BOARD ITO Aide REPORT TO THE AIRPORT COMMISSIONERS

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1 [1 11 BOARD ITO Aide 001:4 Los Angeles World Airports REPORT TO THE Approved by: Justin rbacci - hief Innovation and Commercial St tegy Officer (--(AtSotA_ /1//r/'(10 PV Reviewed by: Samson

$CEQA 3/1/2018 EY N I AE ebora\h+ Chief Executive Officer Procurement 3/13/2018 MY ON Cond MT Guest Experience 3/13/2018 'JAN ON i BY SUBJECT: Appropriate Funds in the amount of $1,025,000,000 to$

Appropriate funds in the amount of $1,025,000,000 to acquire terminal improvements contemplated in the Terminal Facility Lease and License Agreement with Delta Air Lines, Inc.

1 1 [1 11 BOARD ITO Aide 001:4 Los Angeles World Airports REPORT TO THE Approved by: Justin rbacci - hief Innovation and Commercial St tegy Officer (--(AtSotA_ /1//r/'(10 PV Reviewed by: Samson Mengistu - Chief-Operating Officer ity Att AIRPORT COMMISSIONERS Meeting Date: CAO Review: 1 4/5/2018 Completed Pending N/A Reviewed for Date 6142(1) va Status By Finance I 3/20/2018 EY N O NA RW CEQA 3/1/2018 EY N I AE ebora\h+ Chief Executive Officer Procurement 3/13/2018 MY ON Cond MT Guest Experience 3/13/2018 'JAN ON i BY SUBJECT: Appropriate Funds in the amount of $1,025,000,000 to Acquire Terminal Improvements contemplated in the Terminal Facility Lease and License Agreement with Delta Air Lines, Inc. for Space in Terminals 2 and 3 at Los Angeles International Airport. Appropriate funds in the amount of $1,025,000,000 to acquire terminal improvements contemplated in the Terminal Facility Lease and License Agreement with Delta Air Lines, Inc. for space in Terminals 2 and 3 at Los Angeles International Airport. RECOMMENDATIONS: Management RECOMMENDS that the Board of Airport Commissioners: 1. ADOPT the Staff Report. 2. DETERMINE that the Board of Airport Commissioners, as the decision making body of the lead agency, has considered Final Environmental Impact Report (FEIR) for the Terminals 2 and 3 Modernization Project that was certified by the Board of Airport Commissioners on July 13, 2017, and City Council on August 25, 2017, along with the Addendum to the FEIR, prior to making a decision on the recommended action as it relates to the Terminals 2 and 3 Modernization Project elements described below. 3. APPROPRIATE funds in the amount of $1,025,000,000 to acquire terminal improvements contemplated in the Terminal Facilities Lease and License Agreement with Delta Air Lines, Inc. for space in Terminals 2 and 3 at Los Angeles International Airport. 4. AUTHORIZE the Chief Executive Officer or her designee to exercise the option to acquire the Non-Proprietary Renovations - Terminal Space with cash instead of rent credits. Page 1

DISCUSSION: 1. Purpose Facilitate construction of enhancements to Terminals 2 and 3. 2. Prior Related Actions July 20, 2016 - Board Resolution No.

(Delta) to enable relocation to Terminals 2 and 3 at Los Angeles International Airport (LAX) and provide for the relocation of multiple airlines. November 2, 2017 - Board Resolution No.

2 DISCUSSION: 1. Purpose Facilitate construction of enhancements to Terminals 2 and Prior Related Actions July 20, Board Resolution No The Board of Airport Commissioners (Board) approved a Terminal Facilities Lease and License Agreement LAA-8939 (Lease) with Delta Air Lines, Inc. (Delta) to enable relocation to Terminals 2 and 3 at Los Angeles International Airport (LAX) and provide for the relocation of multiple airlines. November 2, Board Resolution No The Board approved the First Amendment to the Lease to reallocate appropriations within the approved project costs, pay cash for Airline Relocation costs that exceed $60,000,000, and authorize the purchase of Terminal 2 and 3 improvements with cash instead of rent credits. November 2, Board Resolution No The Board approved the first Definitive Terminal Improvement Plan (DTIP#1) appropriation of funds in the amount of $270,000,000 to acquire terminal improvements contemplated in the Terminal Facility Lease and License Agreement with Delta Air Lines, Inc. for space in Terminals 2 and 3 at Los Angeles International Airport. 3. Current Action Los Angeles World Airports (LAWA) and Delta executed the Lease to facilitate relocation of multiple airlines between Terminals 2, 3, 5, 6 and the Tom Bradley International Terminal (TBIT), and subsequently to upgrade Terminals 2 and 3 to improve the guest experience and connect the facilities to the Automated People Mover (APM). The Lease provides an initial funding allocation of $305,000,000 for LAWA to acquire upgrades Delta made to Terminals 2 and 3 to facilitate their operation in these terminals and to cover the costs Delta incurred to relocate airlines. However, Delta must secure separate approval from LAWA for the future renovations to Terminals 2 and 3, and new funding appropriations from the Board for the non-proprietary costs that LAWA will acquire. The Lease allows Delta to submit one or more Definitive Terminal Improvement Plans (DTIPs) for the following projects: Rebuild head house for Terminals 2 and 3 to provide innovative ticketing facilities, provide more space for passenger flow to either terminal, improve security check point experience, and create a more enticing atmosphere for an overall positive guest experience; Provide infrastructure for planned APM including all vertical circulation to serve Terminals 2 and 3; Page 2

Improve Terminal 2, including enhancements and future additions to the existing concessions, three additional gates, augmented restrooms, and rebalancing the existing hold rooms; and, Completely

infrastructure, and new passenger boarding bridges, The maximum non-proprietary cost that LAWA can acquire pursuant to the Lease, including the initial funding, is $1.76 billion.

3 Improve Terminal 2, including enhancements and future additions to the existing concessions, three additional gates, augmented restrooms, and rebalancing the existing hold rooms; and, Completely renovate/reconstruct Terminal 3 for an improved passenger experience including new gates and hold room areas, new modernized concession space, renovated ramp areas including concrete, fueling infrastructure, and new passenger boarding bridges, The maximum non-proprietary cost that LAWA can acquire pursuant to the Lease, including the initial funding, is $1.76 billion. The total anticipated cost, including Delta's proprietary investment, is $1.86 billion. Delta and LAWA worked closely on the Terminals 2 and 3 renovation concepts and agreed on an overall program to complete the Terminal 2 and 3 Modernization within the $1.86 billion budget authorized in the Lease. Delta submitted and LAWA, with the Board, approved DTIP#1 in the amount of $270,000,000, which included the following key preliminary elements that are necessary to pursue the overall program: Detailed design work for program Enabling work Addendum to environmental document for Terminal 3 satellite rebuild Site investigation Pre-con trade engagement Program management Delta also presented a Project Definition Booklet (PDB) that LAWA approved with comments. Delta now has submitted and LAWA recommends approval of a second DTIP (DTIP#2) which includes the following key scope elements that are consistent with the PDB: Reconstruction of Terminal 3 Delta will completely demolish and replace Terminal 3 with a new facility that has 14 gates, modern hold rooms that meet IATA level of service goals, modern restrooms, and new higher-value, balanced, modern concessions spaces for improved guest experience. The new terminal also will include appropriate passenger and baggage processing capacity, operations space, and common use equipment to provide flexibility and support multiple carrier operations. Construction will be phased to allow for appropriate temporary swing space for occupants displaced by the construction. Renovation of Terminal 2 Delta will renovate Terminal 2 within the existing concourse building structure, with the exception of an option to add a new airline gate control operations center to the facility. The proposed renovations include a 13-gate facility with updated hold rooms, modern restroom and new concessions layouts to improve guest experience. The renovated facility will include a new drive forward bus gate, new baggage handling Page 3 DTIP2_15MAR1 adocx

system, baggage claim and outbound baggage make up devices, appropriate operational support space, and common use equipment to provide flexibility and support multiple carrier operations.

New Terminal 2 and 3 Ticketing and Arrivals Building Delta will construct a new "headhouse" structure that includes consolidated check-in, passenger processing, and passenger and baggage screening to

4 system, baggage claim and outbound baggage make up devices, appropriate operational support space, and common use equipment to provide flexibility and support multiple carrier operations. The facility will retain the emergency backup generators. New Terminal 2 and 3 Ticketing and Arrivals Building Delta will construct a new "headhouse" structure that includes consolidated check-in, passenger processing, and passenger and baggage screening to accommodate Delta and subtenant airline passengers. The facility will include a new bus gate, a secure connection between Terminals 2 and 3, six new baggage claim carousels, and new rentable areas for airline lounges and airline operation spaces. The headhouse also will include new vertical circulation and the landing point for the connection to the APM. Ramp Improvements Delta will provide new apron pavement at Terminal 3, including re-configured striping and equipment provisioning, to accommodate a total of 27 gates, with 13 gates on Terminal 2 and 14 gates on Terminal 3. This work will include installation, relocation or upgrade of underground electrical infrastructure to both Terminals 2 and 3. Delta estimates the cost of DTIP#2 is $1,025,000,000, including all costs for the above reference construction and costs associated with concessions buyout, permitting, planning and administration of this project. LAWA proposes to acquire these assets by requesting the Board authorize the appropriation and to allow LAWA to exercise the option contemplated in Schedule 1-B of the Lease to acquire the Non-Proprietary Renovations - Terminal Space with cash instead of rent credits. The cost breakdown of the cost for DTIP#2 is as follows: DTIP#2 T2 Bus Gate $7,200,000 T3 Concourse & BHS $117,900,000 Central Headhouse $433,000,000 East Headhouse $29,300,000 West Headhouse $120,800,000 T3 Satellite & BHS $121,700,000 T2 Concourse & BHS $95,300,000 T2 Apron $14,400,000 T3 Apron (paving and utilities) $85,400,000 Total DTIP2 $1,025,000,000 The T3- TBIT Connector, which has an allowance of $160,000,000 set aside, is not part of this DTIP#2. LAWA and Delta have been meeting and will continue to meet to explore the best options for completing the T3 to TBIT connector. Delta will submit a third DTIP for completion of the T3-TBIT Connector, likely in 2Q2018. Page 4

A joint Steering Committee comprised of LAWA and Delta executives is established and will track and approve any proposed changes in program scope, budget, or timeline and is a point of escalation for

5 Strong program controls are in place to ensure that program scope and cost constraints are maintained. Any proposed modifications to the program scope and costs will be brought to the Board, and regular reporting will be provided to the Board as well (minimum at a quarterly level). A joint Steering Committee comprised of LAWA and Delta executives is established and will track and approve any proposed changes in program scope, budget, or timeline and is a point of escalation for any program issues. How this action advances a specific strategic plan goal and objective This action advances this strategic goal and objective: Deliver Facilities & Guest Experiences that are Exceptional: Develop, maintain and operate first class facilities. Action Requested Staff requests the Board: 1. Appropriate and allocate $1,025,000,000 from the LAX Revenue Fund for LAWA to acquire the improvements in the approved DTIP#2 and outlined in the Amended Lease Exhibit Schedule 1-A, and 2. Authorize the Chief Executive Officer to exercise the option in Schedule 1-B to purchase Terminal Improvements with cash instead of rent credits. Fiscal Impact Costs of the planned improvements from Delta will be recovered through future terminal rates and charges pursuant to the Rate Agreement as well as revenues generated by concessions operating in these spaces. LAWA's total acquisition cost for DTIP#2 non-proprietary improvements, including interest during construction, is capped at $1,025,000,000. Delta may allocate its own funds for proprietary work to be done as part of DTIP#2. 4. Alternatives Considered Take No Action Not approving the proposed funding allocation is not recommended because it will prevent Delta from constructing the improvements required by the Lease. APPROPRIATIONS: Approval of DTIP#2 will increase the LAWA acquisition obligation from $575,000,000 to $1,600,000,000. Staff requests the Board appropriate and allocate the required funds in a not to exceed amount of $1,025,000,000 from the LAX Revenue Fund to WBS Element (Terminals 2 and 3 Renovations) and other Board approved related WBS Elements, as needed. STANDARD PROVISIONS: 1. The FEIR was certified by the Board of Airport Commissioners on July 13, 2017 and City Council on August 25, 2017 (Resolution No ). The Addendum to the FEIR analyzes the refinements to the project. The FEIR, along with the Addendum, serve as the Page 5

6 environmental review of the proposed project pursuant to the provisions of CEQA, Public Resources Code Section et. seq., and State and local CEQA Guidelines. 2. This item is subject to approval as to form by the City Attorney. 3. Actions taken on this item by the Board of Airport Commissioners will become final pursuant to the provisions of Los Angeles City Charter Section This action is not subject to the provisions of the Living Wage/Service Contractor Worker Retention Ordinances. 5. This action is not subject to the provisions of the Small Business Enterprise, Local Business Enterprise/Local Small Business Enterprise, and Disabled Veterans Business Enterprise Programs. 6. This action is not subject to the provisions of the Affirmative Action Program. 7. This action does not require a Business Tax Registration Certificate. 8. This action is not subject to the provisions of the Child Support Obligations Ordinance 9. This action is not subject to the insurance requirements of the Los Angeles World Airports. 10. This action is not subject to the provisions of City Charter Section 1022 (Use of Independent Contractors). 11. This action is not subject to the provisions of the Contractor Responsibility Program. 12. This action is not subject to the provisions of the Equal Benefits Ordinance. 13. This action is not subject to the provisions of the First Source Hiring Program. 14. This action is not subject to the provisions of Bidder Contributions CEC Form 55. Reference document for the LAX Terminals 2 and 3 Modernization Project EIR Addendum is available online: project/lax-t2-t3-mod-project-eir-addendum-feb ashx?la=en&hash=62006F06D95E0BE331938A0C655DE220AE41C6F1 Page 6 Board Report_DL DTIP2_15MAR18

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