Lafayette Airport Commission Bait and Switch

SUPPORTING TESTIMONY TO FAA COMPLAINT

IN RE:

LAFAYETTE, LOUISIANA REGIONAL AIRPORT FIXED BASED OPERATOR LEASE

JUNE 2007

STATEMENT, EXECUTIVE SUMMARY, AND FINANCIAL ANALYSIS

OF J. STEPHEN GARDES, CPA, CVA

____________________________________

J. Stephen Gardes, CPA, CVA

Darnall, Sikes, Gardes & Frederick

A Corporation of Certified Public Accountants

(337) 232-3312 Ext. 155 Phone

(337) 237-3614 Fax

FAA Complaint

Lafayette Regional Airport - FBO Lease

Executive Summary

June 2007

The following is a summary of the key elements of the "FAA Complaint" that our Lafayette Airport Commission (hereinafter "LAC") (1) failed to get Fair Market Value (hereinafter "FMV") for our airport property as the result of (2) a very biased lease process. A summary of the revised updated complaints are as follows;The FBO lease at Lafayette Regional Airport (hereinafter "LFT") is comprised of three major elements:

Base Rent
Fuel Flowage Fees
Capital Expenditure paid by Lessee

The LAC had pre-determined and recruited Million Air of Cincinnati to be the next FBO Lessee, and then proceeded to do whatever it had to do to make sure Million Air won a "tainted lease process"…. which resulted in a process that failed to get FMV for airport property as illustrated by the following:

The LAC rejected the Elmore Group's December '04 proposal to merge the two existing FBOs …to continue to pay the old floating Fuel Flowage Fee of 7.5% of fuel cost…and to construct a new $3.0 million terminal. This "rejected proposal" turns out to be $2.7 million better on a discounted present value basis ($10.3 million better on an undiscounted basis) (see Exhibit A) than the final Million Air lease and is the grounds for COMPLAINT NO. 1 of the LAC failure to get FMV. It is important to note that the above calculations are based on the conservative assumption that the cost of fuel will only increase 5% per year over the next 30 years….in spite of the fact that they have actually increased 12% per year over the last 7 years.

The LAC states they want to put the FBO Lease out to bid and then initiate a questionable Request For Proposal ("RFP") process whereby only 3 private invitations were issued. Proposals were due March 30, 2005.

The LAC allows Million Air to submit a late, supplemental proposal on April Fools Day, 2005, after it was determined that Million Air’s proposal was not the best.

The late supplemental proposal stated that Million Air would (1) pay $6.0 million on new facilities, and (2) pay FMV rent as determined by the LAC.

The decision to accept the late proposal was based on the assurance of the Director of Aviation to the FBO Sub-Committee that Million Air had not received any privileged information after the March 30^th deadline … which is being questioned below in the section "Accepting Supplemental Proposals."

April 1, 2005 LAC FBO Sub-Committee Minutes

The FBO Sub-Committee Chairman recommends the Million Air proposal because “…if someone is going to offer $3 Million more in capital improvements and better lease rates…he cannot overlook that fact…as it would indicate to the public the “good old boy network” is in full effect at the airport.” The Commission vote results in a highly unusual 3-3 deadlock. The LAC Chairman, normally a non-voting member, is then required to vote and he votes for Million Air based on the recommendations of the FBO Sub-Committee. The LAC therefore chose to focus primarily on Million Air's $6.0 million capital expenditure proposal in awarding it exclusive negotiating rights and then allows Million Air to renege on the $6.0 million proposal during the subsequent "exclusive negotiations."

April 7, 2005 LAC Minutes

Over the course of the next 12 months of exclusive negotiations (May 2005 – May 2006), the LAC also allows Million Air to renege on its original proposal to pay "FMV rent as determined by the LAC" when it consents to change its long standing fuel flowage fee formula from a floating 7.5% of fuel cost to a fixed fee formula…and which will end up costing the LAC at least $16.6 million (see Exhibit B) over the life of the lease if fuel prices increase 5% per year (Note: fuel prices have increased 12% per year since 2000).

In December 2005, the LAC amends its lease policy to adopt the new state law which allows airports to avoid the bid process when leasing airport property if they "obtain FMV as determined by either appraisals or FMV Comparisons as required by the FAA." The negotiations for the FBO lease are still in process at this date, and since they include the unusual aspect of the Lessee building a new terminal and hangar, so it makes FMV Comparisons the only available method of assuring that FMV is obtained for the FBO lease.

In May 2006, after learning that Million Air had submitted its third consecutive "backpedaling proposal" of only spending "a minimum of $2.0 million" on the new facilities…and just as important, that Million Air was only proposing to pay a fixed fuel flowage fee of 11.5 cents/gallon that was significantly lower than what was presently being paid at the time (17.5 cents per gallon), an expanded group of Lafayette Investors…some of the communities most successful businessmen (Wayne Elmore, Herb Schilling, Matt Stuller, Acadian Ambulance, Rodney Savoy and Mike Poole)….requested permission to submit a proposal for the FBO lease. The LAC denied their request. This was the LAC's first and only opportunity to obtain FMV Comparisons in accordance with their newly adopted Lease Policy, and yet they chose not to.Comment: This decision by our LAC appears to be negligence of their own policies and is a bad business decision as they had everything to gain and nothing to lose. This failure to get FMV comparisons is the basis for our COMPLAINT NO. 2 for failure to get FMV.

"Versions of the Truth"

In attempts to defend its actions to the community, our LAC has taken bits and pieces of a very complicated process, and have twisted them into various "versions of the truth"…depending on what decision they were trying to justify to the Public. A few examples are as follow:

Version #1 -- Fuel Flowage Fees -

The flowage fee issue is at the heart of this complaint, and due to its complexity, it is critical that the reader of the complaint understand it completely.

Prior appraisal reports performed for the LAC indicate that the other FBO's in the State of Louisiana pay fixed flowage fees ranging from 4-8 cents per gallon. LFT is the only airport in the state to charge its FBOs a floating flowage fee based on 7.5% of the wholesale price of fuel, and which equated to the following;

Average

Year	Fee Per Gallon	Total Flowage Fee
2000	7.6 cents	$152,000
2004	10.3 cents	206,000
2006	16.1 cents	322,000
2006 - May	17.5 cents…All time high

The LAC has long complained that the existing FBOs were not paying FMV rent. In December 2004, when the Elmore Group submitted its FBO lease proposal, they felt the LAC would always require the 7.5% floating fuel flowage fee even though it was the highest in the state. As a result, the Elmore Group proposed to continue paying the 7.5% floating fuel flowage fee. The LAC rejected the Elmore Group proposal; this rejection will turn out to be a major mistake on the part of the LAC.

In May 2006, the LAC FBO Sub-Committee reaches an agreement with Million Air to change the flowage fee formula to a fixed fee formula which equates to 11.5 cents per gallon…which is still the highest in the state. However, at that time, fuel prices had hit an all-time high and the LAC was collecting approximately 17.5 cents per gallon from Paul Fournet Air Service under the 7.5% floating fee formula…and this equates to approximately a $120,000 per year concession that the LAC was giving to Million Air based on May 2006 prices. This concession was huge as fuel flowage fees had increased 12% per year since 2000, rising from 7.6 cents to 17.5 cents per gallon. Furthermore, this concession was being given even though Million Air was reneging on their commitment to spend $6.0 million on new facilities (since they now wanted all minimum dollar capital expenditure amounts removed from the agreement).

When questioned why they changed the flowage fee for Million Air, the LAC defended its action by saying,

"…what other airports in the state levy fees based on percentage of fuel costs? None!...it is a windfall and this Commission is embarrassed to take it, and is going to do something about it."

June 2006 LAC minutes

Comment: This is a prime example of a "version of the truth". The LAC has long complained that the existing FBOs were not paying FMV rent…yet it is now obvious that the FBOs were paying excessive fuel flowage fees which is part of the total rent package being paid to the LAC. Furthermore, apparently the LAC was not embarrassed enough to give the existing FBOs a refund for past overcharges, but was embarrassed enough to change it for Million Air going forward.

Upon Learning that the 7.5% fuel flowage fee is no longer a "sacred cow" to the LAC, Lafayette Investors know that a substantial risk has been removed from their business plan with a fixed fee formula (as the flowage fees had been increasing 12% per year) and desired to make a proposal that would include a substantial dollar commitment on new facilities, instead. With everything to gain and nothing to lose, the LAC shockingly refuses to allow the Lafayette Investors to submit a proposal. Again, this action by our LAC must surely be considered negligence.

Comment: The LAC never talks about flowage fees unless forced to. Instead, they choose to only talk about "Base Rent" and "amounts to be spent on new facilities.” But when Million Air reneges on their new $6 million facility commitment, LAC suddenly decide to focus, now, on size of the facility - finding a new tag line to sidestep the hot issues their negotiations continue to create for them. The fact is that Fuel Flowage Fees, when calculated on a 7.5% floating formula based on the ever increasing cost of fuel, is a huge number…one that gets larger every year as fuel costs increase...and that’s what was originally proposed to be paid by Lafayette Investors, and that's what was rejected by the LAC.

However, it is important to note that all parties now agree that the flowage fee formula needs to be changed because the Lafayette FBO cannot compete with the other FBOs in the state if they have to pay 10-15 cents more per gallon in '07…and possibly 15-30 cents more per gallon in 5-10 years. The rules of the game have changed.

As a result of those changes, substantial risk to the FBO Lessee has been removed with the fixed (rather than floating) fuel flowage fee, and the Lafayette Investors could, and wanted, to pay more for the new facilities. Our LAC refused to let them try.

Million Air, on the other hand, has lowered their proposal from "spending $6 million on new facilities" to just "we will build new facilities". In spite of this renege, our LAC stands loyally by Million Air and has the audacity to state

"…and finally, (from Million Air) we are receiving lease rents at fair market value…"

LAC June 2006 minutes

Version #2 -- Accepting Supplemental Proposals

When questioned why they allowed Million Air to submit a supplemental proposal on April 1, 2005 (2 days after the deadline) the LAC's response was

"…the Commission has the ability to make these type of decisions since it was not a formal bid process…instead it was a RFP process…which is an open process which gives us considerable flexibility…

The Independent Weekly "Turbulence on the Ground" June 7, 2006

Yet, when refusing to let a very successful group of Lafayette businessmen submit a proposal in May 2006, after Million Air reneged on both its original commitment to spend $6 million on new facilities and to pay FMV rent as determined by the LAC, the LAC's response was "…reversing that productive process and turning the clock back more than a year would impact the integrity of the process…"

Memo dated 5-30-06 from the LAC Chairman to Herb Schilling

Comment: Another version of the truth? Apparently, the LAC thinks it has the to do anything it wants, and has chosen to accept a late proposal from Million Air…while it has refused to accept a proposal from Lafayette businessmen because it was late and they don't have the flexibility to consider it without impacting the integrity of the process, even though it would be the only FMV Comparison to prove FMV as required (1) by the FAA…(2) by Louisiana statues…and (3) by the LAC's own lease policy adopted in December 2005.

Furthermore, the LAC's decision to even accept Million Air's late supplemental proposal two days after the deadline (and as fate would have it, on April Fool's Day) is more than questionable. A special FBO Sub-Committee meeting was called for on April 1^st and at that meeting the FBO Sub-Committee Chairman expressed his concern in accepting the late proposal if Million Air had in fact received any privileged information after the deadline. The Director of Aviation assured him that no privileged information had been given to Million Air. Based on that assurance, the FBO Sub-Committee Chairman “stated his satisfaction and belief that Million Air did not receive an unfair advantage in the procedure” and recommended to accept Million Air's late, supplemental proposal.

LAC April 1, 2005 FBO Sub-Committee Minutes and LAC

April 7, 2005 Minutes

It was well known to the Elmore Group during the course of their '04 FBO lease negotiations that the LAC FBO Sub-Committee Chairman was a very strong advocate for the FBO to operate a Flight Training School. Million Air's original proposal did not include any reference to a Flight Training School. Million Air's supplemental April Fool's bid included the commitment to provide for a Flight Training School.

Comment: Subsequent calls by Richard P. Fournet to all six FBOs operated by Million Air of Cincinnati disclosed the fact that Million Air had no Flight Training Schools at their other locations.

Was Million Air's decision to open up their very first flight training school on LFT the result of divine insight…or the result of improper insider information?

Mr. Steve Oats, a local attorney and former Airport Commissioner himself, cautioned the Commission at the April 7, 2005 LAC regular meeting to

“…talk to staff, as he has information to believe that staff did talk with Million Air before the second proposals came in and challenged the Commission to test the situation…it defies common sense…when making a decision to run off local people based on a tainted process…

”If Million Air's late proposal for a Flight Training School was based on improper insider information, the minutes indicate that the FBO Sub-Committee Chairman would not have accepted and recommended the late proposal…and the LAC Chairman would not have cast the tie breaking vote in favor of Million Air.

If so, then this issue could not be considered merely a "version of the truth"….instead, it would be considered something a whole lot worse!

Version #3 -- Accepting Less than $6.0 Million -

When questioned on why the LAC allowed Million Air to back off their commitment to spend $6.0 million on new facilities, The Independent writes that "…somewhere in the ensuing lengthy negotiation process, the $6 million capital improvement was lowered, and shockingly, the current lease has no stipulation for how much money Million Air will invest in the facility… as (according to the LAC) the Commission has instead decided to concentrate on the size of the facility and services offered…

The Independent Weekly "Still Grounded"

August 7, 2006

Comment: The LAC is required by FAA regulations, state law and its own Lease Policy to concentrate on obtaining FMV for our airport property. For them to instead merely concentrate on size and services is more than shocking…it is negligence. However, it is a "version of the truth" that angles support at their decision.

Version #4 -- Recruiting of Million Air -

In February 2005, six weeks prior to the bid deadline, Million Air executives fly into Lafayette to discuss the possibility of obtaining a 30 year FBO Lease at LFT and "have a $600 dinner with a quorum of LAC Commissioners at one of the finer restaurants in town. The LAC picks up the tab."

Concerned Citizens for Good Government

Record Search Report

Comment: Normal business protocol usually calls for the guy trying to get the business to pick up the tab. Why did our LAC pick up the tab?

Version #5 -- LAC Mismanagement of the FBOs -

The FBO facilities at LFT are in poor condition. They are truly an embarrassment to the Lafayette Community. Our LAC blames the old FBOs (Paul Fournet Air Service and Lafayette Aero) for the deplorable conditions of the facilities since the FBOs have not made the normal repairs and extraordinary repairs (allegedly) required under the terms of their lease

This is the story the LAC told the FAA, and the FAA's "informal letter" dated September 2006 concurred that the LAC was acting properly since Fournet was in violation of its lease. Is this the full story, or only another "version of the truth"?

Comment: The LAC has insisted over the last 35 plus years that there be two FBOs operating at LFT Airport in order to assure that there was a proper amount of "competition". Furthermore, the LAC deemed it appropriate in the early 80's for various businesses who owned large jets to leave the FBOs and build their own private corporate hangars. Not only did this prove to further funnel the available revenue to new parties, and away from the existing FBOs, but the LAC declared that there would be no Fuel Flowage Fees paid by the corporate hangers of their choice …..at all! Although these management decisions may have benefited some of the parties involved, did they benefit the FBOs….who are the airports “anchor tenants” ?

In order to adequately understand this dichotomy, consider the following articles, letters and comments that would suggest otherwise;

Article from The NATA:

Should there be another FBO at your airport?

“...In many parts of the country the conventional wisdom seems to be the more FBOs there are at their local airport the better. Most of the time, this viewpoint is totally wrong.

…It is simply an issue of economics…what kind of realistic market analysis was done to show how this makes sound economic sense? What are the airport operators thinking when they approve or even go out of their way to solicit a second FBO? Their primary justification hinges on a mistaken understanding of "competition”.

…So, what happens when a second FBO arrives at the typical airport? It varies, of course, but one thing usually quickly disappears from the airport…profit! Without profits, both FBOs will try to cut costs, which usually lowers the services and quality levels.

…This same principle explains why there is usually only one grocery store in a shopping center, only one gas station at a turnpike rest stop, or only one gift shop in your hotel. The economics of the market dictate that one provider will do a better job than two.

…Until then, we will keep telling our good friends that control our airports' destinies about the economic facts of life. It would be best, of course, if we only had to tell them once!"

Article - "Should there be another FBO at your Airport?"

By James K Coyne, President

National Air Transportation Association

Quote from Matt Stuller:

"…Mr. Stuller first applauded the efforts of the LAC over the past year and a half, trying to effect one FBO operator at LFT, and making some tough decisions. Mr. Stuller added that everyone is aware that LFT is too small to support two quality FBOs…"

LAC June 2006 Minutes

Matthew Stuller Comment

Letter from Million Air:

"…as discussed on numerous occasions, there are numerous concerns regarding the FBO environment at LFT, to include the ability of the Airport to support more than one quality FBO, the quality condition, and deferred maintenance costs associated with the existing FBO facilities and the continuing proliferation of private corporate hangars with self-fueling rights at the Airport…

Letter from Million Air Cincinnati

To the Chairman of the LAC

Dated March 27, 2006

Re: Proposal for FBO Operations

Comment: The above quotes from various aviation experts provide strong evidence that our LAC has mismanaged the FBO operations at LFT for many years, and therefore, have significant responsibility for the deplorable FBO facilities which are a true embarrassment to the entire Lafayette Community.

It is a true travesty that our LAC has decided to lay sole blame for the poor FBO facilities on Paul Fournet Air Service…a company that has been the primary FBO at LFT for over 55 years, and whose founder, Paul A. Fournet, was a 1986 Civic Cup Award winner for his numerous contributions to the Lafayette Community. However, this is not the worst travesty which is in the process of unfolding here.

Our LAC is now acknowledging their past mistakes as they are now in agreement that

LFT can only support one quality FBO

There needs to be more caution exercised before granting future private corporate hangars, and have placed a moratorium on such future actions

The fuel flowage fee structure is significantly flawed and needs to be changed

So what is the worst travesty here? Consider who will become the primary beneficiary of our LAC's new found wisdom on how to manage the FBOs at LFT? It won't be anybody from Lafayette. No, our LAC is running Fournet off the airport after 55 years of operations and has refused to entertain proposals from some of Lafayette's most successful businessmen

The beneficiary of our LAC's new management policy changes, changes which will finally allow for a profitable, first class FBO, will be a Company from Cincinnati, Ohio. Where might those profits end up? Chances are that those profits will not stay in Lafayette...and that would be a true shame!

What ever happened to our LAC's motto..."Fly Lafayette" ?

Conclusion

Our LAC has not properly evaluated the significant impact of changing the rules for fuel flowage fees in awarding the FBO Lease to Million Air of Cincinnati. This oversight, whether intentional or unintentional, results in a significant failure to obtain FMV for our airport property. As a result, the Million Air lease should be voided and the Lease should be re-opened to a fair bid process. Only then will you get FMV Comparisons, and only then will you be assured of getting FMV.,

The process used by our LAC for awarding the new FBO lease was very biased towards Million Air of Cincinnati and did not treat Lafayette businessmen fairly. Our LAC rejected a superior proposal from Lafayette businessmen and then fabricated a process which granted the Cincinnati company "exclusive lease negotiating rights" because they promised to pay more than Lafayette businessmen. However, once the exclusive negotiations started, the rules of the game changed and our LAC allowed the Cincinnati company to pay less on new facilities and less in fuel flowage fees. When Lafayette businessmen saw that the rules of the game were changing and tried to intervene, our LAC stopped them on the grounds that they could only negotiate with Million Air of Cincinnati…and that to let Lafayette businessmen start submitting proposals "would impact the integrity of the process". This process has lacked integrity from the very beginning… and at the end of the day, it also lacked FMV.

The following statement made by Matt Stuller (one of the Lafayette Communities most successful businessmen and civic leader) at the June 2006 Airport Commission meeting probably summarizes the problems of the Million Air lease the best. When respectfully requesting that the LAC defer for 60 days, the awarding of the FBO lease until a group of Lafayette Investors could submit their proposal, he states the following;

"…Regardless if the Commission can defend their decision in the past, and whether they were tainted or not, perception is reality. If a decision is made tonight based on this motion (to grant the FBO lease to Million Air), this Commission will also go down in history as making an unfair decision…"

In closing, our Airport Commission was determined to not "Fly Lafayette" and in that process, failed to get FMV Comparisons that would assure that FMV was being received for airport property. This failure is in violation of FAA regulations and the LAC's own Lease Policy. Accordingly, we respectfully request that the FAA void the existing Million Air Lease Agreement, and require that the LAC put the LFT FBO Lease out for re-bid, this time in a fair and equitable manner that will satisfy the LAC's fiduciary obligation to all parties concerned.

Click Here for Exhibit A

Exhibit A (Excel format)

Click Here for Exhibit B

Click Here for Exhibit C

Click Here for Exhibit D

Bad Business for Lafayette
Our Airport Commission at Work

Illegal Lease Written and Signed by LAC

Lafayette Jet Center, LLC has signed an illegal lease with LAC for FBO services. This lease is illegal because Lafayette Jet Service, LLC did not participate in the bid process, as required by R.S. 2:135.1, R.S. 38:2181 et seq and R.S. 41:1211 et seq.

It also appears that LAC never granted Mr. Jim Nunn, the chairman of the Lafayette Airport Commission, or any one else, any authority to sign a lease with Lafayette Jet Center, LLC.

LAC Has Mis-Managed Our FBOs! LFT Can Only Support One FBO! NATA Agrees Stuller Agrees Even Million Air Agrees!	Can LAC Undo Illegal Agreement? Nunn Signs Lease w/ Unqualified Entity Did LAC Perform Due Diligence w/ "Shell Corporation"? LAC Can Get Out of Million Air Lease!
Durel & City Council Dodge CCGG Request for Ruling! Third Resolution Hand Delivered July, '07 Click Here to Read CCGG and CODA Resolutions Bad Business -- LAC Says Fly Cincinnati? So, What's the Worst Travesty Here? Click Here to Download "Paul Fournet Air Service 55 Year Timeline" (5.4MB PDF)