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HomeMy WebLinkAboutItem 07 - American AirlinesMEMO TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL '• • RUMBELOW,- MEETING DATE: NOVEMBER 17, 2015 SUBJECT: CONSIDERATION OF A RESOLUTION TO THE CITY'S ENTERPRISE ZONE PROGRAM CONCERNING THE NOMINATION OF AMERICAN AIRLINES, INC. TO THE OFFICE OF THE GOVERNOR, ECONOMIC DEVELOPMENT AND TOURISM, AS A TEXAS ENTERPRISE PROJECT RECOMMENDATION: Staff recommends that the City Council approve the attached resolution to nominate American Airlines, Inc. to the Office of the Governor, Economic Development and Tourism as a Texas Enterprise Project. FUNDING SOURCE: Economic development incentives in the form of sales and use tax rebates are derived from the state's portion of state sales and use taxes. None of the funding source will involve the local sales tax. BACKGROUND INFORMATION: American Airlines hangars 1 through 4 are located at 1600 W. 20th Street, here in Grapevine and house approximately 2,050 full-time employees. Other American locations in Texas include facilities in Arlington, Austin, College Station, Dallas, Fort Worth, Humble, Irving, EI Paso, Longview, San Angelo, San Antonio, Southlake, and Waco. American currently has over 23,000 employees throughout all of its Texas facilities. Hangars 1 through 4 are dedicated to line maintenance work. Activities at this location include light aircraft maintenance aircraft parking, light routine aircraft maintenance, and some overnight quality assurance. American is now in a position to upgrade and retrofit Machinery, Equipment, and some structures that have been in use for quite a while. They have many improvements in the planning stages that have been postponed during the bankruptcy and merger. Some examples include the replacement and upgrade of the 40 year old fire suppression systems, upgrades to ground service equipment as that is over 10 years old and in need of upgrade and replacement. and/or expansion. Allows $2,500 per job per year in State sales •use tax rebate.Norebateofanyportion • role is tonominate• ordinance to the State • project designation. Decembero November 17.,2015 City review o deadline American Airlines' hangars 1-4 currently • approximately 2,050 workers. They are spending • • • • . i, 0milliontoupgrade • • and • • - • • • • 1 1 •` ! • • maximum amount of $1.25 million. Requires that 35% of new hires •- economically disadvantaged. American Airlines must prove that they are meeting the retentionand hiring criteria through the State Comptroller's • - prior•rebate. CRAPFVTNF Credit• Unemployed for the preceding 3 months • Recipient of some type of public assistance • Eligible for the Federal Work Opportunity Tax . • rr • • • • •: • • • inmate serving in a 7. • • • • • •'I • • '.... • : . U • ru gars 1 4 mercian Airlines Han �! I 4,_ v 1�600� W. 2y�Oth Street,: Grapevin&,`�X pa \!" i �e ! �. AMERto ICAN, AIRLINES .� HANGAR 1 AMERICAN r ' W 20TH ST AIRLINES f� HANGAR 2 foe iL ! ! r�ui�: w —*�•� ver W:20TH-ST i £ w .e a! v I 46 IAM v ERICAN AIRLINES " w A NGAR 3 at Hf,_ J ! AMERICAN AIRLINES HANGAR 4 i ! TH ' ��*►f" - }� � + "6 � Fit # � � } tt . RYJL 41A V1 E F e T E X A S s I +_ I1; r�" I , tr .�•�..J 1, �! December 1, 2015 Office of the Governor Bob Farley Economic Development & Tourism Economic Development Director Texas Economic Development Bank City of Grapevine 1100 San Jacinto 200 S. Main Street Austin, TX 78701 Grapevine, TX 76051 Re: Designation of American Airlines, Inc. as an Enterprise Project Dear Executive Director: American Airlines Group Inc ("AAG") is a holding company and its wholly-owned subsidiaries include American Airlines, Inc. ("American"), US Airways Group, Inc. ("US Airways Group") and Envoy Aviation Group Inc. ("Envoy"). US Airways Group's principal subsidiary include US Airways, Inc. ("US Airways") and its other wholly-owned subsidiaries include Piedmont Airlines, Inc. ("Piedmont"), and PSA Airlines, Inc. ("PSA"). AAG was formed in 1982 under the name AMR Corporation (AMR) as the parent company of American which was founded in 1934. On December 9, 2013, a subsidiary of AMR merged with and into US Airways Group, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11. Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. AAG's and American's principal executive offices are located at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155. 2014 total operating revenue was $42,650,000,000, with 2013 total operating revenue of $26,743,000,000, and 2012 total operating revenue of $24,855,000,000. AAG's primary business activity includes the operation of two network carriers through its principal, wholly-owned mainline operating subsidiaries: American and US Airways. The Company's airlines operate an average of approximately 6,700 flights per day to around 339 destinations in around 54 countries from its hubs in Charlotte, Chicago, Dallas/Fort Worth (DFW), Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, District of Columbia. Hangars 1 through 4 are located at 1600 W. 20t' Street, Grapevine, Texas, 75261 and house approximately 2,050 employees. Other American locations in Texas include facilities in Arlington, Austin, College Station, Dallas, Fort Worth, Grapevine, Humble, Irving, El Paso, Longview, San Angelo, San Antonio, Southlake, and Waco. American currently operates at 15 different sites throughout Texas and employs in excess of 36,000 people engaged in a variety of functions, including pilots, flight attendants, passenger service, and aircraft maintenance. Hangars I through 4 are dedicated to line maintenance work. Activities at this location include light aircraft maintenance, "A checks" and "B checks", aircraft parking, light routine aircraft maintenance, and some overnight quality assurance. "A checks" are performed approximately every 125 flight hours or 200-300 cycles (takeoff and landing is considered an aircraft "cycle"). These checks take about 20-50 man-hours and are usually performed overnight. The actual occurrence of this check varies by aircraft type, the cycle count, or the number of hours flown since the last check. `B checks" are performed approximately every 6 months. These checks take about 120-150 man-hours, depending on the aircraft, and are usually completed within 1-3 days. A similar occurrence schedule applies to the B check as to the A check. However, B checks may also be incorporated into successive A checks. American is now in a position to upgrade and retrofit M&E that has been in existence for quite a while. They have many improvements in the planning stages that they had to postpone during the bankruptcy and merger. For example, the fire suppression systems being replaced are 40 years old. The ground service equipment as well as other machinery and equipment is over 10+ years old and in need of upgrade and replacement. American projects to spend approximately $82.5 million over the next 5 years on equipment and systems upgrades, a new engine disassembly center, and a large parts warehouse/distribution center. This projected investment will occur throughout the 5 -year project designation period, starting in July 2015 through December 2020. Equipment upgrades expected during 2015 include approximately $1.5 million for ground service equipment such as a super tug (i.e., a vehicle and equipment used to tow aircraft) and ground power units for the hangars. Approximately $10 million is expected to be spent for system upgrades throughout the hangars. These upgrades include security upgrades, fire system upgrades, electrical systems upgrade, electrical systems upgrades for plugging into planes, mobile and stationary ground power units, electric carts and push out tractors, and adding an air handling system. The engine disassembly center is projected to cost approximately $10 million and the investment will take place from 2016 through 2020. Investment in a warehouse/distribution center is projected to be approximately $60 million, commencing in 2016 and going through 2020. These investments are critical to the competitiveness of American as a whole, the viability of the Grapevine facilities as contributing assets in American's operating portfolio, and ultimately to creating as well as retaining jobs. Further, as needed, the business will maintain separate payroll and tax records of the business activity conducted at the qualified business site. American is requesting your support in obtaining an Enterprise Project designation from the Office of the Governor — Economic Development & Tourism as an Enterprise Zone Project. American is requesting benefit for the retention of 500 jobs due to the proposed capital investment and subsequent equipment upgrades. Thank you for your consideration in this regard, and I look forward with anticipation to a positive disposition. Sincerely, Robert Glenn Sr. Transaction Tax Manager RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS, NOMINATING AMERICAN AIRLINES, INC. TO THE OFFICE OF THE GOVERNOR, ECONOMIC DEVELOPMENT AND TOURISM THROUGH THE ECONOMIC DEVELOPMENT BANK FOR DESIGNATION AS AN ENTERPRISE PROJECT ("PROJECT") UNDER THE TEXAS ENTERPRISE ZONE PROGRAM UNDER THE TEXAS ENTERPRISE ZONE ACT, CHAPTER 2303, TEXAS GOVERNMENT CODE ("ACT") AND PROVIDING AN EFFECTIVE DATE 1gW&kC WHEREAS, on August 3, 2010, the City of Grapevine, Texas (the "City") passed Ordinance No. 2010-38 electing to participate in the Texas Enterprise Zone Program, and the local incentives available under this resolution are the same on this date as were outlined in Ordinance No. 2010-38; and WHEREAS, the Office of the Governor Economic Development and Tourism ("OOGEDT") through the Economic Development Bank ("Bank") will consider American Airlines, Inc. (the "Company") as an enterprise project pursuant to a nomination and an application made by the City; and WHEREAS, the City Council of the City of Grapevine, Texas, desires to pursue the creation of the proper economic and social environment in order to induce the investment of private resources in productive business enterprises located in the City and to provide employment to residents of enterprise zones and to other economically disadvantaged individuals; and WHEREAS, pursuant to Chapter 2303, Subchapter F of the Texas Enterprise Zone Act, Texas Government Code (the "Act"), American Airlines, Inc. has applied to the City for designation as an enterprise project; and WHEREAS, the City finds that American Airlines, Inc. meets the criteria for designation as an enterprise project under Chapter 2303, Subchapter F of the Act on the following grounds: 1. American Airlines, Inc. is a "qualified business" under Section 2303.402 of the Act since it will be engaged in the active conduct of a trade or business at a qualified business site within the governing body's jurisdiction located outside of an enterprise zone and at least thirty-five percent (35.0%) of the business' new employees will be residents of an enterprise zone or economically disadvantaged individuals; and 2. There has been and will continue to be a high level of cooperation between public, private, and neighborhood entities within the area; and 3. The designation of American Airlines, Inc. as an enterprise project will contribute significantly to the achievement of the plans of the City for development and revitalization of the area. WHEREAS, the City finds that American Airlines, Inc. meets the criteria for tax relief and other incentives adopted by the City and nominates American Airlines, Inc. for enterprise project status on the grounds that it will be located at the qualified business site, will create a higher level of employment, economic activity and stability; and WHEREAS, the City finds that it is in the best interest of the City to nominate American Airlines, Inc. as an enterprise project pursuant to the Act; and WHEREAS, all legal prerequisites for the adoption of this resolution have been met, including but not limited to the Local Government Code and the Open Meetings Act; and WHEREAS, the City Council hereby declares that the approval of this resolution is in the best interests of the health, safety, and welfare of the public. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS: Section 1. That the findings of the City and its actions approving this resolution taken at the council meeting are hereby approved and adopted. Section 2. That the City finds that American Airlines, Inc. is a "qualified business", as defined in Section 2303.402 of the Act, and meets the criteria for designation as an enterprise project, as set forth in Section 2303, Subchapter F of the Act. Section 3. That the City nominates American Airlines, Inc. to the State of Texas for Enterprise Project status. Section 4. That the enterprise project shall take effect on the date of designation of the enterprise project by OOGEDT and terminate 5 years after the date of designation. PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF GRAPEVINE, TEXAS on this the 17th day of November, 2015. RES. NO. 2 020�00 ATTEST: RES. NO.