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

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27 CHAPTER EIGHT OAKLAND INTERNATIONAL AIRPORT—OAKLAND MAINTENANCE CENTER ft2 maintenance facility that was constructed in 1972 and located on 37.6 acres at Oakland International Airport (Figure 21). The OMC includes four large aircraft bays, each capable of accommodating a Boeing 747 or 777 gauge aircraft, as well as office and shop space with ample park- ing and excellent road access to Airport Drive and Air Cargo Road (Figure 22). United leased the OMC for $3.4 million per year, a substantial contribution to OAK oper- ating revenue. The lease was set to expire in 2013 with options to extend. However, at the end of May 2003, United rejected the lease in the course of its bankruptcy proceed- ings and consolidated most of its domestic maintenance operations at San Francisco International Airport (SFO). The Port of Oakland regained possession of the OMC but without a tenant; the immediate impacts included lost rev- enue and new obligations to maintain the facility and keep it safe and secure. AIRPORT SPONSOR AND INTERVIEW PARTICIPANTS Airport Name Oakland International Airport (OAK) City, State Oakland, California Airport Sponsor Port of Oakland Person Interviewed Brandon J. Mark, Property Manager THE SITUATION In 1988, United Airlines, Inc., leased from the Port of Oak- land the Oakland Maintenance Center (OMC), a 304,000- FIGURE 21 Building M-110, originally occupied by World Airways—Oakland International Airport.

28 increased from 1989 through 2007. In 2003, OAK experi- enced the highest passenger levels ever in the history of the airport, and that trend persisted for the subsequent 4 years. To support this passenger growth, OAK began renovations to its existing two terminals by adding five gates and a new baggage claim area to Terminal 2. Roadways, curbsides, and parking lots were renovated and expanded. The master plan for the airport also reserved the OMC area as a potential reuse site in connection with a future third passenger ter- minal. In this environment of growth, there seemed to be several viable alternatives for the vacated OMC. HISTORY AND DISPOSITION OF THE PROPERTY The OMC is an older structure first constructed in 1972 on behalf of World Airways, Inc. under the terms of a long-term lease. World Airways used the facility to maintain its own aircraft and provided maintenance for third-party aircraft. In 1986, World Airways terminated its lease. Shortly thereafter, in 1988, the Port of Oakland and United negotiated a 25-year lease for United to use the OMC as its systemwide base for wide-body (B747, B767, and B777) aircraft. United spent approximately $50 million in facility upgrades. United filed for bankruptcy protection in December 2001 and thereafter, United continued to operate at the OMC and was responsible for post-petition rental payments, which remained current until the lease was rejected in May 2003 (United was also current on its prepetition rental obliga- tions). The balance of future rental obligations was dis- missed through bankruptcy. Any required environmental FIGURE 22 Aerial view of the OMC and access to the runway. The OMC has access to the airfield and is designated for aeronautical use. The Port of Oakland moved quickly to investigate alternative uses for the OMC, both aviation and nonaviation. Options under consideration for the OMC were (1) finding another tenant to provide aircraft maintenance, (2) conversion or demolition for a new passenger terminal, (3) modification or demolition to accommodate cargo opera- tions, (4) use of the apron for additional automobile park- ing, (5) use of the facility for airport support (maintenance/ vehicle storage), or (6) a mixed-use combination. The context for consideration of a wide array of options was informed by robust growth at OAK over the past 20 years. Figure 23 shows how passenger volumes steadily FIGURE 23 Oakland International Airport passengers, 1989–2009. (Source: Oakland International Airport.)

29 ited replacement uses of the OMC unless the systems were dismantled or decommissioned. (Deluge water flow would be dangerous to any occupants, automobiles, or equipment that might be on the hangar floor if the system activated, and removal of the underwing suppression system would have been expensive and would have required environmental mitigation procedures.) Given the age of the OMC and its infrastructure, the lack of replacement aircraft maintenance tenants, and the dif- ficulties of reuse, demolition became the preferred option. However, to cover the anticipated minimum $4 million cost of demolition as a capital project, the Port of Oakland needed to initiate design and construction of the third passenger terminal complex. Unfortunately, the extended planning process for the third terminal lasted until 2008, when the economic downturn resulted in the near simultaneous bank- ruptcy of three airlines (Aloha, ATA, and Skybus) serving OAK, the departure of three other airlines (American, Con- tinental, and TACA), and a decline in OAK passengers by more than 30%. As a consequence, the third terminal project was shelved and demolition of the OMC was not required for this capital project. By default, nothing was done. The Port of Oakland con- tinues to maintain the OMC as there is not a current capital project that requires use of the site to justify the $4 million needed to demolish the facility. CURRENT USES The OMC office space is currently used by Port of Oakland staff and contractors. The maintenance bays store construc- tion material and vehicles. Because of the high visibility of the building from the airport’s access roadway, CBS Outdoor located multiple billboards on the faces of the OMC, which have generated approximately $250,000 per year in advertis- ing revenue (Figure 24). Short-term office occupancy, con- struction materials and vehicle storage, and advertising are interim uses and did not require FAA approval. contamination remediation was not eliminated through bankruptcy, and United completed such remediation after vacating the OMC to the satisfaction of the Port of Oakland and other governmental jurisdictions. REUSE DECISION Immediately on receiving lease rejection from United, the Port of Oakland’s Airport Properties Department actively solicited other airlines for their interest in using the OMC for aircraft maintenance and at the same time hired Ricondo & Associates to undertake a “site reuse study” (Ricondo & Associates 2003). Because of changes in the industry and efforts to reduce costs, many airlines had begun outsourcing maintenance to other airlines or third parties in either the United States or foreign coun- tries. The Airport Properties Department could find no airlines or service providers interested in using the OMC for aircraft maintenance. The conclusions of the reuse study ranked alternative uses in the following order: • Demolish and replace with cargo facility to accommo- date development of a third terminal complex (now no longer an option based on economic conditions), • Reuse/redevelop as an interim passenger terminal, or • Reuse/redevelop as a cargo facility. However, reuse for other purposes proved uneconomical because of the age of the OMC and the specialized nature of the facility. The 100 ± foot ceilings are not conducive for many alternative uses. Centralized utility services (electric substation, water, and gas meters) also make subdividing the facility difficult and expensive. In addition, the han- gar is protected by two fire suppression systems: (1) a del- uge system (1.8 million-gallon reservoir connected to five massive pumps capable of flooding the hangar with water within 20 min) and (2) an underwing foam (organic chemi- cal compound) system. These fire suppression systems lim- FIGURE 24 Billboards on the Oakland OMC.

30 to implementation of reuse were the lack of clear direction in the immediate aftermath of United’s rejection of its OMC lease. Because the airport had experienced robust growth during 2003–2007, the Port of Oakland had expectations that the airport would continue to grow and need space for expansion. The economic crisis that began in 2008 severely impacted the Port of Oakland’s finances and the airport’s need to develop a third terminal complex. Options are influenced by the economic outlook. Ter- mination of the United lease took place at a time of rapid growth at OAK. The future of the OMC became bundled with a long-term expansion plan for construction of new cargo facilities to accommodate development of a third ter- minal. Had the Port of Oakland recovered the OMC from United in 2008 (vs. United’s 2003 lease rejection), it may have considered a different set of options, including imme- diate demolition or funding thereof in connection with the bankruptcy settlement (if possible). Industry trends are important to consider when making reuse decisions. Airlines jettison outdated facilities during bankruptcy. Because United consolidated its maintenance operations at SFO it may have been a signal to the Port of Oakland that the OMC was no longer viable for aircraft maintenance for United or other domestic airlines. It is prudent for other airports undertaking reuse of older facilities to take the shortest time necessary to develop a reuse (including demolition) plan and then execute the plan. Inaction can be very expensive. LESSONS LEARNED The Port of Oakland has applied a number of ingenious strat- egies to make the most of the OMC office and storage space and generate advertising revenues from its highly visible location. That said, the age of the facility, the cost of demo- lition, and difficulties finding a replacement tenant make this case study particularly illustrative of the challenges an airport can face when a specialized facility reverts to the airport sponsor through a tenant bankruptcy. The cost of keeping a building maintained may exceed the cost of demolition. The OMC has been vacant for more than 7 years and the Port of Oakland has expended in excess of $7 million in maintenance, repair, utilities, insurance, and other building-related costs. Conversely, the Port of Oakland has offset some of these expenses by using the office space for staff and consultants, using the hangar bays for storage, and using the facades for outdoor (mega-billboard) advertising. In retrospect, it appears that it would have been more cost effective to have demolished the OMC soon after its abandon- ment by United. Therefore, failure to adopt a reuse strategy— including a demolition option—has resulted in significant upkeep expenses. Exercising the demolition option would have provided a “green field” for future development of avia- tion-related facilities with direct airside access. Clear and immediate direction about reuse is important. Inaction is expensive. The biggest obstacles and challenges