Template revised September 22, 2016.
AGENDA MEMORANDUM
Item No.
7a
ACTION ITEM
Date of Meeting
February 27, 2018
DATE: February 9, 2018
TO: Executive Director Stephen P. Metruck
FROM: Lance Lyttle, Managing Director, Aviation Division
R. Borgan Anderson, Director, Aviation Finance & Budget
SUBJECT: 2018 – 2022 Signatory Lease and Operating Agreement between the Port and the
Airlines operating at Seattle-Tacoma International Airport (“Airport”)
ACTION REQUESTED
Request Commission authorization for the Managing Director, Aviation Division to (1) execute a
2018-2022 Signatory Lease and Operating Agreement (“SLOA IV”) between the Port and
signatory airlines for the use of facilities at the Airport and (2) to approve the Memorandum of
Understanding (“MOU”) between the Port and airline(s) to work together to develop a strategic
plan to reduce carbon emissions and air pollutants, and the community and environmental
impacts from existing and forecasted aviation growth at Sea-Tac Airport.
EXECUTIVE SUMMARY
A signatory lease and operating agreement dictates the conditions under which airlines use
airport facilities and the methodologies the airport employs to charge airlines for use of the
space and facilities. The purpose of this request is to approve SLOA IV as the successor lease
agreement to the 2013-2017 Signatory Lease and Operating Agreement (“SLOA III”) which
expired on December 31, 2017. Based on the Commission Motion of October 10, 2017, SLOA III
has been in month-to-month holdover status. The Commission Motion of February 13, 2018
amended this motion to extend SLOA III to May 31, 2018 in order to provide time for airlines to
execute SLOA IV by April 25, 2018, and to execute the MOU by April 25, 2018.
The Port and the airline negotiations committee reached agreement on the term sheet for
SLOA IV on February 9, 2018. The Term sheet included an approval threshold with two
conditions: 1) airlines representing 66 2/3% of Terminal Rents and Landing fees must sign
SLOA IV by April 25, 2018, and 2) airlines representing at least 40% of Terminal Rents and
Landing Fees must sign the MOU by April 25, 2018. If both conditions are met, SLOA IV will
become effective June 1, 2018, and will be implemented retroactive to January 1, 2018 (except
for the preferential gate allocation formula, which will be implemented for 2019).
COMMISSION AGENDA – Action Item No. _7a___ Page 2 of 5
Meeting Date: February 27, 2018
Template revised September 22, 2016; format updates October 19, 2016.
The purpose of the MOU is to formalize a commitment between the airlines and the Port to
work in partnership to make progress on the goals set forth in the Commission Motion of
December 19, 2017 to develop a comprehensive Port of Seattle sustainable aviation fuels
strategy. The Motion outlines specific goals, the first of which states: “By 2028, ten percent
(10%) of jet fuel available at Sea-Tac will be produced regionally from sustainable sources.” The
MOU calls for the development of a strategic plan to reach this goal. The plan will identify and
make recommendations as to how to create and benefit from opportunities, address
challenges, and support policies and financial incentives needed to meet this goal. The plan will
also analyze and recommend additional mechanisms that could contribute to carbon and air
emission reductions and the environmental impacts from aviation growth at Sea-Tac, including
technology, operations, infrastructure and future aircraft technology.
JUSTIFICATION
A multi-year lease agreement provides a greater degree of certainty to the airport and the
airlines than shorter-term alternatives. The only practical alternative to a new lease agreement
would be for the Port to implement rates by resolution. Resolution 3677, as amended,
describes the methodologies the Port would use to charge airlines in the absence of a lease
agreement. The Port and the airlines agreed that a negotiated lease agreement is preferable to
implementing rates by resolution.
DETAILS: COMPARISON OF KEY LEASE TERMS
Provision
SLOA III (2013 – 2017)
SLOA IV (2018 – 2022)
Term
5 Years
5 Years
Definition of a gate
Those portions of the terminal
comprised of a passenger
loading bridge, if any, and a
passenger hold room
Distinction and weighting
difference between a passenger
loading bridge gate (1.0) and a
ground boarded gate (0.5)
Limit on common use
gates Port can
withhold
None
2019: 16
2020: 18
2021: 18
2022: 21
Preferential gate
allocation formula
• Threshold
• Months of seats
data
None
1 (August – peak month)
6.0x average daily weighted turns
9: 6 months of actual (February –
July) and 3 months of forecast
(August - October)
Capital Approval:
• Minimum annual
activity to vote
None
100,000 units of landed weight
COMMISSION AGENDA – Action Item No. _7a___ Page 3 of 5
Meeting Date: February 27, 2018
Template revised September 22, 2016; format updates October 19, 2016.
• Vote by cost center
• Majority-in-Interest
threshold
• Implications of MII
vote
• Other
No
$3.0 million ($5.4 million for
roadway projects)
Negative MII vote requires 12
month delay.
Yes
$10.0 million for aeronautical
rate base costs
No change
Pre-approved up to $300 million
for planning and design for
projects needed to construct new
gates on north side of the
Airport.
Revenue Sharing
Port will share with airlines 50%
of net revenues in excess of
1.25x debt service.
Port will share with airlines a
percent of net revenues in excess
of 1.25x debt service as follows:
• 2018: 40%
• 2019: 20%
•
2020-22: 0%
Cruise baggage
No provision
Include 50% of cost for baggage
handling from ship to airport in
rate base for Bag Makeup.
Signatory status
No minimum requirements
Regularly scheduled service
Debt service coverage
Included in airline rate bases if
overall airport debt service
coverage falls below 1.25 times
No change
Insurance
$500M aviation liability per
occurrence; $10M commercial
general liability per occurrence.
No change
Security Deposit/
Security Fund
Security Fund eliminated. If
SLOA III executed in 2013,
airline revenue requirement in
2013 will be reduced by an
amount equal to Security Fund
balance.
No surety required for carriers
operating in good financial
standing at the Airport for at
least 24 months.
No change
The final term sheet does not include any language relating to use of Port funds to be devoted
to sustainable aviation fuels.
COMMISSION AGENDA – Action Item No. _7a___ Page 4 of 5
Meeting Date: February 27, 2018
Template revised September 22, 2016; format updates October 19, 2016.
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – Reject approval of SLOA IV and implement rates in accordance with Resolution
3677, as amended.
Pros:
(1) No limit on the number of common gates the Port can withhold
(2) Port has flexibility to determine the optimal gate allocation methodology
(3) Capital approval involves consulting with airlines, but there is no majority-in-interest
vote
(4) No revenue sharing, so airport keeps more net income
Cons:
(1) Failure to reach agreement indicates airport and its major airline customers are not in
alignment
(2) Rate methodology does not offer economies of scale to benefit airlines with multiple
flights per day (most fees are based on a per use basis), consequently, the largest
airlines, including the hub airlines, tend to oppose this.
(3) While the rate methodology incorporated into Resolution 3677, as amended, was
designed to conform to federal Department of Transportation requirements and thus
withstand a legal challenge, airlines at Sea-Tac could elect to mount a legal challenge.
This is not the recommended alternative.
Alternative 2 – Approve SLOA IV
Pros:
(1) Agreement on a five-year lease provides level of certainty for both the Airport and the
airlines though 2022.
Cons:
(1) With SLOA IV airlines have gained limits on the number of common gates the Port can
withhold, thus potentially limiting the Port’s flexibility.
This is the recommended alternative.
FINANCIAL IMPLICATIONS
The lease provisions of SLOA govern in excess of $300 million aeronautical revenues annually.
Due to a reduction in 2018 revenue sharing from 50% under SLOA III to 40% under SLOA IV,
airline revenues will be approximately $7 million higher. Thus, Airport net operating income
will be $7.0 million above budget. Similarly, the passenger airline cost per enplaned passenger
(CPE) will be approximately $0.27 higher in 2018 than budgeted. The debt service coverage
trigger permits the Airport to include in the airline rate base debt service coverage up to 25% of
debt service as needed to bring total Airport debt service coverage up to 1.25x. This ensures
that the Airport will maintain at least 1.25x debt service coverage. This provision is the same as
in SLOA III.
COMMISSION AGENDA – Action Item No. _7a___ Page 5 of 5
Meeting Date: February 27, 2018
Template revised September 22, 2016; format updates October 19, 2016.
ATTACHMENTS TO THIS REQUEST
(1) 2018 – 2022 Signatory Lease and Operating Agreement (SLOA IV)
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
September 12, 2017 – The Commission was briefed on the status of negotiations
October 10, 2017 – Commission motion to extend SLOA III to March 31, 2018
November 28, 2017 – Commission guidance to restart negotiations
December 19, 2017 – Commission motion regarding sustainable aviation fuels
February 13, 2018 – Commission motion to extend SLOA III to May 31, 2018 to facilitate
approval and implementation of SLOA IV by June 1, 2018 (retroactive to January 1,
2018).
