How do residual agreements work?

• A. Airlines cover the additional expenses of the airport
• B. Airlines and passengers share profits equally
• C. The city government funds residual costs
• D. Tenants receive subsidies for excess costs

Answer: (A)

Residual agreements focus on who covers costs that aren’t fully covered by the standard revenue streams. In aviation contexts, these are the leftover or unexpected expenses needed to keep the airport running. The arrangement places responsibility on the airlines to pay these additional airport costs, rather than relying on taxpayers or tenants, so the airport remains funded and operational even if costs exceed initial projections.

This approach helps align funding with those who use the airport, and it provides a clear method for addressing overruns or new requirements without shifting burden to the public sector or to tenants. The other options describe subsidies or profit-sharing scenarios that don’t address who covers remaining operating costs in the same way.