People Mover

DEPARTMENT OF AVIATION

Gulfstream Aerospace Corporation New Ground Lease Proposal at Love Field

Briefing to the Economic Development and Housing Committee

June 4, 2007

1 Gulfstream

Gulfstream Aerospace Corporation Wholly owned subsidiary of General Dynamics

General Dynamics revenues rose to $24 billion in 2006, a 14.7 percent increase over 2005* Gulfstream revenues rose 20 percent to $4.1 billion in 2006* Gulfstream designs, develops, manufactures, markets, services and supports advanced business-jet aircraft Delivered 113 “green” aircraft (w/o interior and paint) in 2006, a 27% increase*

*General Dynamics 2006 Annual Shareholders Report

2 Gulfstream

Gulfstream Aerospace Corporation Types of aircraft:

G150, G200, G350, G450, G500, and G550 With seating capacities of 6-19 passengers Employment

7,900 employees at 7 major locations Dallas Love Field Facility

Final Phase Manufacturing (interior and painting)

55 new aircraft projected for 2007, which is a 206% increase since 2003 (G150** and G200**)

Provide customer services to over 2,000 aircraft annually that are currently in operation

757 employees currently at Dallas location $26 per hour - average employee wages

**See pictures next two pages 3 Gulfstream G150 – Completed at Dallas Love Field

Staff recommends approval of the Gulfstream proposal

With approval of this lease Gulfstream’s capital commitment at Love Field will be $15 - $35 million

Approval of this lease will convert a non-aviation use property into an aviation use property with airside access

Approval of this lease will add approximately $85,300 annual revenue to the City

NEXT STEPS

June 4, 2007 - Economic Development and Housing Committee June 11, 2007 - Transportation and Environment Committee June 27, 2007 - Council Agenda

4 Gulfstream G200 – Completed at Dallas Love Field

5 History of Negotiations

July 2006 - Local Gulfstream management and Aviation Dept staff exchanged proposals for new ground lease and hangar development. Jan 2007 - General Dynamics Real Estate Vice President accompanied local Gulfstream mgt in further discussions with Aviation Dept staff. Mar 2007 – Follow-up meeting resulted in General Dynamics proposed term sheet for lease and hangar development. May 2007 – Continued negotiations led to revised proposed term sheet and tentative acceptance by staff. 6 Proposal

3-bay paint hangar facility at the former 6.18 acre Ampco parking site Increase annual production from 55 to 65 new aircraft Related Jobs 2005-07 - 150 new jobs By 2008 - 150 additional new jobs We are competing with Appleton, WI for the hangers

7 DEPARTMENT OF AVIATION

Development Issues for the Love Field Modernization Program

June 11, 2007 Briefing to the Council Transportation and Environment Committee

1 Purpose of Briefing

Love Field Modernization Program (LFMP)

Background and Issues

People Mover

Project coordination

Rates & Charges Study

Capital funding

Schedule Milestones

2 The Wright Amendment Reform Act of 2006

Airline gate capacity to be reduced to 20 gates

Airline lease agreements to include options to 2028

Airline through-ticketing permitted upon enactment (10/13/06)

Full repeal of the Wright Amendment phased out in 8 years, (10/13/14)

3 Post Reform Act Developments

Pre-Act route system included 14 non- stop destinations from Love Field.

Post-Act (4Q06) Southwest added 3 new destinations from Love Field using through-ticketing capability.

4 PRE-ACT July 2006 Schedule –Southwest/American/Continental 14 Destinations

MCIMCI STLSTL

TULTUL OKCOKC TULTUL AMAAMA ABQABQ LITLIT

LBBLBB DALDAL ELPELP MAFMAF

AUSAUS AUSAUS MSYMSY HOU/IAHHOU/IAH SATSAT

5 POST-ACT New Destination, 1-Stop: Tampa; Raleigh-Durham; Albany Existing Destination, addt’l service: Albuquerque; Kansas City; St. Louis; New Orleans

ALBALB

MCIMCI STLSTL

ABQABQ RDURDU

DALDALDAL

MSYMSY

TPATPA

6 Immediate Results of the Act

Enplanements Increased 28% in 4Q06 vs 4Q05

Enplanements

1000 950 900 850 800 750 700 650 600 550 500 450

Thousands 400 Enplanements 350 300 250 200 150 100 50 0

4th Q 2005 4th Q 2006

7 Projected Results of the Act

Southwest announced 41 new cities with through-ticketing starting in March, 2007.

Airport-wide enplanements projected to increase by 1,000,000 by March 2008. FY 2008 total expected to exceed 4,000,000 enplanements.

8 Southwest Route System from Love Field March, 2007

SEASEA GEGGEG

PDXPDX

BOIBOI ALBALB DTWDTW BUFBUF MHTMHT MDWMDW CLECLE PVDPVD OMAOMA BDLBDL SLCSLC PITPIT BDLBDL ISPISPISP RNORNO DENDEN INDINDIND BWBWIBW I I ISPISPISP MCIMCI CMHCMH PHLPHL SMFSMF STLSTL SDFSDF IADIADIAD OAKOAK SJCSJC ORFORF AMAAMA OKCOKC TULTUL BNABNA LASLAS ABQABQ AMAAMA OKCOKC TULTUL BNABNA RDURDU ONTONT BURBUR ONTONT LITLIT LAXLAX PHXPHX BHMBHM LAXLAX SNASNA LBBLBB DALDAL BHMBHM JANJAN SANSAN TUSTUS ELPELP MAFMAF MSYMSY JAXJAX AUSAUS MSYMSY SATSAT AUSAUS HOU/IAHHOU/IAH MCOMCO CRPCRP TPATPA RSWRSW HRLHRL RSWRSW FLLFLL

9 Projected Effects on Enplanements This year will mark the recovery of enplanements from the effects of 9/11

3 Millions Enplanements 2

0 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 Fiscal Year FY 2007/2008 Based on Projections Enplanements Projected Enplanements

10 Actual/Projected Effect on Parking/Car Rental/Concession Revenue These are the revenues most closely tied to enplanements

Actuals Projected Millions Revenue City to

10 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 Fiscal Y ear FY 2007/2008 Based on Projections Parking/RACs/Concessions

11 Historical and Projected Cash Balances

Revenues, Expenses and Cash 80,000,000

70,000,000

60,000,000

50,000,000

40,000,000 Revenues Expenses 30,000,000 Cash

20,000,000

10,000,000

- FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 Est. 2007 Est. 2008 Prop.

Notes: Total Revenues include all Operating Fund revenue sources including concessions, rental, landing fees etc. Total Expenses include all direct operating fund expenses plus capital transfers and debt service obligations. Total Cash includes Operating Fund, Reserves, Debt service and Capital Improvement Fund and Balances

FY 06, 07 and 08 expected to contribute over $4 million to Cash Balance. 12 Capital Improvements

LFMP (Love Field Modernization Program)

Reduction of airline gate capacity from 32 gates to 20.

Accommodate passenger growth to planned levels.

Meet schedule specified in Act for phase out of Wright Amendment .

People Mover Connecting Terminal to new DART Station.

13 Capital Funding and Feasibility

Estimated Capital Requirement: LFMP (estimated) $150-200 mil People Mover (estimated) $150 mil Total Capital (estimated) $300-350 mil

14 Capital Funding and Feasibility

Anticipated Funding: People Mover Requirement (est.) $150 m Regional Transp. Council grant ($60 m) DART Contribution ($20 m) People Mover Net Requirement (est.) $ 70 m

LFMP $200 m FAA Grant Funding (est.) ($50 m) LFMP Net Requirement (est.) $150 m

Total Net Requirement (est.) $220 m

NOTE: Airfield Safety/Security CIP funded through Capital Improvement Fund and FAA grants

15 Capital Funding and Feasibility

Net Funding Requirement: $220 m

Sources of Funding: Bonded Debt Serviced by Airline Rates & Charges, annual PFC (Passenger Facility Charge) collections Accumulated PFC Revenues

Project Feasibility: Master planning effort will include consultation with Rates & Charges Study consultant to recommend financing strategy.

16 PFC Funding as Part of a Financing Strategy

Typical sources of airport capital funding and their uses: Airport operating reserves – use for any airport purpose. FAA AIP Entitlement grants – eligible public, non-revenue generating infrastructure. FAA AIP Discretionary grants – same as entitlements, but competitive and based on project merit and FAA priority. Revenue bonds – any specified capital improvement, preferably with a revenue stream to fund debt service. PFC funds – eligible projects, used on a “pay-as-you-go” basis (collections spent directly on capital projects) or “leveraged” where PFC revenue is used to pay debt service on bonds. Financing Strategy: Each of the 5 funding sources has its own set of restrictions and limitations. A financing strategy must match the funding source with the appropriate use of funds in order to optimize funding for the lowest project cost. The option of using PFC funds will enable the greatest flexibility in devising an optimal strategy.

17 PFC Funding and the Effect on FAA Entitlement Grants

PFCs can be approved at levels of $3.00 and $4.50 per enplaned passenger. The Bush Administration has proposed increasing the level to $6.00 in FY 2008.

FAA Entitlement Grants are reduced by 50% for $3.00 PFCs, and by 75% for $4.50 PFCs. The proposed $6.00 PFC would eliminate FAA Entitlement Grants, however, FAA Discretionary Grants would remain available.

18 Comparison of Annual Capital Funding Potential at various PFC Authorization Levels

PFC LEVEL ENPLANEMENT LEVEL ENPLANEMENT LEVEL 3 Million 4 Million

No PFC $0 $0 Entitlement Funds $3,015,000 $3,515,000 Total Funds $3,015,000 $3,515,000

$3.00 PFC $9,000,000 $12,000,000 Entitlement Funds (Reduced 50%) $1,507,500 $1,757,500 Total Funds $10,507,500 $13,757,500

$4.50 PFC $13,500,000 $18,000,000 Entitlement Funds (Reduced 75%) $753,750 $878,750 Total Funds $14,253,750 $18,878,750

Proposed FY 2008 ($6.00 PFC) $18,000,000 $24,000,000 Entitlement Funds $0 $0 Total Funds $18,000,000 $24,000,000

19 The Process of Developing the Capital Improvements

$350 million of LFMP and People Mover Improvements

Requires determination of size and operational criteria for the development of conceptual designs

Requires master planning for locating various terminal area functions

20 The Process of Developing the Capital Improvements

Resources and Opportunities:

We recognized and acted on a provision of the PFC regulation:

Recover project costs back to 1990 – approx $30 million of local funds spent

Will provide working capital to carry out capital improvements, allowing for favorable timing of debt issue

PFC application was added to scope of work of Rates & Charges Study

The 2005 Terminal Area Redevelopment Program Study TARPS

Work suspended during 2005, preserving contract funding

Scope of services includes elements needed to accomplish master planning for LFMP

Administrative Action taken to amend contract to complete study under new conditions of Post-Wright Amendment at no additional cost.

21 The Process of Developing the Capital Improvements

Resources and Opportunities (cont.)

Southwest Airlines commissioned terminal planning effort:

Corgan Associates, Inc., working since November 2006, has developed a set of conceptual options

Staff is negotiating with Southwest to coordinate work with the TARPS project to advance the schedule of the project

Corgan to revise concepts as needed, under direction of TARPS consultant, Gresham Smith and Partners, to conform to planning criteria developed in TARPS project.

FAA consulted and concurs with approach to expedite process toward design and programming phase

Southwest cost for Corgan services not eligible for FAA grant funding

22 The Process of Developing the Capital Improvements

Action Taken:

Amended 2005 TARPS study, to update program requirements to Post-Wright Amendment conditions.

Objective: project master planning process to coordinate with the People Mover project feasibility consultant, and to identify environmental issues, develop spatial requirements and consider conceptual alternatives for the LFMP. Will provide the basis for design development and programming for the LFMP.

No additional cost to the contract.

Schedule: underway, with completion Aug 2007

23 The Process of Developing the Capital Improvements

Action Proposed:

Conduct Rates and Charges Study with additional task to apply for Passenger Facility Charge (PFC)

Objective 1: Develop a cost-recovery methodology for assessing terminal rental rates and landing fees.

Objective 2: Carry out funding analysis and application process for initial PFC authorization.

24 The Process of Developing the Capital Improvements

Rates and Charges Study Award of Consultant Contract:

Proposed Award to Unison-Maximus, Inc.

5 Member Selection Committee recommend award of contract to Unison-Maximus, Inc. based on following:

Consultant’s expertise in airport rates and charges studies and analyses

Consultant’s capabilities, resources, and responsiveness to Project

Firm’s approach to the Project

Firm’s workplan to address Project scope of services

Consultant’s commitment and staffing capacity to complete Project within City’s timeframe

DBE compliance

Cost to City – Not to Exceed $239,600. After grant and PFC reimbursement, approximately $82,077. Anticipated Schedule of Completion

25 The Process of Developing the Capital Improvements

Rates and Charges Study Schedule for Completion:

Council Approval – June 13, 2007

Preliminary Airline Rate Analysis and Methodology – August 2007

Prepare and submit PFC Application – September 2007

Recommendations for new Rate Structure – October 2007

PFC Collections – February 2008

26 The Process of Developing the Capital Improvements

Action Proposed:

People Mover Project Feasibility Study

Objective: Establish project concept, capital and operating budgets and schedule.

27 People Mover Conceptual Route People Mover Feasibility Study Scope of Work

The following scope of work will investigate various alternatives to determine the best value approach for developing the project:

Transportation Systems / Technologies

Civil / Site and Utilities

Station Design

Tunnel Design – Tunneling

Environmental Survey

Geo Technical Testing

Transportation Engineering / Survey

Mechanical/Electrical/Plumbing Engineering

Coordination with Airport Terminal Area Planning / Capital Funding

Project Costs / Schedules

Conceptual Drawings

29 The Process of Developing the Capital Improvements

People Mover Development Schedule for Design & Construction:

Design Award – September 2008

Construction Award – October 2010

Complete Construction – Est. 2 to 4 years

30 The Process of Developing the Capital Improvements

People Mover Development Schedule:

Three candidates interviewed in a qualifications-based selection process.

The selection committee evaluation of the consultants concluded Lea+Elliott, Inc. the most qualified for the following reasons.

Overall understanding of the Project

Firm’s approach to the Project

Organization of team

Clarity of Proposal

Good Faith Effort Plan compliance

Prior experience of firm and sub-consultants on similar projects.

Cost - $749,396 (Funded 75% by FAA grant. City local share - $187,349)

31 The Process of Developing the Capital Improvements

Action Underway:

LFMP design and programming services RFQ for consultant selection pursuant to TARPS Update and Master Planning product.

Objective: Determine appropriate approach to project development; consult with Rates and Charges consultant on project feasibility and financing; develop design documents.

Schedule: City Council approval for consultant award in Oct. 2007.

32 The Process of Developing the Capital Improvements

Summary of Early Milestones:

Award Rates & Charges Study – 6/13/07 Council Agenda

People Mover Project Feasibility Study award recommend – 6/13/07 Council Agenda

Airline Rates & Charges recommendations – August 2007

TARPS Study master planning completion – August 2007

LFMP design/programming contract award recommend – October 2007

FAA authorization to impose PFC – December 2007

Anticipated schedule beyond master planning efforts:

33 Estimated LFMP Project Schedule Key Milestones: Start Construction 3Q10 Complete Construction 4Q13

34 Proposed Terminal Concession Policy

Challenge: Current concessions will expire during the period of construction.

Current terminal concession agreements expire in 2011.

LFMP to be constructed 2010 – 2013.

Objective: Plan new concession space to open concurrently with new facilities, and phasing out existing concession space.

Proposed Policy:

Offer to extend current agreements to date coinciding with completion of construction, with Concessionaire holding City harmless against any adverse effect of construction on enplanement levels.

Concessionaire may upgrade at its own risk with no liability to the City for depreciating/amortizing cost.

RFP for concessions in new facilities to be conducted at least 3 years prior to completion of construction.

New concessions will open and existing agreements will terminate with opening of new facilities.

35 Proposed Terminal Concession Policy

Concession Program Development Determine demand, opportunities, goals

Concept, branding, product and merchandise mix

Revenue potential

Determine appropriate business model

Master concession agreement

Concessionaire partners with local & national brands

Individual concession agreements

Each concession is a franchisee or brand

Issues of exclusivity and term

36 Staff Proposed Recommendations

1. Award Rates and Charges Study to Unison-Maximus, Inc.

2. Award People Mover Feasibility Study to Lea + Elliott, Inc.

3. Endorse the proposed Concession Policy as a means of accommodating terminal concessions and services to passengers during the 5-year construction phase of the LFMP.

37 Questions and Answers

Development Issues for the Love Field Modernization Program

38 DEPARTMENT OF AVIATION

Gulfstream Aerospace Corporation New Ground Lease Proposal at Love Field

Briefing to the Transportation and Environment Committee

June 11, 2007

1 Gulfstream

Gulfstream Aerospace Corporation Wholly owned subsidiary of General Dynamics

*General Dynamics 2006 Annual Shareholders Report

2 Gulfstream

Gulfstream Aerospace Corporation Types of aircraft:

G150, G200, G350, G450, G500, and G550 With seating capacities of 6-19 passengers Employment

7,900 employees at 7 major locations Dallas Love Field Facility

Final Phase Manufacturing (interior and painting)

55 new aircraft projected for 2007, which is a 206% increase since 2003 (G150** and G200**)

Provide customer services to over 2,000 aircraft annually that are currently in operation

757 employees currently at Dallas location $26 per hour - average employee wages

**See pictures next two pages 3 Gulfstream G150 – Completed at Dallas Love Field

Staff recommends approval of the Gulfstream proposal

With approval of this lease Gulfstream’s capital commitment at Love Field will be $15 - $35 million

Approval of this lease will convert a non-aviation use property into an aviation use property with airside access

Approval of this lease will add approximately $85,300 annual revenue to the City

NEXT STEPS

June 4, 2007 - Economic Development and Housing Committee June 11, 2007 - Transportation and Environment Committee June 27, 2007 - Council Agenda

4 Gulfstream G200 – Completed at Dallas Love Field

5 History of Negotiations

3-bay paint hangar facility at the former 6.18 acre Ampco parking site Increase annual production from 55 to 65 new aircraft

Related Jobs 2005-07 - 150 new jobs By 2008 - 150 additional new jobs

We are competing with Appleton, WI. for the hangars 7

Love Field Modernization Program Update: Master Planning Recommendations

Briefing to the Council Transportation and Environment Committee

April 28, 2008

1 1 Briefing Objective

Discuss the background and overview of the Love Field Modernization Program development process.

Present the recommendations of the Master Plan effort (Terminal Area Redevelopment Program Study).

Discuss Implementation, Project delivery.

Recommendations and Next Steps.

2 2 Background Review

The 5-Party Agreement to Repeal the Wright Amendment. Flight restrictions phased out by 2014. Limit Love Field capacity to 20 gates.

Southwest Airlines – 16 gates

American and Continental Airlines – 2 gates each The City must develop the Love Field Modernization Program, and invest a minimum of $150 M and a maximum of $200 M.

The Love Field Modernization Program. Implements the 20-gate limit through reduced terminal size. Costs will be charged to airline rate base. City and Southwest Airlines will cooperate to determine the best methods to design, fund and manage the project.

3 3 Existing Terminal Area

North Concourse: General Aviation/Mfg: Southwest Training, Provisioning, CBS, Gulfstream & Ground Service Equip East Concourse: Bombardier American 3 Gates, East Ramp: DHL Continental 2 Gates

West Concourse: Southwest Gates 1-15

860,000 sq ft, 43 gates. 20 gates active. Walking Distances: 1500’ to farthest gates. Mid-1950’s terminal design & construction. Concession space insufficient for future passenger growth. Security systems must be retrofitted. Baggage systems lack automation and 4 are labor intensive 4 Love Field Modernization Program Goals

Comply with 5-Party Agreement and Wright Amendment Reform Act of 2006.

Modernize the Terminal to Serve the Community and Traveling Public Efficiently and with Excellent Customer Service.

5 5 Love Field Modernization Program Objectives

Work collaboratively with Southwest and our other airlines, per the 5-Party Agreement. Planning Development Agreement

Achieve Efficiencies. Balance facility size to its needs (currently using half of available 860K square feet) System and Operational Processes Environmental Sustainability

Upgrade to Current Design Standards with Flexibility to Adjust to Future Needs. Current, Future Security Requirements and Passenger Processing Technologies Passenger Flow, Congestion, Delay Customer Service and Concession Revenue Opportunities

Achieve Schedule Goal: October 13, 2014. Affordable design Efficient financing strategy Effective delivery strategies

6 6 Overview of the Love Field Modernization Program Development Process

Five Steps to Implementation: Master Plan (April 2008) (TODAY’S DISCUSSION)

“Road Map” for developing the Love Field Modernization Program

Environmental Actions Determination

Facilities Requirements: Spatial, Functional, Level of Service Conceptual Design

Implementation: Project Financing, Development, Delivery Development Agreement Term Sheet (JUNE)

Development Agreement (October 2008)

Agreement on implementation, control and oversight

Agreement on funding and financing means and methods

Agreement on lease and use during project and after completion Design Development (Winter 2009)

Determine financially feasible concept, project budget. Procurement and Construction (Fall 2009) Completion and Move-in

Under normal development process – Summer, 2017.

Ability to achieve 2014 completion goal will require a creative approach to development.

7 7 Master Plan

Terminal Area Redevelopment Program Study (TARPS) Scope of Study:

Investigate Environmental Issues, documentation needed.

Verify Traffic Forecasts of 2001 Master Plan and 2006 Update.

Determine Facility Spatial, Landside Traffic, Parking Requirements.

Recommend Architectural Standards, Passenger Level of Service Standards, Technical Design Standards.

Determine Layout of Terminal and Support Facilities in Terminal Area.

Determine Conceptual Layout and Potential Cost Range.

Study Completed April 2008

Findings, Recommendations Follow

8 8 Master Plan Major Findings & Recommendations

Environmental Issues and Documentation Needed Findings

Project Construction will not exceed emissions thresholds.

Project will result in more efficient facility operation and will not increase impact.

Action Items:

General Conformity Applicability Analysis submitted to FAA FAA advised its intent to determine no significant impact from project Documentation pending, in support of a Categorical Exclusion from National Environmental Protection Act (NEPA) requirements.

9 9 Master Plan Major Findings & Recommendations

Passenger and Aircraft Traffic Forecasts TARPS forecast methodology:

See Appendix page 30 – 31 for detailed information.

Design Level Enplanement Forecast:

Annual – 5,865,580

Peak Month – 697,442

Average Day – 22,498

Peak Hour – 2,250

Forecasts considered reasonable by airlines & and consistent with FAA forecasts.

10 10 Master Plan Major Findings & Recommendations ■ Facilities Requirements and Standards Level Of Service – International Air Transport Association standard

LOS FLOWS DELAYS COMFORT A – Excellent Free None Excellent B – High Stable Very Few High C – Good* Stable Acceptable Good D – Adequate* Unstable Acceptable for Short Periods Adequate E – Inadequate Unstable Unacceptable Inadequate F – Unacceptable System Breakdown Unacceptable Unacceptable *Note:Level C = standard minimum, Levelpeak Dp eriods = Comparison service levels: • “LOS A” - passengers would be able to move freely through the terminal facility without experiencing any delays in their movements and feel comfortable in doing so (High Cost). • “LOS E” - passenger movements would be congested, uncomfortable and delays would be recognized as unacceptable (Low Cost).

“LOS C” is recommended as the minimum design objective, as it represents good service level at a reasonable cost. 11 11 Master Plan Major Findings & Recommendations

■ Facilities Requirements and Standards Space requirements to accommodate enplanement forecasts • See Appendix page 32 for detailed Space Program. • Overall 602,000 sq. ft. • Concession space tripled • Future Parking expansion

Design Level of Service (LOS) • Proposed space results in upgrade to LOS “C”. • LOS “C” = good service at reasonable cost

12 12 Master Plan Major Findings & Recommendations

Concepts and Cost Range Considerations:

5-Party Agreement caps cost at $200 M.

City and Southwest can agree to exceed the cap if desired.

Agreement to exceed cap determined through negotiation of Project Development Agreement.

Concept Development Approach:

New terminal site examined. Southeast of existing terminal (East Ramp) . Space limitations and added cost of new infrastructure made concept not feasible.

Three concepts developed for existing terminal site. Allows economical re-use of portions of existing facility. All three concepts exceed the $200 M cap. 13 13 Master Plan Major Findings & Recommendations

Concepts: Option “A” Meets the requirements of the 5-Party Agreement. Demolish down to 20 gates.

East Concourse

Portions of North Concourse

Walking distance remains 1500 ft to farthest gate. Remodel remaining gates and enlarge concession space.

16 gates in West Concourse

4 gates in North Concourse Ticketing and Security Screening capacity enhancements. Minimal Bag Claim, Curbside and Roadway enhancements. Lowest cost option exceeds the cap at $357 M.

14 14 Option A

OPTION A

¾ Scope Renovate West Concourse for 16 total SWA gates Temporary Gates on North Concourse to allow phased renovation of West, then become permanent location for AA and CO New T-Point and EDS Screening No work to Terminal Building or Curbside

New Construction

Existing Facilities

15 15 Master Plan Major Findings & Recommendations

Concepts: Option “B” Renovate West Concourse (12 gates). Demolish East, and existing North Concourses. Construct new North Concourse (8 gates).

Requires airlines to operate at 2 concourses

Splits passenger traffic between 2 concourses

Requires duplication of concessions for each concourse

Walking distance decreases to 1384 ft to farthest gate New Ticketing Hall Renovate Main Terminal Lobby Expanded Passenger Screening Checkpoint Baggage Screening consolidated into one system for all airlines Expand Bag Claim Expand Curbside Highest cost of the 3 options ($608 M). 16 16 Option B OPTION B

¾ Scope Renovate and Expand West Concourse for 12 total SWA gates Demo North Concourse and rebuild in new location with 8 Gates New Ticket Hall Bag Claim Expansion Curbside Expansion Terminal Renovation

New Construction

Existing Facilities

17 17 Master Plan Major Findings & Recommendations

Concepts: Option “C” Achieves all facility objectives (page 6). Construct single new 20-gate concourse.

More efficient use of available Terminal Area site (smallest footprint)

All airlines, passengers in same concourse

Enables central concession area accessible by all passengers

Walking distance reduces to 1,096 ft to farthest gate New Ticketing Hall Renovate Main Terminal Lobby Expanded Passenger Screening Checkpoint Baggage Screening consolidated into one system for all airlines Expand Bag Claim Expand Curbside Layout efficiency contributes to passenger convenience and Level of Service “C”. Cost $571 M. Exceeds Option A by $214 M, or 60%.

18 18 Option C

OPTION C

¾ Scope Demolish East, North and West Concourses and replace with new North Concourse with 20 gates New Ticket Hall Expanded Bag Claim Expanded Curbside Terminal Renovation

New Construction

Existing Facilities

19 19 Master Plan: Major Findings & Recommendations

Concept Development: Performance Comparison Matrix • Option A meets/exceeds target for 5 of 12 terminal requirements. • Option B meets/exceeds target for 9 of 12 terminal requirements. • Option C meets/exceeds target for 10 of 12 terminal requirements.

Performance Option Performance Requirements Target Existing A B C Terminal Facilities Ticketing Counter Position 14 14 14 14 14 Self-Service Devices 49 24 49 49 49 Ticketing Curbside Positions 12 10 10 10 12 Bag Claim (area – sf) 12,500 19,000 19,000 23,400 23,400 Bag Claim (frontage – lf) 729 450 450 1000 1000 Passenger Security Checkpoints 14 7 12 to 14 12 to 14 12 to 14 EDS Screening Devices 10 9 8 to 9 10 10 Concessions 73,013 20,400 29,100 73,000 75,000 Gate Holdroom (avg. sf/gate) 2,250 1,835 1,835 2,250 2,250 Landside Facilities Arrivals Curb 1,043 660 300 600 600 Departures Curb 992 530 400 600 600 Commercial Curb 568 100 600 1000 1000

20 20 Master Plan: Major Findings & Recommendations

Evaluation Matrix Option A BC • Score Range = 1-5 Implementation Time To Implement 523 • 1 = least desirable Operational Complexity 214 Customer Inconvenience 214 • 5 = most desirable Cost of Overall Program 523 • Option C score 46% Operations Operational Efficiency 435 higher than Option A Estimated Relative O&M Cost 245 • Matrix supports Option Customer Convenience Curbside 244 C as preferred concept Ticketing 244 SSCP 244 Holdrooms 255 Concessions and Amenities 255 Baggage Claim 444 Walk Distance 344

SUMMARY 37 43 54

21 21 Master Plan Major Findings & Recommendations Level of Service and Cost Comparison:

Service component Option ABC Check-in Queue Area 75 75 75 Gate Hold Room 58 58 58 Baggage Claim 65 75 75 Circulation and Waiting Areas 72 78 78 Total 270 286 286 Average 68 72 72 LOS DCC Evaluation Matrix Score 37 43 54 Planning Cost $357 M $608 M $571 M Preferred Option XX

22 22 Master Plan Major Findings & Recommendations

Concept Development

Planning Costs:

Costs are very preliminary.

More accurate project costs to be determined during design development (Winter, 2009), based on provisions of Project Development Agreement, to be approved by City Council.

23 23 Implementation & Project Delivery

Implementation As stated on page 3, “the City and Southwest Airlines will cooperate to determine the best methods to design, fund and manage the project (5-Party Agreement).

A Project Development Agreement (PDA) between the City and Southwest will represent agreement on the best methods.

See outline of PDA, Appendix pages 33-36.

PDA to be proposed to City Council for approval.

Term Sheet to Council for approval June, 2008.

24 24 Implementation & Project Delivery

Schedule Efficiencies:

Schedule goal (page 7) is the date of full repeal – Oct, 2014. Terminal capacity needed for forecast passenger traffic

However, projected completion date under normal City development process – 2017.

Opportunity for Cost and Schedule Efficiencies: Significant project elements can be assigned in the Project Development Agreement to Southwest Airlines.

Creation of a Local Government Corporation (LGC) is a means provided by state statute, of assigning LFMP development to a third party. May be created to aid and act on behalf of the City to accomplish any governmental purpose of the City. LGC has power to contract and to issue debt to be secured by airlines. LGC to be proposed for City Council approval in June, 2008.

25 25 Implementation & Project Delivery

Local Government Corporation (LGC) Addresses Project Challenges:

Project Financing Vehicle for issuing bonds secured by airlines (rather than airport revenues).

Demanding schedule for 2014 completion Empowered by state to contract and assign project development to third party: Enables fast-track procurement and delivery methods; Preserves City Council approvals and governance.

Project cost containment Costs to be borne by airlines. Allows airline co-management of costs through negotiated PDA.

Project complexity Demolition of existing, and construction of new facilities while still in use. Maintaining growing operations of 3 airlines and 2 major concessionaires throughout project. Extensive construction phasing and tenant relocations.

Successfully used for recent City project. Mercantile/Forest City Project developed under an LGC. City has also financed other public projects managed by 3rd party entities: Performing Arts Center, American Airlines Center. 26 26 Recommendations Summary

Recommend the City Council approve the Terminal Area Redevelopment Program Study (TARPS) as the master plan for the Love Field Modernization Program (LFMP). Provides viable concepts which:

Comply with the 5-Party Agreement;

Accommodate passenger levels forecast to nearly 12 million annual passengers by 2014;

Provide a Level of Service standard “C”.

Recommend the City Council approve Option C as the preferred concept to be developed further, pending final recommendation after design and budget development pursuant to a Project Development Agreement (PDA), to be negotiated between the City and Southwest Airlines. Term Sheet defining terms of proposed PDA to Council for approval June, 2008. Final recommendation to Council for Terminal Concept Option C approval.

27 27 Next Steps

City Council approval of Terminal Area Redevelopment Program Study as the Master Plan for the Love Field Modernization Program. City Council Agenda for approval May 21, 2008.

Develop proposal to create a Local Government Corporation (LGC) as a means of developing the Love Field Modernization Program in the most efficient and cost effective manner possible. City Council Agenda for approval June 25, 2008.

Negotiate a Project Development Agreement (PDA) with Southwest Airlines, for City Council approval, to enable commencement of design development. Term Sheet of agreement to City Council for approval June 25, 2008. Recommendation on Terminal Concept to City Council for approval June 25, 2008.

28 28 Appendix

Passenger Traffic Forecast Methodology 30-31.

Facilities Space Program 32.

Project Development Agreement Outline 33-36.

29 29 Master Plan Major Findings & Recommendations

Passenger and Aircraft Traffic Forecasts 2006 Update of the 2001 Master Plan estimated the effects which might result from the proposed repeal of the Wright Amendment.

Data used as the basis for the TARPS forecast. FAA Terminal Area Forecast (TAF) for Love Field:

Standard forecasting model used to test validity of airport-specific forecast.

Results exceed the 2006 Update, but validates current TARPS forecast. TARPS forecast methodology:

Constraint – 20 Gates.

Constraint – Voluntary Curfew (17 hours of operation)

Variable – Aircraft size: assume 737-700, 137 seats. Note: American & Continental currently operate 50 seat Regional Jets. The forecast assumes greater demand for larger aircraft when all restrictions phase out in 2014.

Variable – Turns per Gate: 10 turns per gate (assumes 20-25 min ground time per turn – reasonable on consistent basis). 15 turns per gate (assumes 15 min ground time per turn – achievable but not consistently) 30 30 Master Plan Major Findings & Recommendations

■ Forecasts – Design Level Design Level Enplanement Forecasts

Consultation with airlines concerning Annual Peak Average Peak these peak hour passenger levels Month Day Hour Historical indicate that they are within a 2006 3,439,050 311,032 10,033 1,164 9.04% 31 Days 11.60% reasonable range Love Field during the forecast period. TAF Projected 2011 4,275,602 386,691 12,474 1,447 2016 5,889,779 532,679 17,183 1,993 FAA TAF validates the TARPS 10-turn 2021 7,967,466 720,588 23,245 2,696 2025 8,653,965 782,675 25,248 2,929 per gate projection for post-Wright Amendment conditions. However, it 10-Turn Projected assumes on-going growth rate, which 2014 5,865,580 697,442 22,498 2,250 fails to recognize physical constraint of Compounded 20 gates and practical operating TAF Annual Growth Rate constraint of 10 turns per gate, as limiting factors on growth. 2006-2025 4.39% 4.39% 4.39% 4.39%

Sources: City of Dallas, Department of Aviation (historical annual activity) FAA Terminal Area Forecast (projected annual air carrier activity) TARPS projection for 10 turns in 2014 Ricondo & Associates, Inc. (peak month and peak hour activity) Gresham, Smith and Partners (update and turn project activity) constitutes the design level of passenger Prepared by: Ricondo & Associates, Inc, updated by Gresham, Smith and Partners enplanements. 31 31 Master Plan Major Findings & Recommendations

BASIS FOR 10-TURN SPACE PROGRAM CALCULATIONS

DALLAS LOVE FIELD LANDSIDE TERMINAL BUILDING Key Type of space Units Sq.Ft. AIRLINE SPACE Airline Ticket Counter AS-2 Ticket counter agent positions 14 AS-2 Ticket counter ATMs 12 AS-2 Curbside counter agent positions 49 AS -2 Ticket counter (lineal feet) - 90 AS -3 Ticket counter (area) 1,454 AS -4 Ticket counter queuing area 7,938 AS -5 Ticket counter support office 2,250 AS -6 Baggage Makeup 2,250 93,000 Baggage Claim AS -7 Number of devices 5 AS -7a Total lineal feet 729 AS -8 Bag claim area 12,500 AS -8a Baggage Claim Input 10,400 AS -9 Holdrooms 87,841 AS -10 Clubrooms - AS -11 Airline Offices - Landside Terminal 7,512 AS -11a Airport Administration - Landside Terminal 35,000 AS -12 Airlines Offices - Airside Terminal 4,000 AS -13 Airline Operations 60,000 Subtotal 321,895 CONCESSIONS C -1 Food & beverage 53,518 C -2 Rental Car area 3,400 C -3 News/sundries (5% of Gross Terminal Area) 16,095 Subtotal 73,013 PUBLIC SPACE PS -1 Security Checkpoints 14 14,000 PS -1a TSA Administration 4,000 PS -2 Ticket Lobby 4,500 PS -3 Baggage Claim Lobby 9,200 PS -4 Restrooms 18,260 PS -5 Terminal Services 15,600 PS -6 Concourse Circulation 80,375 PS -7 Mechanical & Services 60,884 Subtotal 206,819 Curbside and Parking CS -1 Curbside - Departures 992 CS -2 Curbside - Arrivals 1,043 CS -3 Curbside - Shuttle 568 P-1 Employee Parking Spaces 1,000 Subtotal

TOTAL 601,728 32 32 Implementation & Project Delivery

Project Development Agreement (PDA) An agreement between the City and Southwest Airlines specifying the goals and objectives of the LFMP and agreeing to the manner in which it will be developed, financed and operated. Scope of the Agreement:

Intent of the Project Project scope Commitment to interests of each party Cooperation with other airlines Safety, security, maintenance of operations

Program Management Team Consists of representatives for City and Southwest Responsibilities & authority defined Controls, reporting, costs, payments

Program Description Individual projects comprising the LFMP Exclusions and interfacing projects FAA funding, standards, grant assurance conformance

33 33 Implementation & Project Delivery

Project Development Agreement (PDA) (cont’d.) Program Definition Manual

Project planning & phasing

Design

Procurement & solicitation

Construction, completion, acceptance City ordinances & requirements

Codes, ordinances, Life Safety Master Plan

Environmental remediation

M/WBE, DBE participation

Art in Public Places, LEED Certification

Project labor agreement, wage rates

Sales tax exemption, Record documents

Construction staging and parking Dispute Resolution 34 34 Implementation & Project Delivery

Project Development Agreement (PDA) (cont’d.) Contract forms

Contracting authority

Design, Construction, Program/Construction Management

Contract forms, bond/insurance requirements

Project title

Default Plan of Finance

Sources of funds, schedules Grants, PFC, airport revenues, airline funds

Financing obligations

Requisition of funds

Agreement on Rates & Charges

35 35 Implementation & Project Delivery

Project Development Agreement (PDA) (cont’d.) Effectiveness of agreement

City, airline approvals

FAA Record of Decision

Indemnification Airline use and lease agreement / lease amendment Responsibilities of Agencies

Department of Aviation

Public Works

TSA

FAA

Building Permits

36 36 Questions and Answers

PurposeGulfstream Aerospace Corporation

ReviewProposed Two Leases Consolidated with TXI Aviation Lease I, L.L.C. at Love Field At Love Field Original 1986 lease Second 2007Briefing lease to the Council Economic Development Committee Review Proposed Amendments to Both Leases to add space for growth

Department of Aviation

June 16, 2008

1 2 Purpose

To review the proposed consolidation of two existing Gulfstream leases at Love Field into one lease, which will extend the term and foster the continued growth of Gulfstream Aerospace operations and employment opportunities at Love Field.

2 2 Proposed Gulfstream Consolidated Lease

3 3 Gulfstream Proposed Consolidated Lease

Tract 2

Gulfstream Proposed Tract 1 Consolidated Lease

Gulfstream New Ground Lease Council Approved June 2007 4 46 Recent Council Actions

June 2007 – Council approved Resolution No. 07-1858 & 07-1859, authorizing approval of the Ground Lease with a $40 million capital commitment and $150,000 economic development grant

The Ground Lease was made contingent upon combining the existing lease and existing sublease into one Consolidated Lease

Rate Agreement for the Consolidated Lease

Initial rent would be prevailing rates

Upon Council approval of new prevailing rates, rent will adjust to new prevailing rates in accordance with the lease

December 2007 – Council approved Resolution No. 07-3770 which amended the previously approved resolution by reducing Gulfstream’s capital commitment in the Ground Lease from $40 million to $20 million 5 5 Proposed Consolidated Lease

20 year Primary Term, plus four 5-year options

618,888 SF (two separate tracts – 14.2 acres)

Gulfstream granted 10-year Right of First Offer (“ROFO”) to lease land adjacent to Gulfstream’s existing lease premises

Approximately 7 acres 10 years at $5,000 annually

6 6 Proposed Consolidated Lease Initial Annual Lease Rates and Rent

SQUARE ANNUAL ANNUAL FEET LEASE RENT RATE/SF Tract 1 - improved land 55,786 $0.46 $ 25,662 Hangar A & B 86,480 $2.24 $193,715 Hangar A & B Office 29,540 $5.09 $150,359 Hangar C 39,815 $2.24 $ 89,186 Improved Land 214,504 $0.46 $ 98,672

Tract 2 - Hangar D & E 85,134 $0.87 $ 74,067 Hangar D & E Office 30,886 $0.00 $ 0 Improved Land 137,169 $0.87 $119,337 TOTAL 679,314* $750,996 (*includes 2nd floor office space – 60,426 sf)

7 7 Proposed Consolidated Lease

Rental Escalations* Tract 1 – increase to current rate study with a 12% cap, then every three years thereafter, Tract I rent shall be escalated by the greater of: (i) the current rate study with a12% cap or, (ii) the percentage change in the CPI index over the previous three-year period, with a 12% cap.

Tract 2 – will escalate annually through May 31, 2023 based on the existing method in the sublease. Commencing June 1, 2023, rent escalations for Tract 2 will convert to the same as Tract 1 leased premises above.

*See Appendix Page 11 for details

8 8 Recommendation

Staff recommends approval of the Gulfstream Aerospace Corporation Consolidated Lease

Approval of the proposed Consolidated Lease will permit the City to retain a major employer in the City of Dallas

Approval of this item will increase the City’s total annual rental revenue from Gulfstream’s existing lease and sublease by $370,571 from $380,425 to approximately $750,996

NEXT STEPS

June 25, 2008 - Seek Council’s approval

9 9 QUESTIONS AND ANSWERS

10 10 Appendix

Recent History

1978 Lease details

1989 Sublease details

Proposed Consolidated Lease Rental Rate Escalation Detail

11 11 Gulfstream 1978 Lease

Term: 10 year – commenced Feb. 1, 1978

Options: 4 – 5 year options Currently in last option period Lease expired on January 31, 2008, holding over month-to-month

Rent: $234,488, annually

363,217 sf (ramp) at $ .35/sf/yr 85,000 sf (hangar) at $ .35/sf/yr 35,475 sf (hangar) at $2.24/sf/yr 483,692 sf - Total land under lease

12 12 Gulfstream 1989 Sublease Term: 10 year – commenced Jun 1, 1989

Options; 4 - 5 year and 1- 4 year option 2nd Option will expire on May 31, 2009

Rent: $145,937, annually

85,000 sf (hangar) at $.80/sf/yr 158,800 sf (ramp) at $.49/sf/yr 243,800 sf - Total land under lease

13 13 Proposed Consolidated Lease Rental Rate Escalation Detail

Rental Escalations From time to time, the City performs a rate study to determine the appropriate rental rates (a “Rate Study”), and that the City is in the process of performing a Rate Study with respect to the leased premises (the “Current Rate Study”). Upon approval of the Current Rate Study by the City Council, all components of rent in the approved Current Rate Study that are greater than the amounts then in effect for Tract 1 leased premises shall immediately adjust to the amounts set forth in the Current Rate Study; provided, however, that in no event shall any component of rent escalate in an amount greater than twelve percent (12%) of the amount set forth above.

Commencing as of the third anniversary date after the Effective Date of the Lease and adjusted on each successive third year anniversary date thereafter, including the option periods, rent paid to the City by Gulfstream for Tract I shall be escalated by whichever adjustment is greater: (i) all components of rent in the approved Current Rate Study that are greater than the amounts that Lessee is then paying shall adjust to the amounts set forth in the Current Rate Study, or (ii) the percentage change in the CPI index over the previous three-year period; however, the aggregate escalation for any three-year period shall not exceed twelve percent (12%).

Rent for Tract 2 will escalate annually through May 31, 2023 based on the existing method in the sublease which is the Producers Price Index. Commencing June 1, 2023, rent escalations for Tract 2 will convert to the same as Tract 1 leased premises.

14 14

Implementation Approach, Documents and Actions for the Love Field Modernization Program

Briefing to the City Council

Department of Aviation June 18, 2008

1 Purpose of Briefing

To review the proposed implementation and financing of the Love Field Modernization Program and seek City Council authorization to move forward on development.

2 2 Topics and Proposed Actions

Review the “Terminal Area Redevelopment Program Study” (TARPS), presented to the Council Transportation and Environment Committee 4/28. Proposed for adoption by the City Council as the Master Plan for the Love Field Modernization Program (LFMP).

Review the Implementation Strategy of creating a Local Government Corporation, for the purpose of developing and financing the LFMP. Proposed creation of a Local Government Corporation.

Review the need for an Inducement Resolution to enable the expenditure of funds with the intent of reimbursement from a future bond issue. Proposed approval of an Inducement Resolution.

Review a Project Development Agreement for the LFMP, to be negotiated based on the terms specified in a Term Sheet. Proposed approval of Term Sheet.

3 3 Background Review: 5-Party Agreement

Several Council Committees have been briefed over the past year on the 5-Party Agreement and what it means to Love Field. In summary, the key points are:

The terminal must be modified to allow for only 20 gates;

The City must invest at least $150 M and a max of $200 M to modernize Love Field; The $200 M cap can be exceeded if the City and Southwest agree.

The City and Southwest Airlines shall agree on the manner in which the Love Field Modernization Program will be developed;

Southwest and American airlines’ terminal leases will be extended to 2028.

4 4 Background Review: LFMP Master Plan

The Transportation & Environment Committee was briefed April 28, 2008 on the LFMP Master Plan, conducted under the Terminal Area Redevelopment Program Study (TARPS). In summary, the study:

Examined environmental issues and determined that no further action would be required. FAA agreed. Established criteria for the terminal facility and evaluated 3 conceptual options. They are: Option A – a minimalist approach, consisting of demolishing all concourse areas which can support in excess of 20 gates, and remodeling the remaining concourse and gate space;

Option B – includes demolishing all 3 existing concourses and replacing them with 2 concourses accommodating 20 gates;

Option C – best fits the criteria. It demolishes the 3 existing concourses and consolidates all 20 gates into one concourse in a “T” configuration. This provides the most efficient use of space, the greatest convenience and shortest walking distances for passengers and locates the concessions on one central area so all passengers have access to all concession offerings.

Option C was proposed to the Committee as the preferred option going forward.

More detail on the LFMP Master Plan and TARPS is contained in Appendix pages 28 to 33.

5 5 Option A

OPTION A

New Construction

Existing Facilities

6 Option B OPTION B

New Construction

Existing Facilities

7 Option C

OPTION C

¾ Scope Demolish East, North and West Concourses and replace with new North Concourse with 20 gates New Ticket Hall Expanded Bag Claim Expanded Curbside Terminal Renovation

New Construction

Existing Facilities

8 Issues Affecting Implementation

Cost: All 3 options exceed the $200 M spending cap in the 5-Party Agreement. The $571 M cost of the preferred Option C places it between the costs of the other options. Costs to be paid by airlines, primarily, Southwest. City and Southwest must be in agreement on the approach to the project. Comparison with other similar projects: Chicago Midway – 45 gates, parking structure, related infrastructure, initiated mid-1990s, total cost $1 billion. Houston Hobby – 20 gates in new central concourse, project started 1997, total cost $353 million.

Schedule: The goal of completing the project in time for the full phase-out of the Wright Amendment in 2014 leaves only 6 years to design and construct the improvements. Will require innovative approach to developing project in a streamlined manner.

Construction Phasing and Maintenance of Operations: The project will be constructed on the existing terminal site, requiring close coordination of relocations of airline and concession operations at various phases, and the routing of passenger flow around construction.

9 9 Implementation Strategy

Local Government Corporation (LGC) Created by City Council, Addresses Implementation Issues:

Project Financing Vehicle for issuing bonds secured by Southwest’s credit (instead of Airport’s).

Demanding schedule for 2014 completion Empowered by statute to contract and assign project development to Southwest: Enables fast-track procurement and delivery methods;

Project cost containment Allows airline management of costs with City budget approval and oversight.

Project complexity Demolition of existing, and construction of new facilities while still in use. Maintaining operations of 3 airlines and 2 major concessionaires during project.

Local Government Corporation (LGC)

City Council control: Bonds may not be issued without City Council approval;

Contracts to be executed in connection with sale of bonds must be included as part of approval of sale of bonds by City Council. Such contracts would include agreements among City, LGC, Trustee and Southwest regarding the handling of funds and the responsibilities and obligations of the parties pursuant to the bond issue.

11 11 Implementation Strategy

OVERVIEW OF LGC STRUCTURE AND LFMP IMPLEMENTATION Dallas Love Field Airport May 30, 2008

CITY COUNCIL

LGC < Special Facilities Lease > SWA (financing lease)

Trust Indenture < Credit for debt service component of terminal rent

and negotiated portion of concession revenues

Bond proceeds to Trustee > < Pay debt service net of PFCs

LFMP < Trustee payments to contractors Trustee City Contractors (per requisition process in PDA) > > > >

Concession revenues Terminal rent, landing fees Debt service payments Concession agreements Use and Lease Agreements > PFCs / All DAL Bondholders Concession Grants Operators Airlines

Other Airport Revenues

12 12 Implementation Strategy

LGC Structure (Narrative): LGC issues bonds to finance LFMP improvements, pursuant to an Indenture of Trust with a corporate trustee. LGC enters into a Special Facility Lease Agreement (Facilities Agreement) with Southwest Airlines (SWA). Under terms of the Agreement, SWA pays all debt service on the bonds (Facilities Payments). LGC assigns SWA Facilities Payments to Trustee under the Indenture. LGC sells bonds, deposits proceeds in Project Fund, held and administered by Trustee. Proceeds are made available to SWA to finance construction costs through a requisition process set forth in the Facilities Agreement. City would agree under a separate agreement (City Agreement) to transfer PFC revenue to Trustee for eligible terminal projects. Under terms of City Agreement, City would also transfer “City Revenues” to SWA, which would include: (1) lease rentals received from SWA gates which are attributable to debt service SWA has already paid to Trustee; (2) lease rentals received from the non-SWA gates attributable to debt service SWA has already paid; (3) other revenues attributable to debt service, for which the City is responsible, including concession and City administrative space.

13 13 Implementation Strategy

LGC Bylaws (Summary) Name: Love Field Airport Modernization Corporation. Purpose: to promote the development of the geographic area of the City included at or in the vicinity of Love Field, in furtherance of the promotion, development, encouragement and maintenance of employment, commerce, aviation activity, tourism, and economic development in the City. Statutes: Corporation to be formed pursuant to the provisions of Subchapter D, Chapter 431, Texas Transportation Code, to assist and act on behalf of the City to accomplish any governmental purpose of the City and to engage in activities in the furtherance of the purposes of its creation. Board of Directors: Initially, 3 members of City Staff, being the current occupants of the positions of Director of Aviation, Chief Financial Officer and Assistant City Manager over Aviation, appointed by the City Council, for a term of 6 years. Meetings are subject to the Open Meetings Act. Records are subject to the Open Records Act. Ex-Officio Member: As the lessee of a majority of the gates at Love Field, Southwest Airlines shall appoint 1 ex-officio member of the Board, who may participate in discussions held at duly called meetings (except Executive

Sessions) of the Board but shall not have any voting rights. 14 14 Implementation Strategy

LGC Bylaws (Summary, Cont’d) Officers: President, Vice President, Secretary, Treasurer, all to be filled by Board Directors. Executive Director and administrative support: The City Manager, or her designee, shall serve as Executive Director, and shall perform duties as prescribed by the Board and the City Council, and will serve as “hearing officer” for any public hearing required under the Internal Revenue Code of 1986 as a condition precedent to the issuance of tax-exempt bonds by the Corporation. Code of Ethics: To be adopted as part of the Corporation’s Bylaws for the purposes of: (a) encouraging high ethical standards in official conduct by Directors and corporate officers; and (b) to establish guidelines for such ethical standards of conduct.

15 15 Inducement Resolution

Reimbursement for LFMP-Related Costs: First Bond Series expected to be issued October, 2009.

Design and related “soft costs”, and costs for relocations and construction for Enabling Projects, will be incurred immediately and throughout 2008 and 2009.

As proposed developer (to be designated by LGC), Southwest Airlines will advance funds up $75 million for these LFMP-related costs, prior to the issuance of LFMP Bond Financing.

To recover funds expended from a tax-exempt bond issue, federal tax law require an expression of intent to issue bonds to reimburse costs.

An Inducement Resolution is proposed that will provide for the reimbursement to Southwest Airlines from the initial series of LFMP Bonds sold, consistent with the terms of an Inducement Resolution to be adopted by the City.

16 16 Inducement Resolution Preliminary Program Schedule

17 17 Project Development Agreement

An agreement between the City and Southwest Airlines describing how the Love Field Modernization Program will be developed.

A Term Sheet sets the terms, or basis upon which, the City and Southwest will continue to negotiate the Agreement.

The Term Sheet will be on the June 25 Council agenda for approval. The Project Development Agreement will be brought to the Council for approval in October 2008.

The City Team, consisting of Aviation, City Attorney, Public Works & Transportation Staff, Bond Counsel, Financial Advisor and Rates & Charges Consultant, conducted the negotiations with the Southwest Team.

City Team Goal: Agreeing to terms which allow Southwest to develop the project, while the City retains approval rights in design and management, as well as retaining control of terminal operation, maintenance, leasing and concessions as Landlord, and establishing a method for calculating Airline rental and landing fee rates. Goal achieved.

18 18 Project Development Agreement: Term Sheet

These negotiations resulted in agreement to the terms of a Project Development Agreement, which will be brought to the Council for approval in October 2008. These terms are set forth in a Term Sheet, and will enable the detail of the Project Development Agreement to be negotiated. The terms agreed to include the following (major terms in bold detailed on pgs 20 to 23): 1. Scope of the LFMP 2. Creation of a Local Government Corporation 3. Reimbursement of LFMP-Related Costs Expended 4. Amended and Restated Lease of Terminal Premises 5. Project Development Agreement 6. The LFMP Budget/Schedule/Spending Cap 7. Ground Lease for Cargo Facilities 8. Official Intent 9. Date of Completion of Documentation 10. The Contract Controls 11. Further Approvals 12. Assignment 13. Enforceability 14. Termination

19 19 Project Development Agreement: Term Sheet

1. Scope of the LFMP – terminal building, aircraft parking apron, fueling system, roadways and terminal curbside, related supporting infrastructure, & equipment. Scope divided into 4 categories: Southwest Projects Relocations Terminal Building Airline Equipment & Finishes Early Construction and Relocation Apron and Fuel Projects FAA Grant-funded elements to include participation of both City and Southwest to protect grant-eligibility. City Projects Central Utility Plant Upgrades Airfield Lighting Vault Relocations Roadway and Curbside Improvements Central Receiving Facility Other Projects not addressed above to be assigned by mutual agreement. 20 20 Project Development Agreement: Term Sheet

2. Creation of a Local Government Corporation. As discussed on pages 10 – 15.

3. Reimbursement of LFMP-Related Costs Expended. Inducement Resolution discussed on pages 16 – 17.

4. Amended and Restated Lease of Terminal Building Premises. Extend term to 2028 (5-Party Agreement). Define and allocate gates and exclusive use space (office, ticket counter). Incorporate the new Rates & Charges methodology agreed to in Term Sheet. Develop terms for the use of the Airport, including airfield, aircraft parking apron. Develop guidelines for future capital improvements at the Airport.

21 21 Project Development Agreement: Term Sheet

5. Project Development Agreement (details pursuant to this Term Sheet): Assign design, development and construction management. Prepare a Project Definition Manual. Develop project descriptions, construction phasing, temporary relocations and gate allocation during construction. Process for accomplishing LEED Silver certification. Implement and coordinate bond financing, identifying and agreeing to sources of funds, funding schedules and financing obligations, establish procedures for the deposit of funds, release of funds, periodic project status reporting, auditing, change-order review and approval. Est. a Program Management Team consisting of representatives of the Parties. Process for achieving City of Dallas M/WBE, GFE, DBE goals, and Art in Public Places Program. Conform to regulatory requirements. Provide process to exceed the Spending Cap. Provide for consultation of other Airport tenants (Airlines, Concessionaires). 22 22 Project Development Agreement: Term Sheet

6. The LFMP Budget/Schedule/Spending Cap Preliminary Budget (appendix pg. 34) and Schedule (page 17). Final Budget and Schedule (established in the Project Definition Manual, based on detail design). Will supersede the Preliminary Budget and Schedule. Agreement that TARPS Option C is the desired concept for the LFMP, provided that an agreement to exceed the Spending Cap will be established in the Project Development Agreement in the amount of the Final Budget.

7. Ground Lease for Cargo Facilities Negotiation of a ground lease to accommodate the construction of a facility for cargo, provisioning, ground service equipment maintenance to be executed by August 31, 2008.

8. City to establish its Official Intent to qualify LFMP expenditures for tax exempt financing. 23 23 Recommendations

Adopt the Terminal Area Redevelopment Program Study (TARPS) as the Master Plan for the Love Field Modernization Program, and approving concept Option C as the preferred option.

Create a Local Government Corporation and appoint its initial Board of Directors as the Director of Aviation, the City Chief Financial Officer, and an Assistant City Manager, with one non-voting Ex-Officio Member to be appointed by Southwest Airlines.

Approve an Inducement Resolution which states the City’s intent to reimburse eligible LFMP expenses, incurred in advance of bond issues for the LFMP financing, from those bond proceeds.

Approve the Term Sheet setting forth the terms of a Project Development Agreement, which will be brought to City Council for approval in October, 2008. 24 24 Next Steps

June 25, 2008 – Approve Recommendations

August 27, 2008 – Ground Lease Approval for New Cargo Facility.

October 22, 2008 – Approval of Project Development Agreement.

25 25 QUESTIONS & ANSWERS

26 26 Appendix

LFMP Master Plan – TARPS findings Pg. 28-33

Scope of the LFMP, Preliminary Budget, and Reimbursable Costs Pg. 34

27 27 Master Plan

Terminal Area Redevelopment Program Study (TARPS) Scope of Study:

Investigate Environmental Issues, documentation needed.

Verify Traffic Forecasts of 2001 Master Plan and 2006 Update.

Determine Facility Spatial, Landside Traffic, Parking Requirements.

Recommend Architectural Standards, Passenger Level of Service Standards, Technical Design Standards.

Determine Layout of Terminal and Support Facilities in Terminal Area.

Determine Conceptual Layout and Potential Cost Range.

Study Completed April 2008

Findings, Recommendations Follow

28 Master Plan Major Findings & Recommendations

Environmental Issues and Documentation Needed Findings

The FAA has determined the project will cause no significant environmental impact, and therefore, no further actions are necessary.

Passenger traffic Forecasts Design Level Enplanement Forecast:

Annual – 5,865,580 Peak Month – 697,442

Average Day – 22,498 Peak Hour – 2,250

Space requirements to accommodate enplanement forecasts Overall 602,000 sq. ft.

Concession space tripled

29 Master Plan Major Findings & Recommendations ■ Facilities Requirements and Standards Level Of Service – International Air Transport Association standard

Comparison service levels:

“LOS A” - passengers would be able to move freely through the terminal facility without experiencing any delays in their movements and feel comfortable in doing so (High Cost).

“LOS E” - passenger movements would be congested, uncomfortable and delays would be recognized as unacceptable (Low Cost).

“LOS C” is recommended, as it represents good service level at a reasonable cost.

30 Master Plan: Major Findings & Recommendations

Concept Development: Performance Comparison Matrix

Option A meets/exceeds target for 5 of 12 terminal requirements.

Option B meets/exceeds target for 9 of 12 terminal requirements.

Option C meets/exceeds target for 10 of 12 terminal requirements.

31 Master Plan: Major Findings & Recommendations

SUMMARY 37 43 54

32 Master Plan Major Findings & Recommendations Level of Service and Cost Comparison:

33 Inducement Resolution Scope of the LFMP and Potential Southwest Reimbursable Costs S = Southwest Project element Potential Southwest LFMP C = City Project element Reimbursable Costs LFMP Enabling & Design & Phase Preliminary Relocation Prog Mgmt - ID Project Elements by Phase Budget Projects SWA Projects Program Conceptual Planning Services S 265,000 265,000 1.01 SWA Gate 1A Activation S 700,260 700,260 1.02 SWA North Concourse Relocations S 4,000,000 4,000,000 1.03 SWA New Cargo / Provo / CBS Building S 11,560,000 11,560,000 1.04 City Airport Operations Center / Relocations S 6,470,000 6,470,000 1.05 Relocate North Airfield Lighting Vault C 1,564,961 2.01 Demolish North Concourse S 4,035,975 4,035,975 2.02 Demolish Cargo / Provo/ CBS / GSE / Plant Mx S 1,249,806 1,249,806 2.03 Demolish Existing Cargo Building S 771,452 771,452 2.04 Demolish Existing Ticketing Wing & Connector Bridge S 2,548,411 2,548,411 2.05 Slurry Fill Existing Fuel Lines S 2,117,440 2,117,440 3.01 Build Initial Portion of New Concourse S 148,736,427 13,280,038 3.02 Reconstruct Apron S 33,718,573 3,010,587 3.03 Install First Phase of New Fuel System S 16,476,534 1,471,119 3.04 Upgrade CUP (Cooling Tower / Boiler) C 15,134,474 0 3.05 Build New Ticketing Wing S 40,954,397 3,656,643 3.06 Renovate Portion of Main Terminal S 11,928,935 1,065,084 3.07 Expand Upper Level Departures Roadway C 2,624,591 0 3.08 Build Portion of new 36" Water Main S 779,046 69,558 4.01 Relocate Airlines to New Ticketing Wing S 38,646 3,451 4.02 Relocate WN (5) and CO (2) gates to New North Concourse S 32,462 2,898 4.03 Deactivate AA (1) gate S 50,205 4,483 4.04 Construct remainder of North Concourse S 42,865,694 3,827,294 4.05 Reconstruct apron (2 areas) S 13,845,822 1,236,234 4.06 Extend Hydrant Fuel System S 7,061,805 630,518 4.07 Renovate Remaining Portion of Main Terminal S 35,546,697 3,173,812 4.08 Reconstruct Lower Level Roadway C 5,209,958 0 4.09 Demolish CO gate areas (Concourse Level) S 330,472 29,506 4.10 Demolish Temporary Bag Make-up / T-point S 227,851 20,344 4.11 Demolish West Garage Skybridge S 592,235 52,878 4.12 Build Portion of New 36" Water Main S 252,364 22,532 5.01 Relocate WN (6) gates to New North Concourse S 28,655 2,559 5.02 Demolish West Concourse Extension S 2,293,736 204,798 5.03 Reconstruct apron S 22,592,605 2,017,197 5.04 Extend Hydrant Fuel System S 7,692,645 686,843 5.05 Expand First Section of Bag Claim Hall S 12,849,549 1,147,281 5.06 Reconstruct Arrivals Section of Upper Roadway C 2,378,917 0 5.07 Relocate West Airfield Lighting Vault C 1,435,632 0 5.08 Complete New 36" Water Main S 976,548 87,192 5.09 Deactivate 1 AA Gate S 53,896 4,812 6.01 Relocate WN (4) & AA (2) Gates to New North Concourse S 30,524 2,725 6.02 Demolish remainder of West and East Concourse S 5,224,017 466,430 6.03 Reconstruct apron (2 areas) S 12,905,344 1,152,263 6.04 Demolish West Concourse Skybridge S 502,398 44,857 6.05 Final Fuel System Expansion S 9,199,061 821,345 6.06 Renovate Remaining Portion of Bag Claim Hall S 14,696,000 1,312,143 7.01 Build Remote Central Receiving Facility C 14,508,684 0 PROGRAM TOTAL $519,058,704 $33,718,343 $39,507,423 Total: $73,225,767 Use: $75,000,000 34 34

Airport Rates & Charges Study Recommendations

Presented to the City Council Economic Development Committee

Department of Aviation August 4, 2008 1 Purpose

Ensure revenues are adequate to cover costs.

Ensure revenues can adjust with costs as they change.

Maintain compliance with FAA revenue policy.

Establish Reserve Funds.

2 2 FY 06-07 Revenue by Source About 60% driven by passenger traffic (Concessions)

FY 2007 Revenue

Other, $5,938,195 Parking Concession, Fuel Flow Fee, $12,625,869 (14%) $1,303,879 (29%) (3%) Lease/Rental , $7,476,056 (17%)

Car Rental Concession, $5,200,289 Landing Fee, $3,089,936 Terminal Concession, (12%) Airline Terminal (7%) $5,133,005 Rental, $2,832,752 (12%) (6%) Total Concessions: $22.959M Total Airline Revenue: $5.923M Total Revenue: $43.560M 3 Revenues rise & fall with Passenger Traffic, but Expenses can only adjust so much… 50,000,000 Revenues,45,000,000 Expenses and Passenger enplanements 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 Total Revenue Total Expense 15,000,000 10,000,000 5,000,000 0 5,000,000 FY FY FY FY FY FY FY FY FY FY FY 4,500,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 Enplanements 1,500,000 1,000,000 500,000 0 FY FY FY FY FY FY FY FY FY FY FY 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

4 4 Fluctuations in passenger traffic results in deficits in difficult times, modest gains in good times [Revenues – Expenses = Net Revenue/(Deficit)]

6.0 $3.49 $3.14 $2.79 $2.89 4.0 $2.25 $1.64 $2.12 2.0 $0.81

0.0

(2.0) ($1.93)

(4.0)

($ IN MILLIONS) ($5.02) (6.0)

(8.0) ($7.56)

(10.0) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (FISCAL YEARS) 5 Remedy: The Cost Recovery Model

Airline Rates & Charges:

The City Council approved a rate model for airlines on June 25. Included in the Term Sheet for the Love Field Modernization Program.

Adjusts with changes in airport revenues and costs to ensure total revenues are sufficient to cover total costs (see model Appendix pg. 32).

Total Annual Costs include: Operating and maintenance Debt service on LFMP bonds Amortization of non-LFMP capital improvements funded by AVI Replenishment of reserves (outlined on pages 20 - 24)

How it Works: AVI Total Annual Cost (allocated to airline cost centers) - Non-Airline Revenues (from those cost centers) Airline Revenue Requirement (from landing fees & rentals) 6 6 Remedy: The Cost Recovery Model

Airline Rates & Charges:

Better balance of revenue sources (see pro forma, pages 27 - 29).

Matches revenue to expenses to reduce vulnerability to downturns.

Projected to generate approx $10 million net revenues annually for Capital Fund.

Caps the Capital Fund balance at $30 million, beginning FY 2015.

Model will be implemented with the phased opening of new space during development of the Love Field Modernization Program (est. 2012).

Interim rate increases effective 1/1/09 with annual incremental increases ramping up to model implementation.

7 7 The Cost Recovery Model Projected Results (Rev – Exp = Net Revenue)

14.00

12.00 ) 10.00

8.00

6.00

($ IN MILLIONS 4.00

2.00

0.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 FISCAL YEARS 8 Non-Airline Revenues

The Study evaluated the following revenue sources. Recommendations are outlined on the next 10 pages.

Fuel Flowage Fee

Lease Rental Rates

Parking Rates

Car Rental Concessions

Ground Transportation Fees

Terminal Concessions

9 9 Rates & Charges Study Recommendations

• Fuel Flowage Fees – Represents the General Aviation contribution to costs allocated to the Airfield Cost Center (in place of a landing fee).

– Study conclusion: • Fuel flow fee could increase from current rate of $.07 to $.08. – See Benchmark data, Appendix page 34 • Increase the annual fuel vendor permit fee from $100 to $1,000.

– Recommendations: • Other considerations: – Fee increased 75% in 2003, from $.04 to $.07. – Current high cost of fuel contributes to19% drop CYTD in GA operations. • Therefore, defer Fuel Flowage Fee increase until next rate evaluation. • Increase annual vendor permit fee to $1,000 each.

10 Rates & Charges Study Recommendations Lease Rental Rates

Study Recommendation: Base lease rates on Fair Market Appraisal

Appraisal of Leaseable Property (Non-Terminal leases) Airport Business Solutions, Inc., Tampa, FL Dated May 23, 2008 Prepared in accordance with Uniform Standards of Professional Appraisal Practice (USPAP)

Purpose of Appraisal Estimate Fair Market Value to update Prevailing Lease Rates

11 11 Rates & Charges Study Recommendations Lease Rental Rates (Cont’d)

Appraiser Considerations Local demographic data General airport information Airport environment Site and improvement descriptions Review of existing leases Rent analysis

Appraisal Methodology Fair Market Value Income Capitalization Approach 10% overall capitalization rate Lease Rates Market Comparison Approach 12 12 Rates & Charges Study Recommendations

• Lease Rental Rates (Non-Terminal)

– May 23, 2008 Fair Market Appraisal results (Love Field): • See Comparable Airports, Appendix Page 35.

Unimproved Improved FBO/Storage Maintenance Office Land Land Hangars Hangars Space

Current: $0.32 $0.46 $2.24 $2.24 $5.08

Proposed: $0.40 $0.65 $3.50 $3.75 $8.00

13 Rates & Charges Study Recommendations

• Lease Rental Rates (cont’d)

– May 23, 2008 Fair Market Appraisal results (Executive Airport): – See Comparable Airports, Appendix Page 36.

Unimproved Improved FBO/Storage Maintenance Office Land Land Hangars Hangars Space

Current: $0.13 $0.17 $2.00 $2.00 $2.30

Appraised:$0.20 $0.30 $2.50 $2.50 $2.50

Special consideration for Executive Airport: The City of Dallas has lead several initiatives since completion of the Airport Master Plan Update in 2001 to develop the airport facilities, infrastructure and activity levels. These efforts have resulted in over $20 million in public and private improvements which have resulted in renewed growth in activity and service to the local and traveling public. Considering the recent success and future potential for continued development, staff recommends postponing any increase in rental rates for one year. 14 14 Rates & Charges Study Recommendations

• Lease Rental Rates (cont’d)

• Recommendations: • Love Field • Adopt Proposed Rates as Updated Prevailing Lease Rates.

• Executive Airport • Postpone rate adjustment and re-evaluate in one year.

• Effect of Implementing New Prevailing Rates: Existing leases – gradual, in accordance with lease language. New leases – immediate.

15 15 Rates & Charges Study Recommendations Parking Rates Current daily rates: Garage A - $10; Garage B - $7.

Benchmark rates are $19 “short term” and $8 “long term”. (See Appendix page 33)

Study recommends: Gradual increase over several years toward “market”.

Increase spread between Garages A & B to shift more use to B.

Recommendations: Passenger traffic projected to increase 50%, adding pressure on garage capacity. Rate increase will balance demand between the 2 garages and could defer the need for future expansion.

New daily rates: Garage A - $12; Garage B - $8. 16 16 Rates & Charges Study Recommendations Car Rental Concessions Study found that the business terms of the current Car Rental Concession agreements are reasonable, appropriate and reflect current airport industry standards and practices. Re-bidding the concessions is currently underway.

Ground Transportation Fees New Ground Transportation Fee Ordinance implemented Dec 2006.

Revenue per passenger is only 30% of Benchmark average (Append. page 33).

Recommendation: Increase Taxi trip fee from $1.00 to $2.00.

Replace current $2.00 trip fees for off-airport car rental and parking operators with agreements charging 8% of gross revenue derived from their airport business.

Maintain unchanged the Courtesy Vehicles $200 annual fee, $10 vehicle decal and $.75 - $1.25 trip fee.

17 17 Rates & Charges Study Recommendations Terminal Concessions Food & Beverage and News & Retail: Consultant observations – Rental structure is consistent with industry practices.

Gross revenues and rental revenues paid to City have increased with recent space increases and improvements.

Revenues are below benchmark due to lack of available new space.

Staff Recommendations: Space deficiencies (and therefore, revenue potential) to be remedied through LFMP development, which will triple the available concession space.

18 18 Rates & Charges Study Recommendations Terminal Concessions (Cont’d) Advertising: Rental structure is consistent with industry practices.

Revenues paid to City far exceed Benchmark average. Benchmark average - $.06 per passenger Love Field - $.21 per passenger (3.5 times the benchmark!) Effective rents paid – 74% at Love Field, 57% Benchmark avg.

Recommendations: Advertising Concession expected to continue outstanding results.

19 19 Rates & Charges Study Recommendations Reserve Funds

General Purposes: Ensure the Dallas Airport System ability to meet its obligations in an environment in which its sources of revenue can be disrupted by safety, security and economic impacts.

Increase balance sheet liquidity to enhanced bond ratings.

Represent airport “best practices”.

Are provided for in the Five Party Agreement.

Recommendations Follow…

20 20 Rates & Charges Study Recommendations Reserve Funds (Cont’d)

Operating Fund: Working Capital Balance Minimum balance equaling 30 days of O&M expenses.

Currently $2.5 million.

Operating Reserve Guard against short-term disruptions in revenue resulting from such events as labor disruptions or airline fleet groundings.

90 days of O&M expenses – currently $7.5 million.

Access – City Council authorization.

Replenishment – Future net revenues. 21 21 Rates & Charges Study Recommendations Reserve Funds (Cont’d)

Emergency Repair & Replacement Reserve:

Repair/replacement for unexpected facility/equipment or infrastructure damage or failures.

Examples – Lightning strike damage to airfield lighting system; wind/tornado/flood damage.

$5 million balance.

Access – City Council appropriation for repair/replacement.

Replenishment – airline rate base.

22 22 Rates & Charges Study Recommendations Reserve Funds (Cont’d)

Contingency Reserve: Guard against effects of long-term industry disruptions, such as airline consolidations effecting service patterns, or catastrophic events such as terrorist acts 9/11/01.

$10 million balance. Equates to our accumulated deficits resulting from 9/11/01 events.

To be accessed upon exhaustion of Operating Reserve and Working Capital amounts (120 days of O&M expenses).

Allow for orderly response to structural change in financial conditions.

Access – City Council authorization.

Replenishment – Future net revenues. 23 23 Rates & Charges Study Recommendations Reserve Funds (Cont’d)

Debt Service Reserve (Future):

Current debt for Garage B covered by an insurance policy instead of a reserve fund.

Amount to be determined by financial advisor at time of debt issue.

24 24 Rates & Charges Study Recommendations Capital Fund

Capital Fund: Funding built-in to Cost Recovery Rate Model.

Transfers into Capital Fund projected at $10 million annually.

Fund balance capped at $30 million as a means of preventing unreasonable accumulation of funds.

Cap takes effect upon completion of LFMP or 2015, and is indexed to inflation.

Funds programmed for People Mover and Cedar Springs/Mockingbird intersection improvements are exempt from cap until 2017.

Access – City Council appropriation for capital improvements

25 25 Airport Rates & Charges Study

Summary of Recommended Changes: Lease Prevailing Rates – Love Field only: set to appraised fair market rents;

Parking Rates – Garage A, increase from $10 to $12; and Garage B, increase from $7 to $8.

Ground Transportation Fees – Increase Taxi trip fee from $1 to $2. Convert off-airport car rental and parking operators from $2 trip fee to agreements charging 8% of gross revenue derived from airport business.

Terminal Food/Beverage and News/Retail – Remedy space deficiency (increase revenue potential) through LFMP development.

Reserve Funds – Operating Working Capital – 30 days, $2.5M Operating Reserve – 90 days, $7.5M Emergency Repair & Replacement - $5M Contingency Reserve - $10M Debt Service Reserve – To be determined 26 26 Airport Rates & Charges Study

Pro forma Analysis of Recommendations: Current FY 2010 FY 2015 Airline Terminal Rental $2,915,832 $1,747,000 $8,041,000 Airline Apron Rental N/A N/A $1,475,000 Landing Fee $4,903,199 $9,551,000 $8,763,000 Fuel Flowage Fee $1,383,795 $1,194,000 $1,254,000 Parking $13,225,238 $18,306,000 $25,086,000 Car Rental $5,673,653 $6,790,000 $9,025,000 $238,176 $1,119,000 $1,752,000 Ground Transportation $4,832,343 $6,968,000 $10,887,000 Terminal Concessions $6,740,888 $6,027,000 $6,305,000 Lease/Rental $1,307,304 $1,898,000 $3,263,000 Other $41,220,428 $53,600,000 $75,851,000 Total 30.03% 41.51% % Change 2727 27 TOTAL REVENUE FY 2010

Fiscal Year 2010 Revenue Projected

Fuel Flow Fee, Ground $1,194,000 (2%) Transportation, $1,119,000 Parking Concession Other, $1,898,000 (4%) $18,306,000 (2%) Landing Fee, (34%) $9,551,000 (18%)

Airline Rental, $1,747,000 (3%)

Lease/Rental, $6,027,000 (11%) Terminal Concession, Car Rental $6,968,000 Concession, (13%) $6,790,000 28 (13%) Total Revenue: $53.600M 28 TOTAL REVENUE FY 2015

Fiscal Year 2015 Revenue Projected Ground Apron rentals, Transportation, $1,475,000 $1,752,000 Fuel Flow Fee, (2%) $1,254,000 (2%) Parking Concession, (2%) $25,086,000 Other, $3,263,000 (4%) (33%) Landing Fee, $8,763,000 (12%)

Airline Rental, $8,041,000 Lease/Rental, (11%) $6,305,000

(8%) Car Rental Terminal Concession, Concession, $10,887,000 $9,025,000 (14%) Total Revenue: $75.851M (12%) 29 Airport Rates & Charges Study

Next Steps:

City Council Approval: Resolution Updating Love Field Prevailing Lease Rates – Aug 27. Resolution Increasing Parking Fees – Aug 27. Resolution Creating Reserve Funds – Aug 27. Ordinance Amendment Increasing Fuel Vendor Permit Fee – Oct.

City Council Committee Briefing: Interim Airline Rates and Charges (until implementation of Cost Recovery Model, estimated 2012) – Oct. Ground Transportation Agreements – Oct.

30 30 Appendix

Cost Recovery Rate Model 32 Benchmark Analysis 33 Appraisal Comparable Airports Lists 35

31 31 Cost Recovery Rate Model

CONCEPTUAL FRAMEWORK FOR NEW RATES AND CHARGES METHODOLOGY Love Field Modernization Program Dallas Love Field Airport June 2008

Rates to be calculated based on "cost center residual" methodology

Other Buildings Airline Cost Centers Parking and Cost Centers: and Areas Airfield Aircraft Apron Terminal Ground Transportation

Revenues Costs Costs Costs Revenues

- Costs - Other revenues - Other revenues - Other revenues - Costs

Net: Net Revenues Net requirement Net requirement Net requirement Net Revenues

credit 0% less: revenue sharing less: revenue sharing credit 75%

City retain 100% = landing fee requirement = apron fee requirement = terminal rental requirement City retain 25% Divisor: / airline landed weight / number of gates / airline space

Rate: Landing Fee Rate Apron Fee rate Terminal Rental Rate

transfer to: transfer to: Aviation Capital Fund Aviation Capital Fund

Airline MII Purview of Future CIP Projects: No Yes, subject to exclusions in 5-Party Contract No 32 32 Benchmarking Analysis Summary of Select Parameters (Note: Includes comparison of actual DAL rates and cost/revenue per enplaned passenger as indicated, with those of the survey average) Survey DAL Average

Landing fee rate $ 0.55 $ 2.83 Average terminal rental rate $ 9.14 $ 88.81 Airline cost per enplaned passenger $ 1.54 $ 6.44

Public parking rates Daily rate--close in structure $ 10.00 $ 19.00 Daily rate--long term structure/surface $ 7.00 $ 8.00

Fuel flowge fee rates $ 0.07 $ 0.06

Net revenue per e.p. Public automobile parking $ 3.12 $ 5.06 Rental cars $ 1.34 $ 1.83 Ground transportation $ 0.03 $ 0.10 Food and beverage $ 0.45 $ 0.41 News and gifts $ 0.24 $ 0.32 Advertising $ 0.43 $ 0.08

Airport Benchmark Data

Fuel Flowage Fee

Hubs Large MediumHubs

DAL Medium Hubs MDW SAT MCI HOUDFW BNA SMF ONT

Dallas LoveBenchmark Dallas FortMidway San AntonioKansas Houston-HobbyCity Nashville Sacramento Ontario

Field Average WorthInt’l AirportInt’l AirportInt’l AirportAirport Int’l AirportInt’l AirportAirport $ 0.030 $ 169,007

$ 0.050 $ 317,705

$ 0.100

$ -

$ 0.050 Other Revenues $ 860,859 - General Aviation $ 0.06- Eff. 10/1/07$ 0.080 $ 0.07 $ 275,000 $ 637,822 Fuel flowage($0.xx fee per) rate gallon 485,824$6,230,055 $ 0.075 1,263,916 $ 443,725 Fuel flowage fee revenue

34 Love Field Airport

COMPARABLE AIRPORT RATES Airport Unimproved Improved Land FBO/Storage Maintenance Office Space Land (Ramp/Apron) Hangers Hangers Addison $0.65 $0.70 NA $3.39 to $10.00 $6.25 Meacham $0.22 $0.25 $1.60 NA $8.56 - $14.99 McKinney $0.30 NA NA NA NA San Antonio $0.570 $0.744 $2.33 Hangar $3.00 $2.56 Office $3.30 Oklahoma City $0.10 $0.19 6% of market value NA $10.00 &Wiley Post Houston Hobby $0.31 $0.375 $3.81 NA NA Tulsa $0.22 NA NA NA NA Memphis $0.19 $0.30 $1.53 to $3.69 NA NA Spirit of $0.32 $1.40 $5.00 $9.00 $5.00 St. Louis Nashville $0.09 to $0.14 $0.14 to $0.20 $1.00 to $1.15 NA NA Centennial $0.13 to $0.45 NA NA NA NA Louisville $0.41 $0.41 $5.80 NA $12.66 Jacksonville $0.17 $0.20 $2.50 to $3.50 $4.67 to $12.00 to $15.00 $7.95

35 Dallas Executive Airport

COMPARABLE AIRPORT RATES

Airport Unimproved Improved Land Office/Hangar Fuel Flowage Land (Ramp/Apron) Space Fee

Lancaster $0.13 $0.13 N/A $0.06

Arlington $0.22 $0.25 N/A $0.05

Ft. Worth Meacham $0.22 $0.25 $1.60 $0.118

Ft. Worth Spinks $0.19 $0.21 $1.56 $0.118

McKinney $0.30 $0.30 N/A $0.09

Denton $0.17 $0.22 N/A 6%

Majors Airport $0.24 $0.24 N/A $0.05

Gainesville Municipal Negotiated $0.14 $300/mo N/A

Grayson County $0.19 $0.29 N/A Unknown

Tyler Pounds $0.05 $0.05 N/A $0.05

Draughon-Miller $0.10 $0.10 N/A $0.05

36 Memorandum

CITY OF DALLAS c~~~ September 19, 2008

Members of the Transportation and Environment Committee: Linda Koop, Chair; Sheffie Kadane, Vice-Chair; Jerry R. Allen; Carolyn R. Davis; Vonciel Jones Hill; Angela Hunt; Pauline Medrano; Ron Natinsky siie;Eci People Mover Connector - Feasibility Study Recommendations

Attached is the briefing entitled, "Dallas Love Field - People Mover Connector - Feasibility Study Recommendations" that will be presented to you on September 22, 2008.

Please @tact rvre if you need additional information. 1 L,. ,. ,. P , .,, ,, /,,I ;\ [y!:~) (/y->(,,I: ~ . y\ i / am& F. Miguez. P.E. Assistant City Manager

Attachment

c: Honorable Mayor and Members of the City Council Mary K. Suhm, City Manager Thomas P. Perkins, Jr., City Attorney Deborah Watkins, City Secretary Craig Kinton, City Auditor Judge C. Victor Lander, Judiciary Ryan S. Evans, First Assistant City Manager Jill A. Jordan, P.E., Assistant City Manager A.C. Gonzalez, Assistant City Manager David 0, Brown, Interim Assistant City Manager David Cook, Chief Financial Officer Jeanne Chipperfield, Director, Budget and Management Services Edward Scott, Director, Controller's Office Helena Stevens-Thompson, Assistant to the City Manager - Council Office Dan Weber, Director, Department of Aviation

'Dallas, The City That Works Diverse, Vibrant And Progressive " Dallas Love Field People Mover Connector Feasibility Study Recommendations (Part 1 of 2) Briefing to the Transportation and Environment Committee

Department of Aviation September 22, 2008 Purpose

Review Part 1: Feasibility Study Findings, Recommendations.

Issues with other Capital Improvement Projects.

Next Steps. Part 2: Financial Analysis and Recommendations

2 Background

Historical Overview: DART published a 2005 report addressing service to Love Field from the new Green Line – “Dallas Love Field Transit Service Options Study” (amended in July 2007). Recommended a bus shuttle connection to Airline Terminal. Potential for higher capacity project in future.

City of Dallas determined a higher level of service could be achieved through installation of a People Mover Connector, to be financed with Passenger Facility Charge revenue.

Consultant contract awarded for People Mover Connector Feasibility Study on June 13, 2007 to Lea+Elliott, Inc.

3 Feasibility Study Outline

Feasibility Criteria

Ridership and Demand

Transportation Technology Assessment

Tunneling and Facilities Assessment

Procurement Approaches

Planning Level Cost and Schedule Assessment

Potential Funding Sources and Options

Project Feasibility

4 Feasibility Criteria

Performance Factors – Capacity, Speed, Expandability, Automation

Level of Service – Frequencies / Wait time, Safety, Reliability

Quality of Service – Seamless Connections, Appropriate Passenger Amenities, Airport Experience

Environmental Impacts – Acceptable Noise/Vibration Levels, Visually Acceptable

Cost Effectiveness – Capital, O&M, Integration of System with Terminal Facilities

5 Ridership & Demand

Ridership Requirements & Analysis: Two General Functions to be Served: Air Travelers & Employees utilizing DART Light Rail for regional transportation; Cost of fuel and growing popular concern for reducing “carbon footprint”.

Potentially relocated Airport Activity Centers. Increase the Terminal Area capacity to support passenger activities; Relieve Terminal Area traffic congestion (realize associated air quality benefit).

Three Groups of Users – Demand: Commuting Employees (demand – 418 daily riders) Air Travelers (demand – 1,230 daily riders) Southwest Airlines Employee Shuttle (demand – 500 daily riders) Total Demand Potential 2,150 daily riders (785,000/Yr)

Sources of Data: NCTCOG; DART; FAA; City of Dallas; Transportation Cooperative Research Program Report 62.

6 Transportation Technologies Studied

Moving Walks Automated People Conventional Accelerated Mover Self-propelled APM Cable-propelled APM Bus Monorail Conventional Bus Maglev (Low Speed) Bus Rapid Transit Guided Bus Personal Rapid Transit Streetcars Modern Other Technologies Historic

7 Automated People Mover Technologies

Self-propelled Center guided

Bombardier CX-100, Schwager Davis UniTrak Houston George Bush Intercontinental Clarian Health Center, Airport, Texas Indianapolis, Indiana

Bombardier Innovia, Siemens AirVal Dallas/Fort Worth International (currently in development) Airport, Texas

8 Automated People Mover Technologies

Self-propelled Side-guided

IHI Niigata, Osaka Kansai International Airport, Japan

Mitsubishi Crystal Mover, Singapore Changi International Airport, Singapore

9 Automated People Mover Technologies

Cable-propelled

DCC Doppelmayr Cable Liner Shuttle, Mexico City International Airport, Mexico

Poma-Otis Skymetro Zurich International Airport, Switzerland (now the Leitner-Poma MiniMetro)

10 Automated People Mover Technologies

MagLev Travel along rails using electromagnets which create magnetic levitation.

Chubu HSST 100L maglev vehicle, Aichi, Japan

11 Tunneling Methods Assessment

Tunneling cost and applicability are affected by several factors:

Local geologic conditions (clay, sand, shale, water table); locations adjacent to existing structures and utilities sensitive to ground movements; Tunnels will pass under airport runways, taxiways and ramps.

The following 3 pages review the available methods.

Method, or combination of methods used, will be determined by the procurement process.

12 Tunneling Methods Assessment

Tunnel Boring Machines Can be used in difficult ground conditions, such as water-bearing sands and clays

13 Tunneling Methods Assessment

Sequential Excavation Method (SEM) Suitable for soft ground conditions and low overburden.

14 Tunneling Methods Assessment

Cut-and-Cover Construction

More disruptive than tunneling due to need for utility relocations and traffic routing.

15 Station Location & System Alignment

Station Location Determines System Alignment.

Station Location Objectives: Seamless Traveler Connection Visibility – Traveler Orientation & Wayfinding Cost to Develop Site

System Alignment Objectives: Shortest Length (Cost of Tunneling and System) Simplest Alignment (Curves add Cost & Operating Complexity)

16 Recommended Alignment System Length – 3,400 ft System Performance – one curve

17 Recommended Station Concept at DART Station Elevated, Bridging Denton Rd.

DART Trains Denton Dr. To Terminal

Legend APM Station

Tunnels 18 Recommended Station Concept at Terminal Building Enter near Center of Lobby Can be Constructed During LFMP

19 Procurement Approach

Two Separate Procurement Processes:

APM System Supplier: Performance Based Process to increase competition. Few Competitors within each Technology Type Therefore, Create Competition among the Various APM Technologies

Facilities & Tunnel Contractor(s): Conventional Procurement Methods (Design-Bid-Build, Design- Build, Construction Management At-Risk)

This approach used at 24 airport projects, including DFW Skylink

20 Planning Level Cost and Schedule Assessment

Planning Level Cost: Based on Consultant Team’s past experience with similar projects and current construction industry cost trends.

Includes assessment of: Facilities & Tunnel Construction, System Acquisition costs; Soft costs design, construction administration, construction management, geotechnical testing, LEED certification requirements, art program, commissioning, contingencies; Escalation rate – 8% Construction inflation, demand for materials, foreign exchange rates.

21 Planning Level Cost and Schedule Assessment (Cont’d)

Planning Level Cost Estimate (Capital): 2008 dollars $270,000,000 2010 dollars $330,000,000

5-Year Operating & Maintenance Cost Estimate APM System $20,000,000 Facilities $ 4,120,000 Total 5-yr budget $24,120,000 (average $4,824,000 annually)

Project Schedule: Overall duration – 72 months

22 Potential Funding Sources

2010 Capital Cost $330 M DART allocated funds $ 20 M RTC: TX Mobility Fund $ 40 M RTC: Congestion Mitigation $ 20 M Remaining Capital Cost $ 250 M

Passenger Facility Charge (PFC) Revenue: At $4.50 beginning 2010, PFC revenue potential thru 2028 = $562 M

23 Project Feasibility

The determination of Project Feasibility is based on the following conditions:

Recommended system technology – Automated People Mover (APM);

Recommended system alignment – elevated station at DART end, and underground station entering Terminal in lobby area;

Recommended procurement process – performance based for APM system, and conventional procurement for Facilities & Tunnel construction.

Capital cost - $330,000,000 (2010)

Funding Sources and Potential: DART $ 20,000,000 Regional Transportation Commission $ 60,000,000 Passenger Facility Charge (2010-2028) $562,000,000 Total Potential $642,000,000

24 Project Feasibility (Cont’d)

The Study concludes that this set of conditions will achieve the Feasibility Criteria set out in Page 5 of: Performance; Level of Service; Quality of Service; Environmental Impacts; Cost Effectiveness.

Additional Benefits of the People Mover Connector: Will provide direct rail connection between DFW and Love Field

Fuel costs and environmental concern have resulted in record DART LTR use. Will translate into greater ridership than estimated in Study

New opportunities to relocate Terminal-area passenger services to relieve Terminal-area traffic congestion. For example, 138,000 annual shuttle bus trips in 2007 Relocation of services will enable re-designation of Airport land for aeronautical use.

25 Issues With Other Capital Improvement Projects

This Study concludes that the People Mover Connector is feasible and sufficient funding is available to finance it.

Other capital projects are planned or underway, which compete for funding: Love Field Modernization Program; Rolling Capital Improvement Program; Future Cedar Springs / Mockingbird Rd Intersection Improvements.

A financial strategy will be developed to determine the most efficient way to fund all capital improvements without compromising any of them.

26 Next Steps

Part 2: Financial Analysis and Recommendations to the Transportation and Environment Committee – Oct 13

Dallas Love Field People Mover Connector Financial Analysis & Recommendations (Part 2 of 2) Briefing to the Transportation and Environment Committee

Department of Aviation October 13, 2008

1 Purpose

Review September 22: Part 1, Feasibility Study Findings, Recommendations.

Today: Part 2: Financial Analysis and Recommendations

2 Part 1 Findings, Recommendations

• People Mover demand is based on the following: – Commuting Employees 418 daily riders – Air Travelers 1,230 daily riders – Southwest Airlines Employee Shuttle 500 daily riders – Total Demand Potential 2,148 daily riders

• Additional opportunities arising from installation of People Mover:

– Relocation of Car Rental Service Facilities from Terminal Area to a new Consolidated Car Rental Facility co-located with People Mover DART station.

– Employee parking could also be co-located.

– Co-locations estimated to increase daily ridership by 5,000, bringing total demand to 7,150 daily and about 2,000,000 annually.

3 Part 1 Findings, Recommendations (Cont’d)

• People Mover Planning Level Costs: – 2010 Capital $330,000,000 – 2010 Annual System O&M $ 4,000,000 – 2010 Annual Facilities O&M $ 824,000

• Project Schedule, Design to Commissioning – 72 months

• Funding Sources & Potential: – DART $ 20,000,000 – Regional Transportation Commission $ 60,000,000 – Passenger Facility Charge (2010-2028) $562,000,000 – Total Potential Funding $642,000,000

4 Part 1 Findings, Recommendations (Cont’d)

• The Study concluded the People Mover Project is Feasible: – Capital resources exceed Planning Level Costs; – The APM concept delivers an excellent Level of Service; – Recent trends of increased DART ridership; – Air quality improvements.

• The Study did not analyze all Dallas Airport System capital programs and develop a financial strategy to support all programs.

• The Airport Rates & Charges Study has developed financial strategies for all existing and potential development programs: –LFMP; – People Mover; – Rolling Capital Improvement Program.

5 Part 2 – Financial Analysis

• Critical Issue # 1: – City has committed to develop Love Field Modernization Program (LFMP) • Concept Option C, approved by City Council, and currently in Schematic Design • Cost-Recovery Airline Rate Model approved by City Council (adjusts rates to cover costs) • Preliminary Budget - $520 million • Preliminary Financial Plan – Southwest Funded $ 23 M – FAA Grant Funded $ 64 M – TSA Grant Funded $ 20 M – PFC Pay-Go Funded $ 61 M – AVI Funded $ 28 M – Bond Funded $324 M – Preliminary Budget $520 M

• Bond Debt Service Funding – Annual Requirement (2016) $28 M – Less annual PFC revenues pledged ($10 M) – Net to be recovered – Airline Rate Base $18 M

• Resulting Terminal Rental Rate (projected annual per square foot) - $49.

6 Part 2 – Financial Analysis

• Critical Issue # 2:

– The People Mover has no tenants and little revenue potential. • It’s costs must be paid by other sources: – DART, RTC and AVI contributions reduce net capital cost to = $243 M

– Debt Service requirement would approximate $20 million of the projected $20 – $25 million annual PFC revenue stream during FY 2015 – FY 2020 (at current federal PFC limit of $4.50). » Will remove $10 M PFC contribution from LFMP debt payment, thereby increasing airline square foot rental rate

– Operating and Maintenance Costs, estimated at $6 M by 2015. » Potential cost sharing with DART » Balance added to airline rate base

• Alternative approaches are necessary for a sound business case. 7 Part 2 – Financial Analysis

- Alternative approach to financing the People Mover •Shift capital cost of People Mover Terminal Station ($43 M), from People Mover project to LFMP, reducing the People Mover Net Capital Cost to about $200 M.

New Cost: New Cost: People Mover LFMP $200 M $43$43 MM $563 M •Retain integrity of LFMP Financing Plan by maintaining the $10 M PFC pledge to debt service.

•Annual People Mover Debt Service requirement estimated at $15M.

•These are planning estimates and cannot be substantiated until project design development is underway. 8 Part 2 – Financial Analysis

• Cost impacts: – Capital: Resulting Impact on LFMP Financing Plan ($43 M added to project) • Airline terminal rental rate (projected annual per square foot) increase from $49 to $80.

–O&M:Additional Impact: People Mover Operation & Maintenance Cost • Estimated $6 M annually by 2015

Cost impact to LFMP

LFMP LFMP with $43M LFMP + $43M Current APM Cost APM + O&M Bonded Debt $367M Capital $324M $367M Amount $6M O&M Terminal Rent $49 / SF $80 / SF $105 / SF per sq. ft.

9 Part 2 – Financial Analysis

• Summary: – A Strategy to Fund and Finance the LFMP and the People Mover, under these circumstances:

• Would consume nearly all PFC revenue for life of bonds;

• Would limit capital improvement capabilities of the Dallas Airport System to rehabilitation and replacement of equipment, facilities and infrastructure only, and no new development.

• Would place significant financial burden on airlines and other users of Love Field.

– Staff is pursuing lower cost alternatives.

10 Part 2 – Financial Analysis

• Other Considerations: – Terminal Area Access • Dependant on Cedar Springs Rd – emergency road closure would cut off access to terminal.

• Alternate means of access is desirable & prudent.

– DART Light Rail Connection • Intra-modal opportunities keep focus of alternate Terminal access point at DART Station.

• Bus Connection as an interim approach would preserve future potential of the People Mover recommended in Feasibility Study.

– Consolidated Car Rental Facility (CONRAC) • Development of a CONRAC in conjunction with DART Love Field Station brings 2 opportunities: – Create a new revenue stream and funding source to contribute to capital and O&M cost. – Create new aeronautical development opportunities on vacated land in Terminal Area.

• Additional Benefits: – Reduce traffic congestion and increase air quality by removing 138,000 shuttle bus trips.

11 Part 2 – Financial Analysis

• Recommendations: – Investigate alternative connection of Love Field Airline Terminal to DART Love Field Station.

– Investigate development of a Consolidated Car Rental Facility near the DART Love Field Station • Enhance future potential of viable and effective connector project. • Provide safety and air quality enhancements to the Terminal Area. • Introduce new aeronautical development opportunities. • Potential for co-locating employee parking to free up capacity in terminal area for increased public parking needs.

• Next Steps: – Committee will be updated in January

Amended & Restated Lease of Terminal Building Premises (Airport Use & Lease Agreement)

Briefing to the Transportation and Environment Committee

Department of Aviation October 27, 2008 Purpose

Review 5-Party Agreement terms pertaining to Lease:

Review “Amended & Restated Lease” Conversion of existing “Lease of Terminal Premises” to an “Airport Use & Lease Agreement”

Seek Committee support for approval by City Council Nov 10.

22 5-Party Agreement Review

• Agreement to repeal the Wright Amendment. – Executed June 2006.

• Obligations of the City: – Undertake Love Field Modernization Program (LFMP)

– City & Southwest Airlines to cooperate in developing LFMP. • TARPS / Concept Option “C” / LFMP Term Sheet.

– Costs of LFMP to be borne by airlines; • Rates & Charges Study provided “Cost-recovery Rate Model”.

– Airline leases to be amended for term extension to 2028;

3 Current Lease

• Rental rates based on cost of space in 50 year-old terminal facilities and adjacent aircraft apron only. • Average square foot rental rate approx $9.00

• Lease does not address use of the airfield, or obligations & mechanism to support its development. – Current Landing Fee is set by ordinance at $.55 per 1000 lbs landed weight

• All costs of Dallas Airport System are recovered by all revenue sources.

• Gates & adjacent aircraft ramp exclusively leased.

• Southwest, American and Continental all have essentially the same lease, with combinations of term and options to 2021.

4 Proposed Use & Lease Agreement

• Implements the business deal to achieve the 5-Party Agreement commitments.

– Expands scope of the lease of terminal space, to also include terms for the use of the Airport, including the airfield, aircraft parking ramp; • Incorporates Landing Fee & new Apron Fee in lease rate model.

– Incorporates new cost recovery rate model approved in the Term Sheet. Allocates Airport costs to Terminal, Apron, Airfield cost centers. • Airlines pay cost of LFMP thru allocations of cost to square foot rental rate. • Protects non-airline tenants from paying for LFMP.

– Develop guidelines for future capital improvements (CIP); • CIP funded in rate base. Airlines have approval rights for certain capital improvements affecting their rates. 5 Basic Provisions

• 20 year term, effective retroactive to 10/1/08.

• All gates leased on a “Preferential Use” basis, rather than exclusive.

• All baggage areas (outbound & inbound) leased as “common use”.

• Office, operations and ticket counter space leased as exclusive use.

• All space subject to “accommodation provisions” for new entrant airline access to terminal.

6 Common Lease Form

• Use & Lease Agreement negotiated primarily with Southwest – Highest market share at over 90% – Greatest number of gates – effective 2010, will occupy 16 of 20 gates – Responsible for greatest share of Rates & Charges revenue to City

• Consultation with American and Continental – Will have 90 days to accept or reject

• Alternative to Use & Lease Agreement – Any scheduled airline choosing to not sign agreement will pay Landing Fees set in ordinance – Section 5-31 of the Dallas City Code is proposed to be amended to increase Landing Fees at Love Field as indicated below. • Effective 12/1/08 – 9/30/09: $1.50 • Effective 10/1/09 – 9/30/10: $1.75 • Effective 10/1/10 – 9/30/11: $2.00 • Effective 10/1/11 and thereafter: 125% of the fee paid by airlines that have executed an Airport Use & Lease Agreement

7 Capital Funding

• Recognizes on-going capital needs of the Dallas Airport System. • Rate model recovers costs and also funds reserves and transfers to Capital Fund of approx $10 M annually. – Capital Fund capped at $30 M. Balances exceeding cap to be refunded to airlines.

– Exceptions to cap are for improvement projects associated with People Mover and Mockingbird-Cedar Springs Intersection until 2015, at which time, exception expires.

• Airlines have approval rights for any proposed capital improvement project which impacts the airline rate base, except those projects required for safety, security or federal mandate (Majority-in-Interest Clause).

8 Interim (Pre-LFMP) Rates

• FAA policy does not allow airports to charge airlines for capital improvements before they are placed into service. • Cost recovery rate model will take effect on Date of Beneficial Occupancy (DBO) of LFMP space (estimated 2011).

• Interim rate structure agreed to:

Terminal Building – Rates Eff. FY 2010 Landing Fees – Rates Eff. 10/1/08 Ticket Counter and Queuing $20.00 / SF FY 2009 $1.00 per 1,000 lbs. Gate Holdrooms $20.00 / SF FY 2010 $1.25 per 1,000 lbs. Offices / Ticket Offices / Bag Service Offices $15.00 / SF FY 2011 (through DBO) $1.50 per 1,000 lbs. Baggage Claim $15.00 / SF Bag Make-Up / Bag Screening $10.00 / SF Operations / Support / Restrooms $10.00 / SF Stairwells / Canopy $ 5.00 / SF

9 Phasing of LFMP Construction

• Changes to Leased Space during construction • Airline leased premises in existing facility defined in exhibits to lease by location, space type and square footage. Referred to as “Pre- LFMP Space”.

• Upon completion of LFMP phases, and relocation of airline operations to new space, “Pre-LFMP Space” lease exhibits will be replaced with “Post-LFMP Space” exhibits, reflecting changes in space location, type and square footage, for assessment of proper rental rates and amounts.

• During period of Interim Rental Rates, airline rentals will be adjusted for changes in square footage occupied during relocations and space changes related to LFMP construction.

10 Cost-Recovery Rates (Post-LFMP)

• Cost recovery rate model shown graphically next page

– Basic Concept: $ AVI annual budget, allocated to each cost center - $ other revenue generated in, or credited to cost center Net revenue requirement for cost center

Landing Fee = Airfield Cost Center revenue r’qmt / landed weights

Apron Fee per gate = Apron Cost Center revenue r’qmt / 20 gates

Terminal Rent = Terminal Cost Center revenue r’qmt / leased sq ft

11 Cost Recovery Rate Model

CONCEPTUAL FRAMEWORK FOR NEW RATES AND CHARGES METHODOLOGY Love Field Modernization Program Dallas Love Field Airport June 2008

Rates to be calculated based on "cost center residual" methodology

Other Buildings Airline Cost Centers Parking and Cost Centers: and Areas Airfield Aircraft Apron Terminal Ground Transportation

Revenues Costs Costs Costs Revenues

- Costs - Other revenues - Other revenues - Other revenues - Costs

Net: Net Revenues Net requirement Net requirement Net requirement Net Revenues

credit 0% less: revenue sharing less: revenue sharing credit 75%

City retain 100% = landing fee requirement = apron fee requirement = terminal rental requirement City retain 25% Divisor: / airline landed weight / number of gates / airline space

Rate: Landing Fee Rate Apron Fee rate Terminal Rental Rate

transfer to: transfer to: Aviation Capital Fund Aviation Capital Fund

Airline MII Purview of Future CIP Projects: No Yes, subject to exclusions in 5-Party Contract No 1212 Mid-Year Rate Adjustments

• Any time during a Fiscal Year that the City projects variances of 10% or more in estimates of the following, used to calculate rates:

– total costs of the Terminal Building, Airfield or Apron cost centers, OR – the aggregate Total Landed Weight of all airlines

• Rates may be adjusted up or down for the balance of that Fiscal Year, to ensure that Airport revenues will be adequate to recover the estimated total costs of the affected cost center.

13 Year-End Adjustments

• City furnishes Airlines with accounting of – Actual costs/expenses – Actual revenues & credits – Actual enplaned passengers – Actual landed weights – Recalculation of Rates & Charges based on actual information

• If Airlines overpaid, City shall refund Airline in lump sum for excess payments within 60 days of determination.

• If Airlines underpaid, City shall invoice Airlines for deficiency, payable by Airlines within 60 days of invoice.

14 Summary, Recommendations and Next Steps

• The proposed Airport Use & Lease Agreement will: – Implement the business deal to achieve the commitments of the 5-Party Agreement – Support the financing at Airline cost, of the LFMP – Ensure that the Dallas Airport System operates with “net revenues” – Provide substantial contributions annually to the AVI Capital Fund

• Recommend the City Council: – Approve the proposed Airport Use & Lease Agreement for all scheduled airlines operating at Love Field. – Approve an increase in the landing fee for commercial aircraft found in Section 5-31 of the Dallas City Code

• Next Step : November 10 City Council Agenda for approval 15 Memorandum

CiTY OF DALLAS cAiE October 24, 2008

Members of the Transportation and Environment Committee: Linda Koop, Chair; Sheffie Kadane, Vice-Chair; Jerry R. Allen; Carolyn R. Davis; Vonciel Jones Hill; Angela Hunt; Pauline Medrano; Ron Natinsky sUEijECT "Love Field Modernization Program Development Agreement" Briefing

Attached is the briefing entitled, "Love Field Modernization Program Development Agreement" that will be presented to you on October 27, 2008.

Please comet me if vou need additional information.

Ram6n ~.\hni~uez,P.E. Assistant City Manager

Attachment

c: Honorable Mayor and Members of the City Council Mary K. Suhm, City Manager Thomas P. Perkins, Jr., City Attorney Deborah Watkins, City Secretary Craig Kinton, City Auditor Judge C. Victor Lander, Judiciary Ryan S. Evans, First Assistant City Manager Jill A. Jordan, P.E., Assistant City Manager A.C. Gonzalez, Assistant City Manager Forest Turner, Interim Assistant City Manager David Cook, Chief Financial Officer Jeanne Chipperfield, Director, Budget and Management Services Edward Scott, Director, Controller's Office Helena Stevens-Thompson, Assistant to the City Manager - Council Office Dan Weber, Director, Beparlment of Aviation

"Dallas, The City That Works: Diverse, Vibrant And Progressive." Love Field Modernization Program Development Agreement

Briefing to the Transportation and Environment Committee

Department of Aviation October 27, 2008 Purpose

• Review the proposed Program Development Agreement (PDA) between:

• City of Dallas (City), • Southwest Airlines Co. (SWA), • Love Field Airport Modernization Corp. (LFAMC)

• Negotiated pursuant to the Term Sheet approved June 25 by City Council for the Love Field Modernization Program.

2 The Term Sheet, Reviewed

• Approved by City Council June 25, 2008 – Established the Scope of the LFMP (project assignments); – Established the Preliminary Budget for the LFMP; – Approved an agreement to reimburse SWA for LFMP related expenses incurred in advance of bond issuance (Inducement Agreement); – Authorized negotiation of an Amended and Restated Lease of Terminal Building Premises (Airport Use & Lease Agreement); – Authorized negotiation of a Program Development Agreement; – Authorized the negotiation of a Ground Lease for Cargo Facilities.

• Accompanied by Council actions; – Approving Terminal Design Concept Option “C”; – Approving the TARPS (Terminal Area Redevelopment Program Study) as the Master Plan for the LFMP; – Creating a Local Government Corporation, the LFAMC.

3 Term Sheet – LFMP Budget

• Preliminary Budget: – Based on Concept Design Option “C” Planning Cost. – Approved in Term Sheet - $519 million.

• Final Budget: – To be developed upon completion of the Design Development Phase (Apr 2009) – If increased from Preliminary, will be presented to City Council for approval.

44 Term Sheet – LFMP Scope

• LFMP divided into individual project groupings:

SWA Projects City Projects Relocations Airfield lighting vault relocations Terminal Building Central utility plant upgrades Airline Equipment & Finishes Road and curbside projects Enabling Construction and Central Receiving Facility Relocation Joint Projects Apron & Hydrant Fuel system

5 Term Sheet – LFAMC Funding

•LFAMC issues bonds on behalf of City, using SWA corporate credit, to finance LFMP improvements pursuant to an Indenture of Trust with a bond trustee.

•LFAMC enters into a Facilities Agreement with Southwest (SWA). SWA pledges to pay all debt service on special facility bonds.

•City generates revenues to pay all airport system costs, including LFMP debt service, through Airport Use & Lease Agreement and other leases and contracts.

•To avoid paying twice, SWA is reimbursed through a Revenue Credit Agreement (with City) for debt service paid to City by SWA and all airlines in form of terminal space rent.

•Certain PFC revenue to be pledged (estimated at $10 million per year) to bond trustee to pay portion of debt service.

6 PDA Summary

• Incorporates LFMP Scope, Budget, Funding approved in Term Sheet.

• Establishes SWA management of Development Program while the City retains substantial oversight.

• Key decisions (within parameters of Council-approved budget & concept) made by “Steering Committee” in which City & SWA have equal votes.

• Implementation via “Program Management Team”, consisting of SWA & City representatives.

• For some projects on which the City will seek FAA grant funding, SWA will act as agent for City in developing the project: – Apron and Fuel System (SWA as agent) – Roadways and Airfield Electrical Vaults (City to undertake directly)

7 LFMP Organizational Chart

Dallas City Council

SWA Executive SWA City Manager’s Love Field Airport Committee Vice President Office Love Field Airport Modernization Corp Modernization Corp

Key Steering Committee City of Dallas Southwest Airlines Southwest City of Dallas Joint Project Airlines

Program Management Team

Southwest City of Dallas Airlines

Terminal Early Airline Relocations Apron and Central Terminal Airfield Central Building Construction Equipment Fueling Utility Plant Landside Lighting Receiving and Finishes Upgrades Roadways Vault Facility Relocations

8 Program Control

• City Council • Approves LFMP concept, scope and budget.

• Approves any future proposed changes to above.

• Approves bond issuance by LFAMC.

9 Program Control…

• Steering Committee • General oversight, major decision making on matters affecting scope, schedule, budget. – Review & approve Program Definition Manual (PDM), developed by Program Management Team;

– Review & approve Program Procedures Manual, developed by Program Management Team;

– Review & approve recommendations and changes presented by Program Management Team;

– Provide periodic status updates to City Council and SWA Leadership, other stakeholders.

10 Program Management Team Organizational Chart Key Steering Committee City of Dallas Southwest Airlines

Program Manager

Construction LFMP Program Airport Program Airport Operations Director Controls Director Director Director

Project Project Safety Manager(s) Financial Control Estimating Manager(s) Southwest Support Resources:

Internal Audit Quality Assurance AVI Support Scheduling Document Control Airport Program Legal Quality Controls Resources: Procurement Manager Airport Security Technology Internal Audits Finance Legal Corporate Communications Safety/ Contract Contract & Invoice Procurement Fuel Environmental Management Compliance Quality Assurance Technology Quality Controls Finance

A & E M/WBE A & E 11 Program Control…

• Program Management Team • Day-to-day management of LFMP in accordance with PDA, Program Definition Manual and Program Procedures Manual. – Establish clear lines of responsibility and communication among members of PMT;

– Establish and manage Program Control Systems: » Contracting, scheduling, coordinating, cost management of individual projects making up the LFMP, cash flow & funding / financing requirements;

– Conduct technical design reviews, value engineering;

– Audit compliance with PDM, codes, regulations, funding requirements.

12 Design

• SWA will have primary responsibility for architectural and engineering design of the SWA projects.

• City will have primary responsibility for architectural and engineering design of City projects.

• For FAA Grant-funded projects, City will select design professionals, and SWA will contract the service as City agent.

13 Construction

• Construction contract procurement: • City projects – in accordance with City procedures;

• SWA projects – in accordance with SWA procedures: – Procurement by either public advertisement of bids, or negotiating with pre-qualified contractors.

• Apron & Fuel System Projects: – City will bid construction, and SWA will contract the construction as City agent.

14 Finance Plans

• Sources and uses of funds (diagramed next page). • Federal Grants – – FAA Airport Improvement Program (AIP); – Transportation Security Administration (TSA) grants; • Passenger Facility Charge (PFC) revenues; • Bond proceeds; • SWA cash resources; • Department of Aviation Capital Fund resources; • Other sources of funding which might be identified.

15 Preliminary Program Funding

SUMMARY OF LFMP PROGRAM FUNDING Dallas Love Field

PROGRAM FUNDING PROGRAM Southwest AIP TSA PAYGO PFC City (DOA) Net Project Project COSTS Funding Funding Funding Resources Equity Funding Costs Financed

Southwest Enabling Projects $23,350,000 $23,350,000 $0 $0 $0 $0 $0 Relocations 560,000 00000560,000 Demolitions 19,892,000 0000019,892,000 Airfield Lighting Vaults 3,001,000 00003,001,0000 Terminal Building 307,578,000 0 0 20,000,000 0 0 287,578,000 Central Plant Expansion 15,134,000 0000015,134,000 Apron Reconstruction (including Water Main) 85,071,000 0 62,856,750 0 22,214,250 0 0 Fuel System 40,431,000 0 30,323,250 0 10,107,750 0 0 Roadway Infrastructure 10,214,000 000010,214,0000 Remote Central Receiving Facility 14,509,000 000014,509,0000

$519,740,000 $23,350,000 $93,180,000 $20,000,000 $32,322,000 $27,724,000 $323,164,000

Source of Project Cost data: Corgan Associates and Hill & Wilkinson, March 18, 2008.

16 Other Provisions

– Business Inclusion and Development Plan (W/MBE). – FAA Disadvantaged Business Enterprise Program. – LEED Silver Certification requirements to be incorporated in all design contracts. – Public Art Program. – Title to all work and tangible personal property will pass to the City.

17 Program Development Agreement

• PDA approved by LFAMC Board of Directors Oct 21. – President Ryan Evans – Vice President Dan Weber – Sec/Treasurer Dave Cook

18 Summary, Recommendations Next Steps • Summary: – PDA negotiated pursuant to Council approved Term Sheet. • Establishes LFMP: Scope, Budget, Funding, Management Organization, Program Control, Design & Construction Processes, Finance Plan.

• Recommendation: – Authorize City Manager to enter into Love Field Modernization Program Development Agreement with LFAMC and SWA.

• Next Step: – City Council approval Nov 10 agenda.

Dallas Love Field People Mover Connector Additional Study of Alternatives

Briefing to the Joint Meeting of the Transportation and Environment Committee and Dallas Area Rapid Transit Board

Department of Aviation January 26, 2009

1 Purpose of Briefing

To share with DART Board Members the status of People Mover options and analysis previously briefed to the Transportation and Environment Committee on December 8, 2008.

That briefing reviewed alternatives for connecting the DART Love Field Station with the Love Field Airline Terminal, with the following objectives: Lower cost than 9/22/08 recommendation Comparable level of service

NOTE: Strategies to locate car rental and parking facilities are not related to the evaluation of connector alternatives, and will be the subject of a future briefing. 2 Background Review

2005 – DART determined the Green Line would not connect to Love Field. Committee requested staff to study the feasibility of an automated people mover, providing a seamless, high level of service.

9/22/08 – Staff briefed the Committee as follows: Presented a people mover concept with a seamless, high level of service PFC funding is estimated to be sufficient to fund the $330M, 2010 cost. Financial impact on other capital projects to be reported next briefing.

10/13/08 – Staff briefed Committee on financial impact: Consumes all PFCs and doubles airline rental rate for new terminal. Recommended further study of cost-effective alternatives

3 Approach to Alternatives Analysis

9 Alternatives Considered

5 bus alternatives Advanced bus technologies Inwood Station Bus Shuttle Inwood Station Bus Rapid Transit (BRT) Love Field Station Bus Shuttle (public roadways) Love Field Station Bus Shuttle (on-airport roadway)

Automated People Mover (APM) alternatives Re-alignment around end of runway 3 modifications to original Automated People Mover concept

4 Approach to Alternatives Analysis (cont’d)

Advanced Bus Technologies Eliminated from consideration New, unproven technologies

5 Approach to Alternatives Analysis (cont’d)

Airfield Constraints

Runway 13R-31L runs parallel to Denton Dr.

Space between runway and Denton Dr. not sufficient for additional surface road on airport

Eliminates on-airport surface route for either bus or realigned APM

6 Approach to Alternatives Analysis (cont’d)

Measuring Level of Service for Remaining 6

Headway (wait time plus transit time) Objective measure – distance & speed

Passenger convenience and ease of use Subjective measure – view video of bus and APM service

7 APM vs. Bus Boarding/Deboarding Comparison

Timed APM Boarding/ Deboarding

0:00 0:05 0:10 0:15 0:20 0:25

Timed Bus Boarding/ Deboarding

0:00 0:05 0:10 0:15 0:20 0:25 0:30

0:35 0:40 0:45 0:50 0:55 1:00 1:05

1:35 1:10 1:15 1:20 1:25 1:30 1:35 1:40

8 Inwood Station Bus Shuttle

Not recommended in 2005 DART Study Love Field station deemed to be better bus option than Inwood Station

9 Inwood Station BRT

Elevated BRT Lanes obstruct approach to primary runway Alignment shown is the optimized BRT route from the Inwood Station Significant real estate acquisition impacts (approximately 20 acres) Not recommended by DART. Love Field station deemed to be better bus option than Inwood Station

10 Love Field Station Bus Shuttle on Public Roadways

Subject to traffic signals and congestion Estimated capital cost of $1.8 M (2010 $) 11 Automated People Mover Alternatives

3 modifications to Sept 22 recommendations

Cost basis revised based on recent bid experience Economic conditions have lowered construction prices DART currently using 5% escalation (8% used Sept 22)

Design basis reviewed for possible cost savings Station width & length reduced System and/or tunnel quantity reductions

12 Sept 22 Recommendation APM Alignment

13 Phased Approach to Recommended APM Alternative

14 Single Lane Shuttle - Build Both Tunnels

Expandable to Recommended APM Alternative in future Wait time of 4.4 minutes Ride time of 1.7 minutes Availability greater than 99% Would require bus backup Lower initial cost of $ 265 M (2010 $)

15 Single Lane Bypassing Shuttle in Single Tunnel

Would provide equivalent capacity and trip time of Recommended APM Alternative Wait time of 2.4 minutes Ride time of 1.9 minutes Availability greater than 99% Would require bus backup If cable system, dual drive equipment would increase redundancy Lower initial cost and lower ultimate cost of $ 250 M (2010 $)

16 Single Lane Shuttle in Single Tunnel

Expandable to Recommended APM Alternative in future Remobilization required for future tunnel work Wait time of 4.4 minutes Ride time of 1.7 minutes Availability greater than 99% Would require bus backup Significantly lower initial cost of $225 M (2010 $)

17 Alternatives Evaluation Matrix

DALLAS LOVE FIELD APM CONNECTION ALTERNATIVES BUS CONNECTION ALTERNATIVES AUTOMATED PEOPLE MOVER Bus Shuttle on Single Lane - Public Single Lane Single Lane ALTERNATIVE CONNECTIONS Bypassing Roadways Inwood Station Inwood Station Shuttle - Build Shuttle in Shuttle in (from DART Bus BRT Both Tunnels Single Tunnel Single Tunnel EVALUATION CRITERIA Love Field Station ) SCHEMATIC DIAGRAMS OF ALTERNATIVE CONNECTION CONCEPTS LEVEL OF SERVICE - USER PERCEPTION • Seamless? • Public Entrance to Airport? • Overall Image/Aesthetics LEVEL OF SERVICE - PERFORMANCE • Wait Time • Ride Time • Environment • Accessibility • Ridership PHYSICAL & OPERATIONAL IMPACTS • Airfield/Airspace Impacts RELATIVE COSTS • Relative Costs OVERALL SCORE-->> LEGEND Good Fair Poor Fail

18 Preferred Alternative and Costs

Love Field Station Bus Shuttle is clearly the lowest cost, however, it cannot provide the level of service needed for success

The Alternatives Matrix shows the best alternative to be the “Single Lane/Tunnel Bypassing Shuttle”

Planning cost is $25 M higher (11%) than the lowest cost alternative for APM (Single Lane/Tunnel, Single Shuttle)

Headway performance (wait time + travel time) is almost 1/3 better (70%), at 4.3 min vs. 6.1 min for lowest cost alternative

Planning cost of $250 M is $80 M reduction from Sept 22 recommendation of $330 M. (all 2010 $)

Annual O&M costs will remain similar as Sept 22, approx $5 M. 19 Financial Analysis

A complete financial analysis cannot be made for the APM until the LFMP budget is finalized in the Design Development phase (approx Oct 2009) Need to consider the financial requirements of both projects together

It is estimated that PFC resources will be available to fund the Preferred Alternative Will take away resources from LFMP and require a re-programming effort to finance both programs

APM cost estimates, based on more advanced design (Schematic Design), are needed in order to make informed decision

20 Recommendation

Begin schematic design effort to maintain schedule and refine our estimates.

21 Next Steps

Bring supplemental agreement for schematic design scope of work and fee to City Council for approval in Apr 2009

Brief Committee Nov 2009 on project budget, schedule, financing

Proposed Project Schedule

Love Field Concession Plan

Briefing to Transportation & Environment Committee

Department of Aviation April 13, 2009

1 Objectives

• Concession Plan for the LFMP (Love Field Modernization Program) – 2 in terminal – Food & Beverage and Retail

• Impacts during Construction Period – Transition from Existing Concessions to New – Parking Concession

• Recommendations and Next Steps

2 Executive Summary

• The Love Field Modernization Program will double the amount of concession space in the terminal, and afford the opportunity to provide exceptional customer service through high quality Retail and Food & Beverage concession concepts obtained through a competitive process.

• The incumbent concessionaires have served Love Field well and earned a place in the new LFMP facility. The City has committed to allocating comparable space in the new facility as the incumbents have today. The remainder of the new space will be awarded through an RFP process, which will result in a balanced 2-concessionaire business model for each, Retail and Food & Beverage. The incumbents are encouraged to compete in the RFP process, and they will have an inherent advantage by virtue of their existing operations.

• The business model for our Concession Plan of 2 balanced and complementary concessionaires each for Food & Beverage and Retail, will result in the highest level of customer service and revenue generation. However, while the possibility exists that the incumbents will also win the RFP space, their proposals must provide results which are equal in customer service and revenue as the 2-concessionaire model.

• The business terms and rent will be set at industry standards, rather than at premium rates, to ensure a competitive response to the RFP. Increased rental revenue will result from increased sales in a competitive concession environment, thereby avoiding the operator’s need to cut costs elsewhere to compensate for higher rents, with unintended impacts on customer service. 3 Evolution of Concession Plan

•Past- High Level Planning Phase – TARPS (Apr 2008) – Calculated size of Program (SF) based on planning standards – TARPS findings – 72,000 SF revenue and support space

•Present– Schematic Design Phase – “Option C” – Adoption of “Option C” defined the terminal configuration – Schematic Design Phase (Nov 2008) • Established the available space & locations • Enabled development of Concession Plan

• Future – Design Development Phase (Nov 2009) – Will provide detail plans for marketing Concession Plan RFP

4 Purpose of Concession Plan

• Defines… – Space requirements – Business model – Category & concept mix – Locations & adjacencies of concessions

• …Based on evaluation of – Enplaned passenger projections – Characteristics of service (O&D, connecting) – Configuration of terminal facility

5 Evaluation Factors

• Enplaned Passenger & Revenue Space Projections – Opening Year (2015) – 5.26 M enpl. pass. = 47,584 SF – Projected 2020 – 6.34 M enpl. pass. = 57,302 SF – Projected 2025 – 7.34 M enpl. pass. = 66,429 SF

• Characteristics of Service – 70% Origination & Destination, 30% Connecting – Passenger dwell time in terminal

• Configuration of Terminal “Option C” – All gates in a single concourse – All passengers flow through central “Concession Village” area – Facilitates clustering of additional concession units outside of “Village”

6 The LFMP Concession Plan

• Space Allocation in Schematic Design – 51,238 SF – Nearly double today’s 27,000 SF

– Accommodates “Opening Year” (2015) passenger projection

– Expansion capability to 2020 achieved by adding Kiosk Units

– 2025 pass. projection will require facility expansion to increase concession space to 66,429 SF • Expansion programming to be based on future projection updates • Plan accommodates more certain near-term needs, and avoids expensive overbuilding for less certain long-term projections

7 The LFMP Concession Plan

• Business Model – 2 Concession Packages each, for Food & Beverage and Retail • Incumbent Package, approx equal to current space • RFP Package for remainder of overall Concession Plan space

– Allocation of Space • Food & Beverage – 35,595 SF = 20,588 (Incumbent) + 15,007 (RFP) • Retail – 15,643 SF = 7,183 (Incumbent) + 8,460 (RFP)

8 The LFMP Concession Plan

• Category & Concept Mix – General Principles • Both Concession Packages balanced with complementary, rather than competing concepts • Popular national brands, mixed with Dallas’s local “flavor”

– Categories

Food & Beverage Retail Bar/Full Service Restaurant News Food Court News/Convenience Quick Service Restaurant Specialty Walk Away

9 The LFMP Concession Plan

• Locations & Adjacencies of Concessions – Exposure to passenger traffic – Convenience to Customer – Clustering complementary units • Coffee units (F&B) adjacent to book stores (Retail)

10 REVISED Food & Beverage Plan 2nd Floor

Walk-away 900 SF Bar/ Full SR Bar/ Full SR 2,072 SF w/ seating Bar/ Full SR 4,356 SF 2,072 SF Walk-away 407 SF

Walk away 407 SF

Walk-away QSR 407 SF Walk away QSR 1,645 SF Food court w/ seating 407 SF 1,015 SF 5,850 SF Food court w/ seating 6,040 SF QSR Walk-away 1,394 SF 1,000 SF

st Walk away 1 Floor w/ seating Bar/ Full SR 1,385 SF Operator 1 DLFJV 2,600 SF 15,007 SF 20,588 SF Walk away 472 SF

Walk away 472 SF Bar/ Full SR w/ seating 3,166 SF 11

*Note: All scenarios and estimated areas are developed for use in this analysis only and are subject to change based on final terminal design plans. REVISED Retail Concessions Plan 2nd Floor Specialty Retail Kiosks/Carts SAVE for future News/ News/ Convenience/ News/ Bookstore Convenience Books Convenience 1,783 SF 2,683 SF 2,000 SF 2,000 SF

Specialty Specialty 2,099 SF 2,110 SF 1st Floor

Specialty 1,367 SF Hudson Operator 2 News/ Books 7,183 SF 8,460 SF 1,200 SF

News 401 SF

*Note: All scenarios and estimated areas are developed for use in this analysis only and are subject to change based on final terminal design plans. REVISED Concession Plan 2nd Floor

Bar/ Full SR Bar/ Full SR Bookstore w/ seating News/ News/ Convenience/ News/ 2,072 SF 4,356 SF Bar/ Full SR 1,783 SF Walk-away Convenience Books Convenience 2,683 SF 2,072 SF 2,000 SF 2,000 SF 900 SF

Walk-away Walk away 407 SF 407 SF

Specialty Walk-away Specialty 2,110 SF QSR 407 SF 2,099 SF Walk away QSR 1,645 SF Food court w/ seating 407 SF 1,015 SF Food court 5,850 SF Food court w/ seating w/ seating 5,850 SF 6,040 SF

QSR Walk-away 1,394 SF 1,000 SF st Specialty 1 Floor 1,367 SF

News/ Books 1,200 SF Walk away w/ seating Bar/ Full SR 1,385 SF 2,600 SF

Walk away 472 SF Bar/ Full SR w/ seating 3,166 SF Walk away News 472 SF 401 SF 13

*Note: All scenarios and estimated areas are developed for use in this analysis only and are subject to change based on final terminal design plans. Total Concession Plan: Projections for 2015, Compared to 2008 Actual

Concession Square Feet Projected Sales Revenue to City 2015 Projected F & B 35,595 SF $49,979,500 $6,281,634

2015 Projected Retail 15,643 SF $19,728,750 $2,998,770

2015 Projected Total 51,238 SF $69,708,250 $9,280,404

2008 Actual F & B and 27,177 SF $22,140,055 $3,375,884 Retail Total

14 Concession Plan Implementation

• Amend Incumbent Concessionaire’s current contracts – Extend term to expire upon occupancy of new space • Negotiate contracts for new space – In accordance with minimum business terms • Develop RFP documents for remaining new space – Upon completion of Design Development Phase (Nov 2009) – Advertise Jan 2010 – Proposals due Apr 2010 • Award new contracts for all 4 packages (Incumbent & RFP) – Aug 2010 • Shell space available for Concessionaire finish out – Mar 2011 • New Concourse partially open with 12 gates – Nov 2011

15 Impacts During Construction

16 Impacts During Construction

• In-Terminal Concessions – Major consideration in Schematic Design Phase – Food & Beverage and Retail concession phasing incorporated in construction phases

• Parking Concession – Garage not part of LFMP, however, roadway impacts significant – Current contract expires 2009 – Current Concessionaire is experienced and competent in Love Field operations – 5-year extension to 2014 would enable effective management of impact to vehicle & pedestrian traffic

17 Recommendations & Next Steps • Recommendations – Approve the LFMP Concession Plan

– Authorize the City Manager to negotiate amendments to current Concession Contracts • Dallas Love Field Joint Venture Ltd. for Food & Beverage • Hudson Retail – Dallas JV for Retail

– Authorize the City Manager to negotiate an amendment to current Parking Concession Contract with Parking Corp of America, extending its term 5 years to August, 2014

• Next Steps – All 3 contract amendments to City Council May 2009

Love Field Concession Plan Follow Up Briefing

Briefing to the Transportation & Environment Committee

Department of Aviation May 26, 2009

1 Briefing Objectives

• Review Summary of 4/13 Briefing

• Respond to Committee Member 4/13 Questions

• Review Recommendations and Next Steps

2 Summary of 4/13 Briefing

• The Love Field Modernization Program (LFMP) – Doubles the concession space

– Creates opportunity for enhanced revenue and customer service • Competitive RFP process.

• Incumbent Concessionaires – Have served Love Field well & earned a place in new LFMP facility

– City commitment to Incumbents • Similar square footage in new facility as currently occupied • Extend existing agreement term to coincide with opening of new space •Newagreement term 10 years beginning with completion of LFMP (2014)

– Remaining new concession space to be competitively awarded in RFP • Incumbents may compete in the RFP process

3 Committee Member Questions

• Seven main issues – Consultant Information – Comparable Airports – 2-Operator Concession Model – Rent Strategy – Space Allocation – Size of Program – Status of Advertising Concession

4 Issue: Who is the Consultant?

• Unison Consulting, Inc. – Airport Consulting Firm Founded in 1989 • Airport’s Consultant since 2007 • 40+ Airport Clients in US and Canada Chicago Midway Memphis Chicago O’Hare San Antonio Milwaukee Houston Hobby Austin New Orleans El Paso Detroit Winnipeg Toronto • Broad Experience in ALL Aspects of Airport Concessions Consulting Space Planning Demand Analysis Merchandising Leasing Strategy Financial Analysis Logistics Market Research RFP Implementation Management • Only Firm with Experience in Planning, Implementation and Management • Strong Staff Expertise and Experience: – Lead Consultant: 6 yrs retail operations + 13 years airport concessions – Officer-in-Charge: 15 yrs commercial real estate + 11 years airport concessions

5 Issue: Comparable Airports

Airport ID Enplanements Louisville International SDF 1,917,661 Omaha OMA 2,210,166 • Question – Which airports were used Tucson International TUS 2,223,008 and why? Providence TF Green PVD 2,509,862 Reno-Tahoe RNO 2,516,232 Buffalo Niagara BUF 2,667,697 Anchorage International ANC 2,684,781 • 31 airports used in this analysis are Jacksonville JAX 3,170,975 Albuquerque International ABQ 3,346,025 medium hub airports. Median size is 4.1 Palm Beach PBI 3,488,937 million passenger enplanements. Ontario International ONT 3,525,315 New Orleans MSY 3,762,955 Port Columbus CMH 3,865,481 General Mitchell MKE 3,868,098 • No two airports are identical – each has Dallas Love Field DAL 3,980,867 San Antonio SAT 4,009,776 unique characteristics: passenger Southwest Florida RSW 4,061,936 market, terminal configuration, and age Indianapolis IND 4,136,352 Houston Hobby HOU 4,427,334 of terminal and concession program. Austin-Bergstrom AUS 4,473,001 Pittsburgh PIT 4,890,697 Nashville BNA 4,903,484 Santa Ana JWA SNA 4,989,018 • Benchmarking to a variety of similar Raleigh-Durham RDU 5,020,497 sized airports (old and new programs) Sacramento SMF 5,130,701 San Jose Norman Y Mineta SJC 5,314,661 helps identify opportunities and Memphis MEM 5,353,100 successful concession practices. Cleveland CLE 5,722,338 Kansas City International MCI 5,826,573 Oakland International OAK 7,299,603 Portland PDX 7,332,477 St. Louis Lambert STL 7,715,340 Median w/o DAL 4,061,936 *Source: faa.gov ARN Fact Book 2008 6 DAL has growth opportunity

F&B and Retail sales per enplanement are below median

Food & Beverage Concessions Retail Concessions $5.50

MEM $5.00 PIT ANC PIT $9.00 PDX

IND RSW $8.00 $4.50 SNA SMF ABQ PBI JAX PV D $7.00 OAK STL CMH CLE RNO $4.00 SDF Median $6.00 MSY AUS $4.16/ EP MKE PDX $762/ SF SJC BUF SAT $5.00 $3.50 Median RDU ABQ MCI $2.49/ EP RSW $4.00 ANC OMA BNA HOU RNO IND $830/ SF

Sales perSales enplanement MSY DA L SDF PBI

Sales perSales enplanement BNA TUS TUL $3.49/ EP $3.00 SAT $3.00 CMH MKE $682/ SF SMF ONT MEM JAX RDU PV D AUS SNA OAK ONT $2.00 STL HOU OMA CLE BUF SJC $2.50 DA L $1.00 MCI $1.60/ EP $942/ SF $- $500 $1,000 $1,500 $2,000 $2,500 Sales per square foot $- $2.00

$- $500 $1,000 $1,500 $2,000 $2,500 $3,000

Sales per square foot 7 *Source: ARN Fact Book 2008 Interviews with airport staff. Components of Successful Programs

• Right Amount of Space • Well Located Space •Variety • Recognized Brands • Value Pricing • Excellent Customer Service • High Quality Design/ Construction • Sense of Place •Fair Rents • Benefits All Stakeholders: Passengers Concessionaires Airport 8 Issue: 2 Operator Model

• Question – What are the benefits of competition?

– Competition among concessionaires increases sales potential. • Enhanced customer service and operating standards. • Maintains product quality and supports value pricing.

– RFP process establishes the competitive framework. • Creative programs and responses • Variety of concepts • Quality designs

– Airports moving from prime operator model to competitive model have benefited • Notable examples: Memphis, Nashville, Milwaukee, and San Jose. • Memphis won Award of Excellence Airport Concessions in 2006, with new program. • Nashville received honorable mention for Best Food & Beverage Program Award of Excellence in 2008 and 2009 ARN Award for Most Unique Services.

– Consultant analysis of competitive opportunity to be discussed in closed session.

9 Trend is towards Multiple Operators Past 24 months more airports have transitioned to multiple operators

All Medium Hub Airports % of airports with multiple operators

Food & Beverages

2007 29%

42% 2009

Retail Concessions

2007 39%

42% 2009

Source: ARN Publications 10 Interviews with airport staff. includes new and upcoming contracts Multiple Operator Model = Incremental Revenue Potential $1.38 per Enplanement

Food & Beverage Concessions Retail Concessions Medium Hub Airports Medium Hub Airports

Difference 15% Difference 33% $0.61 per enplanement $0.77 per enplanement

Multiple $4.71 $3.08 Multiple operators operators

$4.10 $2.31 Single operator Single operator

$0.61 x 5,261,000 EPs = $3.2 Million Potential Sales Gain $0.77 x 5,261,000 EPs = $4.0 Million Potential Sales Gain

ALL PROJECTIONS ARE FOR ILLUSTRATIVE PURPOSES ONLY 11 *Source: ARN Fact Book 2008 Interviews with airport staff. Issue: Rent Strategy

• Question – Why “Industry Standard” rather than “Premium Rent”?

• Response – Supports balanced program: variety of products, branding, value pricing, customer satisfaction, and concessionaire success.

– Rent is only one component to a successful program.

– Helps ensure sustainable program.

– Rental revenue potential will be higher because enhanced program (through competition) will result in increased sales. • (Industry Standard %) X (Higher Sales) = Higher Rent $ • Determination of revenue potential to be discussed in closed session.

12 Consequences of High Rents

SAMPLE ANALYSIS 15% Rent 20% Rent Capital Investment (psf)1 $350 $350

Area1 12,338 12,338 Total Investment $4,318,300 $4,318,300

Sales1 $10,772,497 $10,772,497

Less: Operating Expenses2 -$8,079,373 -$8,079,373 Rent to Airport1 -$1,615,875 -$2,154,499 Refurbishment Reserve3 -$53,862 -$53,862

Operating Income $1,023,387 $484,762

Less: Loan Payment4 -$532,393 -$532,393

Net Cash Flow $490,994 -$47,631

Notes: 1. Based on benchmark airport analysis, assuming median square footage and sales data. 2. Operating Expenses assumed to equal 75% of sales. 3. Refurbishment Reserve assumed to be 0.5% of sales. 4. Loan payment assumptions: a) 10-year lease term b) 20% equity; 80% loan c) Interest rate is 8.75% PROJECTIONS FOR ILLUSTRATIVE PURPOSES ONLY

13 Issue: Space Allocation

• Question: Why can’t incumbents have first choice of locations?

• Response – Incumbents will have better space than today • More airside space • Prime high traffic locations OLD Program DLFJV new • High visibility Total SF 20,398 SF 20,588 SF • Clustered space for ease in operation % Airside 58% 97%

– Incumbent and RFP packages both must have opportunities to succeed with a balance of: • Location having exposure to passenger traffic flows OLD Program Hudson new • Assignment of concepts and merchandise/offering mix Total SF 6,779 SF 7,183 SF % Airside 70% 94% – Staff has worked closely with incumbents in crafting packages which • Address incumbents’ space planning issues • Retain value for RFP

14 Issue: Size of Program

• Question: Is the program too big?

• Response Consumer Demand Factors Passenger Characteristics: – Analysis of space requirements indicates it is Demographics appropriately sized for new terminal. Trip purpose Type of passenger Residence – Unison conducted comprehensive analysis of space requirements, which considers passenger, terminal, Facility Characteristics: and concession characteristics; enplanement Clustering of concessions Accessibility projections; and benchmark studies. Visibility Airside vs. landside – All optimally located concessions will be built out for Walking distances opening day. Passenger Peaking Concession Characteristics: Number of facilities – Program has flexibility to add more space if needed in Category mix future years. Branding Pricing policies

15 Program Size is Appropriate

Food & Beverage Concessions Retail Concessions 5.6 square feet per 1,000/EP 3.1 square feet per 1,000/EP

DAL NEW PROGRAM: DA L NEW PROGRA M:

3.1 City Consultant 5.6 City Consultant

Architect Consultant 6.0 Architect Consultant 3.5

3.1 Medium Hub - Median 5.8 Medium Hub - Median

DA L Today 5.1 DA L Today 1.7

16 Benefits of New Program Win-Win-Win

Who benefits? Existing Program Benefits: Passengers City of Dallas Operators

New concession space is nearly double old program 999

Greater majority of concession space (80%) is located airside 999

78% of total program exposed to ALL O&D passengers 999

Merchandise plan provides variety, convenience, and enhanced customer satisfaction 999

Fair rent and lease strategy facilitate concessionaire success 999

Multiple operator strategy allows increased variety, options, and competition 99

Existing operators are guaranteed fair and equitable space 9

Existing operators may propose on additional RFP packages 9

RFP process provides opportunities for DBE and local operators 999

Concession sales and revenue potential are increased 99

17 Issue: Advertising Concession

• Question: Why isn’t a 2-Operator Model being proposed for the Advertising Concession?

• Response – LFMP timing & disruption – impacts Retail and Food & Beverage • Both 15-year agreements expire 2011 during LFMP construction phasing and require new agreements • Retail and Food & Beverage concessions require high capital investment and disruptive relocation. Need 10-year terms to amortize capital

– Advertising Concession is not impacted significantly • Agreement expires 2013, after completion of terminal construction • Only minimally impacted by construction phasing – easily relocated • Capital requirement minimal by comparison – 5 year term to amortize

– Advertising RFP prior to current lease expiration

18 Recommendations & Next Steps

• Recommendations – Approve the LFMP Concession Plan

– Authorize the City Manager to negotiate amendments to current Concession Contracts • Dallas Love Field Joint Venture Ltd. for Food & Beverage • Hudson Retail – Dallas JV for Retail

– Authorize the City Manager to negotiate an amendment to current Parking Concession Contract with Parking Corp of America, extending its term 5 years to August, 2014

• Next Steps – Parking contract amendment to City Council June 2009 – Food/Beverage, Retail contract amendments to City Council Aug 2009

Love Field Modernization Program Bond Financing Update Briefing to the Budget, Finance & Audit Committee

Department of Aviation December 14, 2009 Purpose

• Review LFMP background and give status update of LFMP bond financing – Agreement structure, flow of funds

• Discuss Jan 11, 2010 briefing and timetable for bond closing

• Next Steps – City Council Agenda Jan 13, 2010

2 Love Field Modernization Program • Background – Wright Amendment – 1979 - 2014 • Commercial flights restricted to 5 states (plus 4 added later)

MCIMCI STLSTL

TULTUL OKCOKC TULTUL AMAAMA ABQABQ LITLIT

LBBLBB BHM DALDAL ELPELP MAFMAF JAN

AUSAUS AUSAUS MSYMSY HOU/IAHHOU/IAH SATSAT

3 Love Field Modernization Program • Background

– Wright Amendment Reform Act of 2006

• Based on local 5-Party Agreement to repeal Wright Amendment

• Flight restrictions phase out over 8 years

• Love Field capacity limited to 20 gates

• Requires City & Southwest Airlines to collaborate on modernization of Love Field

4 Love Field Modernization Program

Present

Future

5 Financing Agreement Structure • Foundation Agreements – Term Sheet (June 2008) • Established LFMP concept & budget • Established Local Government Corp structure • Established cost recovery method of airline rates & charges • Defined roles of the City & Southwest • Enabled Inducement Resolution authorizing $75M Southwest expense

– Program Development Agreement (Nov 2008) • Established management structure for LFMP • Defined financial structure

– Airport Use & Lease Agreement (Dec 2008) • Terminal space lease, use of airport • Sets priority on application of airport revenues • Assures revenues to fund airport annual budget

6 Financing Agreement Structure

• The Term Sheet (June 2008) and the Program Development Agreement (Nov 2008) are implemented through the following Bond Financing Agreements – Special Facility Agreement • (City, Local Government Corporation, Southwest) – Revenue Credit Agreement • (City, Southwest) – Trust Indenture • (Local Government Corporation, Trustee) – Guaranty (Trustee, Southwest) • The Airport Use & Lease Agreement (Dec 2008) continues through 2028

7 Financing Agreement Structure

• Bond Financing Agreements (briefed Sept 15, 2009) – Special Facility Agreement (City, Local Government Corporation, Southwest) • City agrees to operate facilities & authorize Local Gov’t Corp to issue bonds • Local Gov’t Corp issues bonds backed by Southwest credit • Southwest agrees to construct facilities and pay debt service

– Revenue Credit Agreement (City, Southwest) • Defines Aviation Fund reimbursement to Southwest for debt service payments received from other sources • Provides for transfer to Trustee of certain FAA grant & PFC funds

– Trust Indenture (Local Government Corporation, Trustee) • Trustee management of bond & other funding, pays contractors • Trustee receives debt service funds & pays bondholders

– Guaranty (Trustee, Southwest) • Southwest guarantees to the Trustee the repayment of the Bonds

8 Funding/Financing Structure

City Council

Authorization & oversight

Foundation Agreements

LGC Southwest Airlines

Trust Indenture Special Facilities Agreement Revenue Credit Agreement

Make Debt Service Payments (= net of Issue Bonds and deposit Reimburse amount of Debt PFCs) Bond proceeds in Service Paid Construction Fund Guaranty

Trustee Transfer FAA grant Funds / to pay PFC portion of debt service Revenues PFCs Debt Service Fund City /

LFMP Payments to contractors Construction Fund Aviation Dept Transfer FAA grant and PFC FAA Grants FAA - Contractors Funds AIP Grants

Debt Service Payments Use and Lease Agreements

Bondholders Airport Revenues

9 Flow of Funds Department of Aviation

All Aviation Operating Fund Aviation Revenues O&M Expenses

Aviation Southwest O&M Reserve Airlines

General Aviation Trustee Revenue Bond 100% Debt Service Debt Service of Net Other Sources

General Aviation Debt Service Bond Holders Revenue Bond Fund Reserve Fund Portion of FAA & TSA Southwest Airlines Grants, Contractors, Construction Reimbursement PFC Program Fund Account Expenses

Emergency Portion of Repair & Replacement PFC Account Bond Sale Proceeds FAA Grants

TSA Grants Aviation Capital Fund PFC Revenues 10 Financial Risk

Condition Risk Mitigation/Effect

Reimbursement to Southwest of If Airport system revenues not Airport Use & Lease Agrm’t: debt service paid sufficient to fully fund Southwest 1) Mid-year rate adjustment Reimbursement Account, then 2) Year end settlement result would be shortfall process If PFC collection rates drop Planned contribution up to Amount of Southwest debt from traffic reduction $10M toward annual debt service payments increased by service amount not met amount PFC reduced

Airport Use & Lease Agreement Ability to generate net revenues Sec 22.019 & Sec 22.021 of expires 12 years before bonds from new Airport Use & Lease Texas Transportation Code mature (2028 vs. 2040) Agreement sufficient to fund allows City to set reasonable Southwest Reimbursement rates & charges which recover Account cost of facility If Southwest reimbursement Southwest still owed City will remain obligated to account under funded at end of reimbursement after bonds are reimburse Southwest from bond term fully paid available net revenues for one year beyond term of bonds 11 Bond Sale Preparations

• Finance Team Documents Status – Plan of Finance – in progress – Bond Feasibility Study – in progress – Preliminary Official Statement – in progress – Parameters Bond Ordinance – in progress

• To be briefed to Committee 1/11/10

12 Financing Time Table

– 1/11/10 – Committee briefing on items currently in progress by Finance Team

– 1/13/10 – City Council consideration to approve agreements, Financing Plan, Parameters Resolution

– 1/27/10 – Bond pricing

– 1/28/10 – Love Field Airport Modernization Corp • Approval of Bond Resolution, all other related documents • Execute Bond Purchase Agreement

– 2/18/10 – Closing

13 Next Steps

• 1/11/10 Committee Briefing on Plan of Finance, Feasibility Study, Preliminary Official Statement, Parameters Bond Ordinance

• 1/13/10 City Council agenda for consideration on agreements and Bond Parameters Resolution

14 Appendix

Finance Team City of Dallas Southwest Airlines

Department of Aviation Airline Consultants – AvAir Pros Airline Counsel – Winstead PC City Attorney’s Office Printer -TBD Airport Consultant – Unison Consulting, Inc. Co-Financial Advisors – First Southwest Company Co-Financial Advisors – Estrada Hinojosa Co-Bond Counsel – McCall, Parkhurst & Horton L.L.P. Co-Bond Counsel – Escamilla Poneck Trustee – Wells Fargo Bank, N.A. Trustee Counsel – Haynes and Boone Underwriters

Senior Managers – Goldman Sachs (Lead) Co-Managers – Citi Co-Senior Mgrs – Bank of America Merril Lynch Comerica Co-Senior Mgrs – Ramirez & Co.

Co-Underwriters Counsel – Katten Muchin Roseman LLP Mahomes Bolden Warren Sigmon PC 15

Love Field Modernization Program Special Facilities Revenue Bond Issue Briefing to the Budget, Finance & Audit Committee

Department of Aviation January 11, 2010 Purpose

• Review LFMP Bond Financing Program – Financing agreement structure

• Discuss the Love Field Airport Modernization Corporation Special Facilities Revenue Bonds

• 1/27/10 City Council agenda for consideration to approve financing agreements and bond parameters resolution

2 Financing Agreement Structure

• Bond Financing Agreements – Special Facility Agreement (City, Local Government Corporation, Southwest) • City agrees to operate facilities & authorize Local Gov’t Corp to issue bonds • Love Field Airport Modernization Corp (LFAMC) issues bonds • Southwest credit backs bonds – agrees to construct facilities and pay debt service

– Trust Indenture (Local Government Corporation, Trustee) • Trustee management of bond & other funding, pays contractors • Trustee receives debt service funds & pays bondholders

– Guaranty (Trustee, Southwest) • Southwest guarantees to the Trustee the repayment of the Bonds

3 Funding/Financing Structure

City Council

Authorization & oversight

Foundation Agreements

LGC Southwest Airlines

Trust Indenture Special Facilities Agreement Revenue Credit Agreement

Make Debt Service Payments (= net of Issue Bonds and deposit Reimburse amount of Debt PFCs) Bond proceeds in Service Paid Construction Fund Guaranty

Trustee Transfer FAA grant Funds / to pay PFC portion of debt service Revenues PFCs Debt Service Fund City /

LFMP Payments to contractors Construction Fund Aviation Dept Transfer FAA grant and PFC FAA Grants FAA - Contractors Funds AIP Grants

Debt Service Payments Use and Lease Agreements

Bondholders Airport Revenues

4 LFAMC Special Facilities Revenue Bonds

• Series 2010

• Par amount not to exceed $500,000,000

• Total Interest Cost not to exceed 8%

• Special obligations of the LFAMC, payable solely and exclusively from Facilities Payments made by Southwest

5 LFAMC Special Facilities Revenue Bonds

• Airport Consultant’s Report – Bond Feasibility Study – Primary Purpose • Assess capability of the Airport Use & Lease Agreement to generate revenues needed to – Fund City operation and development of Dallas Airport System, AND – Reimburse Southwest Airlines for its Debt Service payments in accordance with the Special Facility Agreement and Revenue Credit Agreement provisions – Assumptions • LFMP budget - $519M • People Mover & CIP will be developed as preliminarily scheduled • Southwest will maintain Love Field as a principal station in its system • Federal grant funding will be approved at $60M • Airline rates & charges remain set per Airport Use & Lease Agreement • Public parking rates increase every 18-24 months to market rates • No air service disruptions from terrorist or force majeure events

6 Flow of Funds Department of Aviation

All Aviation Operating Fund Aviation Revenues O&M Expenses

Aviation Southwest O&M Reserve Airlines

General Aviation Trustee Revenue Bond 100%Debt Service Debt Service Net of Other Sources

General Aviation Debt Service Bond Holders Revenue Bond Fund Reserve Fund

Portion of FAA & TSA Southwest Airlines Contractors, Grants, Construction Reimbursement Program PFCs Fund Account Expenses

Emergency Portion of Repair & Replacement FAA & TSA Account Grants, Bond Sale PFCs Proceeds FAA Grants

TSA Grants Aviation Capital Fund PFC Revenues 7 Projection of Revenues, Expenses and Debt Service

Airport revenues are sufficient to cover Airport Operation & Maintenance and Capital Development, as well as Reimbursement of Southwest debt service payments.

In $1,000's 2009 2010 2011 2012 2013 2014 2015 2016 2017 Southwest Facilities Payments for - - - - $18,802 $18,802 $24,590 $24,070 $29,845 Net Debt Service

Total Airport System Revenues $43,285 $43,807 $49,179 $50,895 $71,581 $76,071 $85,921 $93,456 $94,844

Total Airport System Expenses $29,363 $35,777 $36,631 $40,560 $41,492 $45,790 $46,924 $55,456 $57,836 and Reserves

Remaining Net Revenues $13,922 $8,030 $12,548 $10,335 $30,089 $30,281 $38,997 $38,000 $37,008

Debt Service on $7,483$7,432$3,704------Outstanding Bonds

Deposit to Southwest - - - - $18,802 $18,802 $24,590 $24,070 $29,845 Reimbursement Holding Account

Balance to Aviation Capital Fund $6,439 $598 $8,844 $10,335 $11,287 $11,479 $14,407 $13,930 $7,163

Resulting Airline Cost per $2.52 $2.69 $3.01 $2.95 $6.55 $7.35 $7.33 $7.56 $7.52 Enplaned Passenger

Airline cost of operation at Love Field remains in a competitive range between $6.00 and $8.00 per Enplaned Passenger 8 Financing Time Table

– 1/27/10 – City Council consideration to approve agreements, Financing Plan, Parameters Resolution

– Feb 2010 – Bond pricing

– Feb 2010 – Love Field Airport Modernization Corp • Approval of Bond Resolution, all other related documents • Execute Bond Purchase Agreement

– Feb 2010 – Closing

9 Recommendation & Next Step

• Approve a Resolution authorizing: – The issuance, sale and delivery of LFAMC special facilities revenue bonds, guaranteed by Southwest Airlines Co., subject to certain parameters; – The LFAMC to enter into all agreements and instruments including a special facility agreement, a trust indenture, and a bond purchase agreement; – The LFAMC and its consultants to take all actions necessary in connection with the issuance of the bonds – The City Manager to enter into a special facility agreement and a revenue credit agreement – All other actions by the LFAMC and the City Manager deemed necessary in connection with the issuance of bonds

• 1/27/10 City Council consideration to approve the above Resolution

10 APPENDIX

11 Finance Team City of Dallas Southwest Airlines

Senior Managers – Goldman Sachs (Lead) Co-Managers – Citi Co-Senior Mgrs – Bank of America Merrill Lynch Comerica Co-Senior Mgrs – Ramirez & Co.

Co-Underwriters Counsel – Katten Muchin Roseman LLP Mahomes Bolden Warren Sigmon PC 12 Financing Agreement Structure

• Foundation Agreements – Term Sheet (approved June 2008) • Established LFMP concept & budget • Established Local Government Corp structure • Established cost recovery method of airline rates & charges • Defined roles of the City & Southwest • Enabled Inducement Resolution authorizing $75M Southwest expense

– Program Development Agreement (approved Nov 2008) • Established management structure for LFMP • Defined financial structure

– Airport Use & Lease Agreement (approved Dec 2008) • Terminal space lease, use of airport • Sets priority on application of airport revenues • Assures revenues to fund airport annual budget

Love Field Concession Plan

Briefing to Transportation & Environment Committee

Department of Aviation February 22, 2010

1 1 Briefing Objectives

• Present recommendation regarding Love Field Concession Contracts – Food & Beverage – Retail – Based on revised Concession Plan and term sheets agreed to by the parties

• Review Next Steps

2 Negotiation Objectives

• Enhance customer experience • Generate more revenue for the Airport (and contractors) • Recognize Incumbents’ past contributions • Create competitive contracting environment for additional opportunities • Continue MWBE efforts

3 Results

• For the Customer – Improved facilities from capital investment – Improved customer service/convenience • More space allocated, more concessions • Increased number of places to purchase bottled water – Wider range of choices • Product selection, brands, price points, ease, health – Price protection through enforcement of street pricing policy

4 Results

• For Airport: Increased Revenue – Consultants’ Pro formas project that the combination of: • Expanded space allowing more offerings • Expanded concepts appealing to broader customer base • Optimum locations reaching more customers • Popular merchandise mix encouraging greater sales • Expanded points of sale – Will double gross sales for the concessionaires and rental revenue for the City, on only 58% more space in 2015 versus 2008 • Increasing concessionaire revenue per square foot of capital investment • Increasing Airport revenue to support LFMP debt service • Gross revenue per enplaned passenger – 2008 $3.48 Food & Beverage, $1.60 Retail – 2015 $7.59 Food & Beverage $3.27 Retail

5 Results

• For concessionaires: Recognition of past work – Roughly same space provided in new terminal as before – Opportunity to compete for additional space – Start new lease with set industry standard rents; subject to change to match their RFP response, if successful – Space build out phased as traffic warrants – Longer term to amortize capital investment

6 Results

• For other concessionaires: More opportunities – Open competition for an attractive package for both concession types – Overall Concession Plan developed to ensure RFP packages are economically viable and attractive to other proposers

• For MWBE’s: More opportunities – Current concessionaires participation • Food & Beverage – 99% through direct ownership • Retail – 40% through joint ventures – New proposals • FAA approved DBE goal for all concessions is 23.5% • RFP packages expand the market for new DBE & MWBE opportunities • Concession Plan business strategy enables DBE, MWBE to establish businesses which are complementary to others in terminal, rather than in direct competition

7 Underlying Plan Strategy

• Capitalize on terminal expansion (the LFMP) – Approximately doubles today’s concession space – Can develop modern, efficient and passenger-friendly terminal – Can enhance customer service and airport revenue potential

• Recognize Incumbent concessionaires – Served Love Field since 1996 – Provided high level of service in good times and bad times – Earned a place in the new facility

• Create competitive environment – While incumbents will have similar amount of space in new facility, remaining new space will be awarded thru competitive process

8 Methodology

• Used Concession Consultant – Unison Consulting, Inc. – Airport Consulting Firm Founded in 1989 • Airport’s consultant since 2007 • 40+ Airport clients in US and Canada • Broad Experience in all aspects of airport concessions consulting – Role was to: • Provide national perspective on business model, rent structure, etc • Verify cost and expense projections • Insure space and brand distribution was viable and attractive with concepts that are complementary rather than directly competitive – They: • Provided national benchmarking data • Analyzed revenue per enplanement data for opportunities • Provided best practices information • Reviewed pro’s and con’s of competitive process in our situation

9 Methodology

• Worked with current concessionaires to address concerns, such as: – Allocated space relative to demand – Passenger traffic meeting projections (major event or recession) – Capital cost risk of over-building concessions – Merchandise and operating cost of lower than estimated demand

10 Available Concession Spaces

• Total concession space under earlier Schematic Design drawings plans: 51,238 SF – Food & Bev: 35,595 SF (20,588 incumbent +15,007 RFP) – Retail: 15,643 SF ( 7,183 incumbent + 8,460 RFP)

• Space build-out strategy – Start up space allocation was reevaluated and determined in need of adjustment – Phase in approach was developed – Enplanement levels are to be used as triggers, rather than fixed projections – Exact space dimensions are subject to being revised as terminal plans are further developed

11 Concession Spaces: Adjusted and Phased Passenger Food & Bev Retail Total Enplanements SF SF SF

5.26 M (Opening) 31,271 11,812 43,083

5.75 M (Phase II) 4,923 814 5,737

6.26 M (Phase III) 2,861 2,027 4,888

Total SF 39,005 14,653 53,708

12 Food and Beverage Plan

• Space development – Opening – 5.26 M enplanements 31,271 SF • Dallas Love Field Joint Venture (DLFJV) 21,348 SF • RFP package awardee* (incl Phase II) 9,923 SF

– Phase II – 5.75 M enplanements 4,923 SF • DLFJV 729 SF • Second concessionaire*, if successful 4,194 SF

– Phase III – 6.25 M enplanements 2,861 SF • Closed RFP between 2 existing Food/Bev concessionaires

* Same entity 13 Food & Beverage Plan

14 Food and Beverage Plan

• Lease term – Current Lease amendment • Extend 2011 termination date to new date coinciding with commencement date of new lease – New Lease - Transition Term • Begins after first location opens in new terminal and ends at completion of terminal construction – New Lease – Primary Term & Option • 12 years, effective upon completion of all 20 gates in new concourse and lobby concession areas • One 3-year option at City’s discretion

• Capital requirements – Minimum $400 per square foot – Mid-term refurbishment at year 6 of $75 per square foot

15 Food and Beverage Plan

• Rental Fees – Current lease amendment • Upon closure of first location in existing terminal (for construction), Minimum Annual Guarantee (MAG) is waived

16 Food and Beverage Plan

– New DLFJV lease commencing at opening of first facility in new terminal • Minimum Annual Guarantee (MAG) – First year – $0.59 per enplaned passenger – Successive years, 90% of prior year actual rent, but not less than yr 1 • Rent – 12% of branded food & non-alcoholic beverage gross sales – 13% of non-branded food gross sales – 15% of alcoholic beverage gross sales – If DLFJV is awarded RFP package, All locations subject to RFP proposed rates

17 Retail Plan

• Space development – Opening – 5.26 M enplanements 11,812 SF • Hudson Retail – Dallas JV (Hudson) 6,815 SF • RFP package awardee 4,997 SF

– Phase II – 5.75 M enplanements 814 SF • Closed RFP between 2 existing Retail concessionaires

– Phase III – 6.25 M enplanements 2,027 SF • Closed RFP between 2 existing Retail concessionaires

18 Retail Concessions Plan

19 Retail Plan

• Capital requirements – Minimum $350 per square foot – Mid-term refurbishment at year 6 of $65 per sq foot

20 Retail Plan

• Rental Fees – Current lease amendment • Upon closure of first location in existing terminal (for construction) Minimum Annual Guarantee (MAG) is waived

21 Retail Plan

– New Hudson lease • Commences at opening of first facility in new terminal • Minimum Annual Guarantee (MAG) – First year – $0.21 per enplaned passenger – Successive years, 90% of prior year actual rent, but not less than yr 1 • Rent – 16% of news/gift gross sales – 14% of specialty retail gross sales – If Hudson awarded RFP package, All locations subject to RFP proposed rates

22 Opening Day Pro Forma

2015 Projection* Square Feet Projected Sales Revenue to City Food & Beverages 31,271 SF $39,955,972 $4,980,924

Retail Concessions 11,812 SF $17,189,060 $2,578,364

2015 Projected Total 43,083 SF $57,145,031 $7,559,288

2008 Actual F & B and 27,177 SF $22,140,055 $3,375,884 Retail Total

*Projections are shown in 2015 dollars. All scenarios and estimates areas are subject to change based on final terminal design plan.

23 Other Provisions

• The following provisions apply to: – Both incumbents – Any other successful bidder(s) on RFP’s referenced above

24 Bottled Water Provision

• Bottled water historically a Food & Beverage-only product

• Recent trends are to allow water sales at Retail concessions also – Restrictions of liquids at security check points increased demand in concourses – Provides better customer service – Expanded points of sale increases overall revenues

25 Bottled Water Provision

• Opening water sales to Retail entails: – Protection to incumbent F&B from cannibalization • Sales baseline establishes amount at which bottles sold either cannibalizes DLFJV sales or constitutes incremental sales (sales per enplanement factor established using last 3 year data) • Retail concessionaires compensate DLFJV at $1.47 per bottle, if sales fall below baseline • Retail concessionaires compensate DLFJV at $.62 per bottle for incremental sales in excess of baseline amount • All sales of both Retail and both Food & Bev concessionaires contribute to the attainment of baseline quantities of sales – Ability for Retailers to gain revenue from incremental sales • Retailers can establish their water price point

26 Other Provisions

• Street Pricing – Concessionaires must provide survey data annually, showing their prices are within the following percent of similar local prices • Food Beverage – 10% on branded full serve/casual dining – 15% on quick serve/walk-away operations – 20% on non-branded items • Retail – The posted price on pre-priced merchandise – 10% on all other merchandise

• Storage rental – not to exceed $40 per square foot • Marketing fees – not to exceed 1% of gross sales • Receiving dock – to be determined & agreed to

27 Who Benefits?

Who benefits? Existing Program Benefits: Passengers City of Dallas Operators

New concession space is nearly double old program   

91% of concession space is located airside   

Majority of program exposed to ALL passengers   

Merchandise plan provides variety, convenience, and enhanced customer satisfaction   

Fair rent and lease strategy facilitate concessionaire success   

Multiple operator strategy allows increased variety, options, and competition  

Existing operators are guaranteed fair and equitable space 

Existing operators may propose on additional RFP packages 

RFP process provides opportunities for DBE and local operators  

Concession sales and revenue potential are increased  

28 Recommendation & Next Steps • Recommendation – Authorize City Manager to execute amendments to current concession agreements and new agreements for space in LFMP terminal

• Next Steps – April 28 City Council Agenda

Love Field Concession Plan

Briefing to City Council

Department of Aviation March 3, 2010

1 Briefing Objectives

• Present recommendation regarding Love Field Concession Contracts – Food & Beverage – Retail – Based on revised Concession Plan and term sheets agreed to by the parties

• Review Next Steps

2 Negotiation Objectives

3 Results

4 Results

5 Results

6 Results

7 Underlying Plan Strategy

• Recognize Incumbent concessionaires – Served Love Field since 1996 – Provided high level of service in good times and bad times – Earned a place in the new facility

• Create competitive environment – While incumbents will have similar amount of space in new facility, remaining new space will be awarded thru competitive process

8 Methodology

9 Methodology

10 Available Concession Spaces

• Total concession space under earlier Schematic Design drawings plans: 51,238 SF – Food & Bev: 35,595 SF (20,588 incumbent +15,007 RFP) – Retail: 15,643 SF ( 7,183 incumbent + 8,460 RFP)

11 Concession Spaces: Adjusted and Phased

Passenger Food & Bev Retail Total Enplanements SF SF SF

5.26 M (Opening) 31,271 11,812 43,083

5.75 M (Phase II) 4,923 814 5,737

6.26 M (Phase III) 2,861 2,027 4,888

Total SF 39,005 14,653 53,708

12 Food and Beverage Plan

• Space development – Opening – 5.26 M enplanements 31,271 SF • Dallas Love Field Joint Venture (DLFJV) 21,348 SF • RFP package awardee* (incl Phase II) 9,923 SF

– Phase II – 5.75 M enplanements 4,923 SF • DLFJV 729 SF • Second concessionaire*, if successful 4,194 SF

– Phase III – 6.25 M enplanements 2,861 SF • Closed RFP between 2 existing Food/Bev concessionaires

* Same entity 13 Food & Beverage Plan

14 14 Food and Beverage Plan

• Capital requirements – Minimum $400 per square foot – Mid-term refurbishment at year 6 of $75 per square foot

15 Food and Beverage Plan

• Rental Fees – Current lease amendment • Upon closure of first location in existing terminal (for construction), Minimum Annual Guarantee (MAG) is waived

16 Food and Beverage Plan

17 Retail Plan

• Space development – Opening – 5.26 M enplanements 11,812 SF • Hudson Retail – Dallas JV (Hudson) 6,815 SF • RFP package awardee 4,997 SF

– Phase II – 5.75 M enplanements 814 SF • Closed RFP between 2 existing Retail concessionaires

– Phase III – 6.25 M enplanements 2,027 SF • Closed RFP between 2 existing Retail concessionaires

18 Retail Concessions Plan

19 19 Retail Plan

• Capital requirements – Minimum $350 per square foot – Mid-term refurbishment at year 6 of $65 per sq foot

20 Retail Plan

• Rental Fees – Current lease amendment • Upon closure of first location in existing terminal (for construction) Minimum Annual Guarantee (MAG) is waived

21 Retail Plan

2015 Projection* Square Feet Projected Sales Revenue to City Food & Beverages 31,271 SF $39,955,972 $4,980,924

Retail Concessions 11,812 SF $17,189,060 $2,578,364

2015 Projected Total 43,083 SF $57,145,031 $7,559,288

2008 Actual F & B and 27,177 SF $22,140,055 $3,375,884 Retail Total

*Projections are shown in 2015 dollars. All scenarios and estimates areas are subject to change based on final terminal design plan.

23 Other Provisions

• The following provisions apply to: – Both incumbents – Any other successful bidder(s) on RFP’s referenced above

24 Bottled Water Provision

• Bottled water historically a Food & Beverage-only product

25 Bottled Water Provision

26 Other Provisions

• Storage rental – not to exceed $40 per square foot • Marketing fees – not to exceed 1% of gross sales • Receiving dock – to be determined & agreed to

27 Who Benefits?

Who benefits? Existing Program Benefits: Passengers City of Dallas Operators

New concession space is nearly double old program 9 9 9

91% of concession space is located airside 9 9 9

Majority of program exposed to ALL passengers 9 9 9

Merchandise plan provides variety, convenience, and enhanced customer satisfaction 9 9 9

Fair rent and lease strategy facilitate concessionaire success 9 9 9

Multiple operator strategy allows increased variety, options, and competition 9 9

Existing operators are guaranteed fair and equitable space 9

Existing operators may propose on additional RFP packages 9

RFP process provides opportunities for DBE and local operators 9 9

Concession sales and revenue potential are increased 9 9

28 Recommendation & Next Steps • Recommendation – Authorize City Manager to execute amendments to current concession agreements and new agreements for space in LFMP terminal

• Next Steps – April 28 City Council Agenda