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Page 1 of 7 Ogden City Council Work Session: June 13, 2017 Commercial Air Service – Ogden Hinckley Airport Purpose ofWork Session: To Receive an Update on the City’s Efforts to Bring Additional Commercial Air Service to the Airport Executive Summary The Administration will provide an update on the City’s efforts to bring additional commercial air service to the Airport. The City received three responses to the Request for Letters of Interest issued by the City and responses to the Request for Proposal from each of those airlines. The City is currently in negotiations with at least one airline for additional commercial flights at the Airport. (Airline(s) will be making announcements regarding air service upon completion of all negotiations.) Background Ogden Hinckley Airport- History Ogden City has operated a municipal airport since 1928. The original airport was located on 200 acres in the South Birch Creek area and consisted of three gravel runways. The current airport is located on approximately 706 acres of land west of Ogden City. Construction of the airport was completed in December of 1941. The Airport was originally known as the Robert H. Hinckley Field, named for the serving Assistant Secretary of Commerce, an Ogden native, and one of the original members of the flying club that initiated construction of the first Ogden airport. The military began training Navy pilots at the Airport under a joint-use lease agreement in 1942. More than 500 Navy cadets were trained at Hinckley Airport. After the military uses were transferred to Hill Air Force Base the Airport was renamed the Ogden Municipal Airport. In 1943, Western Air Airline began mail and passenger service from Ogden. United Airlines followed in 1946. Both of these services were discontinued in 1960 due to decreased demand for service. In 1988, the airport was given its current name—Ogden-Hinckley Airport. ---PAGE BREAK--- Page 2 of 7 Ogden City Council Work Session: June 13, 2017 In 1993, the City Council and Mayor entered into a Joint Resolution establishing an Ogden-Hinckley Airport Development Task Force to determine, in part, how to develop the airport into a Commercial Service/General Aviation Facility. It wasn’t until 2012 that the City was able to enter into an agreement with Allegiant Air to provide commercial passenger service to and from the Ogden area. Allegiant currently operates a few flights per week from Ogden to Mesa, Arizona. The Ogden-Hinckley Airport is currently a designated “reliever” for the Salt Lake City International Airport and a designated alternate facility for SLC air carrier operations. The airport currently accommodates all segments of the aviation industry--passenger and cargo service, general aviation, military, corporate, emergency medical, and agricultural users. 2015 – Ogden Airport Development Feasibility Study In 2015, the City completed a feasibility study that highlighted several opportunities for growth and development at the Airport. The study identified growth potential in general aviation, non-aviation commercial development, mixed-used aviation, MRO (maintenance, repair and operations) development, and cargo and commercial airline development. The Study also specifically addressed the opportunities for growth that may come with Hill’s F-35 program. The consultants estimate that when fully developed, the Airport could add more than 4,000 new jobs to the local economy. February 21, 2017 The Council Office received an Administrative Transmittal outlining an aggressive proposal to entice new commercial air service to Ogden Hinckley Airport. March 7, 2017 The Council held a work session to review and discuss the Administration’s proposal to entice new commercial air service to Ogden Hinckley Airport. The City’s General Fund has been subsidizing the ---PAGE BREAK--- Page 3 of 7 Ogden City Council Work Session: June 13, 2017 Airport Fund between $500,000 and $750,000 per year for at least the last decade. Increasing demands on the General Fund for other city services makes this subsidy unsustainable. The Administration believes that this “catalytic” project was the only way to change the financial trajectory of the Airport. March 8, 2017 The Council office received a proposed Parameters Resolution outlining the terms and conditions under which an airline incentive package may be issued. The Administration proposed an incentive package valued at $1.1 M to entice airlines to provide additional air service to Ogden Hinckley Airport. The proposed package includes escrow funds for mobilization and revenue guarantees and fee waivers. The Council was asked to consider a Parameters Resolution outlining the terms and conditions under which an airline incentive package may be issued. March 14, 2017 The Council approved Resolution 2017-6 that established the parameters for entering into an agreement for additional air service at the Ogden Airport. Key points of the Parameters Resolution are summarized below: Parameters Resolution Findings: The Airport loses more than $500,000 each year The Airport has the potential to have a much larger economic impact on the region A second air carrier at the Airport will make the airport more competitive and bring in additional tourism dollars to the region Air carriers are hesitant to invest in new locations and flight destinations at secondary airports without receiving some level of incentives and commitments from local governmental entities and/or the business community The City desires to provide an incentive to attract new air carrier service to Los Angeles, Oakland, and Orland ---PAGE BREAK--- Page 4 of 7 Ogden City Council Work Session: June 13, 2017 The City intends to fund the incentives, in part, through agreements with Davis County, Weber, County, and a local business Authorizations: Request. Publish a Request for Letters of Interest to the air carrier industry Memoranda of Understanding - Counties. o Enter into Memoranda of Understanding with Davis and Weber Counties for a contribution of $200,000 each to the Revenue Guarantee Escrow, a contribution of $130,000 each to a Mobilization Guarantee Escrow, and a contribution of $20,000 each to cover Familiarization Tours Memorandum of Understanding - Business. o Enter into a Memorandum of Understanding with a local business for a contribution of $100,000 to the Revenue Guarantee Escrow Contribution Agreements. Contribution Agreements for the three parties will be presented to the Council for final approval Carrier Selection. Issue a Request For Proposal to carriers who submitted a Letter of Interest (if more than one) and select a carrier with priority given to proposals that can meet the following requirements: o Provide service beginning no later than July 1, 2017 o Provide at least 13 round-trip flights each week to Los Angeles, San Francisco/Oakland, and Orlando o Provide service at least 4 days a week Incentive Agreement. The Mayor may sign an Incentive Agreement that meets the following parameters: o Complies with federal, state and local laws o Airport may waive landing and fuel flowage fees for up to one year o Air carrier must be a new entrant to the Ogden market and provide cost-per- flight data (Flight Cost) ---PAGE BREAK--- Page 5 of 7 Ogden City Council Work Session: June 13, 2017 o Provide a Mobilization Guarantee Escrow not to exceed $500,000 with $125,000 transferred to Revenue Guarantee Escrow each quarter and discontinued after first year of operation. If air service is discontinued within first year then remaining Mobilization Guarantee Escrow funds will be disbursed to air carrier and closed o Provide for a Revenue Guarantee Escrow not to exceed $500,000. Revenues that air carrier receives in excess of Flight Cost during first year of operation shall be paid by air carrier to the Revenue Guarantee Escrow account. Revenue shortfalls shall be paid to carrier from Revenue Guarantee Escrow account. Balances at the end of the year shall be paid to the contributing parties on a pro-rata basis Escrow Agreements. The Mayor is authorized to sign escrow agreements for the Mobilization and Revenue Guarantee Escrow funds Proposal The Administration will present a proposal for entering into an incentive agreement with one airline that falls within the above parameters. Although negotiations are ongoing, most of the key terms of the agreement have been determined. However, at the request of the airline, the airline will not be named until an agreement has been executed and the Airline has the opportunity to make a formal announcement. Upon execution of an agreement, the City will recognize the following benefits: Reduction in Airport operating losses Additional landing and fuel flowage fee revenues Additional parking revenues Greater business attraction to the airport and potential for additional airlines Additional FAA grant funds ---PAGE BREAK--- Page 6 of 7 Ogden City Council Work Session: June 13, 2017 Increased tourism and visitor expenditures Possibility of new hospitality jobs Lower future incentives for future airlines Terms of Airline Proposal (Subject to Change During Ongoing Negotiations) The terms of the Airline’s initial proposal differ from those outlined in the City’s Parameters Resolution in the following ways: Service will begin in October (not July) No required escrow account No loan funds required No waiver of landing and fuel flowage fees Potential profit sharing with City Fewer additional flights per week than initially anticipated Flights to Las Vegas, Los Angeles and Oakland, with the possibility of adding a flight to Florida at a later Memoranda of Understanding/Contribution Agreements The Administration is still negotiating with potential partners regarding future memoranda of understanding regarding future contributions to Airport operations. The new air service, as proposed, will not require additional funds from outside entities. Council Actions A summary of the Council actions required to fully authorize this project is attached. Note that the Council has completed all necessary approvals. Attachments 1. Summary - Council Actions 2. Revised Administrative Transmittal CS Note: The Administration has annotated the original Transmittal to include additional information relating to the proposal. ---PAGE BREAK--- Page 7 of 7 Ogden City Council Work Session: June 13, 2017 Questions 1. Please review (as thoroughly as possible) the terms of the incentive agreement for the additional commercial flights at the airport. 2. What is the proposed timeline for announcement by the Airline and commencement of flights? 3. Will all of the $1.4 M previously appropriated by the Council be required for the project? Council Staff Contact: Janene Eller-Smith (801)629-8165 ---PAGE BREAK--- OGDEN CITY REDEVELOPMENT AGENCY INFORMATION TRANSMITTAL Date Received by Admin: Mark Johnson, CAO Date Sent to Board: DATE: 15 February 2017 – Updated 8 June 2017 TO: Ogden City Council FROM: Tom Christopulos, CED Director TC SUBJECT: Proposal for New Air Service, Ogden Hinckley Airport and Inbound Travel Development STAFF CONTACT: Jon Greiner, Airport Manager or Tom Christopulos, Director Community and Economic Development LEGAL CONTACT: Melven Smith, Assistant City Attorney MS REQUESTED TIMELINE: See below RECOMMENDATION: Administration recommends approval of the terms and conditions of the REPC by resolution DOCUMENTS: None Preface and Update to Original Transmittal and Parameters Based on information that was received by the City’s airport legal counsel a Request for Proposals was noticed to air carriers throughout the United States. The City received three letters of interest and two concrete proposals. Potential changes are highlighted below. Background In 2015, a feasibility study was conducted recommending a number of potentially feasible areas for future development at the airport, including the enhanced use of general aviation, non-aviation commercial development, mixed-use aviation, MRO development, cargo and commercial airline development. The Current Problem Current Status and Operational Risks Over the past ten years the airport has sustained operational losses. The City has continued to subsidize the airport in excess of $500k annually. Depreciation is also significant and real cost of operation at any airport. Even with the current FAA investments the City faces un-resourced deficits in excess of $1 million/year. The city currently produces only about $500k annually in the form of taxes and rents from its operations. The feasibility study conducted by the City in 2015 pointed to potential pathways to resolve the deficits. Most are longer term solutions that will assure the accumulation of losses in the near and mid-term. ---PAGE BREAK--- While the airport has grown in jobs and service revenues, with the current rate of revenue and flight general aviation it would optimistically take 20 years or more for the airport to achieve volumes sufficient to offset the current losses. Actions Taken to Test Feasibility Assumptions Prior to the development of the feasibility study, airport staff, as well as the economic development staff, began work on establishing the viability of increasing general aviation and commercial flights into the Ogden Hinckley Airport. General aviation in the form of new businesses continues. Over 250 jobs and six new companies have been added. The feasibility study identified opportunities that might be pursued for commercial flights. Based on the revenue generated from visitor expenditures, airline payroll, fuel purchase and fees to the Airport, the total revenue impact for Ogden for new air service is estimated to be between $10.3 million and $75 million. This did not include new jobs in the hospitality industry that would emerge. Total economic impact would be between $25- $187 million. (see OGD Development-Feasibility Study; pg. 14) Based on the feasibility study and estimates by the Convention and Visitor Bureau, using the downtown ADR, the per flight economic impact is $142,434, which translates to $1,851,642 per week in estimated economic impact. (as provided by Ogden-Weber County and Visitors Bureau) Efforts to Date During the past three years, the economic development staff and airport manager have approached all of the major domestic carriers (of which there are currently eight) to determine how and if they might utilize the airport. A number of regional carriers have also been approached, the largest of which is Sky West (headquartered in St. George). Initial work revealed that with the consolidation of air carriers in the United States to eight major carriers there was little interest in the near term. Creating more immediate interest and corresponding service would require extensive incentives. Our airport consultants had determined that those incentives typically were structured at or near the $1m-$2m level depending on the number of flights and destinations developed. This requirement required the inclusion of a new approach and a new tactic. With the help of our airline consultant, and internal expertise of one of the founders of Morris- Murdock (MM) Travel, a new approach was designed and has gained some traction among some part 380 charter carriers. MM was created to serve the traveling public and had a great deal of success. With this vision a structure was created and pitched to a number of part 380 carriers (charter flights). A set of parameters were created from these discussions in which one or more of these types of carriers would be interested in supplying equipment to fly to targeted destinations. This particular approach to the markets established demand from more traditional air service suppliers. Although not anticipated based on past efforts; nonetheless the process escalated Among those were Los Angeles, Oakland, Orlando and Cancun. Additionally, the department conducted a marketing study to determine where local businesses might also travel. Those intersecting destinations are shown in the graphic attached. The recommendation of local market interviews is that the best target time to start service would be the first of June. This time line was unsupportable based on the time frames of working with various other partners ---PAGE BREAK--- including Davis and Weber Counties and the notification requirements that were deemed necessary in requesting input from various other competing air service providers. Estimated time line for new flight would be mid-October. Previous Proposed Incentive Structure As stated, previous discussions with the various carriers indicate that it will take an incentive of approximately $1.5 million. Uses of the money would be to assure minimum operating revenues, reserves required under part 380. Operating reserves, front end reservation leasing and development and marketing. The proposed structure would allocate funds as follows: • $500k for Part 380 escrow and assurance to Airline that we will support operations for a least a year. Eliminated by new proposal • $50k for familiarization and kickoff tours • $200k for initial marketing (reduced see small airport marketing grant) • $250k for operations and initial reservation system • $500k for operation reserves/and marketing • Total of $1.5 million incentive package. New Total $ 550 million In addition, there is an approximate: • $200k for capital improvements at the airport for new parking and upgrades to bathrooms and shuttle buses • $50k for standby engine starter • $75k for increased labor, police, fire and onsite help for extra flights. This is now reduced. • $500k for marketing costs for which a small airport marketing grant would be sought. – May be smaller based on number of routes. Red highlighted areas are cost that may be eliminated or reduced Sources of funds would have been spread equally between the three county participants for the incentive package portion of the airport startup costs. The City's portion of the proposed incentive package costs would be paid through a combination of CDBG loans to a maximum of $400k, waiver of fees and a stand-by fund of $240k. This is eliminated in the new proposal. The City would have an estimated $325k of additional capital costs for additional parking and shuttle costs. Increases in overhead at the airport for fire, police and service personal would also be incurred; but to a limited amount. ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK---