AGENDA STAFF REPORT. CEO CONCUR COUNTY COUNSEL REVIEW CLERK OF THE BOARD Pending Review No Legal Objection Discussion 3 Votes Board Majority

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1 AGENDA STAFF REPORT Agenda Item ASR Control MEETING DATE: 12/17/13 LEGAL ENTITY TAKING ACTION: Board of Supervisors BOARD OF SUPERVISORS DISTRICT(S): 2 SUBMITTING AGENCY/DEPARTMENT: John Wayne Airport (Approved) DEPARTMENT CONTACT PERSON(S): Alan L. Murphy (949) SUBJECT: Extension of Mexico Incentive Program and Creation of Domestic Incentive Program CEO CONCUR COUNTY COUNSEL REVIEW CLERK OF THE BOARD Pending Review No Legal Objection Discussion 3 Votes Board Majority Budgeted: N/A Current Year Cost: N/A Annual Cost: N/A Staffing Impact: No # of Positions: Sole Source: N/A Current Fiscal Year Revenue: N/A Funding Source: N/A County Audit in last 3 years No Year of Audit Prior Board Action: 11/05/2013 #36 and 11/08/2011 #25 RECOMMENDED ACTION(S): 1. Find that: (i) Final EIR 582 and Addendum 582-1, as revised by Final Supplemental EIR 582, previously certified on June 25, 2002, accepted on December 10, 2002, and certified on October 19, 2004, respectively, have been examined in relation to the proposed projects; (ii) the proposed projects environmental effects were fully analyzed and disclosed in these CEQA documents and the proposed projects would not have any environmental effects beyond those analyzed and disclosed in these environmental documents; and, (iii) no further CEQA compliance is required for the proposed projects. 2. Approve the proposed extension of rent credits previously awarded under the John Wayne Airport Air Service Development Incentive Program for Mexico. 3. Approve the proposed John Wayne Airport Domestic Air Service Development Incentive Program, as reflected in Exhibit A. Page 1

2 SUMMARY: John Wayne Airport recommends that the Board: (1) approve the proposed extension of rent credits previously awarded under the John Wayne Airport Air Service Development Incentive Program for Mexico; and (2) approve the proposed John Wayne Airport Domestic Air Service Development Program. BACKGROUND INFORMATION: For many years, airports throughout the United States have instituted air carrier incentive programs to enhance the service offerings available to their customers. More recently, airports are revisiting incentive programs in response to the recession and the resulting reduction in airline capacity and increased competition for air service. Federal law and the Federal Aviation Administration s ( FAA ) policies and procedures concerning the use of airport revenue and its policies concerning rates and charges provide guidance concerning the permissible provisions and scope for these incentive programs. In summary, the FAA allows promotional incentives to air carriers for new service to increase travel and/or to promote competition at an airport. An incentive is any fee reduction, fee waiver, or use of airport revenue for acceptable promotional costs, where the purpose is to encourage an air carrier to increase service at the airport. According to FAA s guidance, incentives may not be limited to a type of carrier (such as a low-cost carrier) or to a specific carrier. Incentives may be offered for one year for new entrants and for two years for all carriers. INCENTIVE PROGRAM FOR MEXICO: On November 8, 2011, the Board of Supervisors approved the John Wayne Airport Air Service Development Incentive Program for Mexico ("Mexico Incentive Program"). The Mexico Incentive Program was designed to encourage and promote the operation of commercial passenger air service by new entrant and/or incumbent air carriers to Mexico. Specifically, the goals of the Mexico Incentive Program included: (1) providing new non-stop air service between JWA and Mexico; (2) increasing the number of passengers utilizing JWA (within the parameters defined in the Settlement Agreement and the Phase 2 Commercial Airline Access Plan and Regulation ("Access Plan")); (3) maximizing utilization of new international arrival facilities at JWA; (4) increasing non-aeronautical revenue generated at JWA; and (5) serving Orange County passengers who are currently flying through other regional airports that offer nonstop service to Mexico. As adopted by the Board, the Mexico Incentive Program provided for the creation of three (3) incentive packages, each of which included a rent credit of $300,000 for terminal space costs associated with international operations and an allocation of one (1) Regular Class A Average Daily Departure ("ADD") during the current term of the Access Plan (through December 31, 2015). The Mexico Incentive Program also defined a series of criteria which had to be met to qualify to receive an incentive package; these criteria included a required duration and frequency of service and a date by which service must begin. One (1) incentive package was offered for each of three (3) new nonstop destinations in Mexico not served from JWA at the time the new service is proposed. All three incentive packages were awarded in AirTran received two incentive packages for its nonstop service to Cabo San Lucas and Mexico City, initiated in June Interjet received the third incentive package for its nonstop service to Guadalajara which began in October Page 2

3 U. S. Customs and Border Protection User Fee vs. Port of Entry Designation John Wayne Airport has been designated by U.S. Customs and Border Protection ("CBP") as a User Fee Airport. As a result, the Airport, and ultimately the air carriers providing international air service, are responsible for all costs associated with federal inspection services including staff, equipment and maintenance. At JWA, federal inspection service costs have been substantial; for its first twelve months of operation at JWA, CBP submitted charges of more than $1.5 million. Unlike cost allocation responsibilities at User Fee airports, at airports operating under CBP s Port of Entry designation, CBP costs are borne by the federal government. On November 5, 2013, the Board of Supervisors authorized the Airport, CEO legislative staff and the County s Washington D.C. legislative advocate to work together to obtain a Port of Entry designation for John Wayne Airport. On November 15, 2013, JWA formally requested designation as a Port of Entry. It is not clear, however, if or when such a designation will be forthcoming. Until JWA is designated as a Port of Entry, AirTran and Interjet will continue to bear all costs associated with federal inspection services. The Mexico Incentive Program was intended to encourage the introduction of Mexico service by reducing the disparity in operating costs between User Fee Airports and Port of Entry Airports. However, all three of the one-year incentive packages authorized by the Board of Supervisors and awarded by the Airport have now expired. In light of the cost of the CBP inspection services, there is a concern that the burden of funding CBP services at JWA will make provision of these flights cost prohibitive and that continuation of the service and the substantial benefits it provides may be lost. Staff Recommendation JWA recommends that the Board of Supervisors extend the rent credits previously awarded to AirTran and Interjet for an additional year. In the case of AirTran, a rent credit of $300,000 for service to Cabo San Lucas and a rent credit of $300,000 for service to Mexico City would be offered for service from June 3, 2013 through June 2, In the case of Interjet, a rent credit of $300,000 for service to Guadalajara would be offered for service from October 11, 2013 through October 10, No extension in operating capacity is necessary; the original incentive packages included an allocation of operating capacity through December 31, All conditions previously defined as a prerequisite for the Mexico Incentive Program would continue to be in place, specifically the service must: (1) be operated non-stop to the defined airport in Mexico; (2) be operated continuously for a period of twelve months from the expiration of the previous incentive; (3) be operated an average of five (5) days per week over the second twelve months of service; and (4) comply with all applicable airport access and noise regulations, including all provisions of the Access Plan. In addition, the proposed incentive would be discontinued if JWA were to receive its Port of Entry status at any time during the incentive period. Finally, both AirTran and Interjet would be required to execute a commitment letter indicating their understanding of, and compliance with, these conditions for receipt of the incentive. DOMESTIC INCENTIVE PROGRAM The proposed Domestic Incentive Program has been designed to encourage and promote the operation of commercial passenger air service by new entrant and incumbent Air Carriers between JWA and key unserved domestic markets. The markets identified in this program reflect research from the Department Page 3

4 of Transportation (Origin and Destination Passenger Survey), input from the John Wayne Airport Air Service Task Force (comprised of representatives of the Orange County Business Council and Orange County Visitor Association) and passenger/community feedback. A copy of the proposed Domestic Incentive Program is provided in Exhibit A. The Domestic Incentive Program complies with all of the FAA requirements for air carrier incentive programs. It is also consistent with all provisions of the Settlement Agreement and Access Plan. The goals of the proposed Domestic Incentive Program include providing new non-stop air service between JWA and currently unserved destinations within the United States, increasing the number of passengers utilizing JWA (within the parameters defined by the Settlement Agreement and the Access Plan), increasing non-aeronautical revenue generated at JWA, and serving Orange County passengers who are currently flying through other airports in the region to these destinations. The proposed Domestic Incentive Program is structured in three tiers for a combined total of four (4) incentive packages with one-year terms as provided below: Tier 1: One (1) incentive package is proposed for the introduction of new nonstop service to the Washington, D.C. metropolitan area. Washington, D.C. service may be provided to any one of the following: (1) Baltimore Washington International Airport; (2) Dulles International Airport; or (3) Ronald Reagan Washington National Airport. The incentive package would provide a rent credit of $300,000 for terminal space and operations costs associated with the service. In order to qualify to receive this incentive package, the proposed service must: (1) be operated nonstop from JWA to one of the three airports in the Washington D.C. metropolitan area; (2) be operated continuously for a period of twelve months from the date of initiation of service; (3) be operated an average of five days per week; (4) be initiated during the period from January 1, 2014, to December 31, 2015; and (5) comply with all applicable airport access and noise regulations, including all provisions of the Access Plan. Tier 2: One (1) incentive package would be offered for the introduction of new nonstop service to a destination in Hawaii not served from JWA at the time new service is proposed. The incentive package would provide a rent credit of $50,000 for terminal space and operations costs associated with the service. In order to qualify to receive this incentive package, the proposed service must: (1) be operated nonstop from JWA to the proposed airport in Hawaii; (2) be operated an average of two days per week and in at least nine months during the one-year incentive term; (3) be initiated during the period from January 1, 2014, to December 31, 2015; and (4) comply with all applicable airport access and noise regulations, including all provisions of the Access Plan. Tier 3: Two (2) incentive packages will be offered for the introduction of new nonstop service to any unserved domestic market. Specifically, one (1) incentive package will be offered for each of two (2) nonstop destinations in the United States not served from JWA at the time new service is proposed. Each incentive package will provide a rent credit of $40,000 for terminal space and operations costs associated with the service. Page 4

5 In order to qualify to receive this incentive package, the proposed service must: (1) be operated nonstop from JWA to the proposed airport in the United States; (2) be operated an average of two days per week and in at least nine months during the one-year incentive term; (3) be initiated during the period from January 1, 2014, to December 31, 2015; and (4) comply with all applicable airport access and noise regulations, including all provisions of the Access Plan. The Airport currently has sufficient operating capacity (Class A and Class E) to accommodate the service contemplated under Tiers 1, 2 and 3. Allocation of capacity, in the class appropriate for the service proposed, would be made at the time the incentive package is awarded. In order to ensure compliance with the terms and conditions of the Domestic Incentive Program, all participating Air Carriers must have an approved operating or lease agreement with the County further defining that Carrier s obligations to the County with respect to its operations at JWA, comply with all state and federal laws and regulations and any existing or future agreement between the County and the U.S. Government or governmental authority relating to the operation or maintenance of the Airport. The Domestic Incentive Program may be terminated if it is determined to violate applicable laws, regulations, or any assurance made by the County to the U.S. Government in connection with the receipt of federal grants-in-aid or the approval of Passenger Facility Charges. In addition, the Domestic Incentive Program provides penalties and prohibitions for failure to comply with the terms and conditions including, but not limited to losing any and all operating privileges received under the Domestic Incentive Program, disqualification from further participation, and reimbursement to JWA for all credits, including monetary and allocation credits received under the Domestic Incentive Program. CEQA COMPLIANCE: Final EIR 582, Addendum and Final Supplemental EIR 582 previously certified on June 25, 2002, accepted on December 10, 2002, and certified on October 19, 2004, respectively, have been prepared for the Settlement Agreement Amendment and Settlement Amendment Implementation Plan ("proposed project"). The Board is required to examine the subject project to determine whether its environmental effects were fully analyzed and disclosed in these previous CEQA documents and whether the subject project would have any environmental effects beyond those analyzed and disclosed in the previous environmental documents. If the Board concurs, no further CEQA compliance is required as noted in Recommended Action #1. FINANCIAL IMPACT: N/A STAFFING IMPACT: N/A EXHIBIT(S): Exhibit A: Proposed John Wayne Airport Domestic Incentive Program Page 5

6 JOHN WAYNE AIRPORT Domestic Incentive Program January 1, 2014 December 31, 2015 INTRODUCTION This document is the Domestic Incentive Program for John Wayne Airport, Orange County ( JWA or Airport ). This Domestic Incentive Program is designed to encourage and promote the operation of commercial passenger air service by new entrant and incumbent Commercial Air Carriers to various destinations in the United States. This Program is consistent with and supports the vision of JWA to be a world-class aviation gateway for business and leisure travel. GOALS The goals of the Program include: Provide new non-stop air service between JWA and important, unserved markets in the United States. Increase the number of passengers utilizing JWA (within the parameters defined in the Settlement Agreement and the PHASE 2 COMMERCIAL AIRLINE ACCESS PLAN AND REGULATION ( ACCESS PLAN OR PLAN )). Increase non-aeronautical revenue generated at JWA. Serve Orange County passengers who are currently flying through other regional airports to reach these destinations. DEFINITIONS ADD means average daily departure which is computed on an annual basis, from January 1 of each year to December 31 of the same year. One ADD authorizes any person requiring ADDs for its operation at JWA to operate 365 (or 366 in any leap year) Authorized Departures during each Plan Year, subject to the definitions, provisions, conditions, and limitations of the PHASE 2 ACCESS PLAN, and any adjustments which may result from the implementation or enforcement of the PLAN. Domestic Incentive Program means this document and in all communication regarding this Program, it may be referred to as the Domestic Incentive Program. Airport Director means the Director of JWA, Orange County. Authorized Departure means a single departure authorized by an allocation of (i) a Regular ADD allocated under Sections 3.1.1, 3.1.2, or 7.3 of the PLAN; (ii) a Class E departure authorized by (and within the limitations of) Section 3.4 or Section 3.6 of the PLAN; or (iii) by an allocation of supplemental Authorized Departures under Section 4.2 of the PLAN. Page 1 of 9 Page 1 of 13

7 Board of Supervisors or Board means the elected (or duly appointed) members of the Board of Supervisors of the County of Orange, California. Class A ADD means an ADD which has been allocated for use by aircraft qualified under Section 10 of the PLAN, and which continue to operate during each noise compliance period as Class A aircraft (see, ACCESS PLAN Section 2.11). Class A Departure means a single departure allocated for use by aircraft qualified under Section 10 of the PLAN as a Class A aircraft. Commercial Air Carrier, Air Carrier or Carrier means any person other than a Commuter Air Carrier or Commuter Cargo Carrier who operates Regularly Scheduled Air Service into and out of JWA for the purpose of carrying passengers, freight, cargo, or for any other commercial purpose. County means the County of Orange, California, acting by and through its Board of Supervisors, and persons designated by the Board to implement and enforce this PLAN. Incumbent Air Carrier means any Air Carrier who currently operates Regularly Scheduled Air Service into and out of JWA. JWA means John Wayne Airport, Orange County (SNA) New Entrant Air Carrier means any Air Carrier who currently does not operate Regularly Scheduled Air Service into and out of JWA, but has taken the steps necessary to become a qualified Air Carrier. PHASE 2 COMMERCIAL AIRLINE ACCESS PLAN AND REGULATION ACCESS PLAN or PLAN means the document that provides the rules and regulations that govern JWA, as further provided in Section 1.1 of the PLAN. Plan Year means the period from January 1 to December 31 of each year. Regularly Scheduled Air Service means all operations conducted by a Regularly Scheduled Commercial User at JWA. Regularly Scheduled Commercial User means any person conducting aircraft operations at JWA for the purpose of carrying passengers, freight, or cargo where such operations: (i) are operated in support of, advertised, or otherwise made available to members of the public by any means for commercial air transportation purposes, and members of the public may travel or ship commercial cargo on the flights; (ii) the flights are scheduled to occur, or are represented as occurring (or available) at specified times and days; and (iii) the person conducts, or proposes to operate, departures at JWA at a frequency greater than two (2) times per week during any consecutive three (3) week period. Page 2 of 9 Page 2 of 13

8 DOMESTIC INCENTIVE PROGRAM DESCRIPTION OF INCENTIVE PACKAGES Subject to all federal and state laws and all provisions of the ACCESS PLAN, and subject to all other County rules, regulations, and written agreements between the County and the Air Carrier(s), the following is a description of the incentive package(s) under this Domestic Incentive Program. Tier 1: One (1) incentive package is proposed for the introduction of new nonstop service to the Washington, D.C. metropolitan area. Washington, D.C. service may be provided to any one of the following: (1) Baltimore Washington International Airport; (2) Dulles International Airport; or (3) Ronald Reagan Washington National Airport. The incentive package would provide a rent credit of $300,000 for terminal space and operations costs associated with the service. In order to qualify to receive this incentive package, the proposed service must: (1) be operated nonstop from JWA to one of the three airports in the Washington D.C. metropolitan area; (2) be operated continuously for a period of twelve months from the date of initiation of service; (3) be operated an average of five days per week; (4) be initiated during the period from January 1, 2014, to December 31, 2015; and (5) comply with all applicable airport noise and access regulations, including all provisions of the Access Plan. Tier 2: One (1) incentive package would be offered for the introduction of new nonstop service to a destination in Hawaii not served from JWA at the time new service is proposed. The incentive package would provide a rent credit of $50,000 for terminal space and operations costs associated with the service. In order to qualify to receive this incentive package, the proposed service must: (1) be operated nonstop from JWA to the proposed airport in Hawaii; (2) be operated an average of two days per week and in at least nine months during the one-year incentive term; (3) be initiated during the period from January 1, 2014, to December 31, 2015; and (4) comply with all applicable airport noise and access regulations, including all provisions of the Access Plan. Tier 3: Two (2) incentive packages will be offered for the introduction of new nonstop service to any unserved domestic market. Specifically, one (1) incentive package will be offered for each of two (2) nonstop destinations in the United States not served from JWA at the time new service is proposed. Each incentive package will provide a rent credit of $35,000 for terminal space and operations costs associated with the service. In order to qualify to receive this incentive package, the proposed service must: (1) be operated nonstop from JWA to the proposed airport in the United States; (2) be operated an average of two days per week and in at least nine months during the one-year incentive term; (3) be initiated during the period from January 1, 2014, to December 31, 2015; and (4) comply with all applicable airport noise and access regulations, including all provisions of the Access Plan. The Airport currently has sufficient operating capacity (Class A and Class E) to accommodate the service contemplated under Tiers 1, 2 and 3. Allocation of capacity, in the class appropriate for the service proposed, would be made at the time the incentive package is awarded. Page 3 of 9 Page 3 of 13

9 ELIGIBILITY This Domestic Incentive Program is available to both Incumbent and New Entrant Air Carrier(s). No New Entrant Air Carrier may receive an allocation of an incentive package(s) under this Incentive Program unless, and until, it meets all of the requirements of the ACCESS PLAN and has otherwise completed all other established County requirements necessary for the Carrier to become a qualified Air Carrier at JWA. APPLICATION FOR AND AWARD OF INCENTIVES The initial incentive package allocation process will occur on January 29, Any Air Carrier that is eligible and interested in receiving one (1) or more incentive packages during the initial allocation process must complete and submit the John Wayne Airport Domestic Incentive Program Application (below) to the Airport Director not later than 5:00 p.m. (local time) on January 22, Requests for incentive packages not awarded in the initial allocation process will be considered on a first-come, first-served basis. Assuming that all eligibility criteria referenced above are met, the following conditions will apply to the preliminary award of the incentive packages: A single Air Carrier may receive more than one (1) incentive package provided that the Air Carrier meets all of the eligibility criteria referenced above. If only one (1) Air Carrier proposes to initiate service to any one of the three designated airports in the Washington D.C. area, the Air Carrier will receive the incentive package for that destination. If more than one (1) Air Carrier proposes to initiate service to the same destination in Tier 1, Tier 2 or Tier 3, the Air Carrier proposing the earliest start date for initiation of service will receive the incentive package for that destination. If more than one (1) Air Carrier proposes to initiate service to the same destination and the Air Carriers propose the same start date for initiation of service the Airport will conduct a lottery to select the Air Carrier that will be the recipient of the incentive package for that destination. The lottery process, if necessary, shall take place at 1:00 p.m. (local time) on January 29, The lottery will take place at the Airport Commission Hearing Room, John Wayne Airport Administration Building, 3160 Airway Avenue, Costa Mesa, California. Each Air Carrier shall have the opportunity to be represented by a company official during the lottery process. At the beginning of the lottery process, each airline participating in the lottery process will be asked to confirm its presence, and to confirm that it is being Page 4 of 9 Page 4 of 13

10 represented by an official with authority to make a binding commitment on the acceptance of an incentive package. Immediately after the lottery drawing, the Airport Director will advise the Air Carriers of the order in which Air Carriers will be offered incentive package(s). Any disputes or protests about the lottery process shall be immediately resolved by Airport staff. Any failure to immediately express such a protest will be deemed by the County to be a waiver of the protest by the Air Carrier. The final award of one or more incentive packages will occur only after the receiving Air Carrier and the County have executed either a lease or operating agreement and a Commitment Letter and only after all other requirements of the County and the ACCESS PLAN have been met. In addition, if an Air Carrier that has been awarded one or more incentive package(s) chooses to apply the applicable rent credit at the outset of the required 12 month service period (rather than at the conclusion of the service period), the Air Carrier to receive such rent credit shall provide the Airport with an irrevocable letter of credit in an amount equal to the total rent credit to be received under this Incentive Program. The letter of credit shall have a term of not less than 12 months, shall be from a financial institution licensed to do business in the State of California, and shall guarantee the faithful performance by the Air Carrier of all of its obligations under this Incentive Program. The letter of credit shall not be the sole or exclusive remedy of the Airport and shall not be construed, in and of itself, as adequate assurance of future performance, or interpreted as a waiver, discharge or impairment of the Airport's rights under law or equity. The allocation of incentive package(s) shall not be transferable and no property rights are created by virtue of the allocation of incentive package(s). The County shall have no liability of any nature, or in any form, to an Air Carrier for any costs, expenses, harm, damages, or other claims which an Air Carrier might otherwise have against the County, or which an Air Carrier might incur, in respect of, or arising from, incentive package allocation(s) and any capacity withdrawal required under the Penalties and Prohibitions Section of this Incentive Program. GENERAL PROVISIONS AUTHORITY This Incentive Program is adopted by the County, acting in its capacity as the proprietor and certificated operator of JWA, and under the authority of federal law, and the laws of the State of California, which designate the County as the proper local entity to balance the needs of the Orange County community for adequate commercial air transportation facilities and services, including service to international destinations, and the desire of the local community for environmentally Page 5 of 9 Page 5 of 13

11 responsible air transportation operations at JWA. This Incentive Program is consistent with the provisions of the ACCESS PLAN and reflects consideration of by the County of all of its state and federal obligations and responsibilities as the proprietor of JWA. This Incentive Program is adopted by the County in recognition of its proprietary and governmental obligations under the STATE AERONAUTICS ACT (CALIFORNIA PUBLIC UTILITIES CODE 21001, et seq.) and is particularly made in recognition of the importance of the business, tourist and recreation industry to the economic health and well-being of the Orange County community. Orange County is a major business, tourist and resort destination center, and a substantial portion of the economy of Orange County depends upon tourism and resort activities. The ability of the County to encourage and promote passenger air service between JWA and new destinations, within defined environmental constraints, is indispensable to the continued economic vitality of the Airport and to the business, tourism and resort segments of the Orange County economy. TERM The provisions of this Incentive Program shall be deemed to be effective on the date the Orange County Board of Supervisors approves the Incentive Program and shall terminate on December 31, Any privileges granted to any person in connection with, or as a result of the implementation of this Incentive Program, shall be subject to the provisions of the ACCESS PLAN and the Air Carrier s operating or lease agreement and may be revoked, suspended, or terminated at any time at the sole discretion of the County. GENERAL LIMITATIONS AND QUALIFICATIONS All allocations of ADDs and Authorized Departures, or other operating privileges of any type made under this Incentive Program to Commercial Air Carriers are made subject to all provisions, limitations and qualifications of the ACCESS PLAN and are privileges revocable by the County at will, do not constitute property interests of persons affected by this Incentive Program in any form, and are not transferable, directly, indirectly, or by operation of law. RELATIONSHIP TO OPERATING AND LEASE AGREEMENTS No Commercial Air Carrier may conduct operations at JWA under this Incentive Program until it has first received approval by official action of the Board of an operating or lease agreement further defining that person s obligations to the County in respect of its operations at JWA. The obligations of any Regularly Scheduled Commercial Air Carrier serving JWA under this Incentive Program are in addition to any and all obligations that person has to the County under its operating or lease agreement with the County relating to operations at, or the use of, JWA and all remedies, sanctions, and enforcement rights available to the County under the ACCESS PLAN and available to the County under any lease agreement are available to the County under this Incentive Program. AMENDMENTS, TERMINATION OR SUSPENSION This Incentive Program may be amended, terminated or suspended as specifically provided by the provisions of this Program. Unless specifically provided, this Incentive Program may be amended, terminated or suspended only by official and duly noticed action of the Board. The Board may, in the sole and exclusive exercise of its full legislative discretion, amend, terminate or suspend this Incentive Program at any time. By adoption of this Incentive Program, the Board announces that it Page 6 of 9 Page 6 of 13

12 is the intent of the Board to amend, terminate, or suspend this Program when and as necessary (in the sole and exclusive exercise of the Board s legislative discretion) to effect or maintain the regulatory, environmental, and service level goals, policies, and objectives of the County in its management and operation of JWA. ACCEPTANCE OF THE TERMS OF THIS DOMESTIC INCENTIVE PROGRAM AND AMENDMENTS TO THIS PROGRAM Each person conducting Regularly Scheduled Air Service at JWA does so voluntarily and without coercion. Any person accepting and operating allocations of ADDs or Authorized Departures under this Domestic Incentive Program and conducting operations at JWA under this Program will be deemed conclusively to have accepted all terms and provisions of this Incentive Program as limitations and conditions on its operations at JWA during the term of this Incentive Program. ACCEPTANCE OF AMENDMENTS TO THIS DOMESTIC INCENTIVE PROGRAM In the event the Board elects at any time to amend this Domestic Incentive Program, any person who is conducting Regularly Scheduled Air Service at JWA under this Domestic Incentive Program for thirty (30) days after the date on which the Board approves the amendment(s) shall be deemed conclusively to have accepted all terms and provisions of the amendment(s) to the Incentive Program. COMPLIANCE WITH FEDERAL OBLIGATIONS The terms and implementation of this Domestic Incentive Program shall be, at all times, subordinated to applicable state and federal laws and regulations, and the provisions of any existing or future agreement between the County and the United States Government or governmental authority, relating to the operation or maintenance of the Airport. The Program may be terminated, in whole or in part, if it is determined to violate applicable laws, regulations or any assurance made by the County to the United States Government in connection with the receipt of federal grants-inaid or the approval of Passenger Facility Charges. NON-EXCLUSIVITY OF SANCTIONS, PENALTIES, AND REMEDIES The penalties of this Domestic Incentive Program are non-exclusive, and are in addition (and without prejudice) to any and all other remedies, at law or at equity, civil or criminal, by contract or otherwise, which may be available to the County with respect to the conduct or actions of any person using JWA. FUNDING Rent credits offered by the Airport under this Domestic Incentive Program shall not have the effect of increasing the rentals, fees or charges imposed on other aeronautical users of the Airport, including other Air Carriers. PENALTIES AND PROHIBITIONS Page 7 of 9 Page 7 of 13

13 In addition to all other prohibitions and restrictions contained in the ACCESS PLAN and any and all regulations, ordinances, policies, leases, and agreements of the County adopted or entered into in its capacity as the proprietor and certificated operator of JWA, the following prohibitions and penalties shall be applicable to all actual or potential Regularly Scheduled Air Carriers conducting (or proposing to conduct) operations at JWA under this Domestic Incentive Program. In the event any Air Carrier that has been allocated, in whole or in part, an incentive package under this Domestic Incentive Program: (1) ceases or abandons flight operations to the proposed destination prior to twelve (12) months after the date of initiation of service; (2) conducts its operations in a manner which causes the person to operate less than the required frequency and duration of service, beginning with the date of initiation of service; (3) fails to initiate the proposed service between January 1, 2014, and December 31, 2015; or (4) fails to comply with any provision of the ACCESS PLAN during the term of this Incentive Program, the Air Carrier shall be subject to the following penalties: (a) (b) (c) (d) The Air Carrier shall immediately lose any and all operating privileges received under the incentive package(s) for which the violation(s) occurred and any Regular ADDs or Authorized Departures previously allocated to the Air Carrier in accordance with the terms of the incentive package(s) for which the violation(s) occurred shall immediately be available for reallocation by the County under the Domestic Incentive Program at the sole and exclusive discretion of the County; and The Air Carrier shall be disqualified from further participation under the Domestic Incentive Program, with the exception of any incentive package(s) already allocated to the Air Carrier that remains in compliance with the terms of the Incentive Program until the person requesting requalification establishes, in writing, to the satisfaction of the Airport Director, that it has identified the reason(s) for the failure to comply with the terms of the Incentive Program and has not requalified for the Domestic Incentive Program on more than one (1) occasion during the term of the Program; and The Air Carrier shall be required to reimburse JWA for all credits received under the Domestic Incentive Program for the incentive package(s) for which the violation(s) occurred including, but not limited to, all monetary credit(s) and all ADDs received under the incentive package(s) for which the violation(s) occurred; and The repayment of any monetary credits must be paid not later than thirty (30) days after the date of the Airport Director s written notice of violation. Any person who fails to make repayment as required by this Section within the thirty (30) day period shall be subject to an additional administrative penalty of $1,000 per day for each day the penalty payment is late. Any Air Carrier may submit a written request to the Airport Director for modifications to the use requirements, including, but not limited to, the service period and frequency of operations, of the Domestic Incentive Program. If the request is granted in whole or in part, the Airport Director shall specify the modified use requirements authorized by him, and the modifications will then be binding on the applicant operator for the period for which the request has been granted as if contained in the Incentive Program. Page 8 of 9 Page 8 of 13

14 The Airport Director may deny, grant, or grant with conditions the requested use modification(s). In considering any request made, the Airport Director shall consider the following: (1) the reasonableness of the request under the relevant circumstances; (ii) the interests of the air traveling public and the impact of the request, if any, on the ability of the County to realize its goals for the Incentive Program; and (iii) the effect of the request, if any, on the environmental goals, policies and regulations of the County in its management and operation of JWA. Any person who is assessed any penalty or other sanction imposed by the Airport Director under the terms of this Domestic Incentive Program may request County administrative review of the initial decision to impose the penalty or sanction in accordance with the terms of Section 9 of the ACCESS PLAN The penalties provided in this Domestic Incentive Program are in addition to, and not in place of, any penalties and prohibitions provided for in the ACCESS PLAN. Whenever this Domestic Incentive Program and the ACCESS PLAN provides for more than one (1) possible sanction or penalty with respect to any violation of this Domestic Incentive Program, the person(s) committing the violation may be subject to each of the possible penalties or sanctions, or any combination of penalties or sanctions. Page 9 of 9 Page 9 of 13

15 JOHN WAYNE AIRPORT ORANGE COUNTY (SNA) DOMESTIC INCENTIVE PROGRAM APPLICATION Air Carrier: Date: Signature: Air Carrier: Person Submitting Form: Date of Proposed Initiation of Service: Non-Stop Destination (Airport): ADD Class Aircraft Type Number of Seats per Aircraft Frequency Departure Days Total # of Days Total # of Arrivals/ Departures (OPS) REMAIN OVERNIGHT REQUESTED: JWA USE ONLY: Date Completed: Date Received: Staff: Page 10 of 13

16 (Date) (Mailing Address) SUBJECT: Commitment Letter Regarding Participation in the John Wayne Airport, Orange County Domestic Incentive Program Dear : By this letter, I would like to formally acknowledge your request to participate in the John Wayne Airport, Orange County (SNA) ( JWA or Airport ) Domestic Incentive Program ( Domestic Incentive Progam ).* According to your request and discussions you have had with my staff, I understand that you intend to initiate nonstop service to, on. As indicated in the Domestic Incentive Program, prior to commencing commercial service at the Airport, (the Airline ) must receive approval by official action of the Orange County Board of Supervisors of an operating or lease agreement which will further define your obligations to the County of Orange, California ( County ) in respect to your operations at JWA. In addition, the Airline must comply with all applicable Airport noise and access regulations including, but not limited to, all provisions of the PHASE 2 COMMERCIAL AIRLINE ACCESS PLAN AND REGULATION ( PHASE 2 ACCESS PLAN ).** This letter is intended to memorialize the Agreement between the County, the owner and operator of JWA, and the Airline under the terms of the Domestic Incentive Program, approved by the Board on December, 2013, a copy of which is enclosed for your information. The County and the Airline, by their respective signatures to this letter, acknowledge their understanding and agreement that: i) The terms of financial and allocation incentives for Airline s air service to the Airport (the Incentives ) is governed by the Domestic Incentive Program; ii) The service that the Airline is offering at JWA is non-stop service from JWA to and falls within all the other eligibility criteria of the Incentive Program; and iii) The Airline commits to maintain such service over a period of twelve (12) months from the date of initiation of service and be operated at the specified frequency over the first twelve (12) months of service. In consideration of the forgoing, it is further understood and agreed that the Airport will provide a rent credit of for terminal space costs associated with the provision of the domestic air service. The Airline has the option Page 11 of 13

17 (Attn.) (Date) Page 2 of selecting a $ credit that is applied at the start of service or a credit that is applied at the conclusion of the twelve (12) month service period. If the Airline chooses to begin applying the credit at the start of service, the Airline will be required to provide a Letter of Credit for $. In the event the Airline fails to initiate the proposed service on the date certain proposed (must initiate service between January 1, 2014, and December 31, 2015), ceases or abandons flight operations to the proposed destination prior to twelve (12) months after the date of initiation of service, conducts its operations for less that than an average of days per week over the twelve (12) month period, beginning with the date of initiation of service, or fails to comply with any provision of the PHASE 2 ACCESS PLAN during the term of the Domestic Incentive Program, the Airline may be subject to the penalties as specified in the Domestic Incentive Program including, but not limited to, losing any and all operating privileges received under the Domestic Incentive Program (for the incentive package for which the violation occurred), disqualification from further participation under the Domestic Incentive Program, and reimbursement to JWA for all credits, including monetary credits and Class A ADD(s) allocation(s), received under the Domestic ncentive Program. As with all of our agreements at the Airport, this Agreement is subordinate to the provisions of any and all existing and future agreements between the County and the United States of America relative to the operation, maintenance, or development of the Airport, the execution of which may be required as a condition precedent to the expenditure of funds for the development of the Airport, or any part thereof. In the event the Federal Aviation Administration of the United States of America or its successor requires modifications or changes in the Domestic Incentive Program or to this Agreement, the Airline consents to any and all such modifications and changes as may be required; and the County and the Airline agree to execute an amendment to this Agreement reflecting such modifications or changes. If the foregoing is acceptable, please sign a duplicate original of this correspondence and return it to me to indicate that concurs in the above. Thank you for your prompt attention to this matter. Sincerely, Alan L. Murphy Airport Director Page 12 of 13

18 AGREED TO BY: THE COUNTY OF ORANGE OWNER AND OPERATOR OF JOHN WAYNE AIRPORT Airport Director AGREED TO BY: Dated: Signature Title: Corporate Name: cc: Assistant Airport Director Deputy Director, Public Affairs Deputy Director, Business Development Manager, Access and Noise Airport Special Counsel County Counsel * ** The terms in this letter shown in italics type are defined terms in Section 2 of the PHASE 2 ACCESS PLAN. The PHASE 2 ACCESS PLAN was approved and adopted by the Orange County Board of Supervisors on August 29, On December 12, 1990, and on subsequent dates, the Board considered and approved various administrative amendments to the PHASE 2 ACCESS PLAN. Copies of the ACCESS PLAN can be obtained from the Airport. The PHASE 2 ACCESS PLAN provides that any person conducting regularly scheduled air service at JWA is deemed to conclusively have accepted all terms and conditions of the PHASE 2 ACCESS PLAN. In addition, the terms of all leases with the Airport require all airlines operating at JWA to conduct all operations and activities at JWA in strict compliance with the PHASE 2 ACCESS PLAN Page 13 of 13