Official Statement Airport Commission City and County of San ...

Settlement Agreement
Under the Settlement Agreement, the Commission makes payments from Airport net revenues to the City
consisting of an “Annual Service Payment” and certain additional payments for direct services provided by the City
to the Commission. Each Fiscal Year through Fiscal Year 2010-11, the Commission is required to make an Annual
Service Payment from the Airport Revenue Fund to the General Fund of the City. The Annual Service Payment
constitutes full satisfaction of all obligations of the Airport, the Commission, and the Signatory Airlines for all
indirect services provided by the City, for debt service, if any, on certain City airport general obligation bonds, and
for an investment return to the City.
The Settlement Agreement prohibits the Commission and the City from taking any action to cause payment
to the City, directly or indirectly, of any additional Airport revenues or from the airlines, except as permitted under
the Lease Agreements. The Lease Agreements permit payments to the City for certain direct services provided by
the City to the Commission, including services provided by the Police Department, the Fire Department, the City
Attorney, the City Controller, the Water Department, the Department of Public Works and the Purchasing
Department. See “AIRPORT’S FINANCIAL AND RELATED INFORMATION–Payments to the City.”
The Settlement Agreement also provides that, except as provided in the Lease Agreements, no surcharge,
special assessment or other charge, rental or fee to the airlines may be made for the funding of Airport capital
improvements from current revenues. Under the Lease Agreements, capital improvements are required to be
financed primarily through the issuance of Airport revenue bonds.
Lease Agreements
Each Lease Agreement expires on June 30, 2011. The Commission may terminate a Signatory Airline’s
Lease Agreement only upon the occurrence of certain events, including, but not limited to, such airline’s filing for
federal bankruptcy protection or its voluntary cessation of service to the Airport for more than 30 days.
Residual Methodology. The Lease Agreements govern the use of exclusive-use and common-use ramp,
terminal, baggage claim, ticketing and gate areas. Under the Lease Agreements, the Signatory Airlines pay terminal
rents and landing fees under a residual rate-setting methodology tied to six cost centers. This methodology is
designed to provide revenues to the Commission sufficient to pay operating expenses and debt service costs. Under
this residual rate-setting methodology, landing fees and terminal rentals are established each year to produce
projected revenues from the airlines (“airline payments”) equal to the difference between (i) the Airport’s
non-airline revenues and (ii) the Airport’s total costs, including without limitation operating expenses and debt
service costs (“net costs”). In other words, rates and charges are established each year to produce projected airline
payments equal to projected net costs. Thus, increases in non-airline revenues, such as parking and concession
revenues, generally result in decreases in airline landing fees and terminal rental rates, and vice versa. In Fiscal
Year 2008-09, airline landing fees and terminal rental payments under the Lease Agreements represented
approximately 44.2% of the Commission’s operating revenues.
Differences between receipts and expenditures in any Fiscal Year may result in adjustments of terminal
rental rates and landing fees in subsequent Fiscal Years. The Commission’s financial statements reflect such
differences in the Fiscal Year in which they occur, with overcharges being recorded as liabilities (accounts payable)
and undercharges as assets (accounts receivable). Although the Lease Agreements apply only to the Signatory
Airlines, the Commission charges the same rental rates and landing fees to the non-signatory airlines that operate
under operating permits. Non-signatory airlines that use the Airport on an itinerant basis pay higher rates and fees.
Annual Adjustment of Terminal Rentals and Landing Fees. In accordance with the Lease Agreements, the
Commission may adjust terminal rental rates and landing fees each year for the next Fiscal Year based on each
Signatory Airline’s proposed changes to its leased space, additions of new terminal space for lease, the forecast
landed weight for the next Fiscal Year, and the Commission’s budgetary forecast of attributed operating expenses
and debt service costs for the various Airport cost centers.
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