Consideration and Approval of Lease Amendments:  Amendment of Flagstaff Airport Leases and Hangar Permits to offer rent abatement from a minimum of three (3) months or a maximum of six (6) months, due to the economic impacts of the COVID-19 pandemic.

1. Approve lease amendments with all of the airport tenants to abate rent for three (3) or six (6) months (copies of the lease amendments are attached).
2. Approve hangar permit amendments with all hangar tenants to abate rent for three (3) or six (6) months, and authorize the Airport Director to administratively approve these amendments (a sample amendment is attached)

Many of the Flagstaff Airport tenants have requested rent abatement because of the economic impacts to their businesses as a result of the COVID-19 pandemic.

City staff is recommending that the City abate rent for a maximum period from April 1, 2020 through September 30, 2020.  

Please note that government agencies were excluded. As drafted, lease amendments will require pass through of the rental abatement savings to the sublesses known to be operating their businesses at the Airport. 

All proposed lease amendments are in draft form, and final versions will be attached prior to the June 2, 2020 Council Agenda.

At the May 19, 2020 City Council Meeting some hangar tenants requested rent abatement due to changed economic circumstances. Hangar tenants include businesses and private airplane owners who keep their airplanes at the airport. As a result, City staff is recommending all hangar tenants receive rent abatement for a 6-month period at maximum. All hangar permit amendments may be administratively approved by the City Manager or his designee.  
 

If rent abatement for the six (6) months (maximum) is approved, City staff estimates the Flagstaff Airport will not receive airport  lease revenues of approximately $400,000 and hangar/general aviation revenues of approximately $220,000. 

The Flagstaff Airport will be receiving an $18.1 million CARES (Coronavirus Aid, Relief, and Economic Security) Act federal grant may be used to pay for Airport operational expenses.  City will have increased operational expenses as a result of the rent abatements.

The $18.1 million CARES Act grant award amount Flagstaff is receiving was derived from the fact we offer commercial airline service. Our commercial service is met through our airline partners, American and United Airlines and involves the increase in overall enplanements we have currently experienced and hope to experience in the future. Other smaller airports in Arizona, that only have general aviation activity, also received monies but they were not in the realm of millions. With that said, it is important to note that having this commercial service currently has helped the Flagstaff Airport with achieving a larger grant amount.

The Flagstaff Airport plays a critical role in offering a multi-modal transportation system in our community for both leisure and business travel. This grant funding will help us pay for staff wages and benefits, terminal upgrades, hangar improvements, and much more. The full scope of how the airport plans to utilize the grant funding over the four-year period will be brought back to Council in an upcoming meeting.

Staff is bringing forward the rent abatements only at this time as they are crucial to our airport tenants in determining next steps and services they can or can’t offer at the airport moving forward.

Goal: Transportation and Other Public Infrastructure: Provide airport infrastructure to enhance tenant and patron experience and secure a second airline.

Yes, at the May 19, 2020 City staff proposed that the City abate rent for American Airlines, United Airlines, the car rental agencies, and the café operating out of the Flagstaff Airport.  At that meeting, the City received comments from several of our hangar permitee, who pay to park their private airplanes at the Airport.  Some expressed that their businesses were also suffering, and some expressed that the hangars are in need of repairs.  As a result, the Council  postponed the rent abatement discussion to June 2, 2020 and requested that staff consider more rent abatement options.  Also per Council direction, the proposed lease amendments no longer include a provision allowing the City Manager to extend the rent abatement period.

Staff has weighed the Council’s decision to bring back new options for approval. After much consideration, the staff is recommending only three options. These options either include all Flagstaff Airport tenants getting the same consideration or none of our tenants receiving rent abatement. Reason for our recommendation is that all our tenants play a role in keeping our airport vibrant and economically stable.

Option 1: Approve the COVID-19 Rent Abatement for all airport tenants for three (3) months only.
Option 2: Approve the COVID-19 Rent Abatement for all airport tenants for six (6) months only.
Option 3: Not Approve the COVID-19 Rent Abatement for all airport tenants.

 

On January 31, 2020 U.S. Secretary of Health and Human Services declared a public health emergency as a result of the COVID-19 pandemic; on March 11, 2020 Arizona Government Douglas Ducey declared a state public health emergency, and on March 15, 2020 Flagstaff Mayor Coral Evans declared a local public health emergency. Since April 2020 airline passenger traffic through the Flagstaff Airport has practically ceased due to the COVID-19 pandemic, causing an associated decline in flight revenues.

On April 4, 2020 the Federal Aviation Administration (“FAA”) issued “Information for airport sponsors considering COVID-19 restrictions or accommodations” which states that “a decision to abate rent…is a local decision” and provides guidance for any abatement.  The Guidance states that airports are “encouraged to consider the business situation of the tenant; the changed circumstances created by the public health emergency; the desirability of having solvent tenants that can resume normal operations when the emergency ends; the availability of other governmental or insurance relief that such relief; and possible subsequent conditions that, if triggered, would end the abatement.” The FAA Guidance also “encourages sponsors to carefully balance and consider the equities between all airport users.”
 

The City of Flagstaff Economic Vitality Division has been working for years to secure a second airline for our community as well as increase routes overall. This has been accomplished through attending several airline conferences, asking for airline corporate meetings, creating three major marketing campaigns that were both inward and outward facing, and working with our top 20 employers on their continued growth. All these factors played into receiving an additional route to Dallas Fort Worth and a seasonal route to Los Angeles from American Airlines and a route to Denver with United Airlines joining our airport family. It’s important to keep these routes intact and to continue our outreach to secure additional routes with these partners. Our rental car agencies support the airlines daily and increased their hours of operation and fleet to accommodate these changes in our routes and schedules. With the recent crisis, this has put these partners in a dire position financially.

This rent abatement will provide much needed relief to our current tenants so when circumstances improve, the Flagstaff Airport can go back to normal operations.

This rent abatement will assist our goal in keeping our tenants solvent to ensure that the airport can remain open and operating safely.