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26 A qualified consulting or law firm may be engaged by the stakeholders to prepare the consor- tium documents. The firm selected to produce the consortium documents should initially meet with the stakeholders to understand the context of the consortium, and to discuss the findings and recommendations of the feasibility study. During this discussion, the stakeholders may provide direction regarding their preferences for the particular provisions of the consortium documents. An agreement between the airport and the consortium may be necessary to authorize the consortiumâs activities at the airport. This agreement may take the form of a lease, a license, or a maintenance agreement, depending on the circumstances and the requirements of the particular airport. In many instances the airport may require this document to be prepared by its own staff or counsel. The key provisions of this agreement will likely include the following: ⢠A statement indicating that the airport owns and retains title to facilities, equipment, systems, and services used by the consortium ⢠A statement that the airport grants the consortium the right to use, operate, and maintain the facilities, equipment, systems, and services ⢠A license for the consortium to operate and maintain facilities, equipment, systems, and/or to provide specific services ⢠A length of term defined by the airport ⢠A description of the rents, fees, and charges, if any, that the consortium must pay to the airport ⢠A statement indicating that the consortium may delegate its rights to an operator ⢠A description of the scope delegated to the consortium by the airport ⢠A statement requiring non-member users to execute a non-member access agreement with the consortium ⢠A limitation of surcharges or premiums that the consortium may charge non-member users ⢠Minimum Service Levels required by the airport providing for the preservation of airport- owned assets ⢠Airport labor standards addressed in consortium procurement practices ⢠Environmental and hazardous materials provisions ⢠Indemnification and insurance requirements ⢠Events of default ⢠Consequences of default ⢠Joint and several liability of the member for payments to the consortiumâs vendors and the airport ⢠Termination provisions An agreement with the airport may not be necessary, if there is no scope delegated by the air- port to the consortium, and if there are no facilities, equipment, or systems leased by the airport to the consortium. C H A P T E R 6 Prepare Agreements
Prepare Agreements 27 The member agreement, or its equivalent, will serve as the primary governing document for the consortium and its members. Key provisions should define the following: ⢠Effective date and term of the consortium ⢠Purposes of the consortium ⢠Membership requirements and procedures ⢠Capital contribution requirements ⢠Member withdrawal procedures ⢠Events of default ⢠Consequences of default ⢠Member termination provisions ⢠Member access to and use of the consortiumâs facilities, equipment, systems, and services ⢠Member indemnification provisions ⢠Consortium governance including officers, committees, and voting ⢠Annual budget presentation and approval process ⢠Member cost allocations and invoicing ⢠Operating reserve specifications ⢠Books and records The non-member access agreement, or its equivalent, will serve to allow non-member airlines and handling companies to access and use the facilities, equipment, systems, and services controlled by the consortium. Consortiums generally may not prevent non-consortium mem- bers from accessing or using the facilities, equipment, systems, and services controlled by the consortium. However, this agreement is necessary to ensure that, at a minimum, the following takes place: ⢠The consortium and its members are indemnified by the non-member users. ⢠The consortium and its members are protected by non-member insurance. ⢠User fees and payment terms are established. Non-member access agreements often include key provisions that describe the following: ⢠Indemnification and insurance requirements ⢠Non-member use fees ⢠Payment requirements ⢠Security deposit requirements ⢠Events of default ⢠Consequences of default ⢠Non-Member access to and use of the consortiumâs facilities, equipment, systems, and services ⢠Priority of use and scheduling requirements for equipment consortiums Financing documents will be necessary if capital financing is a component of the consor- tium formation. Financing documents vary widely in their scope and definition, depending on the type of financing, the source of funds, the size of the financing, the security identified and pledged for the financing, and so forth. If bond funding is anticipated, airports may have additional documentation requirements and added involvement in the financing transaction. A more detailed description of financing documents is not included here, as that is beyond the scope of this report. The articles of incorporation, or their equivalent depending on the business entity structure selected, will have to be prepared and filed with the state selected to register the actual consor- tium entity. The articles typically state the name of the new legal entity, the type of business entity selected, and an initial mailing address. Specific requirements vary from state to state, and by the type of business entity selected.
28 A Guidebook for Airport-Airline Consortiums In-progress submittals of the documents described above are provided to the stakeholders during the document drafting process. The drafting, review, and approval process for consor- tium documents can range from a few weeks to a few years, depending on the circumstances. If all of the stakeholders are in general agreement with the business terms of the consortium, the drafting and review process may be relatively short. However, several years may be required if significant negotiations are necessary, or if large capital financing is a component of the process. Subject to airport requirements and the potential capital funding source, the airport may require review, input, and even approval of the member agreement. Therefore, in-progress submittals to the airport at key stages in the drafting or negotiations should be anticipated. Once the consortium documents are complete, all stakeholders must secure approval prior to implementation of the consortium. Airline approval processes often require internal legal department review, properties department review, and officer or even board approval. The approval process for domestic airlines is generally shorter than that required by foreign flag carriers, since foreign flag carriers often require translated documents and board of director approval. Airport approval processes vary significantly depending on the jurisdiction and the authority of the airport director. Once airport staff recommends approval, ultimate approval may be necessary from a board of airport commissioners, city council, regional authority, county, or state government. Illustrative Examples and Observations 1. Terminal One Group Association, L.P. The TOGA consortium formation documents are unlike any other consortium documents because of the limited partnership entity chosen, which required the following: ⢠Partnership Agreement ⢠Shareholder Agreement ⢠Facilities Use and Lease Agreement Further, as a result of the $434 million bond financing that was necessary to fund the devel- opment of JFK Terminal One, the following additional documents were required: ⢠Site Lease with PANYNJ ⢠Partnership Sublease Agreement with the New York Industrial Development Agency (IDA) ⢠IDA Lease Agreement Finally, these agreements were accompanied by many supporting documents that memori- alize the bond transaction and establish the authority for all parties to execute the documents. Together, the TOGA consortium documents fill four 4-in. bound volumes and number over 4,000 pages. The document development process required about 3 years to conclude. The PANYNJ was very involved in the TOGA document development process. PANYNJ staff drafted the Site Lease, and reviewed all other transaction documents to ensure that they conformed to the Site Lease. TOGA engaged a consultant to prepare the Facility Use and Lease Agreement and outside counsel to prepare the consortium formation documents and represent it during its forma- tion and the closing of the bonds. During the document development process, the PANYNJ involved their legal department, the IDA engaged Bond Counsel, the bond underwriters engaged counsel, and each of the participating airlines secured outside counsel or used in- house counsel. 2. CICA Terminal Equipment Corporation. The CICA TEC consortium formation documents are typical of most consortiums that hold the responsibility to operate and maintain certain airport-owned facilities, equipment, and systems. Primary documents include the following: ⢠Consortium Agreement. The Consortium Agreement establishes the relationship between CICA TEC and the City of Chicago. The agreement assigned to the consortium the design
Prepare Agreements 29 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 TEC Agreement. This agreement establishes the relationship between CICA TEC and each of the participating airlines, and provides for the operation and maintenance of the facilities, equipment, systems, and services assigned to the consortium and the gover- nance of the consortium. An outside law firm was not used for legal representation during the CICA TEC formation process; however, the airlines relied on the advice of airline legal staff and a consultant who was also an attorney. The City of Chicago engaged the Cityâs corporation counsel to ensure that the documents conformed to the City requirements. 3. DEN Consortium, LLC. The 29-page DENCO member agreement is the primary document that was created to form the DEN Consortium. There is no agreement between the airport and the consortium, since the consortium is not leasing, operating, or maintaining any airport- owned assets. A consultant was engaged to prepare the member agreement and to register the new company with the State of Colorado and the federal government. 4. LAX Shared Use Lounge Company, LLC. The LAXSUL member agreement was initially pre- pared by a consultant engaged by the participating airlines. LAWA staff and the Los Angeles City Attorneyâs office prepared the lease for the lounge premises. Project financing was provided by a bank after design was complete and project costs were reliably known. The bank used outside counsel to prepare the loan documents and LAXSUL engaged legal counsel to represent it during the preparation of these documents. As indicated by these illustrative examples, the preparation of agreements for a new consor- tium can take many paths depending on the complexity, financing, and number of stakeholders. Once documents are prepared and approved by all stakeholders, the parties may move forward with the implementation of the consortium. Chapter 7 describes the consortium implementation process.
