3/3/208 2/26/208 Approval NY a NY Y RW JH BOA /...-_ 0...0 00:4.4 Los Angeles World Airports REPORT TO THE OF AIRPORT COMMISSIONERS -A. A_ A.4k._ra. At, Approved y: Dave Jones - Air.n:TPro:-.,. oncession Services Meeting Date: 4/5/208 ii Reviewed by: Debbie L. Bower, 9-0 fig ::f Chief Commercial Officer DMPWFlint - Chief Executive Officer,- CAO Review: LKl I Completed Pending N/A I I I Reviewed for! Date Status By Finance I 2/27/208 Ell N NA PtCEQA I 2/27/208: aen Procurement EN Cond I MT Guest Experience EN BY Strategic Planning 2/22/208 N M NA KV SUBJECT: Approval of a Lease with Delta Air Lines, Inc. for space at the West Aircraft Maintenance Area at Los Angeles International Airport and appropriate funds for acquisition of Site Improvements Approve a 20-year lease with Delta Air Lines, Inc. for land and aircraft pad positions at the West Aircraft Maintenance Area at Los Angeles International Airport and appropriate funding in the not-to-exceed amount of $23,500,000, which will generate approximately $3,900,000 in the first year of the Lease. RECOMMENDATIONS: Management RECOMMENDS that the Board of Airport Commissioners:. ADOPT the Staff Report. 2. DETERMINE that this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Article II, Section 2.i of the Los Angeles City CEQA Guidelines. 3. APPROVE the proposed Lease with Delta Air Lines, Inc. for space at West Aircraft Maintenance Area at Los Angeles International Airport. 4. AUTHORIZE the Chief Executive Officer or her designee to execute the proposed Lease with Delta Air Lines, Inc., subject to approval as to form by City Attorney and upon approval of the Los Angeles City Council. Page
5. AUTHORIZE the Chief Executive Officer or her designee to appropriate funds in the amount not to exceed $23,500,000 for acquisition of Site Improvements from Delta Air Lines, Inc. DISCUSSION:. Purpose Provide Delta Air Lines, Inc. (Delta) a lease (Lease) to allow the construction and operation of an aircraft maintenance facility at the West Aircraft Maintenance Area (WAMA) at Los Angeles International Airport (LAX). 2. Prior Related Actions March 8, 204 - Resolution NO. 25365 The Board of Airport Commissioners (Board) considered and adopted the Executive Director's Los Angeles International Airport Plan Compliance Report; adopted the Statement of Overriding Considerations, the California Environmental Quality Act Findings, and the West Aircraft Maintenance Area Project Mitigation Monitoring and Reporting Program; adopted and certified the Final Environmental Impact Report for the West Aircraft Maintenance Area Project; and approved the West Aircraft Maintenance Area Project September 20, 207 - Board Resolution No. 26344, LAA-8978 The Board approved the Well Transfer Agreement with Chevron for an oil exploration well located on the WAMA site at LAX. 3. Current Action Delta occupies an aircraft maintenance facility at 6060-6080 Avion Drive. The facility is in the pathway of the Automated People Mover (APM) that Los Angeles World Airports (LAWA) is constructing as part of the Landside Access Modernization Program (LAMP). To make way for the Automated People Mover, Delta must vacate by March 3, 209, at which time the facility will be demolished. LAWA staff identified a site within WAMA for Delta to develop and construct a new aircraft maintenance facility. The proposed Lease provides for Delta to build a maintenance facility. The proposed improvements include both Site Improvements that LAWA will acquire and Lessee Improvements that Delta will hold and depreciate over the term of the Lease. If Delta fails to complete the improvements, the Lease will terminate December 3, 2020. If Delta successfully completes the improvements before this date, then the Lease will continue for the proposed 20-year term, with two five-year tenant extension options. The proposed Site Improvements are Non-Proprietary Improvements that typically are constructed by a landlord to bring property into a condition suitable to lease. The Site Improvement work includes re-abandonment of an existing oil well owned by LAWA, demolition of an abandoned security check post, construction of retaining walls and fill-in to grade, delivery of utilities to the site, and installation of security fencing. To ensure the replacement maintenance facility is operational in advance of LAMP's needs. Delta and LAWA agreed it is more efficient to have Delta's contractor construct both the Site Page 2
Improvements that LAWA will acquire pursuant to the proposed Lease and the Lessee Improvements that Delta will hold throughout the term. Upon completion, LAWA will acquire the Site Improvements in an amount not to exceed $23,500,000, including interest. The Lessee Improvements, estimated to cost $36,000,000 at Delta's sole expense, will include an aircraft maintenance hangar, ground service equipment area and landside parking lot. Delta has advised LAWA that it intends to employ a MBE/WBE/SBE policy for the construction of the improvements at twenty percent (20%) and will report the status on a quarterly basis. The proposed Lease also provides that Delta may finance some or all of the construction through () a lender or lending institution, (2) a special purpose entity, or (3) the Regional Airports Improvement Corporation (RAIC) or another similar financing entity. Delta has advised LAWA that it wishes to finance some or all of the construction using RAIC or similar financing entity. The table below provides a summary of key elements of the proposed Lease: Page 3
LEASE SUMMARY USE Operation of aircraft maintenance and ground service equipment maintenance facilities TERM: Commencement Date Expiration Date Upon execution by the CEO and approval by the Los Angeles City Council 20 years from the Commencement Date Termination Options ) If Delta fails to complete the Optional Improvements by December 3, 2020 (Optional Improvements Deadline), the Lease terminates December 3, 2020. DEMISED PREMISES: 2) If Delta completes the Optional Improvements by the Optional Improvements Deadline, the Lease terminates 20 years from the Commencement Date with two five-year tenant options. 3) LAWA may terminate with a 36-month written notice. Maintenance Land Aircraft Parking 366,475 SF 700,75 SF Total:,067,90 SF RENT: Monthly Rent Rate Rent Maintenance Land $2.7/square foot per year $ 24,007 Paved Aircraft Parking $0.78/square foot per year $ 45,546 Preconditioned Air Units $2,43/per unit per month $ 7,239 400 Hz Electrical Systems $,538/per unit per month $ 7,685 Potable Water System $990/per unit per month $ 2,969 Wash Rack $20,89/per unit per month $ 20,89 Notes: Total Monthly Rent: $ 325,265. Land and Paving rates are Board-approved rates. All rates are per square foot, per year, and are rounded and adjusted annually, per CPI. Action Requested Staff requests the Board approve the proposed Lease and authorize the CEO to execute the proposed Lease subject to approval as to form by City Attorney and upon approval of the Los Angeles City Council. Page 4
Staff also requests the Board authorize funding in the amount of $23,500,000 for acquisition of non-proprietary Site Improvements. Fiscal Impact The costs for the Site Improvements from Delta will be recovered through the Landing Fee. LAWA's total acquisition for the Site Improvements, including interest is a not-to exceed amount of $23,500,000. Approval of the proposed Lease will provide approximately $3,900,000 in revenue in the first full year from execution and a minimum of approximately $74,200,000 over the initial 20 years. 4. Alternatives Considered 9 Take No Action Not approving the Lease would ultimately leave Delta without an aircraft maintenance facility to support its operations at LAX once the LAMP project requires demolition of Delta's current facility. This would cause disruption to Delta's operations since Delta would not be able to service its fleet onsite. APPROPRIATIONS: Staff requests that the Board appropriate and allocate funds in a not-to-exceed amount of $23,500,000 from the LAX Airport Revenue Fund to WBS Element.8.9A-700 (Delta Air Lines WAMA Hangar) as may be required to acquire the Site Improvements from Delta. STANDARD PROVISIONS:. Any activity (approval of bids, execution of contracts, allocation of funds, etc.) for which the underlying project has been previously been evaluated for environmental significance and processed according to the requirements of the California Environmental Quality Act (CEQA) is exempt from further review pursuant to Article II, Section 2.i of the Los Angeles City CEQA Guidelines. The West Aircraft Maintenance Area (WAMA) Project Environmental Impact Report (EIR) was certified by the Board of Airport Commissioners for this project on March 8, 204 (Resolution No. 25365). 2. This proposed document(s) is/are 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 606. 4. Delta Airlines will comply with the provisions of the Living Wage /Service Contractor Worker Retention Ordinances. 5. Leases are not subject to the Small Business Enterprise, Local Business Enterprise/Small Local Business Enterprise, and Disabled Veterans Business Enterprise Programs. 6. Delta Airlines will comply with the provisions of the Affirmative Action Program. Page 5
7. Delta Airlines is not required to obtain a Business Tax Registration Certificate for this Lease Agreement. 8. Delta Airlines will comply with the provisions of the Child Support Obligations Ordinance. 9. Delta Airlines has approved insurance documents, in the terms and amounts required, on file with Los Angeles World Airports. 0. This action is not subject to the provisions of City Charter Section 022 (Use of Independent Contractors).. Delta Airlines has submitted the Contractor Responsibility Program Questionnaire and Pledge of Compliance and will comply with the provisions of the Contractor Responsibility Program. 2. Delta Airlines has been determined by Public Works, Office of Contract Compliance, to be in full compliance with the provisions of the Equal Benefits Ordinance. 3. Delta Airlines will be required to comply with the provisions of the First Source Hiring Program for all non -trade LAX Airport jobs. 4. This action is not subject to the provisions of the Bidder Contributions CEC Form 55. Page 6