Monday, December 26, 2016

Texas Turbines affirms plans to leave Regional Mobility Authority, cites failed hangar lease

Dennis Braner, director of business development at Texas Turbines in Denison, points to some of the work being done on a Cessna in the company's hangar at North Texas Regional Airport - Perrin Field.

Officials with Texas Turbines doubled down on plans to leave North Texas Regional Airport - Perrin Field after announcing the move last week. Texas Turbines President Bobby Bishop made the announcement during a meeting of the Grayson County Regional Mobility Authority board of directors on Dec. 15, citing failed negotiations for a lease of the airport's Westside Hangar.

In 2013, Texas Turbines reached an agreement for the construction and lease of the hangar, but was forced to back out before the project's completion.

"I have come here to inform you that we are no longer going to pursue anything on the west side as far as our company goes," Texas Turbines President Bobby Bishop said during the meeting, placing the company's value at $20 million. "We are going to remove $150,000 from Landmark Bank and close the account today and no longer buy about $150,000 of jet fuel from Texoma Jet Center."

He added that he will also cancel his $90,000 annual hangar rental from the jet center. More than 20 high-wage jobs are also at stake.

Origins and move to NTRA

Despite the news of its upcoming departure, employees for Texas Turbines continued to work the following week on converting several Cessna Caravan aircraft.

Business Development Director Dennis Braner said the majority of the company's business comes from converting single-engine Cessna Caravans from their stock engines to more powerful, 900-horsepower Honeywell engines and equipment. By default, the aircraft comes equipped with a 600-horsepower engine, but recent models have increased the power to about 870 horsepower.

Each conversion for the $2.5 million aircraft costs about $700,000. Braner said the company has converted an average of 12 aircraft each year since the company started work in 2008. Texas Turbines is in the process of becoming certified to work on the Cessna Conquest aircraft. In addition to the conversions, Braner said, the company was also able to make money by selling the stock pieces on the secondary market.

Texas Turbines President Bobby Bishop said he started the company in his own private hangar in Celina in 2008. By June of 2012, Bishop said the business had outgrown its current space, and he began looking for a larger facility on a public airport.

Bishop said he initially approached McKinney National Airport, but also spoke with NTRA Director Mike Shahan and Marketing Director Bill Retz, who have both since left the airport. During Bishop's comments before the NTRA board, he expressed his admiration for both Shahan and Retz.

"They both were actually very energetic and so we came up here to meet," Bishop said.

Through the meetings, Bishop said, both Retz and Shahan seemed enthusiastic about the possibility of Texas Turbines moving to NTRA and began discussions on an agreement for a facility that could house the company.

"Bill Retz said, 'What if we just give you a $1 million to build a new hangar,' and I thought that was very motivating," Bishop said.

Through these conversations, Bishop later discovered that Retz was referring to insurance funds that the airport received related to two buildings that were totaled in a storm.

In a phone conversation Wednesday, Retz said he does not recall the specific conversation or offering to give Bishop the funds for the hangar, describing it as a "ridiculous statement."

Bishop said it was later discovered that the funds couldn't simply be given to him, and instead a lease agreement for what would later be named the Westside Hangar would need to be made.

Agreement and fallout

After about six months of negotiations, Bishop said, a 40-year lease agreement was reached and then signed in February 2013. Under the terms of the agreement, Texas Turbines would pay $6,181 per month in rent for the lease of the Westside Hangar for the first 20 years of the agreement, Bishop said.

After the first five years, an additional $1,000 would be paid each month in the form of a land use fee. After the first 20 years, the hangar payments would cease and Texas Turbines would only pay the lane use fees each month, Bishop said. In total, Texas Turbines would pay about $1.2 million for the hangar construction, with $180,000 paid in the form of three $60,000 payments over the course of construction.

By April, however, the situation with Texas Turbines had changed when Honeywell Aerospace, the manufacturer of the company's engine components, announced problems with its production line. Bishop said Honeywell was estimating it would take six months to a year before it was able to ship the components that Texas Turbines needed for its conversions. This compounded with personal issues Bishop said he was facing at the time.

"I spoke to Judge (Drue) Bynum and said because of what was ongoing at the time, I didn't think it was wise to move forward as a company until we have better insight into where Honeywell would be and where the others things that were going on would be," he said.

That month, Grayson County Commissioners and the RMA agreed to let Texas Turbines out of the lease, but kept the $60,000 initial payment as a penalty for the broken contract. At the time, the parties agreed to plan to return to negotiations in six to 12 months after the issues with Honeywell had resolved, Bishop said.

Negotiations break down

After nearly a year, in which Texas Turbines continued to lease a hangar through Lake Texoma Jet Center, the company was ready to return to the negotiations in early 2014 for the now completed hangar. Bishop said these discussions included evaluations based on an appraisal performed in 2013 on the yet-to-be completed Westside Hangar and two other airport buildings.

Other parts of the negotiation centered on the completion of the hangar, which is still in a shell state, and if Texas Turbines would be reimbursed for those expenses. Bishop said the leases discussed ranged from about $7,500 a month to $10,000.

Other factors included the length of the lease, which ranged from 10 years to 40 years. In aviation, the standard terms for a lease are either 40 years or 20 years with an option for an additional 20 years, Bishop said.

Bishop attributed part of these changes to mixed messages he received from the RMA on the length of lease it would like to see for the hangar.
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Retz confirmed that multiple drafts of contract agreements were made during this time, but none were successful when taken to the RMA Board.

"Once again we'd take a deal to the RMA Board and then it would turn out we didn't have a deal after all," he said with a laugh.

In March of 2014, Bishop offered to purchase the building outright for $1.25 million, but this offer was also declined, he said. These negotiations continued until October 2015 when Texas Turbines ceased efforts and planned to return to Celina. Bishop said he could build a hangar of the same specifications as the Westside Hangar for less than $1 million in his hometown.

Just as he was preparing to finalize plans for the new hangar, Bishop learned that there would be new management at NTRA. Bishop said he was convinced by Braner to give negotiations one last attempt before moving on.

"I thought it would be futile and a waste of time, as it turned out to be," he said.

Negotiations start, then stall again

In May, Texas Aviation Partners was awarded a contract for the daily management and marketing of NTRA. As a part of these duties, Texas Aviation Partners is responsible for marketing the airport and promoting it to new tenants and future development.

Bishop said conversations about the Westside Hangar started early in the summer with negotiations shifting between rates to if Texas Turbines would be responsible for and reimbursed for improvements to the site.

"This went on until September and we went into October and we thought we were close," Braner said, adding that the parties were scheduled to discuss agreements at the October RMA meeting. An executive session item during October's meeting referred to economic development negotiations and "deliberations about the exchange, lease or value of real property."

With discussions expected in the next board meeting, officials with Texas Turbines were optimistic that an agreement could be reached quickly.

"We were told continuously by Stephen Alexander that we were in the ballpark and they just needed to do due diligence in assessing the value of the hangar," Texas Turbines General Manager Catherine Brooks said.

Before the October meeting, however, Texas Turbines was told the item would be removed from the agenda as the airport committee had been recreated and would handle negotiations. At the time, Bishop said, it was believed that this would expedite the process.

Bishop said Texas Turbines submitted eight binders of information and airport applications to Texas Aviation as a part of these discussions with the committee. This included evaluations of tax assessments and valuations on the hangar that were used in coming up with the offered lease rate.

However, in the lead up to December's meeting Texas Aviation made an offer of $14,000 per month - nearly double the $7,500 per month that Texas Turbines was seeking.

"When he asked for a counter offer, I told him you are so far off that we aren't in the same ballpark," Braner said.

Brooks said they have been able to prove where they are getting their valuations, but she has yet to receive any similar documents from Texas Aviation.

Alexander said negotiations started almost as soon as Texas Aviation arrived at the airport. However Texas Aviation's attention was pulled away due to the need to assist in recruiting a new airport director. While he was in agreement on the general terms of the lease, Alexander said he and Texas Aviation never made any statements to Texas Turbines regarding price as the value had yet to be determined.

"To give an opinion on if it was an appropriate rate was unfair," he said. "We hadn't even set the rate yet up to that point."

Alexander said Texas Aviation came to the proposed rate after looking at rates offered at 20 other airports. These included nearby airports in Dallas-Fort Worth, but also included other rural airports in similar size to NTRA, he said.

Moving Forward

Bishop said he made the announcement to his 21 employees last week that the business would leave the airport with plans to return to Celina. Bishop said the average pay for each of his employees is about $58,000. While it may be easy for the airport to market the hangar for storage, it wouldn't create the workforce or wages that Texas Turbines does, he said.

In addition to the Westside Hangar, Bishop said there were plans to rent additional hangar space to expand the company further. However, those plans have since been abandoned.

When asked if there was any way to salvage the relationship with the airport, Bishop said it would take a full turnover of the RMA Board to do so due to how poorly the negotiations went.

Bishop said multiple offers were made to allow RMA members to tour and see the Texas Turbines operations, but these offers were never accepted. Bishop went on to highlight Board Chairman Clyde Siebman as a part of the problems with the negotiations, noting his lack of experience with the aviation industry and general demeanor in discussions.

When asked for comment on the negotiations, Siebman said he has not spoken with representatives for Texas Turbines since the last RMA meeting. As the company has announced plans to leave, he said there is little reason to return to these talks.

"Unless they are willing to pay a much higher lease rate than they are willing to, I see no reason to renew those discussions," Siebman said.


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