulated lease population in the sample and therefore the most exposure to the requirement, produces no extent-of-use schedule by class and counterparty. It gives the minimum payment schedules required by paragraph 60(d) and describes gates as preferentially assigned in narrative. That is the omission Section 8 predicts, occurring at the sponsor with the most reason to avoid it.

One criticism in Section 8 does not survive the sample and is withdrawn here. Seven of the eight sponsors provide the principal and interest maturity schedule contemplated by paragraph 59. Jacksonville states the predicate in terms, noting that its “principal ongoing operations consist of leasing assets to other entities,” then schedules payments out to 2050 and thereafter. Compliance with paragraph 59 appears to be good.

7. What Changed Since Implementation

Statement 87 first applied to fiscal years beginning after 15 June 2021, following an eighteen-month deferral under Statement 95. The exposure draft had proposed a uniform one-year postponement; the Board rejected it for Statement 87 specifically. A preparer who implemented then and has not revisited the standard since is working from a position that has moved in four respects.

Statement 99 amended the lease term and short-term provisions. Issued in April 2022, it settled that cancelable by either means cancelable by both, that conditional rights are not termination options, and that a modification of a short-term lease reopens the maximum possible term from inception. These are the amendments Section 3 relies on.

Statement 103 changed how lease revenue is classified, and this one is mandatory now. Issued April 2024 and effective for fiscal years beginning after 15 June 2025, it replaced the self-defined operating and nonoperating policy with a prescribed definition: nonoperating comprises subsidies received and provided, endowment contributions, revenues and expenses related to financing, disposal of capital assets and inventory, and investment income and expenses. Everything else is operating.

Implementation guidance issued in 2025 then resolved leases explicitly. Only the interest revenue from a lease is related to financing and therefore nonoperating. The revenue recognized from the deferred inflow is not financing-related and meets no other nonoperating category, and must be reported as operating revenue. For an airport enterprise fund this is a reclassification, not a policy choice, and it takes effect in the fiscal year now closing.

Statement 104 changed the capital asset disclosure. Issued September 2024, effective on the same date, it requires lease assets under Statement 87 to be disclosed separately by major class of underlying asset, and provides that intangible assets representing a right to use a type of underlying asset are not disclosed in the same major class as owned assets of that type. It superseded one lease implementation question and amended another, and it introduced a capital assets held for sale category relevant to a sponsor disposing of surplus hangars or land.

Two further implementation guides were issued after most practitioners stopped reading. The 2023 update added the unconditional right test for termination options, the distinction between maximum possible term and lease term, and the operating and nonoperating question. The 2025 update added the lease revenue classification questions above and held that a lease modification is remeasured from the modification date rather than from inception.

The recognition and measurement provisions of Statement 87 themselves, including paragraphs 42 and 43, stand unchanged.

8. The Federal Overlay

8.1 What the Agency Requires

An airport sponsor that has received a federal grant since 1 January 1995 files two annual financial reports with the agency: Form 5100-126, the financial governmental payment report, covering amounts paid to other units of government and the purposes of each, together with services and property provided to other units of government and the compensation received; and Form 5100-127, the operating and financial summary, covering revenues, expenses, and other financial information. Both are filed within 120 days after fiscal year end through the agency's tracking system, with an extension of up to sixty days available where audited financial information is not yet available.

The statutory basis is worth stating correctly, because the citation most often used is now to repealed law. The governmental payment report rests on 49 U.S.C. 47107(a)(19), implemented through Grant Assurance 26. The operating and financial summary rests on section 111(b) of the FAA Authorization Act of 1994. The revenue use audit requirement rests on 49 U.S.C. 47107(l) and the federal audit compliance supplement. Section 47131, which is the citation ordinarily given for airport financial reporting, was repealed by the FAA Reauthorization Act of 2024 on 16 May 2024, and the agency's own compliance manual now refers to it in the past tense.

8.2 The Agency Has Said Nothing About Lease Accounting

A search of the full text of the current airport compliance manual returns no occurrence of the standard setter's name, of governmental accounting, of generally accepted accounting, or of accrual. The agency has issued no guidance on Statement 87 or on lease accounting generally. The only reference to any accounting standard anywhere in the relevant federal corpus is the 2011 advisory circular on airport financial reports, which arranges data in accordance with Statement 34.

That is a positive finding rather than a gap. The two regimes are complementary by design. The agency regulates rates, revenue use, and nondiscrimination. The standard setter regulates recognition, measurement, and disclosure. And paragraphs 42 and 43 were drafted to accommodate the federal aviation regime rather than to collide with it.

8.3 Two Frictions

Two practical frictions survive the accommodation.

The federal reporting form is structured to a superseded presentation model. The advisory circular governing it dates from 2011 and arranges data to Statement 34. Statements 87, 103, and 104 have since changed lease presentation, the operating and nonoperating dichotomy, and the capital asset disclosure. A sponsor must map a current annual comprehensive financial report onto a form template built fifteen years ago.

And the filing deadline can precede the audit. The 120-day deadline runs from fiscal year end, which is why the sixty-day extension exists expressly for the case where audited financials are not yet available. Statement 87 lengthened the close for sponsors with large lease portfolios, which makes that extension more often necessary than it was.

9. What the Receivable Is Not

This section addresses a question the standard does not reach and the aviation literature has not asked: what the relationship is between the lease receivable an airport reports and the market value of the interest it has leased. The short answer is that there is none, and the reason is specific to airports.

9.1 Three Measurements, None of Them Market

Statement 87 measures the contract. Paragraph 44 measures the receivable at “the present value of lease payments expected to be received during the lease term.” Nothing in paragraphs 40 through 60 refers to market rent, fair value or an appraisal. Paragraph 55 keeps the underlying asset on the books at historical cost less depreciation.

So an airport’s statements carry three numbers for a leased parcel: land at historical cost, a receivable at the discounted contract rent, and a deferred inflow equal to that receivable. None of the three is a market measurement, and nothing in the financial statements reconciles any of them to one.

The standard says why, for a different asset class, at B62: investment property is excluded from lessor recognition because a fair value measurement of it would already capture the present value of future lease payments, so a separate receivable would double count. Airport land is not investment property under Statement 72. It therefore gets the opposite treatment, historical cost plus a contract-rate receivable, with no fair value anywhere in the chain.

9.2 Why the Gap Is Larger at an Airport

For most government lessors the contract rent is at least negotiated against a market. For an aeronautical lease at a federally obligated airport it need not be, and federal policy says so.

FAA Order 5190.6C paragraph 17.9 provides that the reasonableness requirement of Grant Assurance 22 “takes precedence over the requirement for a self-sustaining rate structure with respect to aeronautical users. Accordingly, the FAA does not consider the self-sustaining requirement to require the sponsor to charge fair market value rates to aeronautical users.” It continues: aeronautical fees for landside facilities such as hangars and aviation offices “may be at a fair market rate, but are not required to be higher than a level that reflects the cost of services and facilities. In other words, those charges can be somewhere between cost and fair market value.”

Paragraph 17.10 draws the opposite rule for non-aeronautical use: those rates “must be based on fair market value.” Paragraph 17.11 adds that fair market pricing may be established by reference to negotiated fees for similar uses “or by appraisal of comparable properties,” that appraisers “should account for airport-specific circumstances,” and that the market rate for non-aeronautical users “should be different from, and usually higher than, the aeronautical rates.”

Put the two standards together and the consequence follows without argument. For an aeronautical hangar or ground lease, federal policy permits a rent anywhere between cost recovery and market. Statement 87 measures whichever one the contract names. The lease receivable is therefore a lower bound on the income value of the leased fee, and the size of the gap is a function of federal rate policy rather than of accounting policy.

The same parcel produces two very different receivables depending on the use classified against it. Leased to a corporate hangar tenant at a cost-recovery rent and to a rental car company at market rent, the two receivables differ by a ratio that has nothing to do with relative land value. Section 4.4 observes that two identical leases can get different accounting because of grant history. This is the mirror image: two identical parcels get different measured value because of use classification.

9.3 Where the Standard Does Look at Market Rent

There is exactly one place in the corpus where market rent enters a lease analysis, and it is a gate rather than a measurement rule. Implementation Guide 2019-3, question 4.1, asks whether Statement 87 applies where a government obtains the right to use land “which has a market rent of $100,000 per year, for $1 per year.” The answer is no: the definition in paragraph 4 applies only to exchange or exchange-like transactions, and “The government’s right to use land for $1 does not meet the description of an exchange or exchange-like transaction because each party does not receive or give up essentially equal value or not quite equal value.”

Three things follow. The Board does compare contract rent to market rent, but only at the definitional gate and never in measurement. A sufficiently below-market land arrangement is not a lease at all, and produces no receivable and no deferred inflow. And the test is one of degree: the exchange-like standard imported from Statement 33, quoted at footnote 3 of Statement 94, covers transactions in which the values exchanged “may not be quite equal.”

That leaves a continuum with no marked boundary. Market rent is a lease with a full receivable. Nominal rent is not a lease and nothing is recognised. A cost-recovery aeronautical rent that federal policy expressly blesses sits somewhere between, and no authority says where. Every sponsor with nominal-rent aviation arrangements, including aero clubs, chapter organisations, cadet squadrons, museum aircraft and the not-for-profit aviation organisations addressed at paragraph 17.12 of the compliance manual, has a scope question it has probably not run.

9.4 The Practical Statement

An airport’s annual financial report is not evidence of what its property is worth, and the reason is structural rather than a failure of preparation. A lender, appraiser or sponsor reading a lease receivable is reading the discounted contract rent under a rate policy that permits the contract rent to sit below market by design. The number is right for what it measures. It is not a value indication, it is not a floor on an appraisal, and it should not be reconciled to one.

10. Where Preparers Get Caught

No study ranks implementation errors, so what follows is ordered by where the standard's own structure makes error most likely rather than by measured frequency.

Confusing maximum possible term with lease term. The standard sets two tests with two different probability standards, and the drafting of the short-term provision required three separate authoritative interventions to settle. For an airport, this is the rolling hangar licence problem in Section 3, and it is the error most likely to leave a material receivable unrecorded.

Using the airport's own borrowing rate. Section 2.3. The rate is the one the lessor charges the lessee, derived from the contract where it is not stated.

Applying the regulated lease exception too broadly or not at all. Both directions are errors. Treating every airport lease as regulated ignores the express exclusion of terminal restaurants and vendors. Ignoring paragraphs 42 and 43 entirely grosses up receivables for airline agreements that should carry none. And a contract covering both aeronautical and non-aeronautical space requires component separation, which is a step frequently skipped.

Including usage-based variable payments in the receivable. Landing fees, enplanement-based payments, and percentage rent above a minimum annual guarantee are recognized in the period to which they relate.

Mishandling the depreciation exception. Continuing to depreciate an asset where a return-in-condition covenant triggers paragraph 55, or claiming the exception where the covenant does not actually require return in original or enhanced condition.

Omitting the maturity schedule. Most commercial airports owe the paragraph 59 principal and interest schedule because leasing is their principal ongoing operation. On the sample in Section 6 this one is well complied with, seven of eight, and it appears here for completeness rather than as a common failure.

Missing the exclusive use disclosure. Paragraph 60(b) has no counterpart in paragraph 57 and is easy to overlook when a preparer works from a general lessor checklist. Section 6.4 gives three sponsors whose schedules meet it and one, holding the broadest regulated lease population in the sample, that does not produce one.

Embedded leases. Concession, hangar, and use agreements sometimes contain a lease inside a larger contract. The general implementation literature treats discovery of unrecognized leases through a review of vendor payments, which is a lessee technique. A lessor discovers them through a review of its own revenue streams and its property records, which is a different exercise.

11. Limitations

Five limitations bear on how this paper should be used.

Two of its principal arguments are unsettled rather than resolved. Whether hangar, fixed-base operator, and aeronautical ground leases qualify as regulated leases has not been addressed by the standard setter or the agency, and the Statement 94 interaction described in Section 5 appears nowhere in the literature. Both are presented as open questions with the arguments on each side, and a preparer should treat them as positions requiring documentation rather than as settled treatment.

The evidence in Section 6 is a sample of eight, not a survey. The reports were selected because they disclose enough to compare, which is a selection on the variable of interest, and a sponsor that discloses little is underrepresented by construction. The figures are as reported and were not traced to underlying schedules. Conclusions about the direction of practice, in particular that airports disclosing a rate disclose their own borrowing rate and that the regulated lease boundary is drawn inconsistently, are supported by the sample. Conclusions about the frequency of either practice across the sector are not.

Beyond that sample there is still no published study of airport implementation of Statement 87 in the accounting literature, the aviation research literature or the government finance community’s own publications. That may not hold for long. The Board’s post-implementation review of Statement 87 is active: its chair reports for the first and second quarters of 2026 record completed analysis of archival data drawn from annual financial reports, and preparer surveys prepared. The review’s stated objects are to test whether the standard is accomplishing its purpose and to weigh implementation cost against benefit, expressly not to recommend standard-setting action, so it will produce evidence rather than amendment.

The general professional guidance is of limited use here. The government finance community's principal publication on lease accounting is an advisory rather than a best practice, predates the effective date deferral, is overwhelmingly lessee-oriented, and does not address regulated leases at all. For an entity that is almost entirely a lessor, that guidance leaves the central questions untouched.

Nothing here is accounting advice. Classification, measurement, and disclosure judgments are matters for the sponsor, its auditor, and where the answer turns on the enforceability of a lease provision, its counsel.

12. Conclusion

The standard changed lease accounting for every government, but it did something specific for airports, and the specific thing is the part most often missed.

Paragraph 42 names the aviation regulator. Paragraph 43 sets three criteria that federal aviation law supplies almost by construction at a federally obligated airport. Where they are met there is no receivable, no deferred inflow, and no discount rate question, and there is instead a disclosure of preferential and exclusive use by counterparty that no other government lessor has to produce. An airport that implemented from general guidance may have built a measurement apparatus the standard did not require of it, and omitted a disclosure that it did.

Two questions remain genuinely open and both sit at the center of a general aviation airport's portfolio. Whether a hangar lease is a regulated lease has never been decided. Whether a build-to-suit ground lease is even within this standard, rather than within Statement 94 where no such exception exists, has not been addressed at all.

The rest is arithmetic performed carefully. The rate is the one charged to the tenant. The exemption turns on who may cancel, not on who bills monthly. Usage payments stay out of the receivable. The maturity schedule is owed. And an airport that documents its reasoning on the two open questions will be in a materially better position than one that assumed an answer, whichever answer eventually arrives.

References

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City of Charlotte, North Carolina. 2024. Annual Comprehensive Financial Report, Fiscal Year Ended June 30, 2024, Airport Enterprise Fund lease disclosures.

Columbus Regional Airport Authority. 2025. Annual Comprehensive Financial Report, Year Ended December 31, 2024.

FAA Authorization Act of 1994, Public Law 103-305, section 111(b).

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49 U.S.C. section 47107, including subsections (a)(19) and (l).

This paper is research and general information for professionals evaluating aviation real estate and airport finance. It is not accounting, appraisal, legal, or tax advice, and it does not create an engagement. Classification and measurement judgments are matters for the sponsor and its auditor.