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Home My WebLink About01/22/2013 02 Airport Issues Discussion J 521. i 9 ''.. S t -r• 7 :.1 t r t $+ V 4 '5! BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. For Meeting of: January 22, 2013 t ITEM TITLE: Discussion on Airport Issues SUBMITTED BY: City Manager O'Rourke CONTACT Tony O'Rourke, 575 -6040 PERSON /TELEPHONE: SUMMARY EXPLANATION: Resolution Ordinance Other (specify) Contract: Mail to: Contract Term: Amount: Expiration Date: Insurance Required? No Funding Source: Phone: APPROVED FOR AI SUBMITTAL: City Manager STAFF RECOMMENDATION: BOARD /COMMISSION RECOMMENDATION: ATTACHMENTS: Click to download ❑ memo ❑ airport presentation t t1 OFFICE OF THE CITY MANAGER �. ' 129 North Second Street • ~'F City Hall, Yakima, Washington 98901 Phone (509) 575 -6040 ti, + ' `n � a � ` MEMORANDUM 4ttt, �( To Honorable Mayor and Members of the Yakima City Council From: Tony O'Rourke, City Manager Date: January 17, 2013 Re: Yakima Airport In the interest of exploring the current and future direction of the Yakima Airport, I have developed a presentation for the study session on Tuesday, January 22 at 10.00 a.m. to cover the following topics • U S. Aviation Industry Overview • Yakima Airport Overview • Yakima Airport Finances • Yakima Airport Challenges • Proposed Yakima Airport Business Plan • Yakima Airport Management Options • Yakima Airport Cost Savings Proposal Yakima Ij 1994 Y a k i m a P ast, . 11 t • , __ • MR la I "4"1"Wir* all alp a e IllWe .••■41=■ I * 11101.100.111111110411bsio Oa. • v lir MP at Ilk Igh J a r i '. 1111.11111Wor 114 16h 1 hb41.1114144 110 . . saw+ Yakima City Council Study Session January 22, 2013 U.S. Aviation Industry Overview /Forecast Commercial Air Service • Since 2000, the U S Aviation Industry has suffered major shocks ranging from 9/11, skyrocketing fuel prices, and the recession o Flights down 27% since 2008 o Commercial flight activity peaked in 2005 • To navigate and succeed in this hostile and volatile economic environment, U S airlines have o Consolidated and /or restructured o Delta/Northwest o United /Continental o Southwest /Air -Tran o American/US Airways (pending) o Frontier /Midwest U.S. Aviation Industry Overview /Forecast (con't) • Lowered operating expenses o Replaced older aircraft with more fuel - efficient planes o Reduced and reconfigured routes to better match flight routes and frequency with demand (capacity down 5% since 2001) a Eliminated unprofitable routes, in particular, to smaller communities o Delayed delivery of newer aircraft • Pressuring regional air service affiliates to accept lower fees • Expanded revenue streams by unbundling services o Baggage fees o Food o Premium seating o Ticket change fees Federal Aviation Administrative Aerospace forecast: years 2012 -2032 Domestic U.S. • Demand for air travel is projected to grow 2 5% annually over forecast period • System capacity in available seat miles (ASM) will grow at 2 5% • Domestic revenue passenger miles (RPMs) are forecast to grow 2.8% annually • Average seats per aircraft are projected to stay relatively flat, except the number of regional 50 seat jets will decline, in favor of larger 70 -90 seat aircraft • Planes will remain crowded with current load factors (82 %) projected to grow • While mainline carrier capacity has fallen, regional carriers continue to grow and are projected to further increase their market share of domestic passenger enplanements • The commercial passenger carrier fleet is undergoing a transformation. Airlines are retiring older, less fuel - efficient aircraft (737- 300/400/500 series /MD -EO) and replacing them with more advanced fuel - efficient aircraft like A -320 and 737- 700/800/900 series. General Aviation • Decade -long trend of decline in general aviation operations and aircraft sales due to rising fuel prices and economy • The number of student - pilots is forecast to decline • Number of active general aviation pilots is projected to grow nominally (0.3 %) annually from 475,000 to 535,000 in 2032. • Active general aviation fleet is 222,000. It is projected to grow at an annual rate of 0.6% to 253,000 by 2032. • General aviation aircraft activity is down 33% since 2000 from 37.9 million to 28.6 million. Yakima Airport Overview History o 1928 - Yakima County purchased 80 -acre field for an airport o 1948 - City of Yakima purchased the Airport from Yakima County for $46,000 o 1950 - original terminal constructed o 1982 - City and County entered into a Joint Operating Agreement to share airport profits, losses, and liabilities Established a five- member Board of Directors o 1999 - Terminal building was rehabilitated /expanded Airport Overview o 825 acres o FAA Part 139 certified airport to accommodate commercial service — one of 14 in the state of Washington o Two Runways o 9/27 — 7,604 ft /150 ft wide provides sufficient capacity for 95 -98% of planes using airport o 4/22 — 3,835 ft /150 ft wide (poor pavement condition and not eligible for FAA funding (cost $2 4 million) Yakima Airport Overview (can't) Airport Overview (con't) o Recent interest to extend runway 9/27 to 10,000 ft 2013 Master Plan will recommend 1,243 runway extension to 8,847 ft This would accommodate 99% of planes expected to fly to Yakima Extension would be o Within airport property o Cost $5 8 million o Pasco runway is 7,700 General Aviation o 162 based aircraft — Master Plan forecasts 208 based aircraft by 2030 o Aircraft storage o 110 small T hangars o 9 medium T hangars o 37 group hangars o 7 based tiedown o 6 transient tiedown o FBO — McCormick Air Service o Cub Crafters Yakima Air or t Overview con't) Existing Facilities Assessment per 2013 Master Plan ACTUAL CONCLUSIONS Airfield System The wind coverage and capacity needs at YKM are met by a single runway Runway 9/27, at 7,604 feet, provides sufficient take -off length for current aircraft using the airport However, the Master Plan will recommend a 1,243 ft extension to 8,847 to accommodate future airport demands Passenger Terminal The existing passenger termmal building needs to be remodeled and renovated to serve short-term needs and will require expansion before 2020 The expansion will cost $15 -19 million Terminal layout and maintenance issues may require action sooner to maintain an acceptable level of service Automobile Parking The current public parkmg lot needs $200,000 m resurfacmg improvement URS recommends expanding the rent -a -car ready /return and parking area prior to this time Air Cargo Although air cargo is forecasted to continue to consist of feeder service using small aircraft, additional space will need to be provided m the future, either by remarking existmg pavement or by constructing new air cargo apron Based Aircraft Hangar Storage With the forecasted growth in based aircraft, as well as the existing unmet demand for hangar space, additional area for hangar development will need to be made available for future development FBO and support facility Expanded FBO facilities are required to provide support for the general aviation expansion community These facilities will provide not only aircraft maintenance hangars, but also pilot lounge areas, area for fueling aircraft and sufficient space for transient aircraft parking Fueling The current system is adequate, assummg the private sector continues to upgrade its facilities and improve delivery as needed Yakima Airport Overview (can't) Activity a 50,000 total aircraft operations — Master Plan forecasts 63,000 operating by 2030 ➢ 6,000 air cargo operations ➢ 1,800 commercial air operations ➢ 38,000 general aviation operations 4,000 military operations Commercial Service: o 58,000 passenger enplanements (peak 96,000 in 1991) o Lost 15,700 or 27% of total enplanements when Delta Salt Lake City Service stopped in 2008 o Horizon Airlines to Seattle o 3 departures /3 arrivals daily o 72% load factor o 75 seat aircraft o Master Plan forecasts total enplanements of 151,000 or 260% increase by 2030. This may be aggressive; will develop alternative forecast Yakima Airport Overview (can't) Commercial Airline Service Area AIRPORT AIRPORT DISTANCE FROM ANNUAL ENPLANED CODE YAKIMA PASSENGERS Pangborn Memorial EAT Wenatchee 58 miles N 50,930 Airport Grant County MWH Moses Lake 69 miles NE 5,962 International Airport Tri- Cities Airport PSC Pasco 71 miles SE 245,036 Seattle- Tacoma SEA Seattle 112 miles NW 15,219,321 International Airport Portland International PDX Portland 126 miles SW 6,449,185 Airport INSERT MAP Yakima Airport Overview (can't) • Yakima has a passenger catchment area of 270,000 people o Schedule, cost, and convenience are the three factors that influence the local traveler's choice of airports o The general perception is that it is cheaper to drive to Pasco than to Seattle results in more passengers "leaking" to Pasco than to Seattle o The reintroduction of eastbound flights, such as Delta service to Salt Lake City, would attract more passengers. In fact, while this service was available in 2007 and 2008, passenger levels jumped by almost 15,700 enplanements per year. o The shuttle bus service to and from SEA carries close to 400 people per month. Some of these shuttle passengers could become airline passengers if service improvements were made. o Improving the ambience of the passenger terminal could help attract more passengers. There is currently no restaurant or bar where passengers can wait for their flights. There is an overall need to bring more development and improve the overall attractiveness of the terminal to encourage additional passengers to use the airport. o Improved marketing of the local airline service is important to attract new passengers Yakima Airport Overview (can't) Governance The Airport is owned and operated through a joint operating agreement between the City of Yakima and Yakima County and governed by a Board of Directors The Board is responsible for setting policies that regulate Airport operations This includes developing an annual Airport budget that is approved by the city and county, setting fees, determining employees' compensation and reviewing claims against the Airport The Airport Manager is responsible for carrying out policies set by the Board and enforcing laws and regulations Collectively, the Board and the Manager are responsible for managing financial resources to meet responsibilities to citizens The airport staff consists of 9 full -time and 2 part -time employees o (1) Airport Manager (vacant) o (1) Assistant Airport Manager o (1) Administrative Assistant (leases, security, projects) o (1) Administrative Assistant (finance and human resources) o (1) Maintenance Lead o Maintenance Specialist (3) o Building Maintenance (1FT and 2PT) Yakima Airport Overview (can't) Airport Finances — The Airport's financial condition at year -end has declined significantly over the last five years, as detailed below Operating Operating Operating Revenues Expenses Income /(Lass) BEFORE BEFORE Depreciation Depreciation 2007 $1,057,921 $945,528 $112,393 2008 $1,086,376 $1,049,920 $36,456 2009 $1,049,219 $1,237,183 ($187,964) 2010 $1,056,972 $1,238,470 ($181,498) 2011 $1,067,662 $1,126,012 ($58,350) 2012 $1,085,990 $1,124,863 ($40,000)* "`Estimate Yakima Airport Overview (can't) As a result of its 4 consecutive years of operating losses, the unrestricted net assets or operating reserves of the airport have gone from positive to negative Operating Reserves 2008 $649,881 2009 $182,037 2010 $56,378 2011 ($49,731) 2012 ($$9,731)* *Estimated During this five -year period the airport has lost revenue due to: ✓ Closure of the terminal coffee shop, restaurant, and travel agency ✓ Decline in passenger enplanements and subsequent landing fees, parking revenue and fuel sales ✓ Decline in commercial rent Washington State Auditor's Office Report - Audit period January 1, 2011 through December 31, 2011. 1 The Airport has not effectively controlled costs, causing its financial position to decline ➢Management has not adequately monitored revenues and expenses to ensure that Airport is operating effectively ➢The Airport continues to experience unanticipated expenses such as litigation and terminated employee pay -outs that have affected its financial position. >Increased operating expenses and insufficient revenue have led to a continuing decline in its financial condition. 2 Management did not provide a detailed plan for controlling costs and returning operations to profitability This significant decline in financial position places the Airport at risk of not being able to meet all of its financial obligations and could affect services in the future 3 In January 2012 Yakima County took over responsibilities for financial operations at the Airport, which has improved controls over payroll and other accounting functions Yakima Airport Overview (can't) • Yakima County provided the Airport a $250,000 SIED Loan to fund the Airport Master Plan in advance of a grant to fund the Master Plan. In addition to the Master Plan, the $250,000 SIED Loan was used for airport operating expenses. The grant was to be repaid by June 2013. The airport lacks the funds to repay the grant by June 2013. The County has indicated it will extend the repayment date to June 2014. • Approximately half of the airport's revenue is related to commercial air service. • Airline facility rent and landing fees -- $188,663 • Parking fees -- $180,000 • Car rental -- $120,000 Of the 14 airports in Washington certified by the FAA to accommodate commercial air service, Yakima is the only one not a port district supported by property taxes Yakima Airport Challenges o Four consecutive years of structural budget deficits o $250,000 SIED loan repayment due June 2014 o Negative operating reserves o Cash flow /liquidity challenges o Limited commercial service o Dated terminal /airport facilities o Excessive management turnover o Outstanding litigation o Security costs Proposed Yakima Airport Business Plan Business centric organization Strengthen financial health Air service expansion - develop a clear vision and -cut overhead expenses - create public- private air service mission for the airport investment alliance - rebuild operating reserves - focus on core businesses of - secure additional air service airport (operations, management, -pay off debt real estate, customer service, air - assist in marketing air service - develop new revenue stream service) - improve air terminal structure - maximize return on airport and customer services - create a lean organizational assets structure - cultivate compatible - P/L focus & accountability development opportunities for - reexamine lease /airport fees general aviation and commercial based on market benchmarks aviation - develop lease term linked to - spin - off /sell- non - strategic assets asset life and value of - increase based aircraft improvements - benchmark best practices - transform from infrastructure provider to airport business park Proposed Management Options o Private management contract o Existing airport staff contract o New department of the City Air Service Pledge - $50,000 -. Proposed Cost Reductions ACTION du SAVINGS — SAVINGS — 113 114 Delay hiring Airport Manager $70,000 $100,000 Replace retiring Airport Maintenance Lead $5,500 $24,000 Specialist after retirement with entry level (October 2013) Retirement in July 2014 of Airport $11,000 Maintenance Specialist replace with entry level Finance/FIR (include severance pay) $28,000 $56,000 Security $14,000 $14,000 Cost savings $117,500 $205,000