THE FAA ON HANGAR RENT

December 21, 2012

Mr. Rick Childers

City Administrator

City of St. Clair

# I Paul Parks Drive

St. Clair, MO 63077

Re: St. Clair Regional Airport

Informal Complaint Regarding Hangar Rates

Dear Mr. Childers:

I have received your December 10, 20 1 2 response to the informal complaint regarding the City’s 2013 hangar rental rates. MoDOT and the Federal Aviation Administration (FAA) have reviewed the City’s response to the informal complaint and have determined that the information provided in the City’s December 0, 2012 letter is not sufficient to ensure the City’s compliance with federal grant assurances. The purpose of this letter is to provide the City with guidance to ensure compliance with federal grant assurances and to set forth a timeline for the City to achieve voluntary compliance.

Informal Complaint

The informal complaint asserted that the 201 3 hangar rental rate ($300/month) is unjustly discriminatory and unreasonable, and that the City has discriminated against fixed wing tenants at the airport by raising the rent for hangars, while not raising rent for AirEvac Life Team during this same time period. The informal complaint also asserted that the City’s hangar rent for 2012 was higher than hangar rent at comparable nearby airports.

City Response

In its response, the City indicated that the Board of Aldermen directed City administration to “secure user funds sufficient to cover the full cost of operation, maintenance, insurance and management of the St. Clair Regional Airport” and as a result, 2013 hangar rental rates were set at $300/month. The City’s response confirmed that AirEvac’s rent will not increase in 201 3, because AirEvac’s lease is structured as a five year lease and is not due for renewal until 2015. The City also noted “there is no basis for comparison between fixed wing and  

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rotary wing aircraft operations or field requirements”, nor is there any requirement that the City’s “rental rates and other charges be ‘competitive’ with other airports, only that they be justified to enable the airport to operate on a self-sustaining basis.”

Overview of Lease Review Process

In its response, the City also noted that it could find “no reference to responsibility or authority for the establishment of rental rates by any entity which supersedes or takes precedence over the local governing authority.” The City is correct that MoDOT and the FAA do not have the authority to establish hangar rental rates at the Airport; see FAA Order 5 1 90.6B ¶1 2.4, which states “The FAA does not approve leases, nor does it endorse or become a party to tenant lease agreements.” However, ¶12.3.a. states that when a lease is reviewed, the FAA must determine if a lease has the effect of granting or denying rights that are contrary to federal statute, sponsor federal obligations or FAA policy and identify terms and conditions that could prevent the airport from realizing the full benefits for which it was developed.

As part of the lease review process, the FAA must ensure that “(a) the sponsor maintains a fee and rental structure in the lease agreements with its tenants that will make the airport as self- sustaining as possible and that (b) the facilities of the airport are made available to the public on reasonable terms without unjust discrimination” (see FAA Order 5190.6B ¶12.5). This letter will evaluate each of those components.

Self-Sustainability

In its December 10 response, the City indicated that it set its 2013 hangar rental rate at $300/month in order to cover the full cost of operation, maintenance, insurance and management of the Airport, but the City did not provide any additional information or documentation on those costs. While the City provided some documentation regarding Airport expenses as part of the Office of Inspector General hotline complaint investigation, the information provided was not comprehensive. Without current information on the City’s costs to operate, maintain, insure and manage the Airport, MoDOT and the FAA cannot determine whether a rental rate of $300/month would cover Airport expenses without creating a revenue surplus. FAA Order 51 90.6B ¶17.10 notes that “fees for the use of the airfield generally may not exceed the airport’s capital and operating costs of providing the airfield.” Please provide current documentation of the City’s costs to operate, maintain, insure and manage the Airport so MoDOT and the FAA can confirm that no revenue surplus will be created based upon the 2013 hangar rental rate.

Other factors relating to self-sufficiency must also be considered when establishing rental rates, Airport sponsors “must maintain a fee and rental structure that in the circumstances of the airport makes the airport as financially self-sustaining as possible” (see FAA Order 51 90.6B ¶1 8.22.a). This requirement “recognizes that individual airports will differ in their ability to be fully self-sustaining, given differences in conditions at each airport” (FAA Order 5190.6B ¶17.5).

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The informal complaint asserted that comparable hangar rental rate at neighboring airports ranged from $125/month to $140/month. As part of the investigation of the informal complaint, MoDOT verified that the Washington Regional Airport rents single t-hangars for $ 140/month and that the Washington County Airport, the Sullivan Regional Airport and the Cuba Municipal Airport all rent hangars for $125/month.

The City is correct that there is no federal requirement that hangar rental rates remain “competitive” with those at other airports, but if hangar rental rates are set at a rate that causes current tenants to terminate their leases for less costly options at surrounding airports, such actions would essentially price the airport out of the market and would hinder the sponsor’s ability to become as self-sustaining as possible.

As part of the investigation of the Office of the Inspector General hotline complaint, copies of leases at the Airport were provided. Since 2005, monthly fee for hangar rental in the City Hangar has increased by over 45% (from $120/month in 2005 to $175/month in 2012), and will have increased by 150% when the 2013 hangar rental rates go into effect. During that same time period, AirEvac’s rent has remained unchanged at $300/month, which will be discussed in further detail below.

In order to demonstrate compliance with federal grant obligations, a corrective action plan is required which documents how the 2013 hangar rental rate will allow the airport to become as self-sustaining as possible under the circumstances. An acceptable corrective action plan would include documentation identifying the City’s expenses for airport operation, maintenance, insurance and management, as well as documentation confirming that the proposed hangar rental rate will not ultimately hinder the Airport’s ability to become self- sustaining by pricing its hangars out of the market.

Facilities Available on Reasonable Terms Without Unjust Discrimination

When reviewing leases, FAA Order 5190.6B requires the FAA to also evaluate whether airport facilities are made available to the public on reasonable terms without unjust discrimination.

FAA Order 51 90.6 B ¶[9.2.a states that

For facilities that are directly and substantially related to air transportation, regardless of whether an air carrier or user is a tenant, subtenant, or nontenant, the sponsor must impose nondiscriminatory and substantially comparable rates, fees, rentals, and charges on all air carriers and users that assume similar obligations, use similar facilities, and make similar use of the airport. Aside from rates, fees, and rentals, the sponsor must also impose comparable rules, regulations, and conditions on the use of the airport by its air carriers and users, regardless of whether they are tenants, subtenants, or nontenants.

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In its response, the City stated that there was no basis for comparison” between the fixed wing tenants and AirEvac Life Team. The City stated that AirEvac requires no runway access (although it is MoDOT and the FAA’s understanding that AirEvac uses the runway for its approach), provides its own landing lights, and requires no City maintenance activities, while the fixed wing tenants “have required and been the recipient of nearly all upgrades and expenses the City has ever undertaken at the airport.” The City stated that AirEvac provides a critical service which serves a community benefit, while the fixed wing tenants “provide no benefit to the community in any form”. The City noted that AirEvac was a business actively recruited by the City, while the fixed wing tenants do not conduct business, that AirEvac has a constant presence at the airport, which provides additional security, while the other tenants are only at the airport infrequently, and that fixed wing tenants’ leases are annual, while AirEvac has a five year lease, next due for renewal in 2015.

The differences between AirEvac and the fixed wing tenants at the Airport are apparent, and these differences could substantiate different rental structures for businesses operating at the airport and for other fixed wing tenants. However, the City has not provided any documentation outlining its rental structure for businesses operating at the airport, and without such documentation, MoDOT and the FAA cannot determine whether AirEvac’s current lease agreement is consistent with such rental structure.

While different rental schedules can be utilized for differently situated tenants, having no increase in rent for a tenant since 2005, regardless of whether that entity is receiving some sort of business entity consideration, raises additional compliance issues.

FAA Order 51 90.6B ¶J9.5.e. states that

Ground leases with terms of five (5) or more years should contain an escalation provision for periodic adjustments based on a recognized economic index. This will facilitate parity between new and established lessees. An escalation provision also helps the sponsor comply with Grant Assurance 24, Fee and Rental Structure, which requires the sponsor to make the airport as self-sustaining as possible under the circumstances.

Entering into business entity leases with a five year term and no escalation provision while increasing hangar rental rates for other airport tenants 150% over the same time period raises questions regarding unjust discrimination against fixed wing tenants, as well as self- sufficiency issues. While MoDOT and the FAA understand that the City’s current lease with AirEvac is not subject to renegotiation until 2015, the City has not indicated that it intends to increase AirEvac’s rent at that time as part of its effort to become self-sufficient.

In order to demonstrate compliance with federal grant obligations, a corrective action plan is required which documents that the City’s current lease agreement with AirEvac is consistent with the City’s rental structure for businesses operating at the Airport. An acceptable corrective action plan would also include a City commitment to modifying its lease with AirEvac at the next available opportunity to include an escalation provision which would 

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increase AirEvac’s rent at the same rate as the other airport tenants in order to work towards achieving airport self-sufficiency.

Please provide a final and comprehensive corrective action plan addressing the items herein within 60 days of the date of this letter in order to ensure that the City is not found to be in informal noncompliance status. It may also be beneficial for the City to meet with the current airport tenants to discuss the 2013 hangar rental rates in an effort to resolve this informal complaint.

MoDOT would be happy to work with the City in its pursuit of an acceptable corrective action plan. We are available to meet with the City at any time to discuss these issues in further detail and to identify steps the City can take to ensure future compliance. If you have any questions, please do not hesitate to contact me.

Sincerely,

Amy Ludwig

Administrator of Aviation

cc: Mr. Jim Johnson, Federal Aviation Administration

Ms. Lynn Martin, Federal Aviation Administration

Mr. Ed Hassinger, Missouri Department of Transportation