Homework Question on Operation and Maintenance (O&M)
- Discuss the difference between O&M expenses and capital improvement expenses.
- How does airport financial accounting factor into expenses?
Homework Answer on Operation and Maintenance (O&M)
Expenses Airports should direct a significant amount of financial resources to cater for the operations, maintenance, and expansion of their facilities. Such resources are split into operation and maintenance (O&M) expenses, and capital improvement expenses. O&M expenses are costs that airports incur on a regular basis to support their current operations. They include employees’ salaries, utility costs, fleet maintenance, debt servicing, and access road maintenance.
The revenue collected from the airport operations is utilized to cover O&M expenses. O&M expenses enable machineries and building to remain in a better position during the operations. Additionally, O&M expenses enhance the airport functions, as they strive to attain their commercial goals.On the other hand, capital improvement expenses involve large periodic costs that airports set aside to expand or improve their infrastructure.
Such expenses include terminal building, buying land, expansion of airfield pavements, and installation of the lighting system (Airport Industry Familiarization 30). Capital improvement expenses represent an investment to the company, in addition to creating an opportunity for increased benefits in the future. The funds to cater for the capital improvement expenses do not necessarily come from the airport revenues, as airport authorities are allowed to seek funds from private companies or state grants. Capital improvement expenses extend the usefulness of property and machineries by enhancing their efficiency.