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96 Guidebook for Developing and Leasing Airport Property Thereafter, percentage fees shall be based upon the average comparable percentage fees at the 10 largest airports in the US, except the Port Authority of New York/New Jersey. Financial Considerations for the Tenant The introduction of the CRCF brought numerous benefits to the rental car operators. In addi- tion to the advantages of being located in a new, high-quality facility, the operators have the ben- efit of shared operational costs. The Airport purchased the buses used by the operators, and since the buses are shared, transportation to and from the airport is much more efficient. The number of buses used by rental car operators was reduced from 125 buses to 26. Tampa International Airport (TPA) Airport Type: Large-Hub Tenant: PEMCO World Air Services Type of Business: Maintenance and Repairs Facility Location: Airside SOURCE: RW Armstrong, 2009. SOURCE: RW Armstrong, 2009. Project Overview The 5-bay, 150,000-square-foot maintenance facility was built in 1993 for use by US Airways, but sat vacant for nearly 6 years after US Airways entered bankruptcy and closed the facility in November 2002. The closure of the facility resulted in the loss of 300 jobs, as well as a significant reduction in revenue for the Airport. Initial efforts to market the facility to new tenants were han- dled by US Airways; however, those responsibilities, along with maintenance and upkeep of the facility, were soon transferred to the Hillsborough County Aviation Authority (the Airport Spon- sor). The Authority invested $500,000 in the upkeep of the hangar, ensuring that the facility was in excellent, move-in condition for any prospective tenants. The Authority enlisted the support of the Hillsborough County Economic Development Cor- poration (formerly the Greater Tampa Chamber of Commerce Committee of 100) to assist in the marketing of the facility, and to identify a package of available financial incentives to help lure prospective tenants. In addition to the quality of the available facilities, the Tampa metropolitan area had a built-in, trained, and available labor force of skilled aircraft maintenance profession-

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Case Studies 97 als resulting from the closure of the US Airways facility, the closure of the Delta maintenance facil- ity at TPA in 2005, and the airport's proximity to MacDill Air Force Base. The first contact with PEMCO World Air Services occurred in March 2005, with PEMCO expressing interest in operating a third-party MRO facility servicing commercial aircraft. PEMCO, working with the Airport Authority and the Tampa Hillsborough EDC, began to eval- uate the facility, the labor force within the community, and the available incentives that would assist in making the venture financially viable. Through negotiations and coordination with key stakeholders in the community, a package of lease terms and incentives (detailed in the follow- ing sections) was put together that met the needs of the Airport Sponsor and PEMCO, and offered significant economic benefit to the surrounding community. A lease agreement was signed in early 2008, with operations at the facility starting shortly thereafter. Key Stakeholders Following is a list of key stakeholders responsible for the development and ultimate execution of the PEMCO lease arrangement: Airport Sponsor: Hillsborough County Aviation Authority maintained the facility in move- in condition, took the lead in marketing the facility after initial efforts by US Airways yielded little result, and enlisted the support of the Tampa Hillsborough Economic Development Corporation (EDC). Tampa Hillsborough EDC: The Tampa Hillsborough EDC assisted the Airport Sponsor in marketing the facility and identifying available incentives to entice and assist prospective tenants to the vacant facility. Tampa Hillsborough EDC is officially recognized by Enterprise Florida as Hillsborough County's primary business recruitment/retention team, and part of an economic development alliance with Hillsborough County and the cities of Tampa, Plant City, and Tem- ple Terrace, as well as various private investors. Governor's Office of Tourism, Trade and Economic Development (OTTED), Enterprise Florida (EFI), Hillsborough County, and City of Tampa: PEMCO qualified for and was awarded Enterprise Florida's Qualified Target Industry Tax Refund Program (QTI) inducement. QTI is a performance-based program based on the creation of high-paying jobs in target industries, of which aviation is one. The tax refund will be paid out over several years by the state, Hills- borough County, and the City of Tampa, provided eligibility requirements are maintained. Workforce Florida: A Quick Response Training grant was awarded to PEMCO by this state agency, in partnership with the Hillsborough County School District. The grant funded a cus- tomized training program to assist the company with its ramping-up efforts. Florida Agency for Workforce Innovation (AWI) and Tampa Bay Workforce Alliance: Pro- vided labor market statistics specific to the skills and occupations the company required. PEMCO World Air Services: PEMCO was able to successfully negotiate with the Hillsborough County Aviation Authority and strike an agreement that proved beneficial to its own interests, those of the Airport, and those of the surrounding community. The lease is structured in a way, through revenue sharing, that ties the Airport's financial success to PEMCO's, while ensuring con- sistent revenue to the Airport Sponsor through base land and facility rents. Key Lease Elements TPA and PEMCO were able to construct a lease favorable to both parties. The Airport kept the initial parcel rent low, with incremental ground lease increases, and offered a facility rent structure based on the financial success of the tenant (percentage of gross revenue).

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98 Guidebook for Developing and Leasing Airport Property Lease Term: The lease is for an initial 15-year term, with two 5-year extension options that can be executed under the same terms as the initial agreement, and without a formal amendment to the lease agreement. Rent and Escalation: Rent is accounted for in two parts: ground rent and facility rent. Ground rent is set at $0.15 per square foot annually, based on the 717,492-square-foot parcel that encompasses the PEMCO facility. This equates to $107,624 annually. At the 5-year anniversary of the execution of the lease, and on every third year after (including lease exten- sions, if applicable), ground rent will increase by 10%. Annual facility rent is based on 1.3% of PEMCO's gross receipts (i.e., gross revenue from the operation of the facility), with a minimum annual facility rent clause that guarantees the Air- port Sponsor $300,000 annually ($25,000 paid on a monthly basis). Every 3 months, 1.3% of revenue is calculated for the preceding 3-month period. Should the 1.3% of revenue surpass the 3-month minimum of $75,000 (3 months times $25,000 per month), PEMCO will pay the Airport the difference. Should the 1.3% of revenue not exceed the $75,000 minimum, the Air- port Sponsor will credit the surplus paid to the next period's minimum facility rent. If at the end of the 12-month period the 1.3% of gross revenue exceeds the $300,000 minimum, the Air- port Sponsor retains the funds. Noncompete and Right-of-First-Refusal Clause: PEMCO had expressed interest in the vacant US Airways maintenance hangar for potential expansion of its operations, but was con- cerned that further competition at the airport (another MRO entering the same market) would render its business plan obsolete and hinder PEMCO's ability to operate profitably at TPA. In order to address this concern, a clause was inserted into the Lease Agreement that gives PEMCO the right to cancel its Lease Agreement within 30 days if another MRO enters the market. This was a creative approach to attract new business activity, re-use a significant facility on the air- port, and replace the aeronautical activity and aviation jobs that were lost. The noncompete clause is a bit tricky, however, in that the airport sponsor is precluded from granting exclusive rights to a single operator, a clear violation of Grant Assurance 23. The fact that the airport sponsor is simply granting the operator the option of terminating its lease if a competing MRO comes onto the airfield is important, because the airport sponsor can, and should, allow and encourage competition. In this case, the operator is occupying existing facil- ities so the airport sponsor has more flexibility to release PEMCO if a better business deal pres- ents itself than it would if the development project carried debt that was secured by a long-term tenant lease. As discussed previously, the airport sponsor should collaborate closely with the FAA's ADO to ensure that grant assurance violations do not occur, and that the per- ception of noncompliance does not prevail. This topic is discussed further in Section 2.3.1, Noncompete Clause. Considerations for the Tenant The structure of rent payments directly ties PEMCO's facility rent to the company's success at the Airport. The base ground rent and minimum facility rent clause set the initial outlays for PEMCO low enough to make the facility attractive to start operations, while guaranteeing the airport sponsor a base revenue stream with significant upside potential. In addition to a favorable lease payment structure, PEMCO was awarded a performance-based tax inducement by Enterprise Florida, through the Qualified Target Industry Tax Refund Pro- gram. The program stipulates that at least 100 new jobs must be created, and provides a tax refund of between $3,000 and $5,000 per employee, based upon the annual average wages paid (the higher the wage, the greater the tax credit). PEMCO was also awarded a Quick Response Training grant by Workforce Florida. Additionally, the Florida Department of Revenue offers

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Case Studies 99 sales and use tax exemptions on aircraft parts, modification, maintenance and repair, sale, or lease of qualified aircraft. Airport Benefits and Revenue In 2009 (the first full year of the lease arrangement), the Airport realized a minimum revenue of nearly $408,000 annually from this facility, a figure that could increase significantly as PEMCO's operations and revenue grow. Maintenance and upkeep costs that were once the responsibility of the Airport are now the responsibility of the tenant, as stipulated in the lease agreement. Another benefit is the additional aircraft activity driven by the MRO, boosting fuel sales and fuel flowage at the airport, activity that benefits both fuel providers and the Authority. In addition to the direct financial benefits to the Airport Sponsor, this project has had a pos- itive impact to the surrounding community, through the restoration of 300 quality jobs, and the potential addition of another 110 jobs should PEMCO achieve its employment target of 410.