Okaloosa County BOCC — March 3, 2015 — Background Summary of DTS FBO Issues — reading text

Background Summary - Destin Executive Airport (DTS) FBO Issues Over the last year after discovering that Regal Air FBO (the successor of the Miracle Strip FBO through a negotiated and Board approved lease assignment in July 2013, in exchange for assumption of and structured repayment of delinquent debt) at Destin Executive Airport had been sold to and was being operated by Destin Jet FBO (the competing FBO on Airport), the Department of Airports and the County Attorney have been negotiating amendments to the current lease agreements with Destin Jet and Regal Air Destin to enable them to operate as a single FBO under common ownership and branding based on the following negotiated terms: Concerns regarding compliance with the grant assurances specifically as it relates to: (1) potential for abdication of “rights and powers” of the County authority to be involved before the sale / acquisition; (2) economic non-discrimination by allowing the after the fact acquisition preventing other qualified FBO operators into the market through a RFP; and (3) creating a perceived exclusivity limiting competition were all raised to the FAA, however in each instance the FAA determined that this is a lease administration issue and that the acquisition of a competing FBO, even if it results in a single FBO provider – a prevalent practice, does not in itself constitute as violation of grant assurances. A review of FBO performance statewide over the economic recession is a story of declining revenues from traditional FBO services including aircraft sales, maintenance, flight-training and ground handling of itinerant and local general aviation airplanes verified our concerns regarding the viability of sustaining two FBOs at the Destin Executive Airport which have become largely dependent on declining fuel sales. A recommendation to default Regal Air and RFP to award to an experienced FBO operator was deemed a costly and uncertain endeavor given the current climate with a twice failed FBO dispensing far less fuel than the 1.5 to 2 million gallons of fuel sales needed to attract national chains and practically unrealistic for a qualified bidder, even a national chain, has to start out a half million dollars in the red by assuming the indebtedness of the failed predecessors. The fact that less fuel sold translates to a loss of airport revenue to the County, because the FBOs pay a fuel flowage fee per gallon of fuel dispensed, as well a percentage of gross for other revenue sources which are not likely to grow in the near to intermediate term and because the persistent downturn and uncertainly of the general aviation sector which has forced so many airplanes owners out of the market, prompted the Department to pursue a negotiated settlement instead of risking protracted, costly and uncertain litigation, as Destin Jet is already engaged in operating Regal Air Destin and already committed roughly half a million dollars in assumed debt. Following protracted negotiations, the Department of Airports staff agreed to recommend to the Board that it authorize Destin Jet and Regal Air to operate under common ownership and brand with the following conditions: a. Destin Jet and Regal Air agree to increase their fuel flowage to $.075 cents per gallon, from the current $0.05 and $0.06 per gallon respectively. b. Regal Air agrees to pay $50,000 towards the balance owed to the County for the assumption of Miracle Strip Aviation’s past indebtedness with the remaining balance to be paid over a 24 month period, rather than a sixty (60) month period as originally agreed to by Regal Capital, LLC. And approved by the Board in the lease assumption negotiations and approval of July 2013. c. Regal Air agrees to remove all “Regal Air” signage and operate the two distinct FBO locations as a single Destin Jet FBO brand. Additionally, Department staff agreed to recommend to the Board that it extend the Destin Jet lease from February 24, 2044 to April 14, 2049. This was deemed fair, as the language in the lease allowed for a 20 year lease and a 20 year extension which was to begin from the “Date of Beneficial Occupancy” which actually occurred from April 15, 2009 and ending April 14, 2049 not from the lease effective date is February 26, 2004 with expiration on February 26, 2044. This action will correct an unintended error in the length of the original agreement. Furthermore, in an effort to resolve ongoing community compatibility noise issues related to Vertol's military transport helicopter maintenance and flight training operations, Vertol’s compliance with existing leases/sub-leases agreements; and compliance with the County’s Ordinance that requires an operating agreement with Vertol System Company, Inc., and Vertol Related Entities for operating a commercial business at Okaloosa County Airports (DTS and CEW), a requirement they have done without since 2004, the Department of Airports negotiated to leverage concessions from Vertol Systems through Destin Jet because of their business relationship involving Vertol Systems’ role as the aircraft maintenance provider for the Destin Jet and Regal Air Fixed Base Operators (FBOs). Last October, Destin Jet negotiated the following concessions on behalf of Vertol as follows: Vertol agrees to enter into an operating agreement with the County for its operations at the Destin Executive and Bob Sikes Airports, which shall include an annual operational fee not to exceed $2,000 per year. a. Vertol agrees that there will be no rotorcraft or rotary-wing (helicopter) operations (engine running) on the Destin Jet’s north leasehold ramp between the hours of 10:30 p.m. and 8:00 a.m., 7 days per week. b. The County agrees to construct a helicopter engine run-up pad at the south end of the taxi way within two (2) years of such relocation. Subsequently, last December the Department of Airports learned from Destin Jet, that due to the additional operational restrictions being imposed and the inefficiencies to its business from having located in the Destin Jet apron and having to operate from the South Ramp, Vertol is not willing to execute the Operating Agreement negotiated on its behest and behalf by Destin Jet. The County is currently at a legal standoff with Vertol regarding the required operating agreement. Earlier this month, Destin Jet forwarded the revised leases and notified the Department of Airports that it is no longer allowed to negotiate for Vertol and wants to move forward with seeking Board approval for the leases as attached. It is recommends that the County move forward by treating these negotiations separately, as any leverage that may have existed to compel Destin Jet to get Vertol to cooperate has been severed, and further delaying or denying Destin Jet’s request to amend the Destin Jet and Regal Air leases will inevitable result at best, in maintaining the status quo with airport consumers being misled in believing there are competing FBO businesses at Destin Executive Airport and the County loosing fuel flowage and debt revenues and at worst in a long, protracted and uncertain court battle.