L-3 lease could bring in millions

Sep 25, 2013

L-3 Mission Integration would pay millions of dollars per year to lease property at Majors Field, the City of Greenville Municipal Airport, under a proposed lease agreement with the city.

The funds from the lease itself would be directed back to keeping the airport as a self-sustaining facility.

In turn, the defense contractor would take over almost all of the operations at the airport, including the city’s terminal building. L-3 may be planning a significant expansion at Majors Field, and would be allowed to establish an alternative permitting process for new structures at the facility, bringing in millions in additional revenue which would be directed toward the city’s general fund.

That’s the summarized version of the presentations made Tuesday night to the Greenville City Council, which received information on the latest appraisal of the airport property and the lease agreement which had been hammered out by attorneys for both sides. No action was taken by the council Tuesday concerning the agreement.

Win Perkins with Airport & Aviation Appraisals Incorporated began by presenting the appraisal of the airport, which was based on the value of the land only, and followed Federal Aviation Administration (FAA) requirements, as well as a comparison of appraisals and lease agreements with comparable airports.

Currently, L-3 is paying $72,500 per year for its lease of approximately 600 acres at the airport, under an agreement reached in 1977, which expires in 2017.

Perkins’ appraisal revealed that leases at comparable airports had a median average of about 25 cents per square foot. He also noted that appraising the land only, separate from improvements such as buildings, was a common practice.

“It is a way of encouraging development at the airport and that’s the way it’s traditionally been done,” Perkins said, adding that appraising the value of the land only was at the instruction of both the city and L-3, rather than an appraisal he performed last year. Perkins said at the time, the two sides had an “adversarial” relationship.

Perkins appraised the land at the airport, which included four different tracts, at 10 cents per acre, adding that the FAA was also likely to approve the amount.

“The only thing that has to pass the sniff test is whether it is a market-based value,” Perkins said.

Under the agreement, L-3 would be paying a total of approximately $3 million per year to lease almost 708 acres at the airport.

City Attorney Daniel Ray told the council the stipulation that all rental monies stay on airport property comes directly from FAA regulations.

“There are ways to get around that, but none of them are good for the city,” Ray said, explaining that negotiations over the proposed lease had to address two widely held misconceptions; one that the lease money could be removed from the airport fund and the other that L-3 could not move its operations from the airport.

“Both of those are false, absolutely false,” Ray said.

Earlier negotiations apparently were based on the fallacies.

“People played hardball when it was inappropriate to do so,” Ray said.

The proposed lease rates had to consider a “floor” — meaning the best terms for L-3 — and a “ceiling”, which would have been the best deal for the city.

Under the lease, L-3 would have an option to lease an additional 114.78 acres at the airport, with the initial lease running to Sept. 30, 2016. The primary lease would take effect the next day and run for 15 years, followed by three five-year options.

The amount of the lease would gradually increase from $3 million to just over $5 million per year during the length of the agreement.

“We will pay them to do certain things at the airport,” Ray said of the company taking over most of the fixed base operations at the airport. “In return, they would get a credit on their rental agreement.”

The city would still see a net of almost $26 million dollars over the length of the agreement, Ray said.

Under the agreement, L-3 would hire a full time employee who would be responsible for handling all of the permits associated with future building expansions at the airport, rather than seeking permits through the city directly.

“It is important to them that this full time employee have security clearance,” Ray said.

In exchange, the company would pay the city $500,000 per year, money which would not be tied to the airport, resulting in approximately $15.5 million in revenue over the length of the agreement.

In essence, L-3 would be expected to pay the City of Greenville a net of almost $41.5 million in revenue under the agreement.