; a. BOAR i OF AIRPORT COMMISSIONERS REPORT TO THE

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1 Approved b : Los Angeles World Airports REPORT TO THE BOAR i OF AIRPORT COMMISSIONERS A /,... J '.cd,.all Ramon Olivares Director, Property Services Meeting Date: 10/20/2016 ti tier ; a. /l/ ' / Reviewed by: Debbie Bowers, Dep Ir Deborah Flint - Chi k xecutive Officer 'A:14 NJ..., y Executive Director CAO Review: Completed Pending N/A Reviewed for Date Approval Status By Capital Budget 9/21/16 Y N NA Operating Budget 9/26/2016 Y N NA CEQA 9/16/2016 ; Y N Procurement 10/05/16 Y ON Cond Guest Experience 9/21/2016 Y ON NE! RW NM MT BY SUBJECT: Approval of a Lease with United Airlines, Inc. and Building Rental Rates for a Maintenance Hangar Facility at Los Angeles International Airport Approve a 30 -month Lease with United Airlines, Inc. and building rental rates for a maintenance hangar facility located at 7300 World Way West at Los Angeles International Airport that will generate approximately $9,275,270 in the first 12- months, and approximately $23,188,170 over the term. RECOMMENDATIONS: Management RECOMMENDS that the Board of Airport Commissioners: 1. ADOPT the Staff Report. 2. DETERMINE that this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Article Ill, Class 1 (18)(c) of the Los Angeles City CEQA Guidelines. 3. APPROVE the Lease with United Airlines, Inc. and building rental rates, as referenced in this report. 4. AUTHORIZE the Chief Executive Officer to execute the Lease between the City of Los Angeles and United Airlines, Inc. upon approval by the City Council and approval as to form by the City Attorney. Page 1

2 DISCUSSION: 1. Purpose Allow United Airlines, Inc. (United) to continue aircraft maintenance operations at Los Angeles International Airport (LAX). 2. Prior Related Actions September 29, Board Order No. AO (LAA -1652) The Board of Airport Commissioners (Board) approved a 38 -year and 10 -month ground Lease with Continental Airlines, Inc. (Continental) for acres of land to construct an aircraft maintenance facility located at 7300 World Way West, LAX. The Lease commenced on August 1, 1971, and was scheduled to expire on May 31, March 7, Board Order No. AO (LAA- 1652A) The Board approved a First Amendment to the Lease to permit catering services on the premises and to revise fees /rates for catering services. May 11, Board Order No. AO (LAA- 1652B) The Board approved a Second Amendment to the Lease to allow Continental to enter into financing agreements with American General Corporation and /or others using the leasehold as collateral. August 11, Board Order No. AO (LAA- 1652C) The Board approved a Third Amendment to the Lease to allow Los Angeles World Airports (LAWA) to take back certain land and improvements and to reduce rent accordingly. February 16, Board Order No. AO (LAA- 1652D) The Board approved a Fourth Amendment to extend the Lease term for an additional three years to allow Continental to return certain portions of its premises and to receive appropriate rent adjustments for the returned premises. 3. Current Action United currently occupies two aircraft maintenance facilities at LAX: one at Avion Drive, currently under a Use Terms and Conditions (UTC) permit; and one at 7300 World Way West under a holdover Lease, acquired by United concurrent with the 2013 acquisition of Continental by United. The Lease expired on May 31, 2013, at a time when United was working to recover and stabilize following the acquisition of Continental and merging of the two entities. Consequently, completion of negotiations on a new lease for the 7300 World Way West premises was prolonged, and further complicated by various United staff changes. Additional delays resulted from complexities associated with LAWA and United staff efforts to (1) identify and agree on United's aircraft maintenance facility and aircraft parking needs at LAX, and (2) develop a plan to consolidate United's two aircraft maintenance facilities at one location. LAWA and United staff have reached agreement on a conceptual plan for the Avion Drive location which will achieve consolidation of the two aircraft maintenance leaseholds at one location. The proposed 30 -month Lease allows United to continue operations at the 7300 World Way West location, while it constructs a new (consolidated) maintenance facility at the Page 2 UA docx

3 Avion Drive location. Negotiations on a new Avion Drive lease, to include the redevelopment project, are currently in process. Staff expects to submit the new Avion Drive lease to the Board early next year. The table below provides a summary of key elements of the proposed new Lease for the 7300 World Way West premises: LEASE SUMMARY Amended /Current Proposed TERM: Total Lease period Commencement Date Expiration Cancellation Provision DEMISED PREMISES': Land (Maintenance) Building 42 years and 10 months August 1, 1971 May 31,2013 None 1,203,156 SF 30- months July 1, 2016 December 31, 2018; CEO may adjust to June 30, 2018, or up to December 31, 2020, under certain conditions (See A below) City may terminate with or without cause upon 180 -day written notice 1,399,912 SF Hangars 2, 3 & 4 Hangars 5 & 6 Shop /Office/Warehouse Space, 1St floor Shop /Office/Warehouse Space, 2nd floor Aircraft Paving Auto Paving 94,818 SF 94,760 SF 203,588 SF 153,496 SF 536,660 SF 281,247 SF 94,514 SF 103,632 SF 243,391 SF 151,509 SF 565,244 SF 324,172 SF Page 3 UA docx

4 RENT: Amended /Current Proposed Land Rate2 $3.29 $ 3.29 Building Rate3 Hangars 2, 3 & 4 $4.00 $11.73 Hangars 5 & 6 $5.25 $14.28 Shop/Warehouse Space, 1st floor Shop/Warehouse Space, 2nd floor $5.00 $ 6.17 $1.00 $ 6.17 Office, 1st & 2nd floor $6.00 $ 6.17 Aircraft Paving Rate2 $0.71 $ 0.76 Auto Paving Rate2 $0.36 $ 0.39 Monthly Rent $ 474,568 $ 772,939 Annual Rent $5,694,820 $9,275,269 Notes: 1. Square footages reflect various agreed upon adjustments to accommodate needs of both LAWA and United. 2. Land and paving rates are Board -approved rates. All rates are per square foot per year, and are rounded. 3. Building rental rates, as agreed by United, are based on current market rates for comparable on- airport facilities and a third -party appraisal. Other significant provisions of the proposed Lease include the following: A. Term - To ensure that United continues its planning work associated with redevelopment of the consolidated Avion Drive site, the Lease includes milestones for submittal of Avion Drive plans and a corresponding Letter of Intent. Lease language allows the Chief Executive Officer to either reduce or extend the Lease term, based on United's progress in meeting the milestones. In any case, the Lease will not be extended beyond December 31, 2020 without further approval of the Board. B. Required Improvements - United is to upgrade the Fire Life Safety System at the premises. C. Rent - United is to pay LAWA retroactive rent of $6.3 million for the period June 1, June 30, Page 4

5 D. Reroofing Payment - United to pay LAWA a one -time payment of $200,000 for the reroofing of the former engineering building. E. Environmental Conditions - The Lease provides that both LAWA and United acknowledge that there are certain environmental conditions, some of which are known and some unknown, in, on, under and adjacent to the premises. The parties agree that the new Lease will not alter, compromise, waive, or affect their respective rights and obligations as to such environmental conditions arising under the terms of the original Lease, LAA- 1652D. The Lease also provides that United will continue to operate, maintain and repair certain ground water monitoring wells at its sole cost, in compliance with the requirements of the Los Angeles Regional Water Quality Control Board. Action Requested Staff requests the Board approve the proposed Lease with United and authorize the Chief Executive Officer to execute the Lease after approval by the City Council and approval as to form by the City Attorney. Fiscal Impact Approval of this item will generate $9,275,269 in first year, plus an additional $6.3 million in retroactive payments, both of which are included in the current year operating budget. 4. Alternatives Considered Take No Action Taking no action is not recommended. Leasing the facility to United will allow United, a major LAX air carrier, to continue its aircraft maintenance operations at LAX and will result in incremental revenue to LAWA, as the proposed rates will bring building rental rates to fair market value. STANDARD PROVISIONS: 1. The issuance of permits, leases, agreements, gate and space assignments, and renewals, amendments or extensions thereof, or other entitlements granting use of existing airport facilities or its operations involving negligible or no expansion of use and /or alteration or modification of the facilities or its operations beyond that previously existing or permitted is exempt from the requirements of the California Environmental Quality Act (CEQA) pursuant to Article Ill, Class 1(18)(c) of the Los Angeles City CEQA Guidelines 2. This item is subject to approval as to form by the City Attorney. 3. Actions taken on this item by the Board of Airport Commissioners will become final pursuant to the provisions of Los Angeles City Charter Section United Airlines will comply with the provisions of the Living Wage Ordinance. 5. The Small Business Enterprise Program does not apply to leases. 6. United Airlines will comply with the provisions of the Affirmative Action Program. Page 5

6 7. United Airlines has been assigned Business Tax Registration Certificate number United Airlines will comply with the provisions of the Child Support Obligations Ordinance. 9. United Airlines has approved insurance documents, in the terms and amounts required, on file with Los Angeles World Airports. 10. This action is not subject to the provisions of City Charter Section 1022 (Use of Independent Contractors). 11. United Airlines has submitted the Contractor Responsibility Program Questionnaire and Pledge of Compliance and will comply with the provisions of the Contractor Responsibility Program. 12. United Airlines must be determined by Public Works, Office of Contract Compliance, to be in full compliance with the provisions of the Equal Benefits Ordinance prior to contract execution. 13. United Airlines will be required to comply with the provisions of the First Source Hiring Program for all non -trade Airport jobs. 14. United Airlines has submitted. the Bidder Contributions CEC Form 55 and will comply with its provisions. Page 6

7 1 ' 0. ' Google' tvn" Location Map VV,or I d t.,11v ay,an - '7. irt"qt4m10.v Of ,04 sr: g tt vit!" ti;*;aln " 44MIEV-au Iriagery Date: 12'10, ".it;41:692515l924-/ ele, 2477 ft Site Map: 7300 World Way West I tli Page 7 UA Lease@7300WWW.docx