RECOMMENDATION:
Enact an ordinance approving and authorizing a Special Facilities Lease Agreement (SFL) with United Airlines, Inc. (United) for an expansion of its aircraft maintenance hangar complex at George Bush Intercontinental Airport/Houston (IAH) and appropriating $10,000,000 from the HAS Airports Improvement Fund (Fund 8011).
SPECIFIC EXPLANATION:
On September 7, 2016, the City adopted Ordinance No. 2016-681 approving a Memorandum of Agreement (MOA) with United for an expansion of United’s aircraft maintenance hangar complex on approximately 39 acres at IAH. The MOA provided for United and the City to enter into an SFL under which United would construct its maintenance facility expansion, which is referred to as United’s Technical Operations Center (the “UTOC Project”).
The UTOC Project is to be constructed by United and financed by United using Special Facility Bonds and its own funds. Certain enabling projects, such as environmental work and relocation of certain existing facilities, are funded by the City. Under the MOA, the City appropriated $12,500,000 to pay for the City’s enabling projects. Subsequently, additional enabling projects were identified, which require an additional $10,000,000 to be appropriated under the SFL.
In connection with the SFL, the City intends to issue the City of Houston, Texas Airport System Special Facilities Bonds (United Technical Operations Center Project), Series 2017 (AMT) (the “UTOC Special Facilities Bonds”). Pursuant to the SFL, for as long as the UTOC Special Facilities Bonds remain outstanding, United will be obligated to pay the principal and interest on the bonds, and the UTOC Special Facilities Bonds will not constitute an indebtedness of the City, nor will they be a general obligation of the City.
As part of the UTOC Special Facilities Bonds transaction, this project was presented to the Budget and Fiscal Affairs Committee on October 3, 2017.
The pertinent terms of the Special Facilities Lease are as follows:
• United will ground lease approximately 39 acres located north of Will Clayton Parkway and east of the terminal complex at IAH. During the due diligence and construction phase, rental shall be $100 per month. Thereafter, rent shall be $.35 per square foot per annum (approx. $600,000 annually) which shall escalate 15% every five years.
• The initial term of the SFL is 35 years, with one automatic 5-year extension period (unless cancelled by either party), subject to compliance with applicable federal tax laws.
• United shall use the premises to construct and operate a large maintenance hangar complex consisting of hangar, shops, office space, and support facilities along with associated employee parking, in addition to apron space capable of parking multiple widebody aircraft. United will expend between $120-160 million in capital investment.
• In order to ready the area for real estate development, a number of enabling projects must be completed. The enabling projects include managing and relocating existing airport, FAA, and Texas Department of Agriculture operations, relocating a roadway leading to other airport tenants, and remediating various environmental issues. The City has determined that it will minimize disruption to IAH operations and the traveling public, streamline coordination efforts, and be more time-efficient if United manages the City’s enabling projects. The City shall reimburse United the actual costs of these enabling projects, subject to appropriation of funds by the City.
• M/WBE Participation: A MBE goal of 23% and a WBE goal of 7% have been established for enabling projects funded by the City. Up to 4% can be fulfilled by a qualified SBE firm.
Fiscal Note:
There is no impact to the FY18 Adopted Operating Budget for this item. Therefore, no fiscal note is required as stated in the Financial Policy Ord. 2014-1078 as an Operating Budget Item.
This item is considered to be a capital project. See below for funding information and the required fiscal notes associated with a capital project. No impact to the operating budget is anticipated as the project relocates existing facilities and structures to similar facilities and structures at IAH. The existing facilities and structures will then be demolished and the site turned over to United. United will then construct its Maintenance Hangar Complex at the site and all future operating and maintenance expenses for the Complex shall be borne by United.
Capital Project Information
See attached Form A
Director's Signature:
__________________________ _________________________
Mario C. Diaz Andy Icken
Houston Airport System Chief Development Officer