TO: HONORABLE MAYOR FROM: John Aitken
AND CITY COUNCIL
SUBJECT: SEE BELOW DATE: October 13, 2022
Approved Date
10/27/22
SUBJECT: APPROVAL AND DELEGATION OF AUTHORITY FOR AN
AMENDMENT OF THE AIRLINE-AIRPORT LEASE AND OPERATING
AGREEMENT BETWEEN THE CITY AND ALL AIRLINES
OPERATING AT THE AIRPORT
RECOMMENDATION
Adopt a resolution authorizing the Director of Aviation to negotiate and execute an amendment for the Airline-Airport Lease and Operating Agreement with any current or new passenger or cargo airlines at the Norman Y. Mineta San José International Airport (Airport).
OUTCOME
Adopting this Amendment to the Airline-Airport Lease and Operating Agreement updates the agreement to allow the Airport to charge airlines (both passenger and cargo) for their share of capital project expenditures that are not financed with bonds or subordinated indebtedness.
BACKGROUND
The Airline-Airport Lease and Operating Agreement (Agreement) was approved at the January 15, 2019 City Council meeting with a term of July 1, 2019 through July 1, 2029, and includes two five-year options to extend the contract upon mutual agreement of the City and the airlines.
Provisions in these agreements, between passenger or cargo airlines and the City, provide the rate-setting methodology for calculating Landing Fees and Terminal Rates.
The Agreement outlines a process for receiving airline approval to move forward with the construction of a capital project, however the rate calculations for the airline cost centers only allow charges for capital projects that are smaller renewal and replacement projects or larger capital projects that are financed with debt. The Agreement does not provide a mechanism for charging airlines for their portion of a larger capital project that is funded with Airport cash on COUNCIL AGENDA: 11/8/22
FILE: 22-1617
ITEM: 2.7
HONORABLE MAYOR AND CITY COUNCIL
October 13, 2022
Subject: An Amendment to the Airline-Airport Lease and Operating Agreement
hand. Without the appropriate language in the agreement to allow the Airport to cash-finance capital projects, the incentive is for all capital projects to be debt financed, regardless of the size, payback term, or availability of Airport cash. Incentivizing the Airport to debt finance all capital projects will drive up the costs for the Airport and the airlines, as interest and financial costs are rolled into the capital cost of the project.
ANALYSIS
To address these problems in the Agreement, the Airport recommends an amendment to include capital projects not financed with bonds or subordinated indebtedness in the rate-setting methodology. The amended language provides the Airport with the flexibility to select a financing plan that best meets the needs of the Airport and the airlines, including the option to use Airport cash on hand to finance a capital project and to have the airlines reimburse the Airport for the use of this cash. The Amendment also clarifies the definition of Airfield and Terminal Cost and Revenue Centers to more closely align to the rate calculation.
The airlines have been active partners in drafting the amendment language and have indicated support for executing this Amendment. A copy of the proposed Amendment was shared and discussed with the airlines at the Airport-Airline Affairs Committee meeting on September 14, 2022.
The proposed provision will be added to the existing passenger or cargo airlines Airline-Airport Lease and Operating Agreement through an amendment. For new passenger or cargo airlines the provision will be included in the initial passenger or cargo airlines Airline-Airport Lease and Operating Agreement.
The language for the Amendment is included as an attachment to this memorandum.
CONCLUSION
Authorizing the Director of Aviation to negotiate and execute this amendment provides the Airport with the flexibility to determine the best financing plan for capital projects, including the potential for cash-financing.
EVALUATION AND FOLLOW-UP
This item is not expected to return to the City Council. The Airport’s Property and Contracts groups will distribute the Amendment to impacted airlines and follow through on executing the Amendments. This amendment will not be effective until the amendments from all the signatory airlines are executed.
HONORABLE MAYOR AND CITY COUNCIL
October 13, 2022
Subject: An Amendment to the Airline-Airport Lease and Operating Agreement
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
PUBLIC OUTREACH
This memorandum will be posted on the City’s Council Agenda website for the November 8, 2022 City Council meeting.
COORDINATION
This memorandum has been coordinated with the City Attorney’s Office and the City Manager’s Budget Office.
COMMISSION RECOMMENDATION/INPUT
No commission recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-003, Agreements/Contracts (New or Amended) resulting in no physical changes to the environment.
/s/
JOHN AITKEN, A.A.E.
Director of Aviation
For questions, please contact Matthew Kazmierczak, Division Manager for the Director’s Office, at [email protected] or (408) 392-3640.
Attachment:
Language for the Amendment of the Airline-Airport Lease And Operating Agreement NVF:JAC:CAG
3/28/22
1 [Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002) [NUMBER] AMENDMENT TO
AIRLINE-AIRPORT LEASE AND OPERATING AGREEMENT
FOR
NORMAN Y. MINETA SAN JOSE INTERNATIONAL AIRPORT
BY AND BETWEEN
CITY OF SAN JOSE
AND
[AIRLINE]
This First Amendment to Agreement is entered into on , by the City of San José, a municipal corporati on of the State of California (“City”), and [Airline], a [entity type and formation] (“Airline”).
RECITALS
WHEREAS, on [preamble date], City and Airline entered into an agreement entitled “Airline-Airport Lease and Operating Agreement” (“Agreement”); and
WHEREAS, City and Airline desire to amend the Agreement to mo dify the Airfield and Terminal Revenue Requirement provisions;
NOW, THEREFORE, the parties agree to amend the Agreement as follows:
SECTION 1. Section 1 “Definitions”, subsection 1.05 “Airfield Cost and Revenue Center” is restated in its entirety to read as follows:
“1.05 Airfield Cost and Revenue Center s hall include all Debt Service, all direct and indirect Operating Expenses, all Re newal and Replacement Costs, all Capital Expenditures not financed with Bonds or Subordinated Indebt edness, all Bad Debt and Bad Debt Recovery, and all Revenues attributable to the Airfield.”
SECTION 2. Section 1 “Definitions”, subsec tion 1.83 “Terminal Cost and Revenue Center” is restated in its entirety to read as follows:
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2 [Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002)
“1.83 Terminal Cost and Revenue Center sha ll include all Debt Service; all direct, indirect and general Operating Expenses; all Renewal and Replacement Costs; all Capital Expenditures not financed with Bonds or Subordinated I ndebtedness; all Bad Debt and Bad Debt Recovery; and all Revenues attributable to the Terminal.”
SECTION 3. Section 9 “Rates and Charges, subsection 9.02.1 “Airfield Revenue Requirement” is restated in its entirety to read as follows:
“9.02.1 Airfield Revenue Requirement. City will calculate the Airfield Revenue Requirement by computing the sum of the following budget ary items for each Fiscal Year:
(a) Debt Service allocable to Ai rfield capital projects funded from Bonds or Subordinated Indebtedness; plus
(b) the Coverage Amount applicable to the Debt Service
amount calculated pursuant to subsection (a) above; plus (c) the annual Operating Expenses allocable to the Airfield; plus
(d) an amount equal to (i) the total deposits needed to replenish the Bond Reserve Fund to required levels times (ii) a fraction, the numerator of which is the total amount of Net Bond Pr oceeds allocable to the Airfield and the denominator of which is the total amount of Net Bond Proceeds; plus (e) the share of Capital Expendi tures not financed with Bonds or Subordinated Indebtedness subject to the pr ovisions of Section 12.02 and Section
12.03 allocable to the Airfield; plus
(f) the share of annual Rene wal and Replacement Costs
allocable to the Airfield; minus
(g) Revenues (other than Landing Fees charged to
Passenger Carriers and Cargo Carriers) that are accrued by City for the use of the Airfield, including Revenue accrued from Landing Fee prem iums paid by Non-Signatory Airlines under Section 9.09, and Revenue accrued from charges paid for parking aircraft at Common Use Gates; plus
(h) Bad Debt allocable to the Airfield; minus
NVF:JAC:CAG
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3 [Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002) (i) Bad Debt Recovery allocable to the Airfield; minus
(j) the Coverage Amount calculat ed pursuant to subsection (b) above for the immediately preceding Fiscal Year; plus or minus (k) Landing Fee True-ups for the preceding Fiscal Year
pursuant to Section 9.06.02.”
SECTION 4. Section 9 “Rates and Charges, subsection 9.03.1 “Airline Terminal Revenue Requirement” is restated in its entirety to read as follows:
“9.03.1 Airline Terminal Revenue Requir ement. City will begin to calculate the aggregate Airline Terminal Revenue Requ irement by computing the sum of the following budgetary items for each Fiscal Year:
(a) Debt Service allocable to Terminal capital projects funded from Bonds or Subordinated Indebtedness; plus
(b) the Coverage Amount applicable to the Debt Service amount calculated pursuant to subsection (a) above; plus
(c) the annual Operating Expenses allocable to the Terminal; plus
(d) an amount equal to (i) the total deposits needed to replenish the Bond Reserve Fund to required levels times (ii) a fraction, the num erator of which is the total amount of Net Bond Proceeds allocable to the Terminal and the denominator of which is the total amount of Net Bond Proceeds; plus
(e) the share of Capital Expenditu res not financed with Bonds or Subordinated Indebtedness subject to the provisions of Section 12.02 and Section 12.03 allocable to the Terminal; plus
(f) the share of annual R enewal and Replacement Costs
allocable to the Terminal, minus
(g) the Coverage Amount calculat ed pursuant to subsection (b) above for the immediately preceding Fiscal Year, minus
(h) the amounts, if any, paid to City to lease or use space in the basement of the Terminals.
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4 [Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002) City will then divide that sum by the total amount of Rentable Terminal Space and multiply the resulting quotient by the total square feet of Airline Rented Space at the Airport, and then add any Bad Debt and subtract any Bad D ebt Recovery allocable to the Terminal, yielding the Airline Terminal Revenue Requirement to be met by all Airlines.”
SECTION 5. Exhibit H, “Calculation of Rates and Charges” is amended to read as shows in Revised Exhibit H, attached and incorporated into this [number] Amendment.
SECTION 6. All of the terms and conditions of t he original Agreement not modified by this [number] Amendment shall remain in full force and effect.
[remainder of page intentionally left blank]
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5 [Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002) WITNESS THE EXECUTION HEREOF on the day and year first written above.
APPROVED AS TO FORM:
_______________________________
JON CALEGARI
Senior Deput
y City Attorney
“City”
CITY OF SAN JOSE, a municipal
corporation of the State of California
_______________________________
JOHN AITKEN, A.A.E.
Director of Aviation
“Airline”
[Airline name],
a [entity type and state of formation]
By_______________________________
Name:
Title:
NVF:JAC:CAG
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Revised Exhibit H-1
[Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002)
REVISED EXHIBIT H
CALCULATION OF RATES AND CHARGES
NVF:JAC:CAG
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Revised Exhibit H-2
[Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002)
NVF:JAC:CAG
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Revised Exhibit H-3
[Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002)
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Revised Exhibit H-4
[Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002)
NVF:JAC:CAG
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Revised Exhibit H-5
[Airline]
[Amendment] to Airline-Airport Lease and Operating Agreement [SJC Properties Doc no.]
T-29789.002 \ Airline Name SJC Doc No. - DRAFT2_clean (002)
CORPORATE SECRETARY CERTIFICATE
This certificate shall be executed by the secretary or assistant secretary of the corporation.
I, ____________________________________________ ce rtify that I
Name of Secretary or Assistant Secretary
am the
Secretary or Assistant Secretary of the corporation named in the
attached agreement; that _________________________________________________ Name of Person that Signed Agreement
signed the agreement on behalf of the corporation as the ________________________ Title of Person that Signed the Agreement
of the corporation; and that the agreement was duly signed for and in behalf of
the corporation by authority of its Board of Directors, and is within the scope of its
corporate powers.
___________________________________
Signature of Secretary or Assistant Secretary
Corporate Seal ___________________________________
Date
CERTIFICATE OF LLC AUTHORITY
This Certificate of LLC Authority shall be executed by the manager of the limited liability company.
I, , certify that I am the manager of the
Name of Manager
limited liability company named in the attached agreement;
that signed the agreement on behalf of the limited
Name of Person that Signed Agreement
liability company as the of the limited liability
Title of Person that Signed Agreement
company; and that the agreement was duly signed for and on behalf of the limited liability company by authority of its members, and is within the scope of its limited liability company powers.
By:
Name:
Its: Manager
Date: