Template revised January 10, 2019.
COMMISSION
AGENDA MEMORANDUM
Item No.
10b
ACTION ITEM
Date of Meeting
April 13, 2021
DATE: March 15, 2021
TO: Stephen P. Metruck, Executive Director
FROM: Lance Lyttle, Managing Director, Aviation
Dawn L. Hunter, Director, Aviation Commercial Management
SUBJECT: Additional Airport Relief Measures in Response to On-Going COVID-19 Pandemic
Impacts on SEA Tenants and Concessionaires
ACTION REQUESTED
Request Commission authorization for the Executive Director to finalize and implement
additional airport relief measures in response to the on-going COVID-19 pandemic impacts to
Airport Dining and Retail (ADR), On-Airport Parking, and Rental Car (RAC) concessionaires,
specifically (i) to offer lease amendments to ADR, On-Airport Parking, and RAC concessionaires
relating to adjustment of minimum annual guaranteed (MAG) rent, and RAC concession
agreement extensions, and (ii) to separately provide rent relief in the form of credits to eligible
ADR, On-Airport Parking, and RAC concessionaire as part of the Airport Coronavirus Response
Grant Program established by the Federal Aviation Administration (FAA) pursuant to the federal
Coronavirus Response and Relief Supplemental Appropriation Act (CRRSAA).
EXECUTIVE SUMMARY
The Executive Director and Seattle-Tacoma International Airport (SEA) leadership propose to
offer additional relief measures to ADR, On-Airport Parking, and RAC concessionaires at the
airport that continue to be significantly impacted by the on-going COVID-19 pandemic. First, the
Executive Director and SEA leadership propose to offer contract amendments for ADR and On-
Airport Parking concessionaires to adjust an existing “exceptional circumstances” provision in
their agreements which provides for reduction of the amount of MAG rent payable in the event
of a substantial decrease in passenger enplanements at the airport; adjustment to this contract
provision is necessary in order for MAG adjustments to continue co-extensively with the ongoing
adverse economic impacts at the airport caused by the COVID-19 pandemic. A similar adjustment
will also be made to the exceptional circumstances provision in the RAC agreements, together
with proposed amendments to adjust the calculation of MAG and to extend the term of the
concession agreements, which are components of the overall lease agreements. Separately,
Executive Director and SEA leadership propose to participate in the FAA’s Airport Coronavirus
Response Grant Program and to offer under this program rent relief to eligible ADR, On-Airport
Parking, and RAC tenants in the form of a rent credit in the amount of the concessionaire’s pro
rata share of the grant funds provided to the Airport under CRSSAA. These measures will be
consistent with the Commission-approved airport relief motion and action approved on April 1,
COMMISSION AGENDA – Action Item No. 10b Page 2 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
2020, a motion approved on June 9, 2020 related to airport tenant relief, and an order approved
on December 8, 2020 authorizing additional adjustments to agreements with tenants and
concessionaires impacted by the pandemic. This proposed relief is in response to the on-going
impacts of the pandemic on tenants and concessionaires at SEA.
JUSTIFICATION
The dramatic economic impact of the COVID-19 pandemic required an immediate response by
the Port, which was taken by the Port Commission on April 1, June 9, and December 8, 2020 and
provided short- and medium-term relief measures to tenants and concessionaires. The duration
of the pandemic, and the negative effects it has caused on airport operations, has continued to
jeopardize the viability of many businesses at SEA that are critical to airport operations and
passengers. Although the relief approved in 2020 was a tremendous support to tenants and
concessionaires and their continued viability to serve passengers at the airport, the on-going
impacts of the pandemic and the functional expiration of built-in relief, in the form of the
“exceptional circumstance” clause within certain agreements, justify the consideration of
additional relief measures as proposed and contained in this request.
These additional relief measures will aid the continued operation and financial viability of SEA’s
business partners, which is critical to advancing the Port’s financial interests through the on-going
economic downturn and into the economic recovery. The Port depends on these tenants and
concessionaires to provide services to airport customers and generate revenue for airport
operations. Maintaining its base of tenants and concessionaires is critical to the Port’s financial
strategy to navigate the impacts of the COVID-19 pandemic. Preserving and strengthening the
Port’s airport financial sustainability and operations will play a critical role in the economic
recovery and return to growth in the Puget Sound region and the state of Washington.
DETAILS
Rent Relief through Contract Amendments
The Executive Director and SEA leadership propose to amend the concession agreements for
ADR, RAC, and on-airport parking, which have been significantly impacted by the on-going COVID-
19 pandemic, by resolving a limitation of the agreement’s built-in exceptional circumstance relief
clause to better address the duration of pandemic impacts. The proposed relief measures have
been discussed with all of the tenants involved and been accepted, contingent on Commission
approval. These measures will be consistent with Commission direction as stated in the
Commission’s tenant relief motions in April and June of 2020 and order in December 2020, as
well as state and federal law.
COMMISSION AGENDA – Action Item No. 10b Page 3 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
The Executive Director and SEA leadership propose to offer the following forms of additional
relief regarding Airport tenants and concessionaires:
• Airport Dining and Retail (ADR)
1. Amend ADR agreements containing an Exceptional Circumstances clause to allow
for on-going adjustment of MAG rent throughout the duration of the pandemic in
accordance with continued reduced passenger levels. In an effort to clarify the
intended operation of the Exceptional Circumstances clause, applied in the
context of the continuing adverse economic impacts of the COVID-19 health crisis,
the Port proposes to amend the ADR agreements to restate the provision in a
manner that results in an outcome that is consistent with its originally intended
purpose.
The current Exceptional Circumstances clause in ADR agreements, which
allows for the reduction of MAGs equivalent to a drop in enplanement
levels exceeding 20% compared to the same month of the prior year (e.g.-
if a given month’s enplanement levels drop by 50% compared to the same
month of the prior year, the tenant’s MAG amount is reduced the following
month by 50%) is set to expire potentially in March, possibly not until April
(but no later than April, barring another catastrophic event). Beginning in
March, and because the pandemic’s main impacts on enplanements began
to materialize in March 2020, the lookback clause comparing March 2021
to March 2020 may not result in a drop in enplanements exceeding 20%.
Thus, the relief to the tenant’s MAG associated with the Exceptional
Circumstances clause would expire beginning with the MAG payment due
for April 2021 and tenants would be responsible for full monthly MAG
payments (no reduction).
While the intent of the provision was to provide a mechanism for
determining MAG relief throughout the duration of an exceptional
circumstances event that caused significantly reduced enplanements, the
current language was not drafted to correctly apply to a substantial impact
to enplanements that continued for more than 12 months. Thus, tenants
are facing a sudden increase in monthly MAG payments, to pre-pandemic
levels, before enplanement levels have returned closer to pre-pandemic
levels. The proposed revision to the Exceptional Circumstances clause will
allow the clause to function throughout the duration of the pandemic as
originally intended. Revising the clause will provide needed clarity for both
the Port and its concessionaires, ease the administration burden to the
Port in administering the clause, and will benefit the ADR concessionaires
by allowing for adjustment of MAG to continue during the duration of the
“exceptional circumstances” posed by the COVID-19 pandemic and
support their continued viability and readiness to serve passengers at SEA
COMMISSION AGENDA – Action Item No. 10b Page 4 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
as the COVID-19 crisis comes to end. The amended language is being
finalized by staff.
• Rental Cars (RACs)
1. Amend RAC agreements containing an Exceptional Circumstances clause to allow
for on-going adjustment of minimum annual guarantees (MAG) in accordance
with continued reduced passenger levels.
Similar to the ADR explanation above, the lookback period may expire in
March, but no later than April. This relief will allow for the continued
reduction of MAG associated with depressed enplanement levels
associated with the pandemic, and potential future catastrophic events.
2. Extension of the 10-year concession agreement, set to expire in 2022
The overall 30-year lease associated with the Rental Car Facility (RCF) that
began in 2012 includes a 10-year concession agreement with operators.
The intent of 10-year concession terms was to allow for market shifts and
reallocations of space during the 30-year lease term with the opportunity
to re-bid the facility at 10 years and 20 years. With the upcoming expiration
of the 10-year concession agreement set for 2022, both the RACs and SEA
are required to spend significant amounts to re-bid, re-design, and re-
demise the facility based on market conditions, with costs to SEA alone
upwards of $10-$12 million, starting in 2021 and throughout 2022. Due to
the impact of the pandemic, both the RACs and SEA agreed that extending
the current concession agreement by five years and allowing for a re-bid
process to occur at that time would benefit both parties with the delay of
major capital costs and allow time for market conditions to stabilize.
Extending the concession agreement provides a benefit to the Port and the
RACs in both the short and long terms. This benefit includes delaying the
re-bidding of the facility during a severe economic downturn and the
potential elimination of a major re-demising capital project in 2032.
3. Adjust annual MAG calculation for RACs
At the start of each agreement year (June 1), MAGs for each company are
recalculated and set to either 1) the original MAG amount that was bid at
the beginning of the 10-year concession agreement, or 2) 85% of the prior
year revenue paid to the Port, whichever is higher. With the upcoming
MAG reset in June 2021, it is anticipated that the calculation for 85% of
prior year’s payments will be significantly lower than the original MAG bid
amount. With the current agreement language, the calculated new MAG
(based on original bids in 2012) for the agreement year beginning June 1,
2021 is anticipated to substantially and suddenly increase for the RACs.
COMMISSION AGENDA – Action Item No. 10b Page 5 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
Bringing the MAG calculation methodology in-line to current concession
agreement standards at SEA, the agreements would be amended to
eliminate the option of the MAG being reset to the original bid amount
and instead solely be based on 85% of prior year’s revenue to the Port. The
adjustment to the MAG calculation, coupled with the necessary relief for
exceptional circumstance changes described above, would ensure a stable
return of MAG levels as we continue through the pandemic and the
recovery efforts.
• On-Airport Parking Concessionaire
1. Amend SEA’s agreement with its on-airport parking concessionaire containing an
Exceptional Circumstances clause to allow for on-going adjustment of minimum
annual guarantees (MAG) in accordance with continued reduced passenger levels.
Similar to the ADR and RAC explanation above, the lookback period may
expire in March, but no later than April. This relief will allow for the
continued reduction of MAG associated with depressed enplanement
levels associated with the pandemic, and potential future catastrophic
events.
CRRSAA Relief Efforts
As referenced above, the Executive Director and SEA leadership propose to provide additional
rent relief through participation in the FAA’s Airport Coronavirus Response Grant Program. This
proposed relief is in addition to the direct rent and MAG relief that the airport is able to provide
thanks to federal legislation passed in December of last year (the Coronavirus Response and
Relief Supplemental Appropriation Act) (CRRSAA)and in March of this year (the American Rescue
Plan Act) (ARPA). Those pieces of legislation contained $200 million and $800 million respectively
“to provide relief from rents and minimum annual guarantees to on-airport car rental, on-airport
parking, and in-terminal airport concessions.” The FAA has released airport-specific funding
levels and allocation guidance for the first package, but not yet for the second.
CRRSAA allocated approximately $5.4 million for SEA tenant relief, and staff is finalizing a plan
for allocating and distributing those funds as quickly as possible to the concessionaires for which
federal relief is specifically authorized in CRRSAA. The proposed relief under CRRSAA, through
the FAA’s Airport Coronavirus Response Grant Program, will be provided to eligible
concessionaires based on the concessionaire’s pro rata share (a proportional share based on the
concessionaire’s rent and MAG compared to the total amount of rent and MAG of all eligible
airport concessions at SEA) of the $5.4 million allocated to SEA under CRRSAA. The proposed
relief would be issued to each eligible concessionaire in the form of a rent credit in the amount
of the concessionaire’s pro rata share.
COMMISSION AGENDA – Action Item No. 10b Page 6 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
At this time, SEA staff is awaiting guidance from the FAA regarding allocation and eligibility
associated with the ARPA funds; of note, ARPA specifically allocates approximately three-
quarters of the concessionaire relief funds for “small airport concessions.”
Despite the significant benefits that these federal funds will provide, SEA staff feel that the relief
measures described in this memo are necessary in addition to the federal grant funding to help
ensure continued operations and viability into a post-pandemic recovery.
ALTERNATIVES AND IMPLICATIONS CONSIDERED
Alternative 1 – SEA does not offer additional relief
Cost Implications: None, unless tenants shut down and/or abandon their agreements.
Pros:
(1) If tenants remain, continues monthly revenue
(2) Maintains continuity of current lease terms
Cons:
(1) Exposes tenants to significant financial risk from on-going COVID-19 economic impact
(2) Tenants may abandon agreements, thus requiring legal action
(3) Exposes Port to costly legal action, lost revenue, and renovation/rebidding expenses
(4) Depending on the number and type of concessionaires that lose viability, airport
operations and passengers could be negatively impacted
This is not the recommended alternative.
Alternative 2 – SEA only proposes relief associated with Exceptional Circumstances clause
Cost Implications: with continued depressed enplanement levels, MAGs would continue to be
reduced below normal levels, thus reducing guaranteed revenue to the Port in the short run. In
the long run more revenue to the Port is expected through the preservation of its tenant base
and increased enplanements.
Pros:
(1) Provides more assurance of continuity of operations for tenants and revenue to the Port
(2) Gives tenants additional flexibility to weather impact of the pandemic
Cons:
(1) Reduced guaranteed revenue to the Port if enplanements do not recover
(2) May not be sufficient to keep tenants afloat
(3) Depending on the number and type of concessionaires that lose viability, airport
operations and passengers could be negatively impacted
This is not the recommended alternative.
COMMISSION AGENDA – Action Item No. 10b Page 7 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
Alternative 3 – Implement all proposed additional relief measures
Cost Implications: with continued depressed enplanement levels, MAGs would continue to be
reduced below normal levels, thus reducing guaranteed revenue to the Port in the short run. In
the long run more revenue to the Port is expected through the preservation of its tenant base
and increased enplanements. Longer guaranteed terms for RAC tenants is expected to increase
revenue to the Port.
Pros:
(1) Provides more assurance of continuity of operations for tenants and revenue to the
Port
(2) Provides reasonable additional term to RAC tenants and increased revenue to Port in
an uncertain economy
(3) Gives tenants significant flexibility and time to recover from impacts of on-going
pandemic impacts
Cons:
(1) Reduced guaranteed revenue to the Port if enplanements do not recover
(2) Locks in current allocations (RACs) for five years, not allowing for adjustments that may
be warranted based on changing market conditions
This is the recommended alternative.
Financial Analysis and Summary
Project cost for analysis
Business Unit (BU)
Effect on business performance
(NOI after depreciation)
guaranteed amounts, revenue may be reduced due to
the reduction of MAG associated with relief in the short
term but increased in the long term through preservation
of the tenant base and increased enplanements.
Extension of RAC agreements increases future expected
revenues through preserving the tenant base and
IRR/NPV (if relevant)
CPE Impact
ATTACHMENTS TO THIS MEMO
None
COMMISSION AGENDA – Action Item No. 10b Page 8 of 8
Meeting Date: April 13, 2021
Template revised June 27, 2019 (Diversity in Contracting).
PREVIOUS COMMISSION ACTIONS OR BRIEFINGS
April 1, 2020 - The Commission passed Motion 2020-06 to provide guidance for Port leadership
in prioritizing Port investments to assist local, regional, and statewide economic recovery from
the COVID-19 pandemic.
April 1, 2020 - The Commission authorized for the Executive Director to take such immediate,
short-term actions as necessary to implement airport relief measures in response to the COVID-
19 pandemic leading to initial relief to a variety of airport tenants.
June 9, 2020 - The Commission passed Motion 2020-13 to authorize adjustments to leases and
other financial terms for airport dining and retail tenants.
December 8, 2020 – The Commission passed Order 2020-21 to authorize additional adjustments
to agreements with tenants and concessionaires impacted by the COVID-19 pandemic.