A Guidebook for Airport-Airline Consortiums (2014)

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53 Formation 1. Q How many participating airlines are necessary to form an airline consortium? A There is no minimum number, however, because consortiums usually serve common use facilities or services that serve multiple airlines, it is probably best if the initial con- sortium membership includes a majority of the airlines using the common facilities or services. 2. Q What are the primary benefits of an airline consortium? A An airline consortium can provide the following: • A legal contracting entity to enter into construction, purchasing, and services agreements. • Quality management of resources to increase operational efficiency. • A reduction in operating and maintenance costs. • An additional layer of indemnity and insurance protection. 3. Q How long does it take to implement an airline consortium? A The answer very much depends on the proposed scope of work and the parties involved. Eight to twelve weeks is probably a minimum requirement for a situation where the scope is simple, the airline parties are in agreement, no capital funding is needed, and no autho- rization from the Airport is necessary. Prior experience shows that the implementation period can extend up to three years for complicated situations requiring capital funding and several layers of approval. 4. Q What are the primary issues when forming an airline consortium? A The primary issues in forming a consortium are: • Negotiating a defined scope of services. • Determining the appropriate form of legal entity. • Determining and addressing capitalization requirements. • Voting rights and cost sharing formulas among members. • Preparing, negotiating, and executing the consortium agreements in a timely manner. 5. Q Who must approve the formation of an airline consortium? A Typically, approvals must be secured for all stakeholders including the participating air- lines and the airport at the appropriate and authorized level. 6. Q Is airport approval necessary to form an airline consortium? A Strictly speaking, no. Anyone can form a new company and register it to do business with the state where it will be located. However, airport approval is certainly necessary for the consortium to conduct business at the airport, and a higher level of airport approval is needed if the consortium will be involved with airport owned assets such as facilities, equipment, or systems. A P P E N D I X A Frequently Asked Questions

54 A Guidebook for Airport-Airline Consortiums Legal 1. Q Why is the consortium corporate structure important? A The appropriate corporate structure is important to properly address liability and taxa- tion issues. 2. Q What are the corporate structures that could be used for an airline consortium? A The following are examples of consortium legal entities: • For-Profit Corporation • Not-For Profit Corporation • Limited Liability Company • Limited Partnership. 3. Q What legal documents are necessary to form a consortium? A The following documents are necessary to form a consortium: • An agreement with the airport authorizing the scope of work assigned to the con sortium • An agreement among the participating airlines that documents the consortium’s purpose, governance, membership criteria, cost sharing principals, etc. • An agreement that provides access to the consortium’s facilities, equipment, and services to third parties that are not consortium members. • Formation Articles that are filed with the State. Financial 1. Q Are airline consortiums exempt from taxes? A Consortiums generally do not qualify for an exemption from federal income taxes. This issue should be studied during the consortium formation process with a focus on: • Federal Income Taxes. • State Income Taxes. • Sales Taxes. • Leasehold Taxes. • Property Taxes. 2. Q What is the purpose of capitalizing an airline consortium? A Consortiums are capitalized to generate working capital that serves as an operating reserve to ensure all of its financial obligations are met in a timely manner. 3. Q What are the methods of capitalizing an airline consortium? A Typical methods of capitalization include: • Membership Fees. • Security Deposits. • Advance Invoicing. • Airport Loans. • Bank Loans. • Lines of Credit. • Airline Loans. 4. Q How does an airline consortium allocate its costs to its members? A Cost allocation differs based on the consortium scope. Typical allocations are based on some combination of landed weight, total passengers, enplaned passengers, deplaned pas- sengers, number of bags, square footage, or fuel gallons. 5. Q What are the financial reporting requirements of a consortium? A The financial reporting requirements differ for each consortium, but, at a minimum, annual financial statements should be prepared and distributed to the Members.

Frequently Asked Questions 55 Operational 1. Q What is the typical scope of work for an airline consortium? A There is a wide range of scope of service options but generally consortiums fit into three major categories: • Terminal Consortiums are responsible for operating and maintaining all aspects of a unit terminal • Equipment Consortiums are primarily responsible for the airline equipment that directly affects airline operations, including baggage handling systems and passenger boarding bridges. • Fuel Consortiums are responsible for airline fuel storage, distribution, and into-plane systems. 2. Q How do airline consortiums govern themselves? A An agreement among the participating airlines outlines the consortium governance processes. Typically, each participating airline has a vote that is often related to a major- ity in interest formula, based on usage or costs incurred. Officers are usually elected to fulfill the corporate duties and responsibilities, and various committees are created and assigned levels of responsibility by the participating airline members. Often, an inde- pendent consortium manager or management firm is engaged to manage and fulfill the day-to-day obligations of the consortium. 3. Q How can the Airport participate in the management of an airline consortium? A The airport can participate either as a voting Member of the consortium or as an advi- sory member without voting rights. Alternatively, the airport can simply monitor the consortium’s activities and require periodic reports. 4. Q Is it necessary to establish performance standards for the consortium? A It is not necessary to establish performance standards for the consortium, but many air- port authorities prefer to document preventive maintenance and operating requirements when delegating scope to the consortium.