Developing a healthy working relationship between airport managers and business aircraft operators, maintenance facilities and FBOs yields more benefits than simply providing a more open and welcoming on-airport environment. Such rapport can also be important when it comes time to renew your company’s lease or negotiate an extension.
Jeff Kohlman, managing principal for Aviation Management Consulting Group (AMCG), says there are several ways to build that relationship, including participation on airport advisory boards and in master planning meetings. He also encourages operators to meet with the airport manager at least once a year to keep abreast of any airport developments, rather than waiting until it comes time to do business.
“People tend to sign their lease agreement, sometimes without reading it or understanding it, and put it in the file cabinet,” said Kohlman. “It may sit there until the day before the lease is set to renew – or a week or two after it’s expired – and they [operators] then go back to negotiate when they haven’t talked to an airport manager in 10, 15 or 20 years.”
“There’s just so many things you can do to maintain that relationship,” Kohlman added, “[but] they only talk to them when there’s a problem.”
In addition to benefiting airport tenants, airport managers also greatly prefer an open dialogue, said Stephen Clark, director of commercial development for Gerald R. Ford International Airport (GRR) in Grand Rapids, MI.
“It’s very important to understand the moving parts and have a direct relationship with [the airport manager],” he said. “They are your best point of contact on matters ranging from leases to noise complaints to understanding the airport’s master plan. They can also connect you to a vast number of resources you may not have realized – not only at the airport, but in the community in general.”
Reversions May Catch Tenants By Surprise
First and foremost, such a relationship is vital when it comes time to renew or renegotiate long-term leases. That’s especially true when a lease stipulates ownership of hangars and other buildings placed by the tenant will revert back to the airport sponsor at the end of the lease.
“Reversion has really become a hot topic because of the age of our industry,” Kohlman said. “A lot of improvements were built at least 30 years ago, and now those leases are coming up and people are surprised because, again, they don’t understand the lease, or they may not have even read the lease.”
While reversion terms often take into consideration the company’s amortization of initial construction costs, shorter leases may expire before those offsets have been realized. Tenants may also suddenly find themselves obligated to pay new rental costs to maintain the property.
Clark noted that his airport has encountered challenges to reversion stipulations in leases negotiated decades ago, well before most current airport officials were hired. Those experiences have focused his attention on ensuring terms of reversion are made clear in new contracts.
“Our leases now have reversions noted directly as part of the terms, and usually near the top of the agreement,” Clark said. “They plainly spell out that legal, contractual relationship.”
“Airport managers are your best point of contact on matters ranging from leases to noise complaints to understanding the airport’s master plan. They can also connect you to a vast number of resources.”
STEPHEN CLARK Director of Commercial Development, Gerald R. Ford International Airport
Protections for Airports and Tenants
Airports and airport tenants have several protections under assurances stipulated in the FAA’s Airport Compliance Program. For example, Assurance #5 prohibits airports from taking any action that could preclude it from complying with its grant obligations, including certain limitations on use of airport land. Assurance #22 protects tenants from unjust economic discrimination, while Assurance #24 covers rents and fees.
As such, leases must meet applicable FAA standards and airport sponsors are prohibited from unduly encumbering airport property. However, “there really aren’t a lot of great tools for pushing back against reversion as a legal matter, at least for the moment,” said Jol Silversmith, a partner in the law firm of KMA Zuckert and a member of the NBAA Access Committee.
“There are various FAA obligations that apply to airports, but they’re often very broadly written,” he added. “Your first resort in resolving such issues is talking with your airport manager.”
It’s also beneficial to acknowledge the airport’s position. “Airports maintain control of the underlying land,” Kohlman said. “If there’s an improvement sitting on that land that reverts back to the airport at the end of your lease, obviously it needs to be acknowledged and dealt with.”
For example, an airport may require the tenant to remove that improvement to accommodate another use, such as a taxiway or runway extension. Airport officials may also opt to put out a request for proposal for other tenants.
An established relationship with airport management can forestall such unpleasant surprises and help when negotiating terms of reversion on new construction.
“Airports like flexibility, so they may offer a 20-year lease when your amortization schedule is for 30 years,” Kohlman said. “You may be able to arrange for the airport to pay the unamortized value for those 10 years, or the airport may opt to extend your lease for that time.”
Tenants may also continually reinvest in their airport properties, particularly when an office or hangar is also the company’s customer-facing presence.
“They may put millions into annually refurbishing and rehabbing the space,” Clark said, “at which point a reversion may put the airport in the odd position of maintaining that frequency of upgrades.” In such situations, lease extensions may offer the best outcome for all parties.
“We extend the lease at fair market values so that we don’t run afoul of any FAA obligations,” Clark said. “The tenant continues investing in the property, and [the airport] continues that relationship.”
Bringing in the FAA
Occasionally, matters cannot be resolved amicably and must be elevated to the FAA. Silversmith noted that relatively minor questions can usually be resolved relatively quickly through an informal Part 13 letter to the local airport district office. However, if your complaint is that an airport is not complying with its FAA obligations, it eventually may need to be routed through the FAA’s Washington, DC office as a formal Part 16 complaint.
“You must understand that the FAA does not award damages,” explained Silversmith. “Even if the airport is found to be out of compliance, you’ll still need to deal with that in a different context. Complaints must be used judiciously, and you must understand what they really can accomplish. Don’t expect a quick answer, either; if it’s a more complicated matter or a formal Part 16 proceeding, it’s going to take some time.”
Silversmith also noted that airports cannot put operators “in a Catch-22 situation” by setting standards for a service but not making reasonable accommodations necessary for it to actually occur. “An airport can’t require you to have a fuel tank on the airport and then not lease [the space] to you,” he said. “They can’t make it literally impossible for you to self-fuel.”
To avoid potential complications, Kohlman recommends that lease-renewal discussions begin at least five years prior to termination of your current contract, enough time to establish a rapport and to address any potential sticking points. However, he emphasized sooner is even better. “It doesn’t matter whether you’re a commercial operator or a non-commercial operator,” he concluded. “The day you start the renewal process for your lease is the day after you sign your lease.”
Review NBAA’s airport resources at nbaa.org/airports.
International Business Aviation Council Ltd.