Dubois County Airport Authority seemingly at impasse with corporate client over new lease rates

The Dubois County Airport Authority board voted to send a 90-day eviction notice to Dubois County Flight Services after the company rejected the authority’s final rental offer of $167,250 annually for hangar space at Huntingburg Regional Airport.

The decision comes after 18 months of lease negotiations between the airport authority and Jasper Holdings’ Flight Services, which currently pays $23,750 per year under an existing lease that has been extended multiple times with increased rates since the original 1993 agreement.

Airport board members expressed frustration during their recent meeting after receiving a letter from Doug Bawel, CEO of Dubois County Flight Services, formally rejecting the authority’s $13,937-per-month offer. Dubois County Flight Services had previously offered counterproposals ranging from $50,000 to $60,000 annually.

The facility includes 12,144 square feet of hangar space, 2,496 square feet of office space, an aircraft apron, and a parking lot.

Authority President Jim Hunsicker pointed out that the building Dubois County Flight Services leases is an “executive hangar that has space for three planes. It’s got heated floors, it’s got restrooms, sleeping facilities and office areas.”

The facility was originally built by the Dubois County Flight Services in 1992 under the terms of their lease agreement. Those same terms stipulate that after 30 years, the airport authority may increase the rates to up to 1/20 of the building’s replacement cost.

The airport authority has asked construction companies for the building’s replacement cost — though not as an official bid proposal — and has received estimates ranging from $4 to $7 million. According to Attorney Bill Kaiser, representing Dubois County Flight Services, the board used those numbers to calculate a $5 million replacement cost.

The airport authority also considered warehouse and office lease rates in its research, according to board members. However, the FAA has recommended that hangar space lease rates should use warehouse space rates as a foundation for determination.

Kaiser emphasized that, though the lease allows the airport authority to charge up to 1/20th of the replacement cost, the reality is that Dubois County Flight Services is leasing a 30-plus-year-old building — a building it has maintained over the years of the lease.

In their rejection letter, Dubois County Flight Services provided four different fair market value assessments, including studies from Aviation Management Consulting Group and Brooks Galloway Appraisal. The company’s analysis suggested annual rental rates ranging from $33,475 to $53,908, significantly lower than the authority’s proposal.

The company also offered two alternative arrangements: a long-term lease at $60,000 annually with 2.5% annual increases, or purchasing the building for $756,175, with $15,000 annually in ground rent.

Board members emphasized their financial constraints, noting the authority faces a $122,000 budget shortfall next year due to state-imposed limitations on local tax revenue enacted in Senate Bill 1, passed in this year’s legislative session.

“We have a limited income and we have to operate a facility,” said Hunsicker.

The FAA is also pushing airports to become more self-sustaining, and their actions to achieve that will affect funding for future projects. The Huntingburg Airport has received FAA support for several recent expansions and additions, including lengthening the runway and the new terminal building currently under construction. That support comes in the form of grants of 80 to 90 percent of the project cost, with the airport and the state applying matching funds.

According to Airport Manager Travis McQueen, that includes establishing sustainable lease rates for the airport’s facilities.

“We can’t raise revenue; can’t get any money from the state, from the county, the federal government really anymore,” Airport Authority boardmember Michael Cummings said. “If we can’t charge fair market rate for our facilities either, what are we going to do?”

The board recognized that, as a government agency, all tenants will have access to the negotiated rates and that by making this decision, they are creating a standard for future contracts. It’s an important decision to continue operating and plan for the airport’s and the region’s future needs. In previous meetings, the board acknowledged that these rates would apply to negotiations for future leases with corporate clients at the airport.

Keith Sermersheim, general counsel for Best Chairs, another corporate tenant at the airport, was in attendance at Monday’s meeting. He expressed concerns about the precedent being set by the negotiations with Dubois County Flight Services. He noted that his company’s lease renewal has been delayed for over a year while the airport authority negotiates with the flight services company.

“If JETT (Dubois County Flight Services) takes off and leaves this place, I can tell you that we have to evaluate our options as well,” he said. “We don’t want to leave. We’d like to stay here. This is Dubois County. This is where we want to be.”

“But if we’re not going to be treated like we’re wanted and valued here, then we have to evaluate our options elsewhere, too,” Sermersheim added.

He explained that the airport’s nice facilities exist because corporate clients have maintained them.

“We just did $25,000 remodeling for the office,” Sermersheim said. “Now you say, ‘Great, that’s a beautiful, wonderful office space. Pay us more because it is nice.'”

He advised the board to go back to Dubois County Flight Services to continue negotiations.

“Work with them,” he said.

The board ultimately decided to provide Dubois County Flight Services with all previously requested documentation regarding the authority’s rental methodology, along with a final opportunity to accept the $167,250 annual rate. If the company does not respond within two weeks, the 90-day eviction notice will take effect.

Board members acknowledged the importance of corporate tenants to the regional economy, but maintained they cannot accept rental rates that fail to cover operational costs.

“I know there’s a lot of people that said no, it’s not fair, it’s this or that. I’m not going to get into it,” said Hunsicker. “We’re to the point we have to look at the life of this airport and we have to be able to maintain this airport.”

The board plans to begin marketing the hangar space to potential new tenants while the 90-day notice period proceeds, recognizing the need to replace the rental income if current negotiations fail.

Correction: We updated the story to read that warehouse lease rates should be used as a foundation for determining local rates. The story originally stated that airports should not use warehouse space rates in determining the lease rates.