Guidebook for Developing and Managing Airport Contracts (2010)

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38 General aviation contracts relate to fixed-base operations, hangar leases, tie-down agree- ments, and, in some cases, land leases, non-aviation development, and through-the-fence arrangements. 4.1 Minimum Standards For airports or airport systems with significant general aviation activity, a large variety of busi- nesses and operations, and frequent entry and exit from the airport, it may be logical to stan- dardize the requirements for airport tenants and users in a Minimum Standards document. Minimum standards can be defined as those provisions that allow airport tenants to operate on a level through which quality, selection, and service goals are met. These standards also dictate an airport’s responsibilities toward those standards and, therefore, help govern future development. Each airport’s unique nature calls for distinct requirements, and airport staff and tenants should be involved in developing the minimum standards so as to produce a more receptive, tenant- and user-friendly environment. During the standards writing process, it is important to consider Exclusive Rights (Advisory Circular 5190/150.6, dated 1/04/2007), which expounds on limitations at federally obligated air- ports granting exclusive rights to conduct activities, with the objective being the preservation of competitive enterprise for public benefit. In addition, a few prime components to include in minimum standards would be definitions of operators, services, and activities; hours of opera- tions; staffing; employee training; facility requirements; and insurance requirements. In accordance with the FAA’s Advisory Circular 150/5190.7, which illustrates an airport sponsor’s duty to establish and enforce minimum standards for commercial aeronautical ser- vice providers, tailoring minimum standards separately for each type of class and service can eliminate difficulties that would arise if the same standards were forced to apply equally to all businesses. AC 150/5190.7 also assists the airport by giving examples of minimum standards used else- where and providing sample questions that would help an airport discover what its standards should be as compared with other facilities. The Circular recommends including these stipula- tions in lease agreements with aeronautical service providers. Also important, the Circular advises that providers be notified as amendments are proposed and that providers be part of the discussion. Following the Advisory Circular and complying with Federal obligations will minimize the potential for violations and ensure the efficiency of the airport’s operations. C H A P T E R 4 General Aviation

4.2 Critical Issues—Fixed-Base Operators For many airports, their fixed-base operators (FBOs) are the most visible tenants. The FBOs are in many ways an extension of airport staff and are what users (particularly transient visitors) often remember most about an airport. It is therefore vital that FBOs be governed by an agreement that ensures outstanding customer service while maximizing revenue for the sponsor and providing an opportunity for the FBO to earn an adequate return on its investment. To create such an agree- ment, some critical issues must be faced, including the following: • Mandatory FBO services • Leased area and premises • Terms of relocation • FBO construction • Sponsor investment • Provisions for existing tenants • Construction compliance • Maintenance responsibilities • Technology requirements • Security requirements • Monitoring FBO activities • Appraisals and fair market value • Procedure for collecting landing fees • Environmental issues 4.2.1 Mandatory FBO Services For most airports, the quality of general aviation services depends on the FBOs present at the facility. Because FBOs can take many different forms, many airports specify a list of minimum or mandatory services to be provided by FBOs. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the AUS and PDX FBO Agreements for examples of provisions regarding minimum services to be provided by FBOs. 4.2.2 Leased Area and Premises For all FBO agreements, the area and premises leased to the FBO must be carefully defined to ensure differentiation between public-use and FBO areas, because this can affect the interpretation of maintenance responsibilities and other operational issues. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PDX FBO Agreement for example of detailed description of the leased premises and parking facilities. 4.2.3 Terms of Relocation GA facilities at commercial service airports are often in areas that may eventually be needed for other development, because of expanded commercial airline activity or required airfield expansion. As such, contracts should carefully explain the rights of both parties in the event of relocation. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the AUS FBO Agreement for example of provision regarding right to relocate the FBO operations and for excerpts from the PDX FBO Agreement for example of provisions regarding rights of early termination for airport purposes. General Aviation 39

4.2.4 FBO Construction FBOs often engage in construction on their leased areas. To ensure that construction does not adversely affect airport operations beyond what would ordinarily be expected, the agreement must explicitly lay out the timeline of construction, excusable delays, damages for delay, and other obligations of the FBO. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PDX FBO Agreement for example of provisions regarding construction obligations of FBO operators. 4.2.5 Sponsor Investment There are instances where airport sponsors are investing in facilities to be leased or managed by an FBO. Sponsors should take great care to ensure these investment monies are included in the airport’s capital plan and are available at the time of contract execution to avoid possible instances of default. 4.2.6 Provisions for Existing Tenants If a new FBO is replacing an old one that held many subleases for aircraft storage and so forth, the new contract must address the assignment of subleases to ensure a smooth transition. Ensuring that subtenants to the agreement are seamlessly transitioned to a new agreement can eliminate some potentially sensitive issues for airport management. 4.2.7 Construction Compliance As with any contract that may result in construction of either temporary or permanent struc- tures, language requiring compliance with airport design criteria is necessary. In particular, FAA orders and circulars, as well as pertinent sections of the FARs, should be cited wherever neces- sary to ensure compliance. 4.2.8 Maintenance Responsibilities Because an FBO will be representing the airport to the GA users, the airport sponsor should ensure that the contract includes detailed language regarding the maintenance requirements of the tenant, and, in particular, the requirements that directly pertain to the image the FBO pres- ents to airport users. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the AUS FBO Agreement for example of provisions regarding maintenance responsibilities of the FBOs operators. 4.2.9 Technology Requirements Older FBO contracts may not have envisioned the significant recent increase in the use of technology on-airport and by airport users in general. New contracts must address technology and connectivity, by wired or wireless means, to ensure exceptional service is provided to users of the FBO. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the AUS FBO Agreement for example of provisions regarding telecommunications and connection to the airport’s premise distribution system. 40 Guidebook for Developing and Managing Airport Contracts

4.2.10 Security Requirements Airports with old FBO agreements may find that at the time of their execution, there were relatively few security requirements compared with today. With numerous enhanced security requirements since late 2001, airport sponsors must address all elements of airport security in their FBO agreements, including background check requirements, badging requirements, and other requirements that protect the airport from security breaches. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the AUS FBO Agreement for example of provisions regarding compliance with the airport security plan. 4.2.11 Monitoring FBO Activities More and more airports are taking an active role in observing and monitoring of their FBO oper- ations. Sponsors choosing to be active in monitoring the activities of an FBO may conduct annual business reviews. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PDX FBO Agreement for example of provisions regarding annual business review meeting with the FBO operator. 4.2.12 Appraisals and Fair Market Value In some cases, an airport’s FBO contract consists of a land lease in addition to or instead of a building lease. The rent for the property, and the manner in which the rent is escalated over time, sometimes is tied to a concept called “fair market value.” The determination of that fair market value, if not explicitly defined, can be questioned, thereby delaying the implementation of rent increases. Best practices incorporate detailed language to describe the method for resolving a dis- pute or objection to the calculation of fair market value. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PDX FBO Agreement for example of provisions regarding process for objection to fair market rental determination. 4.2.13 Procedure for Collecting Landing Fees Many airports have experienced difficulty in establishing a system for having FBOs collect land- ing fees. Airports are often concerned about the accuracy of the collections, the accounting meth- ods, and the ability of FBOs to collect the fees while still providing excellent customer service to airport users. FBOs sometimes contend that their fee for performing the collections is inadequate. A well-written agreement will strike a balance between the concerns of both sponsor and FBO. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PDX FBO Agreement for example of provisions regarding the procedures for the FBO Operator’s collection of landing fees. 4.2.14 Environmental Issues Environmental awareness is expanding rapidly in virtually all industries and among the gen- eral public. Airport sponsors have also been very active in enhancing their efforts to become more eco-friendly. Although green issues are typically reported with respect to commercial avi- ation (e.g., emissions from air carrier jets), many FBO functions can affect an airport’s efforts to General Aviation 41

be environmentally conscious. Recent contracting efforts have enhanced the environmental stewardship sections of FBO agreements. PDX, at the forefront of this trend, has excellent lan- guage covering virtually all requirements that should be placed on an active FBO. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PDX FBO Agreement for example of provisions regarding environmental management and compliance requirements for FBOs. 4.3 Critical Issues—Hangar Leases As with FBOs, it is in the airport sponsor’s best interests to regulate the activities conducted under a hangar lease. Because these leases are usually executed for very short or month-to-month terms, it is also important to make these agreements easy to execute and terminate. Critical issues are as follows: • Uses and privileges • Forms for leasing and terminating • Revenue sharing 4.3.1 Uses and Privileges As with FBO leases, a sponsor must regulate the activities that occur in a leased hangar. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the JAX T-Hangar Lease Agreement for example of provisions regarding permitted uses of the premises. 4.3.2 Forms for Leasing and Terminating Airports can improve compliance with the regulations in a lease agreement by providing forms for registering aircraft and terminating leases. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PIT Hangar Registration Form for registration of aircraft based in a leased hangar and Notice of JAX’s lease termination form attached which is attached to its T-hangar lease form. 4.3.3 Revenue Sharing In some cases, hangars are leased for specific business purposes. For these arrangements, air- ports should seek revenue sharing provisions, just as they do with FBOs or terminal concessions. When practical, a percentage of gross revenue approach is preferred (please see Chapter 2 of this Guidebook for additional detail on percentage rent structures). Some forms of business, how- ever, may not lend themselves well to a percentage approach. To accommodate these businesses, ACAA takes a simple approach to revenue sharing if a business is to be run from a leased hangar. Rather than a percentage of gross sales or similar arrangement, the Authority adds a per square foot surcharge on top of the rate for the base hangar lease. The Authority also adds a charge for fuel delivered and not purchased from Authority-approved sources. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the PIT Lease Agreement for provisions regarding rent payments, business surcharges and fuel flowage fees. 42 Guidebook for Developing and Managing Airport Contracts

4.4 Through-the-Fence Arrangements Many general aviation airports are adjacent to businesses and, in some instances, residential neighborhoods. In these cases, the airport may receive requests from adjacent neighbors for an access point to the airport that runs “through the fence.” As a general principle, the FAA does not support agreements that grant access to federally obligated airports by aircraft stored and serviced off-site on adjacent property. Although the FAA recognizes that residential through-the-fence agreements exist, there are no acceptable forms of residential through-the-fence agreements for public-use airports receiving Federal financial assistance. Non-residential compatible through-the-fence agreements can be effectively used to support an adjacent industrial airpark or manufacturing facility. When negotiating agreements with through-the-fence (TTF) operators, airport owners should consider the following best manage- ment practices: • The access agreement should be a written legal document with an expiration date and signed by the airport owner and TTF operator. It may be recorded. Airport owners should never grant a right of access in perpetuity. • The right of access should be explicit and apply only to the TTF operation (i.e., right to taxi its aircraft to and from the airfield). • The TTF operator should not have a right to grant or sell access through its property. Only the airport owner may grant access to the airfield, but any access requirements should be consis- tent with TSA requirements. • The access agreement should have a clause making it subordinate to the airport owner’s fed- eral obligations with the FAA grant assurances. The airport owner should have the right to ter- minate the agreement if any provision conflicts with the airport owner’s federal obligations. • The TTF operator should not have the right to assign the agreement without the airport owner’s approval and appraisal of the change in value of the agreement. • The fee to gain access to the airfield should reflect the airport fees charged to on airport tenants and aeronautical users. • The access agreement should contain termination and insurance articles to benefit the airport owner. In allowing access, an airport should be able to place the cost of all required improvements on the licensee. See CRP-CD-81 (enclosed herein), Appendix to Chapter 4, General Aviation, for excerpts from the DIG Agreement for provisions regarding licensee’s responsibility for costs of installing and maintaining all security measures and means of access. TTF agreements must (1) contain language ensuring compliance with all regulations that might affect operations and (2) maintain insurance at levels required by the sponsor. Because it is likely that a TTF licensee will be using the airport significantly and, in many cases, for a business purpose, the sponsor should protect itself from potential conflict in the case of air- port closure. General Aviation 43