City Council Combined Special Meeting/Work Session


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  2.       
Meeting Date: 09/22/2020  
Co-Submitter: Stacey Brechler-Knaggs From: Barney Helmick, Airport Director

TITLE:
Consideration and Approval of Lease Amendments:  Amendment of Flagstaff Airport Leases to extend rent abatement for a minimum of three (3) months or a maximum of six (6) months, due to the ongoing economic impacts of the COVID-19 pandemic; and provide direction related to rent abatement for hangar permittees.
STAFF RECOMMENDED ACTION:
  1. Approve lease amendments to extend rent abatement for all airport tenants for three (3) months
  2. Approve lease amendments to extend rent abatements for all airport tenants for six (6) months
  3. Not approve any further extension, or direct staff to take other action
  4. Provide direction to Airport Manager related to rent abatement for hangar permittees
Executive Summary:
On June 2, 2020 City Council approved rent abatements for all our airport lessees for rent abatements from April 1, 2020 to September 30, 2020, and approved rent abatements for hangar permittees. After consultation with the Airport Commission, the Airport Manager approved rent abatements for all hangar permittees during this time period as allowed by City Code.

Many tenants and hangar permittees are still experiencing financial hardship due to the COVID-19 impacts on the airline industry. Flagstaff Pulliam Airport has seen major decreases in enplanements which has continued to impact our commercial airlines, rental car tenants, Transportation Security Administration (TSA) staffing levels, fuel sales, and more. Air service is still down over 65% on average per week. 

An example of the hardship is noted through a recent article on American Airlines where the airline is looking to cut service to 30 communities. American Airlines recently announced it will be cutting services in 15 cities to help with the revenue short falls. One way it is determining what city will lose service is lack of enplanements. The Flagstaff Pulliam Airport is currently having short falls on filling seats, but have shared with our airline partners the work we do to market the airport and fill seats. This has been a plus in our relationship, as well as the rent abatement that was already offered to our partners. 

Please note that government agencies were and will be excluded. As drafted, lease amendments will require pass through of the rental abatement savings to the subleases known to be operating their businesses at the Flagstaff Pulliam Airport.

All proposed lease amendments will be attached prior to the September 22, 2020 Council Agenda, along with a sample rent abatement for hangar permittees.
Financial Impact:
If rent abatement for six (6) months (maximum) is approved, City staff estimates the Flagstaff Airport will not receive airport lease revenues of approximately $400,000 and hangar/general aviation revenues of approximately $220,000. If approved for three months, we are basically taking these figures and cutting them in half. 

As you know, the Flagstaff Pulliam Airport will be receiving and $18.1 million CARES (Coronavirus Aid, Relief, and Economic Security) Act federal grant which can be used to pay for airport operational expenses. City will have increased operation expenses as a result of the rent abatements.

The $18.1 million CARES ACt grant award amount Flagstaff is receiving was derived from the fact we offer commercial airline service. Our commercial service is met through our airline partners, American and United Airlines and involves the increase in our overall emplanements we experienced in 2019 and hope to experience in the future. Other smaller airports in Arizona, that only do not have commercial air service, also received monies, but they were not in the realm of millions. With that said, it is important to note that having this commercial service currently has helped the Flagstaff Pulliam Airport with receiving the larger grant amount.

The Flagstaff Pulliam Airport plays a critical role in offering a multi-model transportation system in our community for both leisure and business travel. It is vital to sustain our community business partners future with air service that includes multiple destinations. This grant funding will help us pay for staff wages, benefits, terminal upgrades, hangar improvements, and much more.

Staff is brining forward the rent abatement extensions at this time as it is crucial to airport tenants in determining next steps and services they can or can't offer at the airport moving forward.
Policy Impact:
A decision to abate rents (including "minimum annual guarantees" and encompassing fees) is a local decision. Rent abatement will be tied to the changed circumstances caused by COVID-19 public health emergency.
Connection to PBB Key Community Priorities/Objectives & Regional Plan:
Goal: Transportation and Other Public Infrastructure: provide Airport infrastructure to enhance tenant and patron experience and secure second airline.
Has There Been Previous Council Decision on This:
Yes. at the May 19, 2020 City Council meeting staff proposed that the City abate rents for American Airlines, United Airlines, the rental car agencies, and the cafe operation out of the Flagstaff Airport. At that meeting the City received public comments from several of our hangar permitees, who pay to park their private airplanes at the Airport. Some expressed that their businesses were also suffering, and some expressed that the hangars need repairs. As a result the Council postponed the rent abatement discussions to June 2, 2020 and request that staff consider more rent abatement options. Also per Council direction the proposed lease amendments no longer include a provision allow the City Manager to extend the rent abatement period.

At the June 2, 2020 City Council meeting, City Council approved a 6 month rent abatement for all airport tenants and for hangar permittees. 
Options and Alternatives:
Taking into consideration business request and the continued slow return of passenger enplanements, staff is requesting City Council look at the following options.
Option 1: Approve the COVID-19 Rent Abatement for an additional three (3) months only to all airport tenants.
Option 2: Approve the COVID-19 Rent Abatement for an additional six (6) months only to all airport tenants.
Option 3: Not approve the COVID-19 Rent Abatement for all airport tenants.
Background/History:
On January 31, 2020 U.S. Secretary of Health and Human Services declared a public health emergency as a result of The COVID-19 pandemic; on March 11, 2020 Arizona Governor Douglas Ducey declared a state public health emergency, and on March 15, 2020 Flagstaff Mayor Coral Evans declared a local public health emergency. In April 2020 airline passenger traffic through the Flagstaff Pulliam Airport practically ceased due to COVID-19 pandemic, causing an associated decline in flight revenues. Though there has been a small increase in passengers flying in and out of Flagstaff Pulliam Airport, the aircraft are operating at or below 39% load factors. This is not a prolonged sustainable business plan for our airline partners.

On April 4, 2020 the Federal Aviation Administration ("FAA") issued "Information for airport sponsors considering COVID-19 restrictions or accommodations" which states that "a decision to abate rent... is a local decision" and provides guidance for any abatement. The Guidance that airports are "encouraged to consider the business situation of the tenant; the changed circumstances created by the public health emergency; the desirability of having solvent tenants that can resume normal operations when the emergency ends; The availability of other governmental or insurance relief that such relief; and possible subsequent conditions that, if triggered, would end the abatement. " The FAA Guidance also "encourages sponsors to carefully balance and consider the equites between all airport users."
Key Considerations:
The City of Flagstaff Economic Vitality Division has been working for years to secure a second airline for our community as well as increase routes overall. This has been accomplished through attending several airline conferences, asking for airline corporate meetings, creating three major marketing campaigns that wer both inward and outward facing, and working wth our top 20 employers on their continued growth. All these factors played into receiving and additional route to Dallas/Fort Worth and a seasonal route to Los Angeles from American Airlines and ar Route to Denver with United Airlines joining our airport family. It's important to keep these routes intact and to continue our outreach to secure additional routes with these partners. Our rental car agencies support the airlines daily and increase their hours of operation and fleet to accommodate these changes in our routes and schedules. This second rent abatement will provide much needed relief to our current tenants so when the circumstances improve, the Flagstaff Pulliam Airport can go back to normal operations and support our local businesses with much needed air service, creation of jobs, and revenues.
Community Benefits and Considerations:
This rent abatement will assist our goal in keeping our tenants solvent to ensure that the airport can remain open and operating safely. The airport will continue to be ready to assist our local businesses, residents, and visitors ongoing. 
Expanded Options and Alternatives:
ENPLANEMENTS:
The Flagstaff Airport experienced a record number of passengers in 2019 (123,957) due to the addition of American Airlines service to Dallas/Fort Worth, and United Airlines adding service to Denver. Since onset of COVID-19 passenger loads dropped to an all time low of 513 passengers in the month of April. The monthly number of enplanements since April have increased but each month since the enplanements are lower than Flagstaff Pulliam Airport has experienced since 2007. It is vital for Flagstaff to be able to continue to offer several modes of transportation to our residents, business partners and the tourists that support our hotels, restaurant and various shops.

AIRPORT TENANT FUNDING RELIEF:
The Airlines operating our of Flagstaff Pulliam Airport did receive grant monies to cover personnel wages and benefits. Those grants will expire September 30, 2020. The airline industry has parked an estimated 64% of the worldwide fleet of aircraft. This reduces operational costs, but there are still loans, and leases to cover for these aircraft as well as for lower producing markets. The Airlines have said that rent abatements have been helpful. Our hangar tenants and other general aviation partners have expressed appreciation for the rent abatement. Rental car companies have reduced fleet and had to lay off some staff to sustain.

Nationwide, the week of Labor Day, saw enplanements had returned to about 25% of enplanements from a year ago that same week. Airlines have begun downsizing by dropping unprofitable markets. This trend will continue over the next six months.  We have a responsibility to look at all options for our partners as the pandemic is still happening and this industry has not fully rebounded. 
Attachments
Enplanements Report 2020
Flagstaff Pulliam Airport Rent Abatement Discussion
Aircraft Storage Permit
Lease Pulliam
Lease Pulliam II
Lease Pulliam III
Lease Pulliam IV
Lease Pulliam V
Lease American
Lease United
Lease Wiseman I
Lease Wiseman II
Lease Thompson
Lease Guardian I
Lease Guardian II
Lease Avis Budget
Lease Hertz
Lease Enterprise
Lease Alamo
Lease Air Cafe


    

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