Title
Amend Aircraft Maintenance Hangar Lease with Southwest Airlines Co. (Ordinance S-43252)
Description
Request to authorize the City Manager, or designee, to amend the term of Airport Lease No. 58778 (Lease) with Southwest Airlines Co. for leased premises at Phoenix Sky Harbor International Airport.
Report
Summary
Southwest Airlines Co. has served Phoenix since Jan. 31, 1982, and operates 179 daily departures to more than 50 cities. In Fiscal Year 2015-16, Southwest Airlines Co. had 7,149,550 enplaned passengers, which equals 32.4 percent of the airline market share at Phoenix Sky Harbor International Airport.
On April 30, 1991, the City and Southwest Airlines Co. entered into the Lease, which authorized Southwest Airlines Co. to build an aircraft maintenance hangar facility, a provisioning building, and an area for ground service equipment on the leased premises. The hangar facility was built and is capable of housing four Boeing 737 aircraft, ground maintenance service shops, and administrative offices. The hangar facility supports employee parking, aircraft hardstand parking, an aircraft washrack, ground equipment service, storage areas, and paving access to the existing airport taxiway system.
On April 2, 1997, the Lease was amended to add 3.5 acres of land located east of Terminal 4 and adjacent to the hangar facility. The land is used for employee parking.
Southwest Airlines Co. requested an extension of the term of the Lease in order to make modifications to the leased premises to accommodate its aircraft fleet requirements. The rental rate will remain at $0.71 per square foot per year until Aug. 1, 2017, when it will increase to $0.77 per square foot per year and will be adjusted annually according to the consumer price index, but not to exceed an increase of 1.25 percent per year. Rent during the option periods will be negotiated between the parties before Dec. 31, 2045.
The amendment may contain other terms and conditions deemed necessary or appropriate by the City Manager or designee.
Contract Term
The term of the Lease will be 30 years effective March 1, 2017 with two five-year options to renew that may be exercised at the sole discretion of the Aviation Director.
Financial Impact
The City is expected to receive rent in the amount of $585,765.90 for the first year of the amended Lease.
Concurrence/Previous Council Action
This item was scheduled to be heard at the Downtown, Aviation, Economy and Innovation Subcommittee on Feb. 1, 2017; the meeting was rescheduled to Feb. 22, 2017.
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.