Metropolitan Nashville Airport Authority

Transcription

1 Metropolitan Nashville Airport Authority MEMORANDUM TO: CC: FROM: Robert R. Wigington, President and CEO Stan Van Ostran, Vice President and CFO Michael Lee, Chief Commercial Officer Tom Bibb, Director of Commercial Development Christine Vitt, Vice President of Strategic Planning and Sustainability Michelle Baker, Assistant Manager Environmental Compliance Kevin C. Porter, Internal Auditor DATE: June 16, 2016 SUBJ: Signature Flight Support Lease Agreement Audit Report Background Signature Flight Support Corporation ( Signature ) has been operating as a Fixed Base Operator ( FBO ) providing General Aviation services on Airport property since assuming assignment of the BNA Jet Lease and AVITAT Lease from Nashville Jet Center, Inc. and Aviation Service Corporation, respectively, on July 20, The Metropolitan Nashville Airport Authority ( Authority ) consented, in writing, to the assignment. On May 28, 1976, Nashville Jet Center, Inc. and the Authority entered into the Nashville Jet Center Lease Agreement to operate a general aviation service facility. On November 1, 1982, Music City's Executive Aviation, Inc. and the Authority entered into the "Music City Lease" Agreement to operate a general aviation service facility. On April 19, 1985, Music City's Executive Aviation, Inc. assigned all of their rights, duties and liabilities under the Music City Lease to Executive Jet Aviation, Inc., which changed its named to BNA Jet, Inc. The Authority consented, in writing, to the assignment.

2 On September 19, 1985, Nashville Jet Center, Inc. assigned all of its rights, duties and liabilities under the Nashville Jet Center Lease to BNA Jet, Inc. The Authority consented, in writing, to the assignment. On September 19, 1985, the Authority entered into a lease agreement with BNA Jet, Inc., known as the BNA Jet Lease ; where the Nashville Jet Center Lease and the Music City Lease were consolidated into the BNA Jet Lease. The Nashville Jet Center Lease and the Music City Lease maintained their original and different lease terms. Parcel Lease Terms Renewal Options Expiration Date Music City October 1, options to renew for a period of 5 July 31, 2015 to July 31, 2005 years. Nashville Jet October 1, options to renew for a period of 5 to May 31, 2001 years. Additionally lessee may renew for an additional 5 years after the 2 renewal periods. May 31, 2016 On January 14, 1987, Aviation Service Corporation and the Authority entered into the AVITAT Lease Agreement to operate a general aviation service facility. Parcel Lease Terms Renewal Options Expiration Date AVITAT July 16, 1986 to 2 options to renew for a period of 5 July 15, 2021 July 15, 2011 years. On July 20, 1990, Nashville Jet Center, Inc. and Aviation Services Corporation assigned all of their rights, duties and liabilities under the BNA Jet Lease and AVITAT Lease to Page Avjet Airport Services, Inc. The Authority consented, in writing, to these assignments. In 1992, Page Avjet Airport Service, Inc. merged with other companies to form Signature Flight Support Corporation. On March 23, 2016, Signature entered into a Lease Agreement with the Authority combining the Lease Agreements for the Music City Parcel, Nashville Jet Parcel, and AVITAT Parcel. The Agreements required Signature to pay the Authority on a monthly basis rent for the use of the leased premises. This rent is to be adjusted on a five (5) year basis and should never be adjusted lower than the rent established at the beginning of the Agreement. The Agreement for the Music City Parcel and the AVITAT Parcel required the rent adjustments be based upon an appraisal performed by an independent appraiser. Since the lease terms are within a one (1) year period, Commercial Development has the appraisals performed together and it is called the Music City Appraisal. The Agreement for the BNA Jet Parcel 2

3 required the rent adjustments be calculated by the increase in the Consumer Price Index ( CPI ). The Agreements required that the Lease Premise should be used for operating a general aviation service facility in compliance with minimum fixed base operation standards. The Agreements required that BNA Jet and Aviation Service Corporations to comply with the Minimum Standards for Equipping & Operating a General Fixed Base Operation at the Nashville Metropolitan Airport, Nashville, Tennessee ( FBO Minimum Standards ) dated February 28, The FBO Minimum Standards required the following mandatory services to be provided: 1. Aircraft fuel and oil dispensing; 2. Aircraft parking, tie-down, and hangar storage; 3. Airframe, power plant and accessory services; 4. Radio and Instrument Repair services; 5. Air Taxi and Charter; and 6. Flight Training. The FBO Minimum Standards from the Lease Agreements was replaced with the Aeronautical Service Operator Minimum Standards ( Minimum Standards ), effective December 1, The updated Minimum Standards required the following mandatory services to be provided: 1. Fueling; 2. General Aviation Services: a. Public restrooms, pilot lounges, conference rooms, flight planning areas, weather services; b. Aircraft parking, tie-down, and hangar storage; c. Airframe, power plant and accessory services; d. Radio and instrument services; and 3. Emergency Assistance. On May 1, 2008, Signature entered into a Sublease and Operating Agreement with Averitt Air, Inc. ( Averitt ) to provide, on behalf of Signature, repairing aircraft and maintenance services in accordance with the Minimum Standards and FAR Part 145, Repair Station. The initial term of the Sublease Agreement was thirty-seven (37) months, with two (2) options to renew for a period of five (5) years, ending on June 30, The Agreements required Signature to pay the Authority a fuel flowage fee of $0.08 per gallon on all fuels and oils sold, dispensed, or consumed on or about the leased premises. 3

4 Objectives The objectives of this audit were as follows: 1. Determine the validity and timely collection of monthly revenue and fuel flowage fees; 2. Document compliance with contract terms and operational requirements; 3. Document and evaluate the Authority s current procedures in place to monitor Signature s compliance with contract terms and operational requirements; and 4. Document and evaluate existing internal controls. Testing In order to satisfy the audit objectives, the following tests were performed: 1. Selected 3 months for detailed testing (September 2014, March 2015, and June 2015). For each month selected, performed the following: a. Obtained the monthly fixed rent invoices from Authority s Accounts Receivable and verified that the rent amount agreed to the schedule of rental fees and charges in the Lease Agreement. b. Obtained detailed fuel reports from Signature and performed the following: i. Reviewed reports for mathematical accuracy. ii. Tied amounts per reports to amounts reported to the Authority. iii. Selected 5 consecutive days each month and performed the following: 1. Obtained daily fuel sales reports for the days selected from Signature. 2. Reviewed the reports for mathematical accuracy. 3. Tied amounts per reports to the detailed fuel records. 4. On a test basis, tied the daily fuel sales to customer fueling tickets. iv. Obtained the detailed fuel purchases report from Signature for each month and performed the following: 1. Reviewed the reports for mathematical accuracy. 2. Tied amounts per reports to amounts reported to the Authority. 3. On a test basis, tied the fuel purchases to bills of lading and fuel invoices. v. Obtained the monthly inventory logs from Signature for each month and performed the following: 4

5 1. Reviewed logs for mathematical accuracy. 2. Tied the beginning inventory to the prior months ending inventory. 3. Tied the ending inventory reported to the Authority to inventory logs. 4. Confirmed the daily stick measurement of fuel was being performed. c. Obtained a copy of Signature s general ledger. Verified that the fuel sales and fuel purchase amounts per the general ledger were consistent with the amounts reported to the Authority. d. Obtained a copy of the Tennessee Sales and Use Tax form. i. Reviewed tax returns for reasonableness and determined sales and use taxes were properly remitted to the State. 2. Determined Signature was providing the following minimum services and standards for a FBO as defined by Signature s Lease Agreements and the Minimum Standards. a) Verified fueling services were being provided in accordance with the Minimum Standards, FAA regulations, and the Lease Agreements. i. Determined Signature had at least three (3) meter filter-equipped mobile dispensing trucks. ii. Determined fuel service personnel had completed the required training. iii. Verified Signature was providing aircraft fueling and line services twenty-four hours a day. b) Determined through observation Signature s ramps were free of obstruction, growth of vegetation, and failing pavement. c) Determined through observation tie down areas were provided clear of taxiways and were prominently marked. d) Determined through observation there was no unairworthy aircraft parked on the premises. e) Determined Signature was providing the required aircraft and automobile parking spaces. f) Verified Signature s terminal was clean, neat in appearance, and free from any debris or trash. 3. Determined the Authority had approved Signature s subcontracting of FBO services. a) Verified Signature s sublessees had the required FAA certifications to provide aircraft repair services and radio and instrument services. 5

6 b) Verified Signature s sublessee for aircraft repair service had at least one FAA licensed aircraft mechanic. 4. Determined Signature had established procedures or written agreements to ensure all tenants adhered to the Authority, local, state, and federal rules and regulations. 5. Determined Signature had not obtained the Authority s approval prior to accepting a new tenant. 6. Determined Signature was complying with the Authority s airport security and safety plan. 7. Determined Signature was complying with applicable environmental regulations. 8. Determined that Signature maintained adequate insurance coverage. a) Obtained a copy of the current certificate of insurance on file. b) Verified that the comprehensive aviation liability, hangars keepers, commercial general liability, automobile, and worker s compensation insurance met or exceeded the amounts specified in the contract. c) Verified that the certificate of insurance was current and adhered to all other contract terms. 9. Determined there were procedures in place to monitor Signature s compliance with contract terms and operational requirements. a) Determined, through discussions with Commercial Development and Operations, there were procedures in place to monitor Signatures compliance with contract terms and operational requirements. b) Verified inspections of Signature were being performed in accordance with the Authority s Aeronautical Service Operator Minimum Standards Inspection Process. 10. Through inquiry and observation, reviewed the existing internal controls in place. Conclusion Based upon the audit, the following were determined with respect to the stated objectives: 1. Environmental Compliance does not have a process to annually review Signature s Spill Prevention Control and Countermeasure ( SPCC ) Plan and any updates to the plan, as noted in finding #1. 2. The Authority did not provide written consent to Signature for the Real World Tours sublease agreement, as noted in finding #2. 6

7 Finding #1 Observation Environmental Compliance does not have a procedure in place to annually review Signature s SPCC Plan and updates to the plan. Background According to Section 5, Fuel Storage Facilities, of the Aeronautical Service Operator Minimum Standards, The storage system must include adequate fuel spill prevention features and containment capabilities, together with an approved fuel spill containment and countermeasures control plan. According to Section 4A-1-40, Spillage, of the Airport Rules and Regulations, Owners and operators of fueling facilities may be required to prepare and maintain an approved Spill Prevention Control and Countermeasure Plan (SPCC Plan). The Federal Clean Water Act of 1977, amendments of 1987, the Oil Pollution Act of 1990, and 40 Code of Federal Regulations, Part 112, Oil Pollution Prevention, require preparation of a plan for certain storage capacity facilities. The Authority may request copies of the plan and updates to the plan. Owners and operators of these regulated facilities must operate as specified in Paragraph 4A-1-5-C. According to Compliance Procedures, of the Airport Procedure 8-402, Spill Prevention and Contingency Containment Plan (SPCC PLAN), the Planning Division will review annually the file of facility SPCC's for not only MNAA facilities but also for Tenants. The plans will be reviewed for compliance with the EPA regulations and for certification by a Registered Engineer. An objective of the audit was to document and evaluate the Authority s procedures in place to monitor Signatures compliance with contract terms and operational requirements. Through audit testing and interviews, it was determined that Environmental Compliance does not have a procedure in place to annually review Signature s SPCC Plan and updates to the plan. 7

8 Recommendation Annually, Environmental Compliance should require Signature to provide a copy of their SPCC Plan and any updates made to the plan to ensure they are complying with EPA regulations. Management Response MNAA Environmental reviews the tenants SPCC Plan and any updates during the annual compliance inspection conducted with Commercial Development and Operations personnel. MNAA does not maintain a record of these reviews; however, per a new lease agreement with Signature, dated March 23, 2016, the tenant is required to provide the Authority a copy of their SPCC Plan. MNAA Commercial Development will contact the tenant for a copy of their plan and work with MNAA Environmental to ensure compliance. MNAA Environmental will review for compliance with Federal Clean Water Act regulations. The SPCC document is typically in effect for 3 to 5 years; therefore, it is potentially burdensome and unnecessary for the tenant to submit a copy of the plan every year. The agreement requires the tenant to submit the initial plan and maintain compliance with all federal regulations. MNAA Environmental will continue to review the tenants SPCC Plan at the tenant s location during the annual compliance inspection / audit to ensure the tenant is maintaining spill records, etc. Finding #2 Observation The Authority did not provide written consent to Signature for the Real World Tours, Inc. sublease agreement. Background According to Exhibit "D" General Conditions, (s) Assignment and Subleasing, of the BNA Jet Lease Agreement, Lessee may assign or sublease any part or parts of this Lease Agreement, but only after approval of Lessor's Executive Director, which approval may not be unreasonably withheld. According to Exhibit C General Conditions, 18. Assignment and Subleasing, 18.1, of the AVITAT Lease Agreement, Lessee may assign or sublease any part or parts of this Lease Agreement, but only after approval of Lessor's President, which approval may be denied for any reason. 8

9 In February 2006, Signature entered into a Ground Sublease Agreement ( Sublease ) with Real World Tours, Inc. ( Real World ) for a parcel of land situated on the Music City Parcel of Signature s lease premises for the construction of a new aircraft storage and maintenance hangar. The initial term of the Sublease was ten (10) years, expiring July 31, The expiration date of July 31, 2015, coincides with the expiration date of Signature s Agreement for the Music City Parcel. It should be noted that Signature is currently on a month-to-month basis with Real World. Signature is in the process of negotiating new sublease agreement terms with Real World. An objective of the audit was to determine Signature has obtained the Authority's approval prior to accepting a new tenant. Through audit testing and interviews, it was determined that written consent was not provided for the Real World Sublease. Commercial Development could not locate or provide a copy of a signed Consent and Non-Disturbance Agreement for the Real World Sublease. Recommendation Commercial Development should require written consent to be provided prior to Signature entering into a new sublease agreement with Real World. Management Response Signature is required to receive Authority written consent on sublease agreements as part of Signature s new lease. Commercial Development has notified Signature of the need for written consent of the Real World Hangar sublease once it is finalized. As other subleases expire in the first 5 years of this new lease with Signature, written consent of all amendments or new subleases will be required as well. 9