ACTION ITEM #_ 3; - Port of Bellingham
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[AGENDA
ACTION ITEM #_ 3;
MEMORANDUM
TO: Rob Fix DATE: September 7,2021
FROM: Sunil Harman / ' COPIES: Tamara Sobjack
Elliott Smith
Airport Managers
SUBJECT: Approval of Lease Agreement and Construction of Tenant Improvements
for Southwest Airlines Co. funded in CIP GL 101-985
ACTION REQUESTED
Request Commission authorization for the Executive Director to execute a Lease Agreement
and Construction of Tenant Improvements with Southwest Airlines Co. (Airline) funded in CIP
GL 101-985.
BACKGROUND
In February 2021, the Port Commission approved the Air Service Incentive Program. On
March 8, 2021, Southwest Airlines issued a press release of its intent to serve BLI. On June
10, 2021, the Airline announced inaugural service from BLI commencing November 7, 2021,
with three daily flights including two to Oakland, CA, and the third to Las Vegas, NV. On
August 2, 2021, the airline provided its Certificate of Insurance for operating at BLI. On August
9, 2021, the Port Commission approved the Operating Use Agreement with the Airline.
Due to the airlines' operational needs and planned expansion at BLI, the airline has identified
a requirement for 2,730 square feet of exclusive use space located in BLI Commercial
Terminal's first and second floor. Following the 2-year Incentive Program rent waiver which the
Airline qualifies for by scheduling a minimum of two daily flights, the exclusive use leases
premises is estimated to generate $60,000 in annual rent, as well as the Airline paying for its
proportionate share for use of the non-exclusive common areas.
The Airline has identified its build-out requirements under its demised spaces and finishes as
provided in the Airlines' design standards for separate ramp and operations locker/break
room, operations and station manager spaces, duty supervisors room, above wing
locker/break rooms, conference/training room and offices; and passenger service area
requirements in the ticketing/luggage check, hold room boarding gate and baggage claim and
gate areas.
AIRLINE TENANT IMPROVEMENTS
The Port sought a legal opinion on the Airlines' requested tenant improvements. Legal
recommended utilizing the public work bid process (chapter 39.04 RCW) over other available
methods as it provides a transparent process, meets FAA assurances, and provides
competitive pricing at prevailing wage rates to the Port. The Port legal counsel also
recommends the inclusion of supplemental bidder responsibility criteria to ensure timely
completion of the required work.
The apportionment of work is as follows:
The airline will fund all FF&E at an estimated cost of $300K, and the estimated $430K in cost
of build-out to include the ramp break room, ops/station manager office, customer-facing
improvements at Gate C and ticketing counters, and the duty supervisor's office.
• Port will provide bid documents including construction drawings, permitting and
complete the build-out of the above wing operations break room, conference and
training room, and offices, a T-point workstation cable run in bag make-up area,
baggage service cages, tech ops storage cages, and 29 employee lockers.
FISCAL IMPACT
The airline's initial service schedule of three (3) daily departures estimated with an 80% load-
factor, is projected to serve 10,439 enplanements per month, generating an estimated $2M
annually in non-aeronautical revenues and passenger facility charge fees. The Port's portion
of total build-out costs is estimated at $270K funded in CIP GL 101 -985.
STRATEGIC PURPOSE
The lease agreement meets the Port's 2021 strategic goal in the support of the corporate
goals for economic development and job-creating by continuing the recruit businesses for Port
property and for existing facilities and to maintain high occupancy levels, consistent with
revenues, and job opportunities for the community.
RECOM MEN DATI ON
Approval of Action Requested.
AIRPORT LEASE
This AIRPORT LEASE ("Lease") is made and entered into this 7th day of September,
2021, by and between the PORT OF BELLINGHAM, a Washington municipal corporation
(hereinafter referred to as "Port"), and SOUTHWEST AIRLINES CO. a Texas State corporation
(hereinafter referred to as "Airline").
I. RECITALS
1.1 PRELIMINARY STATEMENT. Port is the owner of certain real property located within
the area commonly known as the BELLINGHAM INTERNATIONAL AIRPORT (the "Airport"),
and the Airline desires to lease the property described herein for the purposes of operating a
commercial airline and activities related thereto.
1.1.1 The parties hereto acknowledge and agree upon execution of the Lease that any and all
airport lease agreements, rental agreements, air taxi operating or other such agreements that
the Port and the Airline entered into or may have entered into are hereto terminated and that the
Lease shall supersede any and all prior agreements between the Port and Airline. Provided,
however, all obligations of the Airline related to the prior agreements which require performance
beyond the termination dates shall survive the termination dates of those Agreements.
ARTICLE I
Summary of Lease Terms and Definitions
Port: PortofBellingham
Port's Address: 1801 Roeder Avenue
Bellingham,WA 98225
Airline: Southwest Airlines Co.
Attn: Airport Affairs, HDQ-4PF
2702 Love Field Drive
Dallas, TX 75234
Premises: All exclusive and non-exclusive areas in the Airport in which the
Airline shall have any rights or privileges of use, occupancy or
enjoyment pursuant to this Lease.
Exclusive Areas: All areas in the Airport in which the Airline shall have any rights or
privileges of use, occupancy or enjoyment pursuant to this Lease.
Non-Exclusive Areas: All areas in the Airport Terminal used by an Air Transportation
Company or other entity in the conduct of their business, including
but not limited to, baggage return areas, queuing areas, lounges,
and other public areas in the Airport Terminal not leased as
exclusive areas.
AIRPORT LEASE -1
Airport: The realty and improvements therein generally known and
designated as the Bellingham International Airport. The
improvements on the real property consist of the runways, aircraft
taxiways, and parking aprons, the passenger and freight terminal
Airports, hangars, vehicle roadways and parking facilities and all
other improvements on the real property. The term shall also
include any adjacent or nearby realty hereafter acquired for Airport
purposes by the Port and all improvements hereafter constructed
on the real property and additions thereto, and shall exclude realty
or improvements no longer utilized by the Port for Airport
purposes.
Air Transportation Company: The Airline and other corporations or entities duly authorized to
engage in and principally engaged in the transportation by air of
passengers, cargo, mail or other property.
Exhibits: Exhibit "A" Legal Description of Premises
Exhibit "B thru B9" Map of Premises
Exhibit "C" Air Service Incentive Program
Commencement Date: September 8, 2021
Term: Commencing upon the Commencement Date and expiring on the
"Termination Date"
Exclusive Area MoA/rs. of Rent Per *Monthly
Rental Charges: Lease Term SF (Mo) Total
Main Floor (1,441 SF) Sept. 8, 2021-Nov 6, 2021 $0.00 $0.00
Nov.7, 2021 - Nov. 30,2021 $27.00 $2,593.80
Dec. 1,2021 -Aug. 31, 2022 $27.00 $3,242.25
Main Floor (384 SF) Sept. 8, 2021 -Nov 6, 2021 $0.00 $0.00
Nov. 7, 2021 - Nov. 30,2021 $3.00 $76.80
Dec. 1.2021-Aug. 31. 2022 $3.00 $96,00
Upper Floor (905 SF) Sept. 8, 2021 -Nov 6, 2021 $0.00 $0.00
Nov. 7, 2021 - Nov. 30,2021 $11.40 $687.80
Dec. 1,2021 -Aug. 31, 2022 $11.40 $859.75
Additional Rent: Mo/Yrs. of Rent Per *Monthly
Lease Term, SF (Mo) Total
Main Floor (1,441 SF) Sept. 8, 2021 -Nov 6, 2021 $0.00 $0.00
Nov.7, 2021 - Nov. 30,2021 $4.00 $384.26
Dec. 1,2021 -Aug. 31, 2022 $4.00 $480.33
Main Floor (384 SF) Sept. 8, 2021-Nov 6, 2021 $0.00 $0.00
Nov.7, 2021 - Nov. 30,2021 $0.72 $18.43
Dec. 1,2021 -Aug. 31, 2022 $0.72 $23,04
Upper Floor (905 SF) Sept. 8, 2021-Nov 6, 2021 $0.00 $0.00
Nov. 7, 2021 - Nov. 30,2021 $3.00 $181.00
Dec. 1,2021-Aug. 31, 2022 $3.00 $226,25
AIRPORT LEASE - 2
*Plus Non-Exclusive (common-use) Premises Rental Charges, Landing Fees, Fuel Flowage
Fees, and RON Fees.
ARTICLE II
Premises, Term
2.1 PREMISES: Port, in consideration of the rents hereinafter reserved and of the
covenants and conditions herein set forth to be performed by Airline, does hereby lease to
Airline the Premises. The Premises consist of an Agreed Rentable Area of 2,730 square feet in
the Airport feet as described and depicted on Exhibit B hereto.
2.2 TERM. The term of this Lease shall be for one (1) year beginning September 8, 2021.
The Lease shall be automatically renewed for subsequent one-year periods unless either
party gives the other written notice of such termination at least ninety (90) days prior to
the end of any such year term. Notwithstanding the foregoing, Airline shall not be entitled to
renew this Lease unless the Lease is in good standing at the time of renewal and the Airline is
not in default under the terms of this Lease or any other lease or agreement with the Port. The
terms and conditions of any renewal shall be the same as set forth in this Lease, except that
Rent shall be adjusted as provided herein and the terms of this Lease shall be updated to be
consistent with the terms and conditions then existing in the Port's standard Airport Lease
Agreement.
2.3 EARLY TERMINATION. This Lease may be terminated prior to the end of any term as
follows:
2.3.1 Termination by the Airline. The Airline may terminate this Lease in any of the
following events, by giving the Port not less than ninety (90) days prior written notice of
termination.
a. The refusal of the Federal Aviation Administration or other federal, state, or local
governmental authority having jurisdiction to permit the Airline to operate into and from the
Airport, or, in the event the Airline shall be a foreign flag line and is subject to comparable
regulation by a foreign country or agencies thereof, the refusal by such foreign country or such
agencies to permit the Airline to operate to and from the Airport.
b. Issuance by any court of competent jurisdiction of any injunction preventing or
restraining the use of the Airport or any substantial part thereof for airport purposes, and the
remaining in force of such injunction for a period of at least ninety (90) days.
c. The assumption by the United States Government or any agency or instrumentality
thereof of the operation, control or use of the Airport, or any substantial part thereof, in such a
manner as to preclude the Airline, for a continuous period of at least ninety (90) days, from using
the Airport in connection with its air transportation business.
d. In the case of material default on the part of the Port so as to make the Premises
unusable in connection with the Airline's air transportation business and provided that the Airline
provides one hundred (100) days additional notice during which time the Port may remedy any
AIRPORT LEASE - 3
default.
2.3.2 Termination for Government Use. In the event that the United States
Government or any agency or instrumentality thereof shall, by condemnation or otherwise, take
title, possession or the right to possession of the Premises or any part thereof, the Port may, at
its option, terminate this Lease as of the date of such taking, and, if the Airline is not in default
under any of the provisions of this Lease on said date, any rental, fees or charges prepaid by the
Airline shall, to the extent allocable to any period subsequent to the effective date of the
termination, be promptly refunded to the Airline. In the event any such taking shall materially
interfere with the Airline's use of the Premises, which interference cannot be substantially
remedied by furnishing other substituted facilities to the Airline, the Airline may also terminate
this Lease as aforesaid.
2.3.3 Termination Because of Court Decree. In the event that any court having
jurisdiction in the matter shall render a decision which has become final and which will prevent
the performance by the Port of any of its obligations under this Lease, then either party hereto
may terminate this Lease by written notice, and all rights and obligations hereunder (with the
exception of any un-discharged right and obligations that accrued prior to the effective date of
termination) shall thereupon terminate. If the Airline is not in default under any of the provisions
of this Lease or the effective date of such termination, any rental, fees or charges prepaid by the
Airline shall, to the extent allocable to any period subsequent to the effective date of the
termination, be promptly refunded to the Airline.
2.3.4 Insolvency. If the Airline shall file a petition in bankruptcy or if it shall be adjudged
bankrupt or insolvent by any court, or if a receiver of the property of the Airline shall be
appointed in any proceeding brought by or against the Airline, or if the Airline shall make an
assignment for the benefit of creditors, or if any proceedings shall be commenced to foreclose
any mortgage or any other lien on the Airline's interest in the Premises or on any personal
property kept or maintained on the Premises by the Airline, and if such proceedings are not
vacated, dismissed or otherwise stayed within one-hundred twenty (120) days of such filing, the
Port may, at its option, terminate this Lease unless a bond is posted on behalf of the Airline in
favor of the Port to protect the Port from any and all losses which may occur as a result of the
insolvency of the Airline.
2.3.5 FAA Requirements. If this Lease violates any requirement or regulation of the
FAA, the parties shall immediately renegotiate the terms of this Lease in good faith in an effort to
come into compliance with such requirement. If such renegotiations would be futile or are
unsuccessful, the Port may terminate the Lease at its option.
ARTICLE III
Compensation, Rental Adjustment
3. RENT: The term "Rent" as used herein includes Exclusive Area Rental Charges, Non
Exclusive Rental Charges, Landing Fees, Additional Rent, plus applicable Washington State
leasehold excise tax, and other fees and charges assessed herein. Except as expressly
provided elsewhere herein, Rent and all other sums payable by Airline pursuant to this Lease
shall be paid without the requirement that Port provide prior notice or demand, and shall not be
subject to any counterclaim, setoff, deduction, defense or abatement.
AIRPORT LEASE - 4
3.1.1 Exclusive Area Rental Charges. Effective November 7, 2021, monthly rent for
Exclusive Area located on the Main Floor shall be Three Thousand Three Hundred Thirty-Eight
Dollars and 25/100 ($3,338.25), and the total monthly rent the Exclusive Area located on the
Upper Floor shall be Eight Hundred Fifty-Nine Dollars and 75/100 ($859.75)
3.1.2 Non Exclusive Premises Rental Charges. Effective November 7, 2021 , the
Non-Exclusive Premises Rental Charges will be based upon the operational costs for the non-
exclusive areas and shall be paid in advance on the first day of each month. It is agreed that the
operational costs for the period January 1, 2021 through December 31, 2021 are $750,000.00
per year, or $62,500.00 per month (herein this monthly amount shall be referred to as the
"Monthly Operational Cost"). The Monthly Operational Costs may be adjusted annually by the
Port beginning on January 1, 2022 according to the magnitude of the Port's expected increase in
actual operational costs. The Non-Exclusive Area Rental Charges are determined according to
the total of the two following calculations and shall be payable in advance on or before the first
day of each month:
i) Twenty percent (20%) of the Monthly Operational Cost is to be divided equally
between the Airline and all other Air Transportation Companies Airlines with regularly scheduled
service that utilize the Commercial Terminal during the preceding month. If Airline is the only
Airport Terminal tenant, then Airline shall be responsible for one-half (1/2) of this amount.
ii) The remaining 80% of the Monthly Operational Cost shall be allocated
proportionately to the Airline and the other Air Transportation Companies based on the
percentage of originating revenue passengers for each Air Transportation Company Airlines with
regularly scheduled service that utilize the Commercial Terminal during the preceding month.
Airline shall be responsible only for its pro rata share of such rental fees. If Airline is the only Air
Transportation Company operating at the Airport for the preceding month, then Airline's share
shall be 75% of this amount.
3.1.3 Landing Fees. As set forth in the applicable Port tariff, this may be revised from
time to time.
i) On or before the tenth (1 Oth) day of each calendar month, the Airline shall deliver
to the Port a written statement certified as true and correct by an authorized officer or other
agent of the Airline, indicating the number of landings during the preceding calendar month, the
Certificated Gross Landing Weights thereof, and the number of aircraft seating, plus such other
information as may be necessary to accurately determine the Landing Fees for such calendar
month, and shall pay to the Port the Landing Fees with respect to such landings within five (5)
business days of the Port's invoice for such Landing Fees.
ii) The Airline shall keep true, accurate and complete records of all information
necessary to determine the Landing Fees, and the Port shall, through its authorized agents and
representatives, have the right at all reasonable times to examine such records for the purpose
of determining the accuracy thereof. At the Port's request, all such records shall be made
available to the duly authorized agents or representatives of the Port. All activity statements
should be mailed to the Port, c/o the Accounting Department, at the address provided herein.
AIRPORT LEASE - 53.1.4 Other Fees. Any other fees and charges, including but not limited to Passenger
Facilities Charges and Security Fees, required under federal law, FAA regulations, TSA
regulations, Homeland Security regulations or other applicable laws or regulations. Such other
fees and charges shall be paid in compliance with the applicable law or regulation. Airline also
agrees to pay as additional Rent any and all applicable non-discriminatory tariffs in accordance
with the Airport tariff schedule published by Port. Said tariff schedule is subject to changes from
time-to-time as adopted by Commission resolution. It is understood and agreed that the tariff
schedule shall not contravene the terms of this Lease.
3.1.5 Rent Paid in Advance - Late Charges. Rent shall be paid monthly in advance
on or before the first (1 ) day of each month beginning on the Commencement Date. A late
charge of one percent (1%) per month will be assessed against past due Rent from the date
such Rent became due. Additionally, if Rent is not received by the fifth (5th) day of any month,
Airline shall pay Port an additional fee of $100 or five percent (5%) of the delinquent payment,
whichever is greater, to defray costs of collecting and handling such late payment. All accrued
interest and late charges shall be paid no later than the first (1 ) day of the month following that
month in which such interest or late charges accrued.
3.1.6 Additional Rent: The term "Operating Expenses," as used herein, shall mean
the sum of the following:
a. All costs and expenses incurred by Port with respect to the ownership,
management, maintenance, landscaping, routine repair, or replacement of the Airport and the
real property which serves the Airport, including, without limitation, the heating, ventilation, air
conditioning (HVAC) systems, sidewalks, landscaping, service areas, driveways, parking areas,
walkways, Airport exterior, signs, and directories, repairing and replacing roofs, walls, etc.
b. All management, janitorial and service agreement costs related to the Airport.
c. All supplies, materials, labor, equipment, baggage systems, and utilities used in
or related to the operation and maintenance of the Airport.
d. Costs of all supplies, all service contracts, all insurance premiums, and deductible
payments made by Port incident to insured losses, which are paid for by Port and which pertain
to the Premises and/or Airport.
3.1.7 Payment of Additional Rent. Effective November 7, 2021, Additional Rent for
the Main Floor shall be Five Hundred Three Dollars and 37/100 ($503.37), and the total
Additional Rent for the Upper Floor shall be Two Hundred Twenty-Six Dollars and 25/100
($226.25).
3.2 RENTAL ADJUSTMENT. That portion of Rent composed of "Exclusive Area Rental
Charges", "Non-Exclusive Rental Charges, and "Additional Rent" shall be subject to adjustment
on January 1,2022 and annually thereafter on January 1 (herein such dates shall be collectively
referred to as the "Adjustment Date"). The parties agree to renegotiate the adjustment to such
Rental amounts and to agree on the amount at least ninety (90) days prior to each Adjustment
Date (hereinafter such ninety (90) day period shall be referred to as the "Rental Adjustment
Deadline"). The adjusted Rental charges for the renewal term shall be consistent with the then
AIRPORT LEASE-6existing Financial Guidelines of the Port, but in no event less than the levels existing during the
prior Lease year nor below rates which will be paid at the Airport for comparable facilities by
other Port tenants.
3.3 BINDING ARBITRATION. If the parties cannot agree on an adjustment of Exclusive
Area Rental Charges before the Rental Renegotiation Deadline, then the parties shall select an
independent and unbiased arbitrator who is not affiliated directly or indirectly with either party
within ten (10) days of the Rental Renegotiation Deadline. If the parties fail to select or cannot
agree upon an arbitrator within this time, then either party may apply to the Superior Court of
Whatcom County pursuant to RCW 7.04 et seq. for an order appointing an arbitrator. Such
application may be made at any time after the Rental Renegotiation Deadline; provided,
however, that the increased Rent determined by the arbitrator shall be retroactive to the
Adjustment Date and shall be paid within fifteen (15) days following the arbitrator's award, or
Airline shall be deemed to be in default under this Lease. Upon application to the court for an
arbitrator, the Court shall select an arbitrator, who shall render his/her decision no later than sixty
(60) days after his/her appointment. If the arbitrator requests a hearing prior to rendering his/her
decision, such hearing shall be held in Whatcom County, Washington within thirty (30) days of
the arbitrator's appointment. The arbitrator's decision shall be binding on both parties. Each
party shall bear its own expenses associated with the arbitration but shall share equally the costs
of the arbitrator. This paragraph shall be referred to herein as the "Binding Arbitration Clause."
3.3.1 The foregoing Binding Arbitration Clause, ROW Chapter 7.04, and Rules 5.2
through 5.4 of the Mandatory Arbitration Rules for Superior Court ("MAR") shall govern the
arbitration. In the event of any inconsistencies between the Binding Arbitration Clause, RCW
Chapter 7.04, and MAR 5.2 through 5.4, the terms of the Binding Arbitration Clause shall take
precedence over ROW Chapter 7.04 and MAR 5.2 through 5.4; and RCW Chapter 7.04 shall
take precedence over MAR 5.2 through 5.4.
3.3.2 Notwithstanding the foregoing, the Airline may exercise the right to arbitration only
if Airline is not in default with respect to any rental payment or other covenant or condition of the
Lease. Furthermore, arbitration, in accordance with the above procedure, does not relieve
Airline of its obligation to continue paying Rent during the arbitrator's decision making period at
the then existing Rental levels.
AIRPORT LEASE-73.4 ABATED RENT: If this Lease provides for a postponement of any monthly rental
payments, a period of free Rent or other Rent concession, such postponed rent or free rent is
called the "Abated Rent." Airline shall be credited with having paid all the Abated Rent on the
expiration of the term of this Lease only if Airline has fully, faithfully and punctually performed all
of Airline's obligations hereunder, including the payment of all Rent (other than the Abated Rent)
and all other monetary obligations and the surrender of the Premises in the condition required by
this Lease. Airline acknowledges that its right to receive credit for the Abated Rent is absolutely
conditioned upon Airline's full, faithful and punctual performance of its obligations under this
Lease. If Airline defaults and does not cure within any applicable grace period, the Abated Rent
shall immediately become due and payable in full and this Lease shall be enforced as if there
were no such Rent abatement or other Rent concession. In such case, Abated Rent shall be
calculated based on the full initial rent payable under this Lease, plus interest thereon at the rate
of twelve percent (12%) per annum from date each monthly Rental payment was postponed.
3.5 AIR SERVICE INCENTIVE PROGRAM: Notwithstanding the foregoing, the Airline
qualifies for certain incentives under the Lessor's Air Service Incentive Program (the "Incentive
Program"), a copy of which is attached hereto as Exhibit C.
ARTICLE IV
Use of Premises, Condition of Property, Improvements, Removal of Property,
Maintenance, Utilities, and Airport & Federal Aviation Requirements
4.1 LESSEE'S USE OF THE PREMISES. Airline shall only conduct the following activity on
the Premises:
a. General Requirements. The Airline shall use the Premises in connection with
the operation of its air transportation business and for airport purposes necessary and incidental
thereto, and for no other purposes without the prior written consent of the Port. Airline's specific
rights, privileges, and obligations concerning its use of particular areas of the Premises are more
specifically set forth in the Exhibits to this Lease. The Airline shall at all times conduct its
business and operations at the Airport in a businesslike and responsible manner and in
compliance with the Airport Certification Manual (Airport Security Plan 49 CFR 1540 & 1542). In
the event the Airline shall voluntarily or involuntarily abandon or terminate flight operations at the
Airport, or cease to make substantial use of the Premises or portions thereof for the operation of
its air transportation business as required pursuant to subparagraph (c) below, the Port may at
its option terminate this Lease as to the portions of the Premises not being so utilized or
reclassify the Premises from an Exclusive Area to a Non-Exclusive Area and require the non-
exclusive use thereof by Airline with other Air Transportation Companies by giving Airline written
notice thereof not less than 30 days in advance of the effective date of termination or
reclassification thereof to a non-exclusive user area, provided that any such action by the Port
shall not affect the right of the Port to resort to any remedies provided for herein in the event the
Airline shall be in default under this Lease.
b. Carrier Operating Agreements. In connection with its use of the Premises, the
Airline shall not assign or sublet its interest therein except as provided herein. The Airline may
enter into ground handling, operating, and similar agreements (herein collectively called carrier
operating agreements) with other Air Transportation Companies to accommodate the
reasonable operating requirements at the Airport of the Airline or the other Air Transportation
AIRPORT LEASE - 8Companies involved; provided that a copy of each carrier operating agreement which will remain
in effect for a period of thirty (30) days or more shall be submitted by the Airline to the Port within
fifteen (15) days after the execution thereof by the parties or the commencement of the term
thereof, whichever shall first occur; and provided further, that if the Port should at any time have
an objection thereto, the Airline will make every effort to resolve such objection to the
satisfaction of the Port. The Airline shall not, without the prior written consent of the Port, enter
into any subleases or carrier operating agreements which have the individual or collective effect
of reducing the Airline's direct use of the Premises or portion thereof involved to a point where it
no longer is making substantial use thereof as required pursuant to subparagraph (c).
4.2 CONDITION OF PROPERTY. The Airline has examined the Premises and accepts
them in their present condition. Airline accepts the Premises "as is" without further maintenance
liability on the part of the Port. Airline is not relying on any representations of Port as to
condition, suitability, zoning restrictions, or usability, except Port's right to grant a lease of the
Premises.
4.2.1 At the expiration or sooner termination of this Lease, the Airline shall return the
Premises to the Port in the same condition in which received (or, if altered by the Airline with the
Port's consent, then the Premises shall be returned in such altered condition), except for
reasonable wear and tear or damage by fire, unavoidable casualty or acts of God.
4.3 UTILITIES. The Port shall furnish without charge all normal amounts of light (including
ramp lighting, light bulbs and tubes), electricity, heat and air conditioning, hot and cold water,
sewerage and garbage disposal services required by the Airline on any portions of the Premises
(including exclusive areas) which may be situated within the passenger terminals; provided,
however, that the foregoing shall not be construed to require the Port to install any new or
additional equipment or facilities (other than necessary replacements of existing equipment or
facilities), such as additional plumbing, air conditioning equipment, but nothing herein shall
require the Port to pay for garbage or sewer disposal originating on the aircraft of the Airline. All
other utilities consumed on the Premises shall be paid by Airline.
4.4 OPERATION OF AIRPORT. The Port shall operate the Airport in compliance with the
applicable rules and regulations issued by the Federal Aviation Administration or other federal
agencies having jurisdiction over the operation of the Airport and shall at its expense maintain
and keep in good repair the passenger terminals (including the Exclusive and Non-Exclusive
user Areas therein and ingress and egress thereto), all public areas, runways, taxiways, and
aprons, and shall maintain the Airport to the standards for airports of similar size; provided, that
nothing herein should be construed to require the Port to maintain or repair any areas of the
Airport under lease or franchise, etc. to third parties. The Port agrees to perform its operations
in an economic, prudent, and responsible manner.
4.5 MAINTENANCE OF PREMISES.
a. Premises within Passenger Terminals. The Port shall furnish without charge
normal janitorial services to all portions of the Premises situated within the passenger terminals,
except any Exclusive Use Areas which shall be maintained by the Airline at its sole expense.
Subject to the foregoing, the Airline shall cooperate in keeping all such portions of the Premises
neat, clean, and presentable, and in a safe and sanitary condition. The Port shall at its expense
AIRPORT LEASE - 9maintain and keep all such portions of the Premises in a good state of repair, including but not
limited to the repair of the electrical systems, any sprinkler systems, and any pipes and drains,
and the Port shall replace all cracked or broken glass. The Port shall also make all necessary
structural repairs to the passenger terminals, and may repaint the portions of the Premises
situated within the passenger terminals in the Port's standard colors and finishes at such times
as may be determined by the Port, except that the Airline may designate colors to be used in any
portions of the Exclusive Areas which are not visible to the general public (including any such
areas devoted solely to the use of the Airline's employees or its own passengers). The Port
shall not, however, be required to perform maintenance or make repairs caused by excessive
wear and tear or by the negligence of the Airline or its employees, agents, servants and
contractors, and in any such cases the Port may perform such maintenance or make such
repairs as necessary and charge the cost thereof to the Airline if the Airline has not undertaken
the repair on their own.
b. Airline Equipment and Property. The Airline shall store, as agreed upon with
the Port, and keep in good repair and in a neat, clean, safe, and presentable condition all of its
facilities, fixtures, and other equipment at the Airport, such as ticket counters, operations areas,
baggage claim equipment, second level loading devices, fuel lines, piping and hydrants, and the
like.
4.6 ALTERATIONS AND IMPROVEMENTS. Except as may be agreed upon in advance by
the Port, the Airline shall make no alterations or improvements to or upon the Premises or install
any fixtures (other than trade fixtures which can be removed without injury to the Premises)
without first obtaining the written consent of the Port. In the event any alterations or
improvements shall be made or fixtures (other than trade fixtures) shall be installed by the
Airline, they shall at once become a part of the realty and become the property of the Port.
Movable furniture and all trade fixtures shall be and remain the property of the Airline, and the
Airline shall at its expense, upon the expiration or prior termination of this Lease, promptly
remove any such furniture and trade fixtures and restore the Premises to the condition thereof
prior to the installation of such property, normal wear and tear and damage by fire or
unavoidable casualty excepted. Any and all alterations and improvements shall conform to the
then applicable Port architectural guidelines.
i.) Airline and the Port shall abide by the following terms with regard to any
improvements approved by the Port in writing:
a. Lessee's contractor, if any, shall be subject to Port's approval, not
unreasonably withheld. Port reserves the right to condition its approval upon the Airline
providing payment and/or performance bonds satisfactory to Port. Airline shall submit
plans to and obtain written approval from Port before commencing any improvement.
Port shall have a reasonable period of time to review such plans prior to issuing a
decision. Port may charge Airline reasonable fee for staff, consultant or attorney time
required to review the plans.
b. All improvements which are to be designated fixtures shall be so
designated by Port upon Port's approval of the plans for such improvements. All
improvements by Airline shall conform to the requirements of the Americans With
Disabilities Act, 42 USC 12111 et sea.
AIRPORT LEASE-10ii.) Airline shall remove all equipment, personal property, and improvements which
are not fixtures which may have been placed upon the Premises by itself during the period of
this Lease; provided, however, that the same are removed before the Lease is terminated and
that the Lease is in good standing. If any improvements are not removed from the Premises by
the conclusion of the Lease without the consent of Port, then Port may elect (i) to remove the
improvements and Airline shall, upon demand, pay the costs of removing and disposing of them
or (ii) to have such improvements revert to Port.
iii.) Improvements made on the Premises without Port's prior written consent or which
are not in conformance with the plans submitted to and approved by the Port ("Unauthorized
Improvements") shall immediately become the property of Port, unless Port elects otherwise.
Regardless of the ownership of Unauthorized Improvements, Port may, at its option, require
Airline to sever, remove and dispose of them, charge Airline rent for the use of them, or both.
4.7 REMOVAL OF PERSONAL PROPERTY. If Airline fails to remove any of its personal
property from the Premises at the termination of this Lease or when Port has the right of re-
entry, Port may, at its option, remove and store said property without liability for loss thereof or
damage thereto, such storage to be for the account and at the expense of Lessee. If Airline fails
to pay the storage costs after thirty (30) days or more, Port may, at its option, sell any or all of
such property at public or private sale, in such manner and at such times and places as Port, in
its sole discretion, may deem appropriate, without notice to Lessee, and shall apply the
proceeds of the sale first to the costs of the sale, including attorneys' fees, second to the storage
costs, and third to the payment of any amounts then or thereafter due to Port from Airline under
this Lease. The balance, if any, shall be returned to Lessee.
4.8 INSPECTION. The Port reserves the right to inspect the Premises at any and all
reasonable time throughout the term of this Lease, provided that it shall not interfere unduly with
the Airline's operations. The right of inspection reserved to the Port hereunder shall impose no
obligation on the Port to make inspections to ascertain the condition of the Premises and shall
impose no liability upon the Port for failure to make such inspections.
4.9 RESERVED AREAS. The Port reserves the use of all areas in the Airport (other than the
Exclusive Areas leased to the Airline) for the use by the Port, the general public, other Air
Transportation Companies and such others as the Port may designate, it being understood
however, that, as to any Non Exclusive Areas leased or assigned to the Airline, this reservation
shall be construed to allow the Airline to use those areas for the purposes and to the extent
provided in this Lease.
4.10 AIRPORT REQUIREMENTS.
a. Accommodation of New or Existing Air Transportation Companies by the
Airline. The Airline and the Port recognize that it may from time to time become necessary or
advisable to share the use of Exclusive Areas leased to the Airline with other Air Transportation
Companies (herein Requesting Carriers) to accommodate new service at the Airport to be
provided by a Requesting Carrier or the changing requirements of the Airline or a Requesting
Carrier then operating at the Airport. Prior to the Port making any request to Airline for
accommodation of a Requesting Carrier , the Port shall require the Requesting Carrier to seek
AIRPORT LEASE -11such accommodation from all other airlines at the Airport for a period of thirty (30) days, If no
other airline is able to make such accommodation, then at the request of the Port and upon thirty
days advance notice and consultation with the Airline, the Airline agrees to make reasonable
efforts to make available to a Requesting Carrier the use of Exclusive Areas and Non Exclusive
Areas leased to the Airline, including, but not limited to, passenger hold rooms, loading bridges,
ticket counters, bag make-up areas and aircraft gate ramp and parking positions; provided,
however, any such accommodation shall not disrupt Airline's flight schedule. An agreement
between the Airline and the Requesting Carrier shall be stated in writing in an operating
agreement containing indemnity and insurance protection acceptable to Airline and providing for
the payment of reasonable use fees to the Airline and a copy thereof shall be furnished to the
Port. In determining whether the Airline is able to reasonably accommodate the Requesting
Carrier's requirements, the Airline will have the right to consider the compatibility of the proposed
operations of the Requesting Carrier with those of the Airline, the operation of those with whom
the Airline has other operating agreements, the Airline's existing and future flight schedules, the
need for labor harmony and the availability of other premises at the Airport. Airline shall be
relieved of its indemnity obligations set forth herein which may arise by reason of any
Requesting Airline's use of Airline's premises.
b. Accommodation of General Airport Requirements. The Airline and the Port
further recognize that the requirements for efficient utilization of the Airport facilities in such
matters as passenger volume, freight volume, flight frequencies, aircraft size, and operating
procedures, aircraft and vehicle parking requirements, etc. may from time to time change, and
consequently the Port does hereby reserve the right upon thirty (30) days advance written notice
with respect to the accommodation of a Requesting Carrier commencing operations at the
Airport, and ninety (90) days advance written notice in all other cases, given to the Airline, to
modify, rebuild, remodel, expand or reduce in size, relocate to other areas of the Airport, or
otherwise effect such changes in the Premises and other portions of the Airport (including Non-
Exclusive Areas and Exclusive Areas) as the Port in its sole discretion may from time to time
deem necessary or advisable. The Port's right to effect such changes shall include, but shall not
be limited to, circumstances in which the Port deems it necessary or advisable to provide
facilities to a Requesting Carrier then serving or desiring to commence service at the Airport, or
to accommodate the expanding or changing needs and requirements of passenger or freight
traffic or the general public, or to otherwise make changes or revisions to maximize the efficient
utilization of existing and future facilities at the Airport; and in cases where the availability of
space is limited or inadequate, the Port may require the Airline to operate with reduced facilities
or on a joint use or share basis with others. With respect to the requirements of a Requesting
Carrier, the Port agrees not to exercise its rights reserved under this paragraph or to give the
aforesaid thirty (30) days' notice until thirty (30) days after the Port has given written notice to the
Airline of the requirements of the Requesting Carrier, in order to determine whether such
requirements can be satisfactorily accommodated under the procedures stated in subparagraph
(a). The Airline agrees that temporary inconveniences caused by or associated with the
relocation or modification of portions of the Premises or with the construction of Airport
improvements, such as noise, disturbances, traffic detours and the like, shall not constitute a
breach of quiet enjoyment of the Premises, nor shall they be grounds for an abatement of rental
except in prolonged and/or substantial cases of interruption of the Airline's business or activities
at the Premises or portion thereof involved, provided, that in the event portions of the Premises
are modified or moved at the Port's request, the rental or other charges allocable to that area
shall be abated equitably during any period that the Airline will not have the full use and benefit
AIRPORT LEASE-12of the old or new areas as a result of the modification or move and in the event of relocation, the
Port shall pay all the costs of the Airline related to such relocation. In the event the Airline
reasonably believes any change or modification of its Premises effected by the Port pursuant to
this paragraph will have a substantially adverse effect on the activities or business of the Airline
conducted in the area involved, the Airline may terminate this Lease as it applies to said area by
giving written notice of such termination to the Port within thirty (30) days after the Port has given
the Airline the foregoing written notice that the Premises will be modified or relocated. Nothing
contained in this paragraph shall be deemed to require the Port to change or improve the Airport
from its present condition. It is further agreed that the Port may abandon properties, facilities or
services which are no longer reasonably justified or required for proper and adequate operation
of the Airport.
4.11 FEDERAL AVIATION REQUIREMENTS. Airline agrees that its use of the Premises will
be accomplished in accordance with the following covenants:
4.11.1 Electromagnetic Interference. Airline agrees to (i) furnish good, prompt, and
efficient service adequate to meet all the demands for its service at the Airport; (ii) furnish said
service on a fair, equal and nondiscriminatory basis to all users thereof; (iii) charge a fair,
reasonable and nondiscriminatory price for each unit of sale or service, provided, that Airline
may be allowed to make reasonable and nondiscriminatory discounts, rebates, or other similar
types of price reductions to volume purchasers; (iv) prevent any use of the Premises which
would interfere with landing or taking off of aircraft at the Bellingham International Airport, or
otherwise constitute an airport hazard; and, (v) prevent any operation on the Premises which
would produce electromagnetic radiations of a nature which would cause interference with any
air navigational or communications aid now or in the future to be installed to serve the
Bellingham International Airport, or which would create any interfering or confusing light or cause
any restrictions to visibility at the Airport.
4.11.2 Airspace Reservation. Port retains the public right of flight for the passage of
aircraft in the airspace above the surface of the Premises, together with the right to cause in said
airspace such noise as may be inherent in the operation of aircraft, now known or hereafter used
for navigation of or flight in said airspace, and for use of said airspace for landing on, taking off
from or operating on the Bellingham International Airport.
4.11.3 Minority Business Enterprises. Airline understands that it is the policy of the
U.S. Department of Transportation that minority business enterprises, as defined in 49 CFR,
Part 23, shall have the maximum opportunity to participate in the performance of this Lease, as
defined in 49 CFR, Section 23.5, and that this Lease is subject to 49 CFR, Part 23, as
applicable. Airline hereby assures that no person shall be excluded from participation in, denied
the benefits of, or otherwise discriminated against in connection with 49 CFR, Part 23, on the
grounds of race, color, national origin, or sex.
4.11.4 Antidiscrimination Policy. Airline agrees that in the conduct of activities on the
Premises, it will be an equal opportunity employer in accordance with Title VI of the 1964 Civil
Rights Act and will comply with all requirements of the Americans With Disabilities Act of 1990.
ARTICLE V
Casualty, Insurancei and Financial Securjty
AIRPORT LEASE-135.1 APPORTIONMENT OF LIABILITY - LIABILITY INSURANCE, The Port, its officers and
employees, shall not be liable to the Airline or to any other parties, for any injury (including
death) to any persons, or for damage to any property, regardless of how such injury or damage
be caused, sustained or alleged to have been caused, contributed to, or sustained, as a result of
any act or omission arising out of the Airline's use or occupancy of the Exclusive Areas or Non
Exclusive Areas regardless of whether or not such loss is occasioned by the acts or omissions
of the Port, Lessee, third party, or act of nature except to the extent of and in proportion to the
gross negligence or willful misconduct of the Port, its employees or agents. And, in addition, the
Port, its officers and employees, shall not be liable to the Airline or to any other parties for any
such injury to persons or damage to property caused or sustained as a result of the fault or
negligence of the Airline, or any of its officers, employees, agents, or contractors, in any other
areas of the Airport.
5.1.1 Insurance for Aircraft Related Loss. Airline shall at its own expense, maintain
primary liability insurance with a Best Guide Rating of A-7 or better or that is satisfactory to the
Port in the minimum single limit (or equivalent split limits) of Seventy Five Million ($75,000,000)
per occurrence and $1,000,000 per passenger, and hereafter in such increased amounts as the
Port may from time to time reasonably require. This figure is based upon $1,000,000 per
passenger seat on the largest aircraft (currently 75 passenger DHC-8 Q-400) regularly used at
Bellingham International Airport by the Lessee. The Lessor may reasonably increase the
amount of insurance required if Lessee regularly utilizes larger seat capacity aircraft at
Bellingham international Airport. The Port shall be named as an additional insured but only as
respects operations of the Named Insured as their interest may appear and to the extent of
Airline's obligation to indemnify the Port hereunder, subject to the policy terms, conditions,
limitations and exclusions and shall be furnished with a certificate of insurance in form specified
by or satisfactory to the Port, and such insurance shall not be subject to cancellation without at
least thirty (30) days advance written notice to the Port. In the event of any actual or alleged
injury or damage covered by the foregoing provisions of this paragraph, it shall be the
responsibility of the Airline, at no expense to the Port, promptly to undertake any and all
necessary investigative and legal proceedings. The failure of the Port at any time or from time to
time to enforce the foregoing provisions of this paragraph concerning insurance coverage shall
not constitute a waiver of those provisions nor in any respect reduce the obligation of the Airline
to defend and hold and save the Port harmless with respect to any items of injury or damage
covered by this paragraph.
a. The liability policies shall contain a cross-liability provision such that the policy will
be construed as if separate policies were issued to Airline and to Port.
b. The foregoing insurance policy shall name Port as an additional insured but only
as respects operations of the Named Insured as their interest may appear. Airline shall provide
certificates of insurance and, if requested, copies of any policy to Port. Receipt of such
certificate or policy by Port does not constitute approval by Port of the terms of such policy.
Furthermore, the policy of insurance required herein shall (i) be written as a primary policy; (ii)
expressly provide that such insurance may not be materially changed, amended or canceled
with respect to Port except upon forty-five (45) days' prior written notice from the insurance
company to Port; (iii) contain an express waiver of any right of subrogation by the insurance
company against Port and Port's elected officials, employees, or agents; (iv) expressly provide
AIRPORT LEASE -14that the insurance proceeds of any loss will be payable notwithstanding any act or negligence of
Airline which might otherwise result in a forfeiture of said insurance; v) contain a separation of
insureds provision such that the policy applies separately to each insured that is subject of a
claim or suit; vi) not contain a cross-claim, cross-suit, or other exclusion that eliminates coverage
by one insured against another; and (vii) provide for coverage for damage to the Port's property
caused by the Airline, and, (viii) in regard to physical property damage coverage, expressly
provide that all proceeds shall be paid jointly to Port and Airline.
5.1.2 Insurance for Non-Aircraft Related Loss. In the event the insurance mentioned
in section 6.1.1 does not cover (i) liability for personal injury (including death) and (ii) property
damage (including all real and personal property located on the Premises) unrelated to aircraft
operations, the Lessee shall, in addition to the requirements of section 6.1.1 above, procure and
maintain a comprehensive general liability policy covering all claims for personal injury (including
death) and property damage (including all real and personal property located on the Premises)
arising on the Premises or arising out of Lessee's operations. The limits of liability shall be not
less than Two Million Dollars ($2,000,000) for each occurrence and in the aggregate unless the
Lessor requests a lesser liability limit. Lessor may impose changes in the limits of liability (i) at
the same time as revaluation of the annual Rent; (ii) as a condition of approval of assignment or
sublease of this Lease; (iii) upon any breach of the Environmental Liability provision herein; (iv)
upon a material change in the condition of any improvements; or, (v)upon a change in the
Authorized Use. If the liability limits are changed, Lessee shall obtain new or modified insurance
coverage within thirty (30) days after changes in the limits of liability are required by Lessor. The
liability policies shall contain a cross-liability provision such that the policy will be construed as if
separate policies were issued to Lessee and to Lessor.
a. The foregoing insurance policy shall name Lessor as an additional insured.
Lessee shall provide certificates of insurance and, if requested, copies of any policy to Lessor.
Receipt of such certificate or policy by Lessor does not constitute approval by Lessor of the
terms of such policy. Furthermore, the policy of insurance required herein shall: (i) be written as
a primary policy; (ii) expressly provide that such insurance may not be materially changed,
amended or canceled with respect to Port except upon forty-five (45) days' prior written notice
from the insurance company to Port; (iii) contain an express waiver of any right of subrogation by
the insurance company against Port and Port's elected officials, employees, or agents; (iv)
expressly provide that the insurance proceeds of any loss will be payable notwithstanding any
act or negligence of Airline which might otherwise result in a forfeiture of said insurance; v)
contain a separation of insureds provision such that the policy applies separately to each insured
that is subject of a claim or suit; vi) not contain a cross-claim, cross-suit, or other exclusion that
eliminates coverage by one insured against another; and (vii) provide for coverage for damage
to the Port's property caused by the Airline, and, (viii) in regard to physical property damage
coverage, expressly provide that all proceeds shall be paid jointly to Port and Airline.
5.1.3 If Airline fails to procure and maintain the insurance described above, Port shall
have the right, but not the obligation, to procure and maintain substitute insurance and to pay the
premiums. Airline shall pay to Port upon demand the full amount paid by Port.
5.1.4 The Airline believes and states that the insurance obligation herein does not
exceed that which the Airline would otherwise normally place upon itself and obtain in order to
operate its business in a prudent manner.
AIRPORT LEASE-155.2 FINANCIAL SECURITY. In compliance with the requirements of state law, Airline
agrees that it will secure the performance of the rental portion of this Lease by procuring and
maintaining, during the term of this Lease, a corporate surety bond, or by providing other
financial security satisfactory to Port (herein referred to as the "Bond"), in an amount not less
than $20,000.00, plus state leasehold excise tax. The Bond shall be in a form and issued by a
surety company acceptable to Port and shall comply with the requirements of Washington law.
Airline shall obtain such Bond and forward evidence thereof to Port prior to occupancy of the
Premises. Failure to comply with this requirement shall be grounds for termination of this Lease
without notice by Port. Such Bond shall be kept always in effect during the term of this Lease;
failure to comply with this requirement shall render Airline in default. The Bond shall be
increased annually to reflect any adjustments in annual Rent. Upon any default by Airline in its
obligations under this Lease, Port may collect on the Bond to offset the liability of Airline to Port.
Collection on the Bond shall not relieve Airline of liability, shall not limit any of Port's other
remedies, and shall not reinstate or cure the default or prevent termination of the Lease because
of the default.
5.3 WAIVER OF SUBROGATION. The Port and Airline hereby mutually release each other
from liability and waive all right of recovery against each other from any loss from perils which
can be insured against under an insurance contract with extended coverage endorsement
generally available at the time the loss occurs, and whether or not the party incurring the loss
has actually obtained such insurance; provided that if this paragraph would have the effect of
invalidating any insurance coverage of the Port or of the Airline, is shall be inapplicable as to the
party covered by that insurance contract, but only to the extent necessary to preserve the validity
of that insurance contract.
5.5 INCREASE IN COST OF INSURANCE. The Airline shall not use the Premises in a way
not contemplated by the terms of this Lease in such a manner as to increase the existing rates
of insurance applicable to the buildings or structures of which the Premises or portions thereof
may be a part. If it nevertheless does so, then, at the option of the Port, the full amount of any
resulting increase in premiums paid by the Port with respect to the buildings or structures of
which the Premises are a part, and to the extent allocable to the term of this Lease, may be
added to the amount of rental and shall be paid by the Airline to the Port in monthly installments
or as otherwise directed by the Port.
5.6 FIRE PROTECTION. Airline understands that Port has no responsibility to provide fire
protection for Lessee's property or equipment located in or upon the Premises. It shall be the
exclusive responsibility of Airline to provide for its own fire protection including, but not limited to,
promptly paying all fire district service charges when due. In this regard, Airline understands that
it is the Lessee's responsibility and duty to include the value of its buildings, property and
equipment to appropriate county authorities for personal property tax purposes through which
fire district service charges are paid. Failure of Airline to accurately list its improvements or
promptly pay its fire district service charges when due, shall be a breach of this Lease and shall
be grounds for Port to terminate this Lease. Airline shall promptly provide Port with a copy of its
personal property declaration within seven (7) days from the time such declaration is made to
the Whatcom County Assessor.
ARTICLE VI
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