Title
Amended and Restated Lease 33676 with Cutter Aviation, Inc. at Phoenix Sky Harbor International Airport - District 8
Description
Request the Transportation, Infrastructure, and Planning Subcommittee to recommend to the Phoenix City Council to amend Lease 33676 with Cutter Aviation Phoenix, Inc. for the operation of a full-service Fixed Base Operator Facility at Phoenix Sky Harbor International Airport to extend the term by 15 years and incorporate additional Ground Lease 157996 into the amended and restated lease.
THIS ITEM IS FOR CONSENT ACTION.
Report
Summary
Cutter Aviation Phoenix Inc. (Cutter) leases approximately 18 acres of land under Lease 33676 (Lease) for the operation of a fixed base operator business (FBO) at Phoenix Sky Harbor International Airport (PHX). Cutter also leases approximately 1.06 acres of land at PHX under Lease 157996 for parking needs to support its FBO operations. Both leases are set to expire on March 31, 2028.
Cutter is seeking to invest a minimum of $7 million in FBO facility improvements including refurbishment of aircraft storage hangars, increase hangar aircraft size capacity to accommodate larger general aviation aircraft, installation of portico, asphalt of aircraft ramp areas, and other efficiency and customer service enhancements. To allow Cutter to amortize these investments, the Aviation Department desires to amend and restate Lease 33676 to include extending the lease term by 15 years, updating other lease provisions to modernize the lease agreement to align with current leasing standards and incorporating Lease 157996 into a consolidated amended and restated Lease. The amended and restated Lease will require all improvements to be completed within the first 36 months of the extended term. To ensure the construction of the improvements is completed within the 36-month timeframe, Cutter will be required to provide a cash deposit of $350,000 to the City as a capital investment milestone guarantee. Failure to substantially complete the improvements within 36-month timeframe will result in forfeiture of the deposit to the City.
Contract Term
The terms for Leases 33676 and 157996 are set to expire on March 31, 2028. The amended and restated Lease will extend the term by 15 years from April 1, 2028, to March 31, 2043. If the leased premises are needed for airport expansion purposes, the City may terminate the amended and restated Lease by giving Cutter a minimum of 12 month's prior written notice.
Financial Impact
Cutter currently pays approximately $336,808 as rent in the form of a minimum annual guarantee (MAG) for their FBO premises and also pays additional amounts for other aeronautical services such as fuel flowage fees and landing fees performed at PHX. Combined revenue from Cutter for FBO and other aeronautical services generates approximately $1.2 million per year. As a provision of the amended and restated lease, rent for the FBO premises will convert to a ground rental rate of approximately $0.43 per square foot, which will produce a rent amount that approximately equals the current MAG amount. The annual ground rental rate will remain at approximately $336,808 for years one through five of the extended term. In years six through ten of the extended term, the ground rental rate foot will increase by $0.10 per square foot per year.
An appraisal will determine the market rental rate for year eleven of the extended term. If the appraised increase is ten percent or less, the ground rent will be adjusted to the appraised market rate for year eleven. If the appraisal market rate increase exceeds ten percent, the ground rental rate for year eleven will be capped at ten percent, with subsequent ten percent annual rent increases in years twelve through fifteen until the ground rental rate matches the appraised market rate. Once the appraised market rate is reached, the rent adjustments for the remaining lease years will be based on the Phoenix-Mesa-Scottsdale Consumer Price Index (CPI) or three percent, whichever is greater.
Cutter currently pays $48,510 in ground rent for Parking Lot premises with annual rent adjustments of three percent. The rental rate for the Parking Lot premises during the extended term years will also be based on the appraised market rental rate and will follow the same rental adjustment methodology as the FBO premises.
In addition to annual ground rent, Cutter will be subject to all fees and services associated with the current PHX FBO Minimum Standards, including fuel flowage fees and landing fees. The total anticipated revenue over the 15-year extended term is expected to exceed $22 million.
Concurrence/Previous Council Action
The Phoenix Aviation Advisory Board approved this item on September 18, 2025, by a vote of 9-0.
Location
Phoenix Sky Harbor International Airport, 2802 E. Old Tower Road
Council District: 8
Department
Responsible Department
This item is submitted by Deputy City Manager Amber Williamson and the Aviation Department.