Staff Report Report To: City Council Report From: Chris Hughes, Manager of Contract Services Meeting Date: September 20, 2016 Report Code: OP-16-049 Subject: Airport Service Review Options Recommendations: That in consideration of Staff Report OP-16-049 respecting Airport Service Review Options, City Council selects one of the following options for implementation by City staff: 1) Attempt to divest the airport to a private interest that would continue to operate the site as an airport. 2) Close the airport with the eventual sale of the property as the end goal. 3) Attempt to make the airport a financially self-sustaining entity. Strategic Initiative: Optimize the City s operations while maintaining or improving the quality of life. Background: At its Special Meeting 2016 Service Review, held on June 10, 2016, City Council adopted resolution S-160610-003: "THAT resolutions S-160330-004, THAT City Council in consideration of recommendation 2402.1, move forward to consider divestiture of the Owen Sound Billy Bishop Regional Airport, S-160330-005 THAT City Council consider the option of seasonal operations at the Owen Sound Billy Bishop Regional Airport and S-160330-006 THAT City Council consider the option Page 1 of 6
of closure of the Owen Sound Billy Bishop Regional Airport, along with a fourth option THAT City Council consider the option to make the Airport self-sustaining, proceed for further analysis." Analysis: Seasonal Operation of the Airport: It may be possible for the City to reduce the annual operating period for the airport from 12 months of the year to six months, for example from May 1 to October 31 each year, the period of the year when the majority of the movements take place. This could potentially save up to $40,000 each year in operational costs, however there would also be some loss of revenue associated with this operational change. The proposal would not affect the need for capital investment in the airport infrastructure and may cause some acceleration of deterioration of the infrastructure. Reducing the annual operating period may also result in objections from the hangar owners and businesses at the airport and Grey Bruce Health Services. There is potential for legal action from the hangar owners. Such a reduction in service would also require contract revisions for the airport management, flight school and restaurant contracts. These contracts expire as follows: Airport Management contract: June 30, 2017 Flight School contract: April 30, 2017 Restaurant contract: Sept 30, 2018 Staff do not recommend pursuing this option. Airport Divestiture: The City issued a Request for Proposals in 2010 to see if a purchaser could be found who would continue to operate the airport as a private rather than a public venture. That effort was unsuccessful. Recently the President of the hangar owners group, Dave McKinnon reported that the group consensus is that they are not interested in taking over ownership of the airport at this time. The City could revise and reissue the RFP sent out in 2010, however staff do not think the outcome would be any different this time. Page 2 of 6
Closing the Airport: Closing the airport would likely result in objections from hangar/airplane owners Airport businesses and GBHS. The hangars are built on land leased from the City for that purpose. Closure would require that the City compensate the hangar owners for some if not all of their investment in the hangar structures. The total assessment value of the hangars (excluding land value) was s $1.2 million in 2012 according to information obtained from the Municipal Property Assessment Corporation (MPAC). While the lease agreements for the hangars do not specifically state that the City will maintain the airport as an operational entity, staff anticipate that any attempt to close the airport would likely lead to litigation by the hangar owners over a perceived breach of the spirit of the lease agreements and/or level of compensation offered. ORNGE: The ORNGE air ambulance service provides emergency movement of patients from the Owen Sound site of Grey Bruce Health Services by helicopter and from the Owen Sound Billy Bishop Airport and Wiarton Airport by fixed wing aircraft. The statistics for Arrivals/Departures from each location for ORNGE fiscal years 2014-2015 and 2015-2016 are as follows: Location FY 2014-2015 FY 2015-2016 GBHS Helicopter 87 85 OS Airport Helicopter 7 13 OS Airport Airplane 22 20 Wiarton Airport Helicopter 25 45 Wiarton Airport Airplane 2 2 Helicopters can land directly at the Owen Sound hospital helipad. The helicopter flights to the Owen Sound Airport are mostly for refueling. The City s contact at ORNGE was asked directly what they would do if the airport closed. They have chosen not to respond. It is suspected that in the absence of the Owen Sound Airport, The Wiarton Airport would be the alternate in the event that a fixed wing aircraft had to be used. This would add 26 minutes of additional travel time versus landing at the Owen Sound Airport. Page 3 of 6
Making the Airport Self-Sustaining: The options for making the airport financially self-sustaining by diversifying the land use are somewhat limited by the requirements of operating an airport and the fact that the airport is within the Niagara Escarpment Commission (NEC) area. For example, the City had to apply to the NEC to allow the establishment of the restaurant within the existing airport building. Any new ventures that are not strictly airport-related would also require NEC approval and must not interfere with the safe operation of the airport. The City could still make an effort to attract a new opportunity within these parameters. For example, there may be an opportunity to lease out portion of the airport property for a 500 kw ground-mount solar farm. The City could raise the lease rates for the hangar owners when their leases come up for renewal based on the annual costs as calculated below: Annual Operating & Maintenance for 10 years: $1,315,500 Projected 10 year Capital Cost: $1,108,000 Projected 10 year Revenue: ($ 596,000) Net Cost for 10 years: $1,827,500 Net Cost per year: $ 182,750 Net Cost per year (minus 10% made up elsewhere): $ 164,500 The annual cost of $164,500 divided by 65,115 square feet of rented space for hangars results in a $2.53 square foot lease rate. The lease rate is currently $0.25 to $0.38 per square foot. A hangar owner now paying $1,232 plus HST per year for a 3,500 square foot hangar would see that increase to $8,855 plus HST per year under this scenario. As only six hangar leases expire in 2016 and no others until 2023, it would take quite a while to bring the airport to a cost-neutral position by this route. The hangar leases contain a statement that renewal term disputes would go to arbitration, however this may not be very satisfactory for either party as there is no direction provided to the arbitrator in the lease agreements as to the basis for adjudication. Staff anticipate that such a significant increase in lease costs may result in legal action by the affected hangar owners. The City should review the lease rates for the flight school and restaurant when their leases expire. These could be compared to similar operations at other airports and other locations within the City and adjusted accordingly if a discrepancies are found to exist. Page 4 of 6
Service fees for visiting aircraft could also be reviewed, but are unlikely to significantly improve the profitability of the airport. Recreational pilots apparently decide where to visit based on such factors as amenities, service, and fuel costs at each airport. Any effort to significantly increase these costs may in fact decrease this revenue stream. The City could take a more active role in marketing the airport. CYOS no longer has a website and marketing is currently limited. More traffic at the airport may result in increased fuel sales and tie-down fees. However, staff are of the opinion that even with increased marketing efforts, air traffic will continue to be limited by geographic and economic factors. The airport is too far from the US border, and private flying is becoming less affordable to the general public. Maintaining the Status Quo: The cost to compensate the hangar owners for the loss of their hangars plus potential legal costs are anticipated to be equal to or higher than the net operating and capital costs for operating the airport as-is for the next 10 years. Based on this analysis, the best option appears to be maintaining the status quo at the airport, at least for the near future. Staff recommends increased marketing and moderately increasing lease rates for hangar owners and airport services as their leases come up for renewal. The City should also look for other compatible business opportunities for the property such as a solar farm. Financial/Budget Implications: The short-term Financial/Budget implications vary widely depending on the option selected. Communication Strategy: The decision of Council will be publicized through the Service Review process. The on-going Communication Strategy will depend on the option selected by City Council. Page 5 of 6
Consultation: The author consulted with Municipal Property Assessment Corporation, ORNGE, Transport Canada, the Ontario Ministry of Transport, and CYOS Management Group in preparation of this report. Attachments: None. Prepared By: Chris Hughes Signature on file Reviewed By: Ken Becking, P. Eng. Signature on file Submitted By: Wayne Ritchie Signature on file Page 6 of 6