Title
Rental Car Center Request for Concession and Lease Agreement Changes and Issuance of Independent Operator Parcel Revenue Contract Solicitation (Ordinance S-43549)
Description
Request to authorize the City Manager, or his designee, to take five actions to support operations at the Rental Car Center (RCC) at Phoenix Sky Harbor International Airport.
Report
Summary
Since the opening of the RCC in 2006, there has been significant acquisition, sale and consolidation activity of the ownership of the current rental car operators. With the anticipated expiration of the current Concession Agreements and in acknowledgement of the significant changes in the rental car industry, the Aviation Department has determined that new agreements are required to support the future operation of the RCC to enhance overall rental car revenues, operational efficiencies, and customer service.
Request is made of the City Council to authorize the City Manager, or his designee, to implement the following actions:
*Consolidate the business agreements with the rental car operators at the Rental Car Center at Phoenix Sky Harbor International Airport, resulting in (A) consolidation of the eight current RCC leases to three RCC leases (Consolidated Leases) and (B) the termination of the five remaining current RCC leases.
*Termination of the RCC lease with one rental car operator (Advantage Opco, LLC), which was not consolidated under a new areement.
*Enter a new Concession Agreements and an Amended and Restated Lease for each of the Consolidated Leases.
*Conduct a Revenue Contract Solicitation (RCS) for selection of up to three smaller independent operators in the RCC under new concession agreements and new leases.
Background
The RCC currently houses 14 rental car brands operated by six rental car companies. Three of these companies own 10 rental car brands and control approximately 90 percent of the local rental car market (Tier One Operators). The three remaining companies own four brands and control approximately 10 percent of the RCC local rental car market (Tier Two Operators).
Due to the recent consolidation, rental car ownership, and the physical layout of the RCC, the service site area leases will be reconfigured to allow the companies to be located with their rental car brands. Three large Tier One Sites will be developed to accommodate the Tier One Operators. A Tier Two Site will be developed to that can independently accommodate up to three individual Tier Two Operators.
A Tier One Rental Car Operator must meet certain financial and operational qualifications and commit to operate a minimum of three rental car company brands that are owned, licensed to, or otherwise authorized to be operated by the Tier One Operator at a Tier One Site. A Tier One Operator may not also operate a rental car company brand at the Tier Two Operator Site.
Business Terms
Aviation recommends the following business terms for Tier One Operator Concession Agreements and Amended Leases:
* Rental car operators will pay either the minimum annual guaranteed rent or 10 percent of gross revenues, whichever is greater.
* The City will construct improvements in and around the service sites to facilitate realigning and reconfiguring service site leased premises to accommodate the consolidation of the rental car operators.
* Rental car operators will pay an obligation payment if the customer facility charge (CFC) is legally voided.
* Rental car operators will pay a contingent payment, with an annual cap of $5 million collectively, if the collection of the CFC is insufficient to cover debt service and financing reserves outlined in financing documents, capital expenditures, and operating and maintenance costs for the RCC and common transportation system.
* The current rental car operators that qualify as Tier One Operators are: Avis Rent A Car System, LLC (dba Avis, Budget, Payless, and Zipcar); Enterprise Holdings, International (dba Enterprise, National, and Alamo); and The Hertz Corporation (dba Hertz, Dollar, and Thrifty).
*The Aviation Department has determined that there are no other rental car companies that qualify as a Tier One Operator.
The Aviation Department recommends the same business terms for the Tier Two Operator Concession Agreements and Leases that are recommended for the Tier One Operator agreements listed above.
*Additionally, tier Two Rental Car Operators must meet certain financial and operational qualifications and commit to operate no more than two rental car company brands that are owned, licensed to, or otherwise authorized to be operated by a Tier Two Operator at the Tier Two Operator site. A Tier Two Operator may not also operate a rental car brand at a Tier One Site.
*The remaining rental car operators qualify as Tier Two Operators. The companies include: Advantage Opco, LLC (dba Advantage and E-Z); Sixt Rental Car Company; and Fox Rental Car Company.
The Aviation Department anticipates that there are additional rental car companies that may qualify as a Tier Two Operator. Since there may be more than three qualified Tier Two Operators, the Aviation Department is recommending the issuance of a Revenue Contract Solicitation (RCS) process to select up to three Tier Two Operators.
*Respondents to the RCS must meet minimum qualifications
*Responses to the RCS will be reviewed for accuracy and completeness of proposal documentation as well as determining that proposers meet the RCS minimum qualifications. Responsive proposals will be scored based on the proposed Minimum Annual Guarantee (MAG).
Contract Term
The new term for Tier One Operators for both the Concession Agreements and Amended Leases will be from July 1, 2017, through June 30, 2029.
The new term for the Tier Two Operators for both the Concession Agreements and Leases will be five years, with one, five-year option to extend at the Aviation Director's sole discretion.
Procurement Information
The original Concession Agreements and Leased Premises were competitively bid in 2004. The Concession Agreements had a 10 years and were originally set to expire on Dec. 31, 2016, but were extended until Dec. 21, 2017 by City Council action on Sept. 21, 2016. The Leased Premises for orginally had a 20 year term for each operator and currently expire on Dec. 31, 2026.
In 2005 Concession and Lease Agreements for five rental car companies were competitively procured to operate in a single shared area at the RCC reserved for small operators. Four contracts were implemented on Jan. 19, 2006. One SOP operator chose not to begin operations at the RCC. There are currently three operators in the SOP that do business under combined Concession and Lease Agreements that expire on Dec. 31, 2017.
Financial Impact
Year one MAG for Tier One Operators will be $29,969,709. Projected revenue to the City during the initial term of the Concession Agreement is approximately $360 million.
Year one MAG for Tier Two Operators is estimated to be $3,437,029. Projected revenue to the City during the initial term of the Concession Agreement is approximately $17.1 million.
Concurrence/Previous Council Action
This Item was recommended for approval by the Downtown, Aviation, Economy and Innovation Subcommittee on May 3, 2017, by a vote of 4-0.
Location
Phoenix Sky Harbor International Airport is located at 3400 E. Sky Harbor Blvd.
Department
Responsible Department
This item is submitted by Deputy City Manager Paul Blue and the Aviation Department.