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59 Detailed information was gathered and compiled during the preparation of this Guidebook for the following consortiums: ⢠AATC Atlanta Airlines Terminal Corporation ⢠CICA TEC CICA Terminal Equipment Consortium ⢠DENCO Denver Consortium ⢠LAXSUL LAX Shared Use Lounge Company ⢠OFFC Oakland Fuel Facilities Corporation ⢠TOGA Terminal One Group Association, L.P. Information related to these consortiums appears throughout this Guidebook, and is high- lighted by the Illustrative Examples and Observations included at the end of Chapters 2 through 7. Case studies were prepared to present the detailed information compiled for each consortium and are included in this Appendix D. AATCâAtlanta Airlines Terminal Corporation Atlanta Hartsfield International Airport The AATC was formed in 1979 with a 2017 expiration date, which coincides with the expira- tion of the lease agreement. Motivation for Consortium Formation AATC was formed to manage and operate the new Central Passenger Terminal Complex (CPTC) that was completed in 1980. The 1977 New Use & Lease Agreement addressed the con- struction of the new terminal building, but also allowed for an airline consortium. This con- sortium concept was based on the airport and airlines belief that the facility would be better maintained by a third party. The CPTC Lease provides that the contracting airlines would be solely responsible for all the maintenance, operations and financial aspects of the terminal build- ing area. Later this scope was increased to include employee parking lots and the North Terminal baggage system. Consortium Type AATC is a non-profit corporation organized in the State of Delaware. As one of the oldest airline consortiums, its formation in 1979 predates the involvement of anyone who is currently A P P E N D I X D Case Studies
60 A Guidebook for Airport-Airline Consortiums involved in its operation resulting in a lack of specifics on the consortium formation. The law firm of Trotter, Smith and Jacobs represented the airlines in the formation process and it is assumed that they recommended this structure. At the time most current structures were not yet available including LLCs, so under their options they chose a âclosedâ corporation model which allows the consortium to operate more informally than most corporations including a decision- making process without the requirement of full Board of Directors meetings. Consortium Feasibility Since the consortium formation predates anyone currently associated with AATC, it is unknown if a financial feasibility study was prepared or by whom. Formation and Governing Documents The law firm of Trotter, Smith and Jacobs provided legal representation throughout the for- mation of AATC, and the following provides a summary of the relationship among the govern- ing documents: Central Passenger Terminal Complex (CPTC) Lease establishes the consortiumâs scope of services as a Contracting Airline entity. AATC Stockholder Agreement establishes the role of each member airline, including voting rights. Maintenance and Operations (M&O) Services Agreement allows Airlines that are not AATC shareholders to use the facilities if they execute an M&O services agreement. Organization and Management Structure The business activities of AATC are governed by the AATC Board of Directors, which com- prises seven member airlines: AirTran Airways, American Airlines, Delta Air Lines, Express Jet, Frontier Airlines, United Airlines, and US Airways with each Member designating its director and having one vote per director. The airport does not have a voting or advisory role on the AATC Board of Directors. There are also Executive and Personnel Committees which review, evaluate, and make specific recommendations to the Board of Directors. Day-to-day Operations Management is provided by 45 full-time management professionals, who are employed directly by the consortium. Scope of Services The CPTC lease agreement with the City of Atlanta outlines the scope of services as the main- tenance and operations of the Central Passenger Terminal Complex including the terminal con- courses and ramp areas. Later this scope was increased to include employee parking lots and the North Terminal baggage system. The following are included in AATCâs scope of services: ⢠Passenger Boarding Bridges ⢠Inline Explosive Detection System ⢠Potable Water ⢠Public Area Custodial ⢠Deicing Storage Facilities ⢠Snow Removal
Case Studies 61 ⢠Electronic Systems Facility Infrastructure ⢠Employee Parking ⢠Baggage Handling System ⢠Pre-Conditioned Air ⢠Terminal Facilities Maintenance ⢠GSE Maintenance ⢠Ramp Sweeping ⢠Way-Finding ⢠Utilities Service Level There are no performance standards included in the CPTC lease. The airport and City of Atlanta do not require or receive performance reports for AATC. AATC conducts monthly and quarterly meetings with their contractors to review their performance, and AATCâs overall performance is reported to the shareholders on a bi-monthly basis. The AATC Board of Directors determines specific performance standards necessary, and includes the appropriate performance levels in their contracts. Risk Management The main benefits of establishing AATC are as follows: Financial. AATC is able to manage the terminal maintenance operations at a lower cost than the airport could facilitate. Procurement. Because AATC is governed by the airlines and not a department of the City, it has much quicker, more efficient procurement procedures. Project Management. AATC intimately understands the operations of the airport, so it has a competitive advantage in managing projects. The main risk to AATC member airlines involves the possible bankruptcy of members or non- members, resulting in outstanding invoices owed to AATC. As a safety net, AATC has a line of credit in place in the event that an airline had financial hardship and was unable to make its payments to AATC. The AATC has weathered various airline bankruptcies, including that of its largest member. Financial Considerations Capitalization Requirements. The Stockholders loaned working capital to the AATC at the start of the consortium, which has been paid back in full. The AATC Stockholder Airlines are not required to provide a security deposit to the AATC, nor is there any current material member equity in the AATC. The airport provides no funding and is not involved in the AATC invoicing process. While the AATC has no outstanding loans, it has established a line of credit (LOC) equal to 3 months of operating expenses. The LOC was established to address financial exposure to possible airline bankruptcies. Cash flow is addressed by an invoice prepayment and reconciliation process. Each month the airlines make advance payments to AATC for the next monthâs estimated M&O expenses. The monthly estimates are determined by the budget approved by the Stockholders. The prepay- ments are reconciled to actual expenses the following month. AATC is currently in the process of re-engineering their Accounting department to address gaps in the Computerized Maintenance Management System (CMMS). The CMMS system was upgraded prior to addressing the needs of its financial system.
62 A Guidebook for Airport-Airline Consortiums The AATC does not have capital funding requirements. The City of Atlanta funds all capital projects, and the AATC performs or manages the capital work on behalf of the city. Annual Operating Budget. AATC has an operating budget in excess of $65,000,000 annu- ally to provide services to the 85 million passengers who utilize the airport annually. The budget is prepared in August, presented to the Board of Directors no later than 2 weeks prior to the end of the fiscal year on September 30, and approved by the Stockholders at the October meeting. Some major components of the annual operating budget include the following: ⢠$23 million utilities maintenance expenses ⢠$21 million custodial services expenses ⢠$8 million general building maintenance expenses ⢠$5 million systems maintenance administrative expenses Budget performance reports are submitted monthly and annually to the Stockholders. Rates and Charges. AATC rates and charges are defined in the CPTC Lease. There are mul- tiple Joint Lease allocation formulas that include combinations of enplanements and pro-rata allocations of rented square footage by terminal or concourse, and further defined by space type including Preferential, Shared, and Joint Lease space. The City has 13 Joint Lease formulas and 20 major cost allocations. AATCâs major cost centers and the method of allocation are listed below. a. The following costs are allocated by square footage: ⢠Pest Control ⢠Electricity ⢠Custodial b. The following costs are allocated by Joint Lease Formulas defined by the Terminal Lease Agreement: ⢠Pedestrian Mall ⢠AGTS ⢠Mechanical Buildings ⢠Elevators and Escalators ⢠Non-Concessions Joint Lease Premises ⢠Unallocable Costs (ex. Water/Sewer) c. Parking Lot Expenses are allocated by the number of medallions issued for a parking spot. d. North Terminal Baggage costs are allocated by domestic originating revenue enplaned passengers. AATCâs cash flow analysis is conducted by the Manager of Finance & Administration. The operating funding source comes from the prepayments made by the airlines. For Domestic Carriers, this is calculated by the airlineâs percentage of exclusive costs to the total exclusive costs for the month. For International Carriers, this is calculated by the airlineâs percentage of square footage to the total square footage. There is an annual independent certified public account (CPA) audit of AATCâs financial statements. The auditors also engage in a monthly review of invoicing, including agreed-upon processes and procedures. There are no other outside AATC auditing requirements. Regulatory Requirements AATC is subject to all federal, state, county, and local taxes. The airport requires the consortium to carry insurance and indemnify the airport, and the consortium requires each member airline to carry insurance and indemnify the consortium.
Case Studies 63 Performance Metrics Performance standards are not in effect between the consortium and airport. The AATC Board of Directors establishes performance metrics for vendor contracts based on aviation industry standards and proven methods. AATC meets monthly and quarterly with their contractors to review their performance, and AATCâs overall performance is reported to the shareholders on a bi-monthly basis. Consortium Formation Issues and Lessons Learned The following comments were received for lessons learned: ⢠Add additional language to the lease that further clarifies AATC scope of responsibility and eliminates the âhand-shake agreementsâ of the past. ⢠Expand services to everything in the terminal, specifically M&O of the Automated People Mover system. ⢠The main challenge to the consortium is balancing the trade offs between increased cost and the appropriate service level. ⢠It is important to increase the level of carrier participation to decrease absentee management. CICA TECâCICA Terminal Equipment Corporation OâHare International Airport Terminal 5 CICA TEC was formed in 1990 with a 2018 expiration date, which coincides with the term of the International Terminal Use and Lease Agreement. Motivation for Consortium Formation CICA TEC was formed to operate and maintain the New International Terminal 5 in a more effective and cost efficient manner. The OâHare international airlines were previously operating out of Terminal 4, which was located on the 1st floor of the parking garage with difficult operat- ing conditions. The airlines formed the Chicago International Carriers Association (CICA) to evaluate and determine a long-term operating solution. They worked with the City of Chicago on the planning and design of the new International Terminal 5. CICA TEC was formed to pro- cure and install airline equipment and facilities for the terminal, and to operate and maintain the equipment and facilities after the terminal opening. Consortium Type CICA TEC is a non-profit corporation organized in the State of Illinois. Airlines that had experience with LAXTEC recommended forming a consortium as a non-profit corporation, similar to LAXTEC. An outside law firm was not used for legal representation during the CICA TEC formation process, however, the airlines relied upon the advice of airline legal staff and a consultant who was also an attorney. Various business entities were evaluated to address all legal and financial factors. The airlines approved the recommended entity. Consortium Feasibility International Terminal Associates prepared financial and operating feasibility studies which determined the positive aspects of forming a consortium to operate and manage the new ter- minal facility.
64 A Guidebook for Airport-Airline Consortiums Formation and Governing Documents An outside law firm was not used for legal representation during the CICA TEC formation process, however, the airlines relied upon the advice of airline legal staff and a consultant who was also an attorney. The following provides a summary of the relationship among the governing documents: International Terminal Lease Agreement establishes the relationship between the individual tenant airlines and the City of Chicago, provides for airline-leased areas in the terminal, rental payments to the City, and has a 25-year term that will expire in 2018. Consortium Agreement establishes the relationship between CICA TEC and the City of Chicago. The agreement assigned the consortium design and construction responsibility for $59,200,000 of facilities, equipment, and systems, and provides for the payment of the associated debt service. The agreement also delegates the responsibility for the operation and maintenance of the designated facilities, equipment, and systems. CICA Terminal Equipment Corporation Agreement establishes the relationship between CICA TEC and each of the participating airlines, and provides for the operation and main- tenance of the facilities, equipment, systems, and services assigned to the consortium and the governance of the consortium. System Access Agreement provides for the use of the CICA TEC facilities, equipment, sys- tems, and services by non-member airlines and ground handlers. Operating Agreement establishes the scope of services of a professional management com- pany to provide for the day-to-day operation of the CICA TEC facilities, equipment, systems, and services. Organization and Management Structure The business activities of CICA TEC are governed by the CICA TEC Board of Directors, which comprises 26 member airlines: Aer Lingus, Aeromexico, Air France, Air India, Alitalia Airlines, All Nippon, American Airlines, Asiana Airlines, British Airways, Cathay Pacific, Copa Airlines, Etihad Airlines, Iberia, Japan Airlines, KLM Dutch Airlines, Korean Air, Lot Polish, Lufthansa Airlines, Mexicana Airlines, Royal Jordanian, SAS Airlines, Swiss Airlines, Turkish Airlines, United Airlines, Virgin Atlantic and USA 3000 with each Member designating its director and voting is based on a majority-in-interest basis. The airport does not have a voting or advisory role on the CICA TEC Board of Directors. There are also an Executive Committee, Management Committee and Technical Working Group which review, evaluate, and make specific recom- mendations to the Board of Directors. Day-to-day Operations Management is provided by an aviation management firm, Aviation Management Services, with 3 full-time management professionals. Scope of Services The International Terminal Lease agreement with the City of Chicago outlines the scope of services as the maintenance and operations of the International Terminal 5 airline equipment and systems. The following are included in CICA TECâs scope of services: ⢠Passenger Boarding Bridges ⢠Inline Explosive Detection System ⢠Potable Water ⢠Aircraft Hydrant Fueling
Case Studies 65 ⢠Gate Scheduling and Assignment ⢠Baggage Handling System ⢠Pre-Conditioned Air ⢠Airline Passenger Services ⢠FIDS/BIDS ⢠IATA Schedule Coordination Service Level The Consortium Agreement with the City of Chicago outlines performance requirements for CICA TEC including standards of care and the submission of preventative maintenance records. CICA TEC imposes preventative maintenance frequencies on its equipment maintenance con- tractor, which maintains a computerized maintenance tracking system and provides monthly activity reports to CICA TEC. CICA TEC submits these activity reports to the City on a monthly, quarterly, and annual basis to comply with the Consortium Agreement requirements. Risk Management The following are the main benefits of establishing CICA TEC: Financial. CICA TEC is able to manage the equipment maintenance operations at a lower cost than the airport could facilitate. Procurement. Because CICA TEC is governed by the airlines and not a department of the City, it has much quicker, more efficient procurement procedures. Project Management. CICA TEC intimately understands the operations of the terminal, so it has a competitive advantage in managing airline equipment projects. The following were the main risks of establishing CICA TEC: Foreign flag carriers were reluctant to commit to long-term leases, although they eventually did accept the long-term commitment. At the time of terminal design, there was minimal international activity by the largest OâHare carriers, and it was difficult to determine future international activity to properly size the facility. Also it was not certain that there would be a single FIS facility serving the airport. Once that determination was made, it ensured that international passengers would pass through the terminal. CICA TEC is different from the other airline consortiums because it is located at an airport where many airlines use other terminals for departing flights. As a result, the enplanements handled by CICA TEC are lower than expected, and consortium cost per enplaned passenger may be higher than expected. The CICA TEC representatives recalled that the original business deal for CICA TEC allowed domestic hub carriers (UA and AA) to enplane departing international passengers out of their domestic facilities, while all other carriers were required to enplane departing international pas- sengers out of the new international terminal. However, over time, many other airlines have also been allowed (through code-share agreements) to enplane departing international passengers from the domestic terminals, resulting in decreased enplaned passenger levels at the interna- tional terminal, and increased costs for the remaining carriers. Financial Considerations Capitalization Requirements. CICA TEC was originally capitalized with a total of $5,000,000. $2,500,000 was funded by a bank loan and $2,500,000 was provided by the stockholder airlines
66 A Guidebook for Airport-Airline Consortiums as paid-in working capital. The bank loan has been paid in full. The airport provides no funding and is not involved in the CICA TEC invoicing process. Cash flow is addressed by an invoice prepayment and reconciliation process. Each month the airlines make advance payments to CICA TEC for the next monthâs estimated M&O expenses. The monthly estimates are determined by the budget approved by the Stockholders. The prepay- ments are reconciled to actual expenses the following month. Annual Operating Budget. CICA TEC has an operating budget in excess of $30,000,000 annually to provide services to the almost 6 million passengers who utilize the airport annually. The budget is prepared in August, presented to the Board of Directors no later than 2 weeks prior to the end of the fiscal year on September 30, and approved by the Stockholders at the October meeting. Some major components of the annual operating budget include the following: ⢠$11 million terminal rent expense ⢠$4.9 million skycap and passenger service expenses ⢠$4.7 million debt service expenses ⢠$1 million office space rent expense Budget performance reports are submitted monthly and annually to the Stockholders. Rates and Charges. CICA TEC rates and charges are defined in the CICA Terminal Equip- ment Corporation Agreement, and are based on four cost centers: gate equipment, baggage, deicing and fueling equipment. Costs are allocated based on usage within each cost center. Member costs are allocated based on activity in each cost center, and non-members pay pre- miums over the member rates. There is an annual independent CPA audit of CICA TECâs financial statements. The auditors also engage in a monthly review of invoicing, including agreed-upon processes and procedures. There are no other outside CICA TEC auditing requirements. Regulatory Requirements CICA TEC is subject to all federal, state, county, and local taxes. Shortly after the terminal opened for operations, CICA TEC received a substantial leasehold tax bill, which repeats annually. The CICA TEC representatives have noted that this tax expense may have been largely avoided if the 110,000 square foot bag room, the largest of the areas leased by CICA TEC, had been instead assigned to the consortium as an easement. While CICA TEC was formed as a non-profit corporation, it pays federal income taxes. The CICA TEC representatives indicated that the IRS has determined that the rates and charges pre- miums assessed to non-members by the consortium is classed as taxable income. The airport requires the consortium to carry insurance and indemnify the airport, and the consortium requires each member airline to carry insurance and indemnify the consortium. Performance Metrics The Consortium Agreement with the City of Chicago outlines performance requirements for CICA TEC including standards of care and the submission of preventative maintenance records. CICA TEC imposes preventative maintenance frequencies on its equipment maintenance con- tractor, which maintains a computerized maintenance tracking system and provides monthly activity reports to CICA TEC. CICA TEC submits these activity reports to the City on a monthly, quarterly, and annual basis to comply with the Consortium Agreement requirements.
Case Studies 67 Consortium Formation Issues and Lessons Learned The following comments were received for lessons learned: The CICA TEC representatives reported that benefits of the consortium included operating and maintaining equipment under a legal entity structure. Previously, contracts were managed by groups of airline station managers without an over-arching legal entity that did not have contracting authority. ⢠The consortium has proven to be a very efficient entity for operational and financial manage- ment functions. Cost is a driving factor in all decisions, and the consortium has been able to keep expenses to a minimum. ⢠Would consider an easement alternative instead of lease of premises to avoid being charged the leasehold tax. ⢠Would make a distinction between airlines enplaning and deplaning out of Terminal 5. Cur- rently airlines who enplane an international passenger out of a domestic terminal receive a financial benefit from retail/food and beverage sales in Terminal 5. DENCOâDEN Consortium Denver International Airport DENCO was formed in 2011 and does not have a defined expiration date. Motivation for Consortium Formation The DEN Consortium, LLC (DENCO) was formed as a Colorado Limited Liability Company in 2011 by nine airline members to act as the legal entity for the airlines to enter into a contract for the acquisition of deicing fluid at Denver International Airport (DEN). Continental Airlines previously held the contract with a vendor to provide deicing fluid to the airlines, however, Continental Airlines was not able to continue holding this contract. Consortium Type DENCO is a Colorado Limited Liability Company. This legal structure was recommended to the airlines by the consultant that prepared the financial and operating feasibility study. Legal, financial, and operating factors were all addressed by the LLC structure. The airlines wanted the consortiumâs income tax liability to remain with the consortium and not pass to them, and this concern was also addressed by using the LLC structure. Consortium Feasibility AvAirPros prepared a financial and operating feasibility study. The scope of services was nar- rowed to include only contract execution with the deicing fluid provider to ensure glycol is available for the airlines during the winter season. Formation and Governing Documents A law firm was not used for legal representation during the formation process, however, the airport assisted in the document review process, and the following provides a summary of the relationship among the governing documents: Member Agreement. This establishes the organizational, financial and operational pro- cesses of the consortium and also serves as the bylaws of the company.
68 A Guidebook for Airport-Airline Consortiums Non-Member Release. Non-Member airlines must execute a Non-Member Release to waive liability and hold the consortium and its members harmless. Organization and Management Structure The business activities of DENCO are governed by the DENCO Member Committee, which comprises nine member airlines: Alaska Airways, American Airlines, British Airways, Delta Air Lines, Frontier Airlines, JetBlue Airways, Skywest Airlines, UPS, and Southwest Airlines with each DENCO airline member designating its Member Representative, who participates on the DENCO Member Committee. The DENCO Member Committee is responsible for making all policy decisions for the consortium. Authority is delegated to an Executive Committee that comprises five Member Representatives including the Chairperson and the Vice Chairperson of the Member Committee. The Executive Committee expenditure authority is $25,000. Authority is also delegated to an Operating Committee that comprises two Member Representatives. The Operating Committee has no expenditure authority. The airport does not participate in DENCO as a member or in an advisory role. The consortium does not have dedicated operations or administrative staff. Operations and Financial Management is provided by AvAirPros on a consulting basis to provide the opera- tional and financial support necessary to support the DENCO operations. Scope of Services The current sole purpose of DENCO is to hold a contract with a vendor for the supply of anti-icing and deicing fluid. DENCO representatives have expressed an interest in expanding the scope of DENCOâs responsibilities. Service Level There are no performance standards imposed by the airport on the consortium. Further, the consortium has not imposed performance standards on its deicing fluid provider, although the supplier must test the deicing fluid, equipment, and tanks to ensure specifications are met for each usage season. Risk Management The main benefit of establishing DENCO was to form an operating entity to legally contract with a deicing fluid provider in time to meet the winter season. There was limited risk involved in forming the DENCO consortium, because the consortiumâs scope is very limited and having no access to deicing fluid was an overriding driving force. Liability placed on glycol provider to perform maintenance on tanks and facilities in preparation for the winter season, along with maintaining appropriate glycol inventory. DENCO recently issued an RFP for its deicing fluid services. The Operating Committee will review submittals and prepare a recommendation for the Member Committee, which will vote to determine the contract award. Financial Considerations Capitalization Requirements. Upon formation, the DENCO member airlines each paid a dis- counted membership fee of $5,000 to capitalize the company. No other funding has been needed, since the deicing fluid provider invoices the member airlines directly for their use of deicing fluid.
Case Studies 69 Annual Operating Budget. DENCOâs operating budget is approximately $10,000 annually. The operating budget provides primarily for the administration of the consortium. Budget performance reports are submitted annually to the Stockholders. Rates and Charges. Annual operating costs are prorated by glycol usage among members and non-members, with non-members paying a 25% premium. There is an annual compilation of the consortiumâs financial operations prepared by a CPA. The compilation relies on data provided by management, and an audit is not performed. Regulatory Requirements DENCO must address environmental issues since the location of the deicing operations allows for reclamation and recycling of the product, which could impact storm water. Recently, DENCO has been asked to assume responsibility for a storage tank, which will require DENCO to procure general liability insurance and indemnify the airport. Performance Metrics Performance standards are not in effect between the consortium and the airport. Consortium Formation Issues and Lessons Learned The following comments were received for lessons learned: The consortium was formed very quickly and efficiently to address an immediate airline need. ⢠Denver Airport is unique in that all parties are fairly collegial, making it easier to form a con- sortium. Forming a consortium has not changed this relationship between the airport and airlines. ⢠The airlines would like to see an increase in the scope of services under the consortium. LAXSULâLAX Shared Use Lounge Company Los Angeles Airport Tom Bradley International Terminal LAXSUL was formed in 2006 without a defined expiration date. Motivation for Consortium Formation The LAX Shared Use Lounge Company, LLC (LAXSUL) was formed by nine original airline members to develop, finance, manage, and operate a new premium passenger lounge in the Tom Bradley International Terminal (TBIT) at Los Angeles International Airport (LAX). The Los Angeles World Airports (LAWA) initiated a renovation program for TBIT that included a consolidation of airline lounges. The airlines that did not belong to alliances needed to work together to develop a lounge for the common use of their passengers. LAXSUL was formed to provide these airlines an organizational structure to make decisions in common, and hold a lease and other contracts that would allow them to develop a new lounge. Prior to the creation of the LAXSUL lounge, there were 16 lounges in operation at TBIT, and LAWA decided to consolidate the 16 lounges into four new lounges that were to be developed by (1) the Sky Team airlines, (2) the Star Alliance airlines, (3) the One World airlines, and (4) the remaining airlines that were not members of alliances.
70 A Guidebook for Airport-Airline Consortiums The non-alliance airlines prepared and issued an RFP for the development of the lounge, including financing options. There were two replies to the RFP. AvAirPros proposed a consor- tium concept and the other company proposed a developer concept. AvAirPros was the only company to make a presentation. The airlines were in favor of the consortium concept under which they would each have an equal voice in the development and would share operating costs based on usage. AvAirPros was awarded the assignment to form the airline consortium, secure financing, and develop the new lounge. Consortium Type LAXSUL is a Limited Liability Company (LLC) organized in the State of Delaware. This legal structure was recommended to the airlines by the consultant that prepared the financial feasibil- ity study because it was the most flexible and easily formed. The airlines did not want to provide up-front capital toward the development of the new lounge facility, making third-party financ- ing necessary. The formation of the consortium allowed the airlines to jointly apply for, secure, and service the project financing loan. A law firm was not used for legal representation during the formation process, however, an attorney was engaged during the project financing process to ensure the financing documents were in order. The airlines submitted the consortium docu- ments to their internal law departments for review. Consortium Feasibility AvAirPros prepared a financial feasibility study to estimate the operating costs of the new facility and to determine the amount of capital necessary for its development. Formation and Governing Documents An outside law firm was not used for legal representation during the formation process; how- ever, an attorney was engaged during the project financing process to ensure the financing docu- ments were in order. The following provides a summary of the relationship among the governing documents: LAWA Lease Agreement is an agreement with the airport that provides for the space where the lounge is located. During the negotiation of the lounge lease with LAWA, a provision was included in the Lease that required LAWA to pay LAXSUL the unamortized value of the lounge improvements, if LAWA were to cancel the Lease before the end of its term. In 2011 LAWA announced that the lounge lease would be terminated to make way for a new security-screening checkpoint. As a result, LAWA has paid approximately $2 million to LAXSUL, which will provide funds for the development of a replacement lounge. Member Agreement sets forth the organizational, financial, and operational processes of the consortium and also serves as the bylaws of the company, including the cost allocation formulas. Non-Member Agreement provides for the use of the LAXSUL facilities, equipment, systems, and services by non-member airlines. Bank loan documents were in effect from the time the project financing was secured until the loan was paid off during 2012. Organization and Management Structure The business activities of LAXSUL are governed by the LAXSUL Member Committee, which currently comprises five member airlines: Air Tahiti Nui, China Airlines, El Al Israel Airlines, Fiji
Case Studies 71 Airways, and Philippines Airlines with each Member designating a Member Representative and voting is based on a majority-in-interest basis. The LAXSUL Member Committee is responsible for making all policy decisions for the consortium and is also responsible for providing direction to the contracted lounge manager and operators. The airport does not have a voting or advisory role on the LAXSUL Member Committee. There is also a New Lounge Development Commit- tee, which reviews, evaluates, and makes specific recommendations to the Member Committee. Day-to-day Operations Management is provided by a local management firm, ATM with a total of 27 full-time employees. ATM was chosen over five companies responding to an RFP pro- cess to staff the lounge and procure all supplies. ATM had already been operating some lounges in the airport and they had demonstrated an efficient operation. AvAirPros provides the administrative and financial functions for the consortium on a part- time basis remotely to reduce costs. Scope of Services The consortium scope was to develop, operate, and maintain a new common use lounge, which became an airport mandate when LAWA decided that there would be four premium pas- senger lounges. The scope of the lounge was established through a consensus of the participating airlines during lounge development meetings. Service Level There are no performance standards imposed by the airport on the consortium. The airlines established operating standards for the lounge as it was being developed, includ- ing lounge staffing levels, decor, amenities, and food and beverage selections. The operating standards have been refined over time to ensure that service levels meet or exceed member airlinesâ expectations. Risk Management The main benefits of establishing LAXSUL are the following: Financial. LAXSUL is able to secure group financing for a common use lounge and to con- trol the costs of that facility. Operations. LAXSUL was able to establish a common facility with sufficient capacity so all member airlines could send their passengers and was able to improve service levels. The main risks of establishing LAXSUL were: One of the primary risks related to the formation of LAXSUL was the ability to secure capital funding for the new lounge. Also, because an extended period was required to secure the capital financing, the member airlines had to temporarily contribute capital to fund project start-up costs and design, with the aim of being reimbursed when the capital financing was in place. The $10,000 membership fee was insufficient to fund the project start-up and design costs. Therefore, the Members also each temporarily contributed $20,000 that was to be reimbursed to them when capital financing became available. If capital financing could not be secured, then the airlines would have to find another means of capitalization or walk away from their $30,000 investment. LAXSUL Members agreed to pay a withdrawal fee when leaving the consortium, to help insu- late the remaining participants from increased rates related to fixed cost obligations such as rent and project loan financing. To date four airlines have left the consortium: Japan Airlines (JAL), Air India, China Eastern, and Mexicana. JAL, Air India, and China Eastern withdrew on good
72 A Guidebook for Airport-Airline Consortiums standing with LAXSUL and paid their membership withdrawal fee. Mexicanaâs departure was a result of its bankruptcy. The loan documents that were implemented for the project financing included default provi- sions that also created a risk for the consortium. One of the default provisions required a mini- mum of seven LAXSUL members and a minimum of 150,000 lounge guests annually. Falling below these levels would place LAXSUL in technical default of its project financing loan, which could cause the loan to be called. Financial Considerations Capitalization Requirements. Upon formation, the LAXSUL member airlines each paid a membership fee of $10,000. Also, the Members each temporarily contributed $20,000 that was ultimately reimbursed to them when capital financing became available. The LAXSUL development project was initially funded with a $5 million bank loan issued for the project by 1st Century Bank of Los Angeles. The loan was funded in 2007 with a 7-year term, how- ever, it was paid off in 2012. Capital reserves are collected from the member airlines using a per passenger surcharge. The airport provides no funding and is not involved in the LAXSUL invoicing process. Cash flow is addressed by an invoice prepayment and reconciliation process. Each month the Airlines make advance payments to LAXSUL 2 months in advance for estimated M&O expenses. The budget is updated monthly based on actual operating costs, and the prepayments are rec- onciled based on actual activity. Members are invoiced 2 months in advance based on estimated activity and charges are then reconciled based on actual activity. This advance invoicing methodology provides the consor- tium with its capitalization funding. Annual Operating Budget. LAXSUL has an operating budget of approximately $4,000,000 annually to provide services to the passengers who utilize the shared use lounge. Some major components of the annual operating budget include the following: ⢠$2,400,000 staffing and supply expense ⢠$600,000 rent expense ⢠$40,000 administrative expenses Budget performance reports are submitted monthly to the member airlines. Rates and Charges. LAXSUL has a single cost center. Costs are allocated to the member air- lines on a per-use basis using the actual number of guests that use the lounge each month. The airlines are invoiced 2 months in advance, based on an estimated per guest usage rate and an estimated number of lounge guests, and this is reconciled to the actual costs and the actual num- ber of lounge guests once the estimated month has been completed. Non-member airlines pay a surcharge to use the facilities. There is an annual compilation of the consortiumâs financial operations prepared by a CPA. The compilation relies on data provided by management, and an audit is not performed. The bank loan documents required an annual audit, however, after the stability and reliability of LAXSUL was demonstrated, the audit requirement was waived as a cost saving measure. AvAirPros provides monthly financial reports with each invoice to the member airlines. Regulatory Requirements LAXSUL is required to pay city, state, and federal taxes as well as a possessory interest property tax paid to the County of Los Angeles. The State of California does not allow the
Case Studies 73 depreciation of capital assets as a deductible expense, which increases the amount LAXSUL is taxed in California. LAWA requires LAXSUL to provide a letter of credit to provide security for the Lease, along with the appropriate level of general liability insurance and indemnification. LAWA also requires the consortium to be compliant with its MBE/WBE participation goals. LAXSUL must maintain proper health code programs, and has passed all food safety inspec- tions. LAXSUL secured a liquor license that would allow it to serve alcoholic beverages in the lounge. This license has been maintained since the lounge opened in 2007 without any issues. Performance Metrics LAXSUL has no established performance metrics. Consortium Formation Issues Lessons Learned The LAXSUL representatives indicated that the consortium has functioned well and has ful- filled its objectives. The LLC structure has been flexible and allowed the Airline Members to work together successfully. It would be helpful in a small organization, however, if voting was done on a per capita basis instead of a majority in interest basis. The LAXSUL representatives recommended early involvement of the consortium manager and the continuous involvement of the Member Airline representatives. They also recom- mended identifying a funding source prior to consortium formation, if possible, in the event that the consortium is being formed to develop a capital asset and capital funding is necessary. Some of the most challenging areas include getting input from all of the airline members and building airline member consensus. The consortium manager needs to be involved with all portions of the life cycle of the consortium. The LAXSUL airlines started the process of forming the consortium, securing financing, designing and building their new lounge more than 2 years before the new lounge opened. This proved to be enough time to fit their circumstances. OFFCâOakland Fuel Facilities Corporation Oakland International Airport OFFC was formed in 1989, and renegotiated in 2008 with a 2027 expiration date. Motivation for Consortium Formation OFFC was formed to economically use the airline member resources to provide fuel system maintenance and operations in a unified efficient manner. This was accomplished by replacing the airport-provided fueling services with an airline-operated fueling consortium. The consor- tium formation process was difficult due to a number of unresolved significant issues including necessary capital upgrades, project financing, lease negotiation term sufficient to amortize the facility improvement costs, and environmental issues. A key motivating factor included the ability to secure third-party financing rather than utiliz- ing Port funding, which allowed the airlines to manage the design and construction of the new fueling facility.
74 A Guidebook for Airport-Airline Consortiums Consortium Type OFFC is a non-profit corporation organized in the State of California. The law firm of Sherman and Howard represented the airlines in the formation process, and it is a fuel industry standard to utilize the non-profit corporation as the consortium business entity. Consortium Feasibility The Port Authority of Oakland (the Port) conducted a financial and operational feasibility as it pertained to the construction of the new fuel facility. Both the Port and the airline agreed that it was in the best interest of all entities to form a fuel consortium to address third-party project funding along with airline-managed fuel operations once the facility was completed. Formation and Governing Documents The law firm of Sherman and Howard provided legal representation throughout the nego- tiations with the Port and formation of OFFC. Sherman and Howard represents many fuel consortiums around the country, and is quite knowledgeable of the fuel issues including envi- ronmental concerns. The following provides a summary of the relationship among the govern- ing documents: Ground Lease Agreement establishes the consortiumâs scope of services as a Contracting Airline entity. Interline Fuel Agreement establishes the role of each member airline, including voting rights. Non-Contracting Users Agreement allows airlines that are not OFFC members access to the fuel facility to provide fuel to aircraft operations. Organization and Management Structure The business activities of OFFC are governed by the OFFC Fuel Committee, which comprises 12 member airlines: Alaska Airlines, Allegiant Air, Delta Air Lines, Federal Express, Hawaiian Airlines, JetBlue, Kaiserair, SkyWest, Southwest Airlines, United Airlines, United Parcel Service, and US Airways with each Member designating their director and having one vote per director. The airport does not have a voting or advisory role on the OFFC Board of Directors. There is also a Technical Committee which reviews, evaluates, and makes specific recommendations to the Board of Directors. Day-to-day Operations Management is provided by a fueling management firm, Swissport, with a total of 13 fueling professionals including 4 Administration and 9 Operations positions. Scope of Services The Ground Lease Agreement with the Port of Oakland City outlines the scope of services as the management, maintenance, and operations of the Fuel Storage Facility and Distribution system. The following are included in OFFCâs scope of services: ⢠Aircraft Hydrant Fueling Systems ⢠Aviation Storage Facilities ⢠Fuel Ground Equipment
Case Studies 75 Service Level There are no performance standards included in the Ground Lease Agreement, but it does require OFFC to provide certain permits, reports and system certifications to the Port. OFFC also provides Preventive Maintenance frequencies, system outages and reporting frequencies on an annual basis. Port staff monitors compliance on these issues. The M&O Operator performs and records all preventive maintenance tasks at the facility, including ATA 103 standards to ensure fuel quality. Risk Management The main benefits of establishing OFFC are the following: Financial. OFFC is able to secure third-party funding of the capital project necessary to upgrade the fuel facility, and manage the fuel facility maintenance operations more efficiently than the airport could facilitate. Procurement. Because OFFC secured its own funding, it could design/build the fuel facility based upon its expertise, and provide much quicker, more efficient procurement procedures. Project Management. OFFC provides proper airline fuel project management profession- als, resulting in a more cost-effective quality fuel system. In the case of the Oakland Fuel Facility project, the OFFC members were able to complete the project $1 million under budget. The main risk to OFFC member airlines involves the payment of the third-party loan secured by the Fuel Committee. But as is the case with possible airline bankruptcies, fuel is such an impor- tant piece of the operation that all members/nonmembers ensure payment of their invoices because they cannot operate without this commodity. Financial Considerations Capitalization Requirements. OFFC members pay a $25,000 membership fee, along with $1,000 capital contribution. Members and non-members must submit a security deposit based on 2 months of operating expenses. Cash flow is addressed by an invoice prepayment and reconciliation process. Each month the Airlines make advance payments to OFFC for the next monthâs estimated M&O expenses. The monthly estimates are determined by the budget approved by the Members. The prepayments are reconciled to actual expenses the following month. OFFC funded the $60 million fuel facility upgrade project through a bank loan with John Hancock. John Hancock conducts business with many fuel consortiums, and is comfortable with the concept. Annual Operating Budget. OFFC has an annual operating budget of almost $9,000,000 to provide fuel system M&O services and make debt service payments. The budget is prepared in October, presented to the Board of Directors prior to the end of the fiscal year on December 31, and approved by the Fuel Committee at the January meeting. Some major components of the annual operating budget include the following: ⢠$5.6 million debt service expenses ⢠$1.9 million ground lease expenses ⢠$0.8 taxes, legal, and audit expenses ⢠$0.7 million administrative and management expenses
76 A Guidebook for Airport-Airline Consortiums Budget performance reports are submitted monthly as part of the invoicing process, and formally to the Members at the Annual Meeting. Rates and Charges. OFFC rates and charges are defined in the Interline Agreement, whereby costs are allocated equally among the members based upon gallons uplifted, with a not-to-exceed 200% surcharge to non-members. There is an annual independent CPA audit of OFFCâs financial statements. There is also an ATA 103 financial audit conducted every 3 years. Regulatory Requirements OFFC is subject to all federal, state, county, and local taxes including property taxes on the ground lease. The airport requires the consortium to carry $300 million general liability insurance and indemnify the airport. Performance Metrics OFFC provides Preventive Maintenance frequencies, system outages, and reporting frequen- cies on an annual basis. The M&O Operator performs and records all preventive maintenance tasks at the facility, including ATA 103 standards to ensure fuel quality. Consortium Formation Issues and Lessons Learned The largest consortium formation issue was the lengthy negotiation process between the air- port and the airlines. It was difficult due to a number of significant unresolved issues including necessary capital upgrades, project financing, lease negotiation term sufficient to amortize the facility improvement costs, and environmental issues. The following comments were received for lessons learned: ⢠Both parties (airport and consortium) should figure out what terms and conditions are in their mutual best interests in the arrangement before getting the lawyers involved and run- ning up legal expenses. ⢠Hire a competent operator. Have them complete an AIA Qualification Statement. Make sure the General Manager has sufficient experience to run the operation. TOGAâTerminal One Group Association, L.P. John F. Kennedy International AirportâTerminal 1 TOGA was formed in 1994 with a 2028 expiration date, which coincides with the term of the project financing bonds and lease agreement with the PANYNJ, including optional extensions. Motivation for Consortium Formation TOGA was formed to develop, manage, and operate Terminal One at JFK Airport. The main benefit of the consortium was to manage and control costs, and for the partner airlines to influ- ence their operations at the airport. The PANYNJ was the operator of Terminal Four and it was
Case Studies 77 not focused on lowering costs for the airlines. TOGA was formed so the airlines would control the terminal design, development, and construction process resulting in an improved passenger experience at reduced operating costs. Consortium Type TOGA is a Limited Partnership (LP) of four airline partners (Air France, Japan Airlines, Korean Airlines, and Lufthansa German Airlines) and a general partner, Terminal One Manage- ment, Inc. (TOMI) that is a New York Corporation owned by the four airlines. The general part- ner controls the LP. This structure was recommended by the law firm Rogers and Wells, based on their study of the various formation options. They suggested the LP as a method of assigning the majority of the income tax liability to the limited partners, who would not be liable for the tax as a result of their bilateral agreements with the U.S. Government. The airlines approved this structure after internal legal and financial reviews. The general partner is a corporation with shareholders who vote to make the management decisions for TOGA. The shareholders are the four airlines who appoint shareholder represen- tatives for voting purposes and TOMI officers who are responsible for the day-to-day opera- tions of TOGA. TOGA is differentiated from other airline consortiums because it is an LP with a controlling general partner corporation that is also made up of its member airlines. TOGA is also unique in that it controls the only international terminal in the United States developed, financed, and operated entirely by foreign flag carriers. TOGA has the largest operating budget of all the consortiums and the broadest scope of responsibilities including concessions management and subletting the facilities to non-member airlines. Consortium Feasibility AvAirPros prepared a financial feasibility study that compared the costs of a newly devel- oped Terminal One with the cost of continuing operations at the old international arrivals building. The results of the study were favorable and supported the formation of TOGA. Formation and Governing Documents The law firm of Rogers and Wells provided legal representation throughout the formation of TOGA, and the following provides a summary of the relationship among the governing doc- uments: The TOMI Shareholder Agreement created the General Partner, and the TOGA LP agreement created the Limited Partnership. Each airline executed a Facilities Use and Lease Agreement with TOGA to authorize the Terminal One development, to allow the airlines to use the terminal facilities and to provide for the allocation of costs to the airlines. The PANYNJ leased the site to TOGA through a site lease agreement and TOGA subleased the facilities to the New York City Industrial Development Agency (NYC IDA) for $1 in rent, to give them a lease- hold interest. The leasehold interest allowed the NYC IDA to sub-sub-lease the facilities back to TOGA and provide $435 million in project financing. TOMI Shareholder Agreement establishes each of the four airlines as a shareholder with equal ownership and voting rights and the ability to appoint an officer to be responsible for the day-to-day operations of TOGA. TOGA Limited Partnership Agreement establishes each of the four airlines as a limited part- ner of TOGA and TOMI as the general partner with 1% ownership.
78 A Guidebook for Airport-Airline Consortiums Terminal One Facilities Use and Lease Agreement authorizes TOGA to fund, develop, and operate JFK Terminal One, defining the rights of each of the airline partners to use the facilities including the cost allocation methodology. Site Lease between the PANYNJ and TOGA leases the Terminal 1 site to TOGA and it requires TOGA to develop and operate a terminal facility. The lease also defines PANYNJ fees and rents. IDA Lease Agreement between the NYC IDA and TOGA provides an arrangement under which the IDA agreed to provide bond funding for the development of the JFK Terminal One facilities and TOGA agreed to pay rent to the IDA equivalent to the principal and interest debt service on the bonds. Contract Carrier Agreement allows Airlines that are not TOGA partners to use the facilities if they execute a contract carrier agreement. Organization and Management Structure The business activities of TOGA are governed by the TOMI Board of Directors, which com- prises four member airlines: Air France, Japan Airlines, Korean Airlines, and Lufthansa German Airlines, with each Member designating its director and having one vote per director. The air- port does not have a voting or advisory role on the TOMI Board of Directors. TOGA is unique because each of the four members is financially obligated to the bonds that were issued to develop the terminal facility. Therefore, TOGA is the known exception to open membership for consortiums, because the original four TOGA member airlines are bound to remain owing to a project bond financing. As a result, additional airlines may be granted membership in TOGA only under special circumstances. It should be noted, however, that in addition to the four TOGA partner airlines, many other airlines use the TOGA facilities on a contract, non-partner basis. Day-to-day Operations Management is provided by an aviation management firm, AvAirPros Services, with a total of 17 management professionals including 4 Administration and 13 Opera- tions positions. Scope of Services The site lease agreement with the PANYNJ establishes the TOGA facility as a unit terminal. As a result, TOGA is a responsible for all aspects of the terminal, including all JFK Terminal One facilities, which includes airline equipment operations and maintenance, and passenger services. The following are included in TOGAâs scope of services: ⢠Passenger Boarding Bridges ⢠Inline Explosive Detection System ⢠Potable Water ⢠Public Area Custodial ⢠Aircraft Custodial ⢠Hydrant Fueling ⢠Ground Equipment Fuel Dispensing ⢠Deicing Storage Facilities ⢠Snow Removal ⢠Electronic Systems Facility Infrastructure ⢠Food & Beverage Concessions
Case Studies 79 ⢠Public Advertising ⢠Baggage Handling System ⢠Pre-Conditioned Air ⢠Terminal Facilities Maintenance ⢠Airline Area Custodial ⢠Wheelchairs, Skycaps ⢠Fuel Storage ⢠GSE Maintenance ⢠Ramp Sweeping ⢠FIDS/BIDS ⢠Retail Concessions ⢠Vending Machines ⢠Way-Finding Service Level Service Level Agreements (SLAs) are included in all vendor service contracts held by TOGA. Construction contracts include milestone dates and specifications. Contract carriers are pro- vided with 3 to 5 year contracts that include a 90-day cancellation provision. This provides the partner airlines the flexibility to modify their flight schedules. The contract carriers are provided a slot for usage of a gate at the terminal. Every airline contract requires the carrier to notify TOGA of a request for a slot time change that must then be approved by TOGA. TOGA vendors must provide performance reports for the Baggage Handling System, Pas- senger Boarding Bridge maintenance, and all the various responsibilities under their scope of services. As part of the contract negotiations, the vendors include a PM schedule that TOGA approves and then uses to measure their performance. Each of TOGAâs contractors and vendors are required to provide periodic performance reports. In some cases TOGA has access to con- tractorsâ online systems, so no formal reporting is required. There is an annual meeting between TOGA and the PANYNJ to discuss TOGAâs terminal performance. Risk Management The TOGA airlines (Air France, Japan Airlines, Korean Air, and Lufthansa German Airlines) took on a major risk in creating a new entity to develop an international terminal. This had never been done before by foreign flag airlines in the United States. These four airlines took on $435 million in debt, along with the schedule and cost risks associated with clearing the site and building a new terminal building. The financial commitment which the partner airlines agreed to in the financing documents includes joint and step-up liability. If one of the TOGA airlines fall out, the other 3 airlines will step-up to the liabilities. The partner airlines all accepted this concept as part of the risk. Financial Considerations Capitalization Requirements. Upon formation the airlines each paid a membership fee of $2,500 to purchase shares in TOMI (total $10,000). Additionally the airlines each submit- ted to TOGA a promissory note equal to $247,500 (total $990,000). The promissory notes have never been drawn upon and are still outstanding. The airline partners have never paid a security deposit to TOMI or TOGA.
80 A Guidebook for Airport-Airline Consortiums The Terminal One project was initially funded with $435 million of IDA revenue bonds that were issued in 1994 with a term through 2024. The bonds were re-financed in 2005 to take advantage of a lower interest rate and to provide an additional $30 million funding for an A380 gate modification project. Near the end of the terminal development project, TOGA took two bank loans to provide capital project funding for necessary facilities that could not be funded by the IDA revenue bonds. These loans have since been paid off. TOGA has established a line of credit of $8 million to hedge against shortfalls in funding for a current BHS project that relies on third-party funding sources, but has not had to draw on this LOC. Annual Operating Budget. TOGA has an operating budget that is in excess of $100,000,000 annually. The budget is prepared in October and must be presented and approved by the part- nership no later than 30 days prior to the end of the fiscal year on December 31. Some major components of the annual operating budget include the following: ⢠$41 million IDA Bond debt service and other financial expenses ⢠$53 million operating expenses ⢠$19 million facility maintenance expenses ⢠$2 million administrative and management expenses Budget performance reports are submitted monthly, quarterly, and annually to the partners. Rates and Charges. TOGA has a very complex cost allocation model, with over 25 cost centers. The cost allocations and cost centers are defined by rules included in the Facilities Use and Lease Agreement. Due to the complexity of the model, it is difficult for the partner airlines to understand. The results of the model have been simplified and reduced to a cost per enplaned passenger rate to improve the airlinesâ understanding. The airlines are invoiced monthly based on this enplaned passenger rate and an estimated number of passengers, which is reconciled the next month to the actual number of passengers. TOGA enters into contract carrier agreements with non-members and negotiates rates based on a number of factors, rather than charging the partner rate plus a percentage surcharge. The cash flow is managed by TOGAâs Executive Director and the TOGA Finance Manager. There is an annual CPA audit of TOGAâs financial statements. The airport also audits the PANYNJ fees from time to time. The last PANYNJ audit was 3 years ago. TOGA is also subject to trustee audits, but one has never been conducted. Regulatory Requirements TOGA is a taxable entity that passes 99% of its income tax liabilities to its limited partners and 1% to its general partner. As foreign flag airlines the limited partners are exempt from U.S. income taxes as a result of their bilateral agreements with the U.S. government. The general part- ner is allocated 1% of the partnershipâs tax liability, based on its ownership of the partnership. The airport requires the consortium to carry insurance and indemnify the airport, and the consortium requires each member airline to carry insurance and indemnify the consortium. Withdrawn members (there are none) retain liability after departure. Performance Metrics Performance standards are not in effect between the consortium and airport other than default of lease if TOGA is not in compliance with the provisions of the site lease. There are also
Case Studies 81 gate usage âuse it or lose itâ provisions in the updated site lease that give the airport the ability to access underutilized assets. The utilization test is at the PANYNJâs discretion and there are no certain percentages that are used. TOGA has established performance standards for vendor contracts but there were none iden- tified for the first 7 years. TOGA has implemented SLAs for all vendor contracts. Consortium Formation Issues and Lessons Learned ⢠The TOGA deal was difficult to close because the four partner airlines were from different countries, with different languages, cultures, and governance structures. It is important to bring the senior airline officers into the process early, keep them informed of progress, and consolidate approval processes at the local level to allow for expeditious decision making. ⢠The formation process was a lengthy one and various airline parties joined, withdrew and considered being part of the TOGA partnership up until the formation date. This created stress on the formation process and the airline parties. ⢠Needed to seek more involvement from Port executives early in the formation process so they understood and approved the importance of the consortium concept and the terminal devel- opment. This would create leverage during the financing and lease document negotiations. ⢠From a financial perspective a simpler cost allocation model would be easier for the airline partners to understand. The existing model needs to be explained frequently. ⢠It is important for airline decision makers to think on behalf of the consortium business, rather than the individual airline interests. It is difficult to bring all of the consortium elements into focus, focusing on what is best for the consortium.
