Strategies for Reuse of Underutilized or Vacant Airport Facilities (2011)

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18 CHAPTER FIVE DULUTH INTERNATIONAL AIRPORT—DULUTH AIRPORT MAINTENANCE FACILITY AIRPORT SPONSOR AND INTERVIEW PARTICIPANTS Airport Name Duluth International Airport (DLH) City, State Duluth, Minnesota Airport Sponsor Duluth Airport Authority (DAA) Facility Owner Duluth Economic Development Authority (DEDA) Persons Interviewed Brian Hanson, Executive Director, DEDA Brian Ryks, Executive Airport Director THE SITUATION The Duluth Airport Maintenance Facility was built in 1996 by Northwest Airlines for maintenance, repair, and overhaul of its fleet of A319 and A320 aircraft (see Figure 13). The facility is 189,000 ft2, including three hangar bays and six support shops (100,000 ft2) and more than 300 adjacent acres available for expansion or development. The building has also accommo- dated DC-9 and Boeing 757 aircraft, and with a few modifica- tions, could handle wide-body aircraft. To further enhance all weather operations, the DAA installed a CAT II instrument landing system (ILS) on the primary runway in 2001. No other airport in the state of Minnesota has a comparable system with the exception of Minneapolis–St. Paul International Airport. The maintenance facility is located on the north side of the airfield, a relatively undeveloped part of the airport. The Aircraft Rescue Fire Fighting facility is next door, and an airport access road connects the north side of the airport to the terminal area. Site development for the North Business Development Area to the west of the maintenance facility was just completed and includes road access, a new taxiway, and apron and utilities. NWA operated the maintenance facility from 1996 until 2005. Shortly before declaring Chapter 11 bankruptcy in September 2005, NWA stopped maintaining Airbus aircraft FIGURE 13 MRO facility, Duluth International Airport: Airport sponsor and interview participants.

19 • The facility has supported two fulltime lines, nonde- structive testing capabilities (x-ray, ultrasonic, bore- scopic, fluorescent penetrant, magnetic particle, and eddy current), and engineering support in avionics, systems, liaison, and interiors. • The Air National Guard on the field is responsible for fire-fighting support. A pond located outside provides an additional fire suppression resource. • Because of the former NWA maintenance facility, a portion of the local workforce is highly skilled in aircraft MRO. • The property has easy access to the ramp and runways. • The CAT II ILS on the primary runway maximizes land- ing and takeoff opportunities in all weather conditions. Other nearby development augments the reuse prospects for the property. The DAA obtained a U.S. Economic Devel- opment Administration (EDA) grant to prepare a site west of the maintenance facility, referred to as the North Business Development Area. The EDA grant paid for extension of the access road and provided new taxiway access and apron area, general parking, and utility infrastructure extensions to this 12.4-acre site. Infrastructure improvements were completed in September 2010. Monaco Air Duluth, the air- port’s fixed-base operator (FBO), is prepared to construct and lease buildings on the site. Two proposals under con- sideration include a classroom training facility and aircraft maintenance and parts-manufacturing facility. TENANT RECRUITMENT DEDA’s immediate tenant recruitment effort is directed at securing either an independent MRO or an airline that would lease the maintenance facility. Other options for the building will be considered later if an MRO tenant is not found. DEDA and the airport also have researched the terms recently offered to MROs at other U.S. airports and are pre- pared to offer competitive rates, attractive lease terms, and other incentives to attract a tenant. INTERIM USE In the meantime, the building currently has an interim tenant that leases 1,500 ft2 for storage. ISL Aeronautical Systems is an airship/dirigible manufacturer from Brownsboro, Alabama. ISL rents a 30-ft × 50-ft pad for storing its blimp (see Figure 15). Initially, it was through a relationship with Cirrus that ISL first contacted DEDA for storage use. If ISL decides to go into dirigible production, it holds an option to rent 15,000 ft2 of space at a higher rate. DEDA has right of first refusal with ISL if it desires to lease the space to another tenant. there and closed the facility. However, the company retained control of the facility until emerging from Chapter 11 reor- ganization. Outstanding bonds of $40 million issued by the state of Minnesota (to build the facility) were paid from proceeds from the state selling its equity position in NWA. Ownership of the facility was transferred debt-free to the DEDA in May 2007. In 2008, Cirrus Aircraft, headquartered at DLA, signed a long-term lease for the maintenance facility to use the space for research and development of light jet aircraft (see Figure 14). However, Cirrus vacated the facility in September 2009 during the recession. FIGURE 14 A Cirrus aircraft. (Courtesy: Cirrus Design Corporation.) DEDA is actively marketing the facility. One full-time contract maintenance person inspects and manages the prop- erty and maintains the fire suppression system and special- ized mechanical systems. The building shell is in excellent condition. DEDA estimates that annual maintenance costs for the facility, including utilities and repairs, were approxi- mately $90,000 in 2009. REUSE PREPARATIONS The facility is currently lease-ready for a new MRO tenant. There are several reasons why the facility might be attractive to an airline or independent MRO: • The facility is less than 15 years old. • The three hangar bays and six shops make it a one-stop facility for maintenance, repairs, and aircraft inspec- tions. The shops can accommodate machining, sheet metal fabrication, welding, composites, plating, and metrology.

20 FIGURE 15 ISL blimp in Duluth Maintenance Facility, Duluth International Airport. LESSONS LEARNED The Duluth Airport Maintenance Facility experience brings into focus many of the challenges that an airport faces when a lease is rejected through bankruptcy for a specialized facility. The Duluth Airport Maintenance Facility has remained vacant since 2005 and under DEDA ownership since May 2007. Airport properties that are subject to Chapter 11 bank- ruptcy proceedings can fall into ownership limbo when an airline vacates the facility, such as NWA did. In this instance, payments to bondholders lapsed and regular maintenance on the building ceased. The city of Duluth, the airport, and private businesses recognized the value and importance of the facility to the local economy and covered the financial obligations and upkeep until ownership of the improvements was resolved. Finding a long-term tenant and building out the aviation cluster on the north side of the airport has been a large undertaking during difficult economic times. In the meantime, the Duluth Airport Maintenance Facility has had two interim tenants: Cirrus Design and ISL Aeronautical Systems. A long-term tenant has not yet been secured, but this long lead time is not atypical for airports that seek to lease specialized aviation facilities. Expansion of existing airport tenants is an obvious first prospect for reuse of a facility. Suppliers of airport tenants are another source of tenant prospects. DEDA in cooperation with DAA and the Area Partnership for Economic Expansion looked first to Cirrus Design, the airport’s largest tenant, as the logical tenant to consider expansion. In a better economy, Cirrus may have remained in the facility. That said, further inquiries to existing businesses in the region make sense before conducting a national or international search. Industry trends are important. The MRO business is con- centrated and small within the United States. A realistic view of these prospects will inform the reuse strategy. MROs are operated by airlines, independent organizations, and origi- nal equipment manufacturers. The businesses come in all sizes. However, according to a 2009 survey of the MRO industry (Spafford et al. 2009), outsourcing of MRO activi- ties by airlines has leveled off, particularly because North American carriers have reduced capacity and sidelined an unprecedented number of aircraft, particularly older air- craft. Line maintenance is the area that may experience a sizeable increase in activity. The slow growth of the MRO industry and its relative concentration will help focus and target DEDA’s prospects. DEDA recognizes that it may take time to secure its next long-term tenant. Its strategy has been to (1) create an excel- lent marketing and information package to attract a new ten- ant for the facility’s original use and market the property nationally, (2) build out of the North Business Development Area to create a cluster of aviation support activity, (3) mar- ket the facility to a national audience, and (4) seek alterna- tive uses of the facility if an MRO tenant is not found.