Airport Alert: FAA Releases More Guidance for Airports on COVID-19 Restrictions/Accommodations and an FAQ on CARES Act Grants
April 4, 2020
This evening the Federal Aviation Administration (FAA) released two new coronavirus-related documents for airports, including updated guidance for airport sponsors on responding to requests from tenants to defer or abate rents, fees, or other payments owed. FAA also released a frequently asked questions (FAQ) document to help airports learn more about how the agency intends to distribute $10 billion that Congress approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
FAA's updated guidance document contains a new section regarding rent abatement, including minimum annual guarantees. FAA emphasizes that an airport sponsor's decision to abate rent is a local decision that should be tied to the changed circumstances caused by the COVID-19 outbreak. The agency also outlines a number of factors that airports should consider if they plan to provide such relief to their tenants, including consulting with all affected parties and implementing a consensus approach where abatement could result in shifting costs between various classes of airport users.
FAA's updated guidance, "Information for Airport Sponsors Considering COVID-19 Restrictions or Accommodations," can be viewed here. The original guidance was released on March 28. FAA notes that the revised informational document for airport sponsors is not legally binding and remains voluntary only. FAA's FAQ document regarding airport grants under the CARES Act can be viewed here.
Updated Information for Airport Sponsors on COVID-19 Restrictions/Accommodations
Rent Abatement. The most notable change in the updated FAA guidance is a new section regarding rent abatement. FAA states:
"Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local decision. Rent abatement should be tied to the changed circumstances caused by the public health emergency, and done in accordance with Grant Assurances 22 and 24, as well as related statutes. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties and implement a consensus approach if possible.
If a sponsor (or airport tenant, whether aeronautical or non-aeronautical) desires to renegotiate rent, a reasonable basis for such an action might be established if the underlying basis for such rent has temporarily declined or materially altered due to COVID-19. In such circumstances, the offer of accommodation in the form of rent abatement is not barred by the grant assurances as long as it is reasonable under the circumstances and reflects the decline in fair market value, loss of services, and/or changes to volume of traffic and economy of collection.
Sponsors considering such relief are encouraged to consider the business situation of the tenant; the changed circumstances created by the public health emergency; the desirability of having solvent tenants that can resume normal operations when the emergency ends; the availability of other governmental or insurance relief that such entities have or may receive; an appropriate term for such relief; and possible subsequent conditions that, if triggered, would end the abatement. Such a condition could be the receipt of other governmental forms of relief; insurance recovery, if any; or an end to the emergency.
As noted above, where sponsors have residual lease arrangements with aeronautical users, the reduction of rent for certain non-aeronautical entities may shift costs to the aeronautical users such as airlines. Achieving the appropriate balance between these users is a local responsibility that should be managed in consultation with all affected parties. If rent abatement to non-aeronautical users results in an increase to aeronautical rates, that is not necessarily an impediment from a grant assurance perspective, but the aeronautical rates must remain reasonable. For any actions that reallocate costs, FAA encourages sponsors to carefully balance and consider the equities between all airport users. Additionally, the sponsor is encouraged to consult with all affected parties before making its decision and reach a consensus where possible.
Apart from any Federal obligations, the FAA also recommends that airport sponsors consult their lease agreements to understand their discretion to act, particularly in a residual methodology context. Airport sponsors should also examine any bond covenants to identify any potential restrictions that may exist."
Rent or Fee Deferrals. FAA notes that in cases where bond restrictions or other conditions may prevent airports from offering rent abatements, the deferrals of rents and/or fees may be possible under certain conditions, including applying reasonable terms and interest rates. The agency also added that neither airports nor FAA have the legal authority to allow air carriers to defer the remittance of collected Passenger Facility Charge (PFC) revenues.
Other Highlights. FAA's updated informational document provides new information on temporary overflow parking and addresses several new issues that have arisen for airport sponsors during their response to the pandemic. Highlights from updates include:
This evening the Federal Aviation Administration (FAA) released two new coronavirus-related documents for airports, including updated guidance for airport sponsors on responding to requests from tenants to defer or abate rents, fees, or other payments owed. FAA also released a frequently asked questions (FAQ) document to help airports learn more about how the agency intends to distribute $10 billion that Congress approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
FAA's updated guidance document contains a new section regarding rent abatement, including minimum annual guarantees. FAA emphasizes that an airport sponsor's decision to abate rent is a local decision that should be tied to the changed circumstances caused by the COVID-19 outbreak. The agency also outlines a number of factors that airports should consider if they plan to provide such relief to their tenants, including consulting with all affected parties and implementing a consensus approach where abatement could result in shifting costs between various classes of airport users.
FAA's updated guidance, "Information for Airport Sponsors Considering COVID-19 Restrictions or Accommodations," can be viewed here. The original guidance was released on March 28. FAA notes that the revised informational document for airport sponsors is not legally binding and remains voluntary only. FAA's FAQ document regarding airport grants under the CARES Act can be viewed here.
Updated Information for Airport Sponsors on COVID-19 Restrictions/Accommodations
Rent Abatement. The most notable change in the updated FAA guidance is a new section regarding rent abatement. FAA states:
"Rent abatement / minimum annual guarantee: A decision to abate rent (including "minimum annual guarantees" and also encompassing fees) is a local decision. Rent abatement should be tied to the changed circumstances caused by the public health emergency, and done in accordance with Grant Assurances 22 and 24, as well as related statutes. Where abatement results in shifting costs between various classes of airport tenants and users, the airport sponsor is encouraged to consult with all affected parties and implement a consensus approach if possible.
If a sponsor (or airport tenant, whether aeronautical or non-aeronautical) desires to renegotiate rent, a reasonable basis for such an action might be established if the underlying basis for such rent has temporarily declined or materially altered due to COVID-19. In such circumstances, the offer of accommodation in the form of rent abatement is not barred by the grant assurances as long as it is reasonable under the circumstances and reflects the decline in fair market value, loss of services, and/or changes to volume of traffic and economy of collection.
Sponsors considering such relief are encouraged to consider the business situation of the tenant; the changed circumstances created by the public health emergency; the desirability of having solvent tenants that can resume normal operations when the emergency ends; the availability of other governmental or insurance relief that such entities have or may receive; an appropriate term for such relief; and possible subsequent conditions that, if triggered, would end the abatement. Such a condition could be the receipt of other governmental forms of relief; insurance recovery, if any; or an end to the emergency.
As noted above, where sponsors have residual lease arrangements with aeronautical users, the reduction of rent for certain non-aeronautical entities may shift costs to the aeronautical users such as airlines. Achieving the appropriate balance between these users is a local responsibility that should be managed in consultation with all affected parties. If rent abatement to non-aeronautical users results in an increase to aeronautical rates, that is not necessarily an impediment from a grant assurance perspective, but the aeronautical rates must remain reasonable. For any actions that reallocate costs, FAA encourages sponsors to carefully balance and consider the equities between all airport users. Additionally, the sponsor is encouraged to consult with all affected parties before making its decision and reach a consensus where possible.
Apart from any Federal obligations, the FAA also recommends that airport sponsors consult their lease agreements to understand their discretion to act, particularly in a residual methodology context. Airport sponsors should also examine any bond covenants to identify any potential restrictions that may exist."
Rent or Fee Deferrals. FAA notes that in cases where bond restrictions or other conditions may prevent airports from offering rent abatements, the deferrals of rents and/or fees may be possible under certain conditions, including applying reasonable terms and interest rates. The agency also added that neither airports nor FAA have the legal authority to allow air carriers to defer the remittance of collected Passenger Facility Charge (PFC) revenues.
Other Highlights. FAA's updated informational document provides new information on temporary overflow parking and addresses several new issues that have arisen for airport sponsors during their response to the pandemic. Highlights from updates include:
- Temporary Overflow Parking. Since issuing its March 20 Part 139 CertAlert, FAA has been concerned over the potential safety implications of parking aircraft on runways. In the updated guidance, FAA continues to advise that airport sponsors may park overflow aircraft on runways as a last resort. However, FAA now urges airports to also consider suggesting that aircraft owners contact other nearby airports where there may be additional aircraft parking capacity prior to parking aircraft on runways.
- Use of Airport Employees for Health Screenings. FAA indicated that the use of airport employees for public health screenings is generally not considered a proper use of airport revenue.
- Recreational Aeronautical Restrictions. FAA advised that state or local COVID-19 restrictions on non-essential activity may include certain recreational aeronautical activities. However, the agency indicated that such restrictions should be temporary and falling within the scope of a public health measure from an authority whose jurisdiction covers the airport's geographic area. FAA emphasized that its primary goal is to ensure that the airport remains open for emergency services and the traveling public.
FAQ on CARES Act Airport Grants
FAA also released a FAQ regarding airport grants under the CARES Act. The guidance is consistent with the information we have provided since the legislation was finalized in terms of the distribution of funds and the flexibility provided to airports. The document points out that airports may use CARES Act funding for new airport development. But it also indicates that those projects will be accompanied by additional requirements that will not apply to the use of funds for operating expenses and debt service payments. FAA addresses this in the FAQ:
"Can I use CARES grant funds for new airport development on the airport?
Yes. However, additional requirements apply. To make these critical CARES funds available as quickly as possible, the FAA is issuing non-construction grants that permit expenditure for airport operating expenses (such as payroll) and to pay airport debt service. A recipient of a CARES grant that wishes to use the funds for new airport development or construction (i.e., to award a contract after March 27, 2020, for airport development) should contact its local Airports District Office or Airports Regional Office to make arrangements to do so. That office will ensure that such development is consistent with all of the recipient's prior Federal obligations, meets safety and security standards, meets National Environmental Policy Act (NEPA) requirements, meets prevailing wage and Buy American requirements, and meets other specific requirements for new airport development under the CARES Act."
