I 

I

i 

I . 

TO: . 

FROM: 

SUBJECT: 

DATE: 

Management & Operations Committee 

Gary E. Schmidt, Director of Reliever Airports (612-726-8135) 

RECOMMENDATION RE: TEMPORARY CREDIT TO RELIEVER 

AIRPORTS COMMERCIAL OPERATORS 

June 23, 2009 . 

I 

I 

I 

i

I 

Given the state of the economy, including that of general aviation, staff has received a request 

for rent relief from a number of commercial tenants on the reliever airports. The average 

profitmargin in an aviation commercial business is tYPically in the low single digits, most often 

iess than 4. With the loss of aviation activity in these depressed economic times, many of 

these businesses can't sustain the loss in revenue without facing closure. These operators 

provide services which benefit the flying public. Staff believes it is reasonable and consistent 

with our mission to look at ways to help them sustain their businesses. 

Currently, commercial operators pay rent per Ordinance No. 107, which. sets forth a 

combination of ground rent and a percentage of gross sales. A very active business pays a 

lesser ground rental rate (Chart C of Ordinance No. 107) while a very low volume business 

pays a higher ground rental rate which is equivalent to aircraft storage tenants (Chart A) in lieu 

of percentage rent. There is also a ground rental rate category without percentage rent for 

commercial tenants who operate a mid-volume business (Chart 8). 

Staff and the Chairman have analyzed alternatives to offer reasonable and fair relief for the 

commercial operators. The staff recommendation is for a rent adjustment in the form of a 

credit to every commercial leaseholder's account which is applicable to the first 588,000 

square feet of property calculated by the rates outlined in Chart C of Ordinance No. 107, 

which is the lowest ground rent available to commercial tenants and which are the rates 

traditionally charged to commercial tenants with an active business (588,000 square feet 

represents the largest amount of active commercial space of any Reliever Airport commercial 

tenant). The credit will apply to Chart 8 and Chart Ccommercial leaseholders who are 

charged ground rent regardless of the actual rates paid by a leaseholder under their 

applicable chart. The amount of the applicable relief will be calculated per the rates in Chart 

C. All leases held by a particular tenant are considered together in applying the 588,000 

threshold. This credit will not apply to those who operate under the Chart A fee structure since 

there is little, if any, business being conducted from the leasehold. The credit is 

recommended to be phased in as follows: 

 Forty percent (40) reduction of the ground rental rate for each month during the first 

four months after implementation, 

o . Thirty percent (30) reduction of the ground rental rate for each month during the next 

four months, and 

MEMORANDUM 
t:J Twenty percent (20) reduction of the ground rental. rate for each month during the 

final four months of the year, after which the ground rental rate would revert back to 

that outlined in Ordinance No. 107. 

The one year period would begin at the next appropriate billing cycle following Commission 

approval. . 

Under this recommendation, the typical credit will range from $2500 to $10,000 over the 

twelve month period. The largest operators, however, would receive upwards of $20,000. The 

total cost to MAC of the adjustment is nearly $270,000. 

Staff has analyzed the impact on the Reliever Financial Model from the implementation of this 

recommendation. The result would be a one time decrease in revenue of approximately 

$270,000 as outlined above. Based on the assumptions that drive the model, including the 

impact of losing the on-going percentage revenue from a major commercial subtenant at the 

St. Paul Downtown Airport that ceased operations in 2009, the recommended relief is 

projected to move the surcharge date from 2019 to 2014. The implementation of the 

. surcharge in any given year is at the discretion of the Commission. 

COMMITTEE ACTION REQUESTED: 

THAT THE M&O COMMITTEE RECOMMEND THAT THE FULL COMMISSION PROVIDE 

. TEMPORARY RENT CREDIT FOR RELIEVER AIRPORT COMMERCIAL OPERATORS BY 

IMPLEMENTING THE CALCULATION OUTLINED ABOVE AND THAT THE PROPER 

OFFICER OF THE COMMISSION EXECUTE THE NECESSARY DOCUMENTS. 

I 

I 

1 ... _ .. _- ........................._ .......................................