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

Under the United States Bankruptcy Code, any rejection of a lease could result in a claim by the
Commission for lease rejection damages against the airline estate in addition to pre-bankruptcy amounts owed,
which claim would rank as that of a general unsecured creditor of such airline. The Airport may also have rights to
claim against the faithful performance bond or letter of credit required of airlines to secure their obligations under
Airport agreements or the right to set off against credits owed to the airlines. The airlines generally pay landing fees
one to two months in arrears based on final reporting data and the standard billing practices of the Airport. There
can be no assurance that all such amounts could be collected if a Signatory Airline rejects its Lease Agreement in
connection with a bankruptcy proceeding. In addition, the Commission may be required to repay landing fees and
terminal rentals paid by the airline up to 90 days prior to the date of the bankruptcy filing.
Even if a bankruptcy debtor airline assumes its lease while in Chapter 11, a bankruptcy trustee could reject
the assumed lease if the case were subsequently converted to a case under Chapter 7 of the bankruptcy code
(liquidation). The Commission’s claim against the bankruptcy estate would be an administrative claim limited to all
sums due under the lease for the two year period following the later of the rejection date or the date of the actual
turnover of the premises. Any excess rent amounts due under the lease would be treated as a general unsecured
claim limited to the greater of one year of rent reserved under the lease or 15% of the rent for the remaining lease
term, not to exceed three years of rent.
Certain Federal and State Laws and Regulations
Federal Law Prohibiting Revenue Diversion
Federal law requires that all revenues generated by a public airport be expended for the capital or operating
costs of the airport, the local airport system, or other local facilities which are owned or operated by the airport
owner or operator and directly and substantially related to the air transportation of passengers or property. In
February 1999, the FAA adopted its “Policies and Procedures Concerning the Use of Airport Revenue” (the “Final
Policy”) clarifying the application of these principles to airport sponsors that receive federal grants for airport
development from the FAA, including the Airport. The City is the “sponsor” of the Airport for purposes of these
federal requirements.
Examples of unlawful revenue diversion include using airport revenues for: (1) land rental to, or use of
land by, the sponsor for non-aeronautical purposes at less than the fair market rate; (2) impact fees assessed by any
governmental body that exceed the value of services or facilities provided to the airport; or (3) direct subsidy of air
carrier operations. An otherwise unlawful revenue diversion may be “grandfathered” if such use was instituted
pursuant to a law controlling financing by the airport owner or operator, or a covenant or assurance in a debt
obligation issued by the airport owner prior to September 1982. The Final Policy acknowledges that the
Commission’s Annual Service Payment to the City’s General Fund is “grandfathered” as a lawful revenue diversion.
The Commission makes substantial payments to the City, separate from and in addition to its Annual
Service Payment, for services provided to the Airport by other City departments. The FAA has authority to audit the
payments and to order the City to reimburse the Airport for any improper payments made to the City. The FAA
may also suspend or terminate pending FAA grants to the Airport and/or any then-existing PFC (as defined below)
authorizations as a penalty for any violation of the revenue diversion rules. In addition, the U.S. DOT may also
withhold non-aviation federal funds that would otherwise be made available to the City as a penalty for violation of
the revenue diversion rules (for example, grants to the City’s municipal railway system). See also “AIRPORT’S
FINANCIAL AND RELATED INFORMATION–Payments to the City.”
State Tidelands Trusts
A substantial portion of the land on which the Airport’s facilities are located is held in trust by the City and
administered by the Commission pursuant to tidelands grants from the State. These grants, accomplished by special
State legislation, date to 1943 and 1947. Generally, the use of this land is limited to Airport purposes under the
terms of the grants. The Commission may not transfer any of this land, nor lease it for periods of more than
50 years. There are also certain limitations on the use of funds generated from facilities located on this land.
However, none of the various restrictions is expected to affect the operations or finances of the Airport. The grants
may be subject to amendment or revocation by the State legislature, as grantor of the trust and as representative of
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