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6.6 Skywest Airlines-Skywest Charter FundingAGENDA SECTION NO: ITEM NO: Page 1 CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION C-9 N ORIGINATING ORGANIZATION Salina Community Economic Development Organization BY: Mitch Robinson, Exec Dir DATE TIME 2/6/2022 4:00 P.M. FISCAL APPROVAL: BY: FINAL AP ROVAL: BY: ITEM: Consideration of Salina Co:,;; r,inity Economic Development Organization Board of (rectors recommendation regarding the Ciiy or Salina's participation in the funding of a proposed agreement with SkyWest Airlines/SkyWest Charter for use of the Salina Regional Airport as an overnight maintenance base. BACKGROUND: The community economic development team meets each month to discuss current and potential economic development projects and related planning efforts for the community. For the past year SAA Executive Director Tim Rogers has been providing updates relating to SkyWest's potential changes to air service for Salina. These updates have changed over time relating to the U.S. DOT EAS Program that provides financial assistance to SkyWest Airlines for air service to both Denver and Chicago operating as United Express. Over the past few months flight service to Houston has resurfaced as a possible option, providing a third hub for area residents to access via United Express. This option had been discussed prior to COVID 19, but further discussions stopped at that time. Access to Houston would provide connections to the southern United States, Mexico, South America, and the Caribbean. Numerous Salina businesses have customers, clients, and suppliers in the Houston area with many of them working in the oil and gas industry. The Houston connection has been a top priority based on surveys of area residents and businesses and the high numbers of area residents currently flying to Houston via other routes. As this discussion advanced locally the possible use of Salina Regional Airport as an overnight maintenance base for SkyWest was considered. This would allow SkyWest's aircraft to receive FAA required overnight maintenance and safety checks. Aircraft would flow through Salina Regional Airport on scheduled passenger flights to/from United's Denver, Chicago and Houston hubs. Mr. Rogers provided additional information concerning the needs for maintenance checks every three days as required by the FAA regulations. These checks would be provided overnight, requiring early morning departures and late evening arrivals of the multiple flights. Service on the aircraft would be completed during the overnight hours by 1 Vision Aviation employees per a contract with SkyWest Airlines/SkyWest Charter. Just within the past few weeks the discussion shifted to the need for an incentive to finalize the SkyWest Airline/SkyWest Charter decision. Mr. Rogers presented the need for $900,000 for the airline to start a new Salina Regional Airport maintenance base. The cash donation would cover the airline's costs associated with the startup of the Salina maintenance base and would come from the City ($400,000), County ($400,000) and Airport Authority ($100,000). Based on past history, maintenance hubs cost approximately $15 million. A hangar that would meet the needs of this size project would cost $25 million today. FUTURE GROWTH / JOB ESTIMATES / WAGE ESTIMATES: The job numbers for this project to start will be six employees for 1 Vision Aviation, or two per aircraft each evening they are checked. As the number of planes increase, more staff will have to be available CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 2/6/2022 4:00 P.M. AGENDA SECTION ORIGINATING ORGANIZATION: FISCAL APPROVAL: NO: Salina Community Economic BY: ITEM Development Organization FINAL APPROVAL: NO: Page 2 BY: Mitch Robinson, Exec Dir. BY: for the maintenance activities. No timetable for growth has been established at this time. Each maintenance hub has expenses related to the startup that can be broken down into four areas: 1. Administrative costs related to FAA paperwork as well as airline requirements. 2. Training of both airline staff and contractor staff to know both company and FAA requirements and guidelines for repairs. 3. Parts that are needed to keep aircraft flying based on the inspections performed by the maintenance crew. 4. Equipment which can range from basic luggage related equipment, and items needed for maintenance of the aircraft. SCEDO ACTION: Daran Neuschafer made a motion: I move that the Salina Community Economic Development Organization board of directors recommend to the Salina City Commission that the City provide a cash donation $400,000 for the proposed $900,000 agreement with SkyWest Airlines/SkyWest Charter contingent upon the City's cash donation would be matched by $400,000 from Saline County and $100,000 from the Salina Airport Authority. The motion was seconded by Max Wellbrock-Talley. The motion carried 8 — 0. FISCAL NOTE / WSU IMPACT STUDY: The City of Salina allocates 3.9% of the special sales tax proceeds to economic development and maintains an economic development fund balance. There are currently on-going annual commitments of $275,000 to the SCEDO, $60,000 to Salina Downtown Inc and additional $60,000 to the SDI fagade grant program which totals $395,000 of annual expenses in comparison to $423,000 or proceeds realized in 2022 for a net fund balance increase of $28,000 in 2022. In 2022, the City Commission authorized a fund transfer of $750,000 to replenish the fund balance after providing cash incentives to SFC Global. Based upon the original balance, the fund transfer, and the net proceeds from 2022, the current economic development fund balance is approximately $898,000. As noted above, the current request is $400,000 of funding from the City in coordination with an additional $400,000 from Saline County and $100,000 from the Salina Airport Authority. The Wichita State University's Center for Economic Development and Business Research (CEDBR) completed an economic impact analysis for this project. Attached is the CEDBR Impact Study. Comparing this project to previous Industrial Revenue Bond projects is not an apples -to -apples comparison. This is not a manufacturing project. At this point the contractor will only be providing 6 positions to service the three incoming aircraft. We have limited amount of information to do a full impact study. The results show a 0.97 Benefit -Cost Ratio (bottom of page 2) for the first 10 years. The Salina Community Economic Development Board of Directors did not have this impact study as part of their review process when the board met for the January 26th meeting. The Executive Director will be advising board members of this study and its results. CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 2/6/2022 4:00 P.M. AGENDA SECTION ORIGINATING ORGANIZATION: FISCAL APPROVAL: NO: Salina Community Economic BY: ITEM Development Organization FINAL APPROVAL: NO: Page 3 BY: Mitch Robinson, Exec Dir, BY: COMMENTS RECEIVED FROM SALINA AIRPORT AUTHORITY EXECUTIVE DIRECTOR The following comments were received from Salina Airport Authority Executive Director, Tim Rogers: An air service development incentive is different from a manufacturing expansion project incentive. I believe that it is important note that the WSU analysis is geared to new and expanding manufacturing projects. A small detail is that the WSU report used a conservative, average wage of $25 per hour for the overnight maintenance crew. The wage rate range provided by 1 Vision for overnight maintenance checks and maintenance is $27 to $32 per hour. The long term impact of an airline, overnight maintenance base exceeds an analysis for a business expansion. There are ancillary benefits of better air service. Much like adding a new highway interchange, adding the capability to schedule new flights to/from Salina and multiple United Airlines hubs leads to business retention, business recruitment, worker/talent recruitment and quality of live. These benefits are difficult to measure by means of a benefit cost analysis. I can offer the example of a New Mexico community that is putting up $7M for a minimum revenue guarantee (MRG) for 2 daily flights to/from DEN. I firmly believe that Salina/Saline County in partnership with the Airport Authority is using available capabilities and resources to make a low risk (as compared to a MRG) decision on how to improve scheduled air service by means of an incentive to start up a SLN overnight maintenance base. Another important consideration is that the establishment of an overnight maintenance base and the resulting passenger growth moves Salina away from the need to rely on an EAS Program subsidy. Passenger growth is the key to a lower subsidy. An example is Garden City (GCK). GCK's 2021 passengers' enplanements was 28,525. The current GCK EAS subsidy is $1,220,724 per year. By comparison, SLN's 2021 passengers' enplanements was 19,407. The current SLN is $3,310,166 per year. More flights, more passengers offers Salina the opportunity for greater air service stability in the long term. COMMISSION ACTION OR RECOMMENDED ACTION: Staff has identified the following options for the City Commission's consideration: Approve a motion: (a) accepting and concurring with the SCEDO recommendation; (b) Authorizing the reallocation of $400,000 of Economic Development Funds to provide the City's portion of the contribution to the project as recommended and (c) Authorizing the City Manager to execute an agreement for the use such funds. 2.) Approve the motion with amendments as the City Commission deems appropriate. 3.) Postpone consideration of the recommendation to a specified date and time and provide staff direction regarding additional information or amendments the City Commission would like to request for their further consideration. AGENDA SECTION NO: ITEM NO: Page 4 Staff recommends Option #1. CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 2/6/2022 4:00 P.M. 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