Title
Amended and Restated Lease 33676 with Cutter Aviation, Inc. at Phoenix Sky Harbor International Airport (Ordinance S-52388) - District 8
Description
Request to authorize the City Manager, or his designee, to amend Lease 33676 (Ground Lease) with Cutter Aviation Phoenix, Inc. (Cutter) for the operation of a full-service fixed base operator facility (FBO) at Phoenix Sky Harbor International Airport (PHX) to extend the term 15 years and incorporate Lease 157996 (Parking Lot Lease) into the Ground Lease.
Report
Summary
Cutter leases approximately 18 acres of land under the Ground Lease for the operation of an FBO at PHX. Cutter also leases approximately 1.06 acres of land at PHX under the Parking Lot Lease for parking needs to support of its FBO operations. Both leases will 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 a portico, asphalt of aircraft ramp areas, and other efficiency and customer service enhancements. In order for Cutter to amortize these investments, the Aviation Department desires to amend and restate the Ground Lease to include extending the term by 15 years, updating other lease provisions to modernize the Ground Lease to align with current leasing standards, and incorporating the Parking Lot Lease into a consolidated amended and restated Ground Lease. The amended and restated Ground Lease will require all improvement to be completed within the first 36 months of the extended term. To ensure the construction of the improvements is completed within 36 months, Cutter must provide a cash deposit in the amount of $350,000 to the City as a capital investment milestone guarantee. Failure to substantially complete the improvements within the 36-month time period will result in forfeiture of the deposit to the City.
Contract Term
The terms of the Ground Lease and Parking Lot Lease will expire on March 31, 2028. The amended and restated Ground Lease will extend the term by 15 years from April 1, 2028, to March 31, 2043. If the leased premises are required for airport operational purposes, the City may terminate the amended and restated Ground Lease by giving Cutter a minimum of 12 month's prior written notice.
Financial Impact
Cutter currently pays approximately $336,808 in rent in the form of a minimum annual guarantee (MAG) for its FBO leased premises and also pays additional amounts for other aeronautical services in compliance with Federal Aviation Administration (FAA)-approved PHX FBO Minimum Standards, 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 Ground Lease, rent for the FBO leased premises will convert to a ground rental rate of approximately $0.43 per square foot per year, 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 10 of the extended term, the ground rental rate will increase by $0.10 per square foot per year.
An appraisal will determine the market rental rate for year 11 of the extended term. If the appraisal increase is 10 percent or less, then the ground rent will be adjusted to the appraised market rate for year 11. If the appraisal market rate increase exceeds 10 percent, the ground rental rate increase for year 11 will be capped at 10 percent, with subsequent 10 percent annual rent increases in years 12 through 15 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 under the Parking Lot Lease 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 leased premises.
In addition to annual ground rent, Cutter will be subject to all fees and services associated with the current FAA-approved 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 recommended approval of this item on September 18, 2025, by a vote of 9-0.
The Transportation, Infrastructure, and Planning Subcommittee recommended approval of this item on October 15, 2025, by a vote of 3-0.
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.