The Runway 9/27 Financing Question

This section is an attempt to understand the Memphis Airport Authority’s explanation as to how the new Runway 9/27 was paid for. The reason the financing is suspect is because of how quickly the decision was made to build the new runway in November of 2008 (within a three week period).

The primary reason the Airport Authority’s explanations for the financing of the new runway don’t make any sense is because there were no plans to replace Runway 9/27 prior to FedEx Express receiving my Enterprise Vulnerability Report and AFRAM Engineering Report in November 2008. The AFRAM Engineering Report that the Airport Authority is still insisting is accurate was commissioned to determine if the 2006 infrastructure, which included the asphalt Runway 9/27, could support FedEx’s new A380’s which were still on order when the studies were conducted.

The results of AFRAM’s studies were that the existing infrastructure could support the A380’s and later the Boeing 777’s which would eventually replace the A380 order. The final report was published on February 6, 2007. So in February of 2007 there was no need or plan to replace Runway 9/27 nor any financing required.

The following excerpt was taken from the 2009 MSCAA Comprehensive Financial Report. I have highlighted the section that explains that the Airport Authority has the power to issue bonds and that the bonds shall be payable solely from the revenues, income and charges of the Authority and such bonds shall not constitute an obligation of the City or County.

PROFILE OF THE MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY

The Authority is established pursuant to the Metropolitan Airport Authority Act of Tennessee and all amendments thereto. The major purposes of the Authority are to plan, establish, acquire, construct, improve and operate one or more airports within the City and Shelby County (the “County”). The Authority has the power to issue bonds to accomplish any of the purposes authorized by the Metropolitan Airport Authority Act of Tennessee. All bonds shall be payable solely from the revenues, income and charges of the Authority and such bonds shall not constitute an obligation of the City or County.

The Mayor of the City, with the Mayor of Shelby County nominating two, appoints all members of the seven-member Board of Commissioners to govern the Authority. The Memphis City Council confirms these appointments for a seven-year term. A member of the Board may be removed from office by a two-thirds vote of the Memphis City Council, but only after notice of cause for the removal has been served and the member has been granted an opportunity for a public hearing on the matter.

The Board appoints the President, who is the chief executive officer of the Authority. The President appoints, and the Board confirms, the remaining officers. These officers manage and operate the Authority’s airports with a staff of approximately 300 employees, both permanent and temporary.

Based on the financial accountability the City has over the Authority, the Authority is considered a component unit of the City under the criteria set forth by the Governmental Accounting Standards Board (“GASB”).

The Authority prepares an annual budget on the basis established by the 1973 General Revenue Bond Resolution dated June 15, 1973, as amended and restated, for all accounts and funds established by those agreements and resolutions, except construction and debt service funds. The annual budget serves as the foundation for the Authority’s financial planning and control. All appropriations, except open project account appropriations, lapse at the end of each fiscal year and must be reappropriated. Since there is no legal requirement to report on the budgetary basis, no budget information is presented in the accompanying financial statements.

The Authority owns Memphis International (the “Airport”), Charles W. Baker, and General DeWitt Spain Airports. Charles W. Baker Airport (“Baker”) is located south of Millington, Tennessee and General DeWitt Spain Airport (“Spain”) is located just north of downtown Memphis. Both Baker and Spain Airports serve general aviation and are considered reliever airports for the Airport.

The Airport occupies about 4,600 acres of land in Shelby County and is 13 miles by road southeast of downtown Memphis. The Airport is 99.9% unaffected by impassable weather and handles all types of aircraft. The Airport has four runways equipped with precision instrument landing systems suitable for use by large aircraft and a surface movement guidance system allowing the Airport to operate down to a 300 foot runway visual range. The terminal building has 85 gates to accommodate passenger aircraft and includes a Federal Inspection Station (“FIS”) for clearing international flights and associated passengers.

In November of 2008 I sent my Enterprise Vulnerability Report to FedEx Express Management which questioned the results of the AFRAM studies and raised the possibility that Runway 9/27 could collapse into the Hurricane Creek tunnel. Three weeks after receiving my report the Memphis Airport Authority announced Runway 9/27 will be completely replaced. The estimate for the new runway was $50 million.

See the Timeline here.

In the Memphis Shelby County Airport Authority's 2009 Annual Report there is a statement that the Airport Authority received a $45 million dollar revolving credit line from "a bank" for construction of the new runway.  See 2009 Annual Report, page 28.

I have read through the Airport Authority’s Charter and cannot find any provision that would allow the Authority to apply for such a large revolving credit line.

Here is an excerpt from an email I sent to Sara Hall, the Airport Authority’s Legal Counsel inquiring about the runway’s financing on February 18, 2010. Ms. Hall’s responses are in blue.

1) Did FedEx fund any part of the new runway 9/27's construction?

“MSCAA funded the Runway 9/27 construction with 75% FAA Airport Improvement Program grant funds and 25% MSCAA revenues.”

2) In the Memphis Shelby County Airport Authority's 2009 Annual Report there is a statement that the Airport Authority received a $45 million dollar revolving credit line from "a bank" for construction of the new runway.  Which bank provided this credit line?

“Regions Bank.”

3)  The Annual Report also stated that no funds had been drawn from the credit line by June of 2009 (about halfway through the project).  How were construction costs paid for up until June?

“MSCAA revenues.”

4) Did the Airport Authority receive any Federal Stimulus funds for the construction of the new runway?

“No, see answer to question one above.”

- Sara Hall’s email response was sent to Guy Cobb on February 22, 2010

This is a second email response from Memphis Airport Authority Legal Counsel Sara Hall explaining the runway’s financing. What is suspect here is Ms. Hall’s reference to FAA grants that included Runway 9/27. Remember that the AFRAM studies cleared the way for the new A380’s and Boeing 777’s to use the existing runway. There should not have been an FAA grant for Runway 9/27 in November 2008 when the decision to replace the runway took place.

“First, FedEx did not loan MSCAA any money for reconstruction of Runway 9/27 or for any other purpose.  MSCAA obtained a 45 million dollar line of credit from Regions Bank as a precautionary measure as we had and have a number of FAA grant eligible projects for which we were and are receiving grants, including Runway 9/27. Because the timing of those grant reimbursements from the Federal government cannot be predicted with certainty, we obtained a line of credit which would be more than sufficient to accommodate the most extreme of delays in grant reimbursement.  The obtaining of a line of credit, which we have yet to draw upon, was a prudent financial decision which protected MSCAA from potential delays in federal reimbursement. “

“MSCAA received FAA entitlement grants for the reconstruction of Runway 9/27 and did not receive any federal stimulus funds.  MSCAA funds on hand were used to fund Runway 9/27 costs and periodic reimbursement requests were made and funds received from the FAA.”

- Sara Hall email to Guy Cobb, sent on March 5, 2010

I contacted Shelby County Attorney Brian Kuhn to see if he could help me and received this response:

“Mr. Cobb, Thanks but I know how to get in touch with Ms. Hall.  The County has no authority to direct, request and/or allow an inspection of an airport runway.   As I told you in my first reply, the County govt has very little to do with the Airport Authority.  It is independent.  I’ve discussed your issue with Ms. Hall and am satisfied that they are taking the appropriate steps to address this issue.  I do not see any liability for the county govt in this matter under the Tennessee law.  To reiterate, the Airport Authority is an independent Authority, we don’t appoint any board members, the City of Memphis was the creating municipality, there is no liability to the county, and Ms. Hall and the Airport Authority seem to be having the appropriate agencies look into your complaint.  Therefore it seems that your complaints and responses should be to and from the Airport Authority and/or the City of Memphis.  Thank you for your time and consideration in this matter.”

Brian Kuhn, Shelby County Attorney

- Brian Kuhn email to Guy Cobb, sent on March 8, 2010

Mr. Cobb,  As I have stated to you before, the County does not have any authority here, so Please delete me from your mailing list.  I will depend on Ms. Hall letting me know if I need to be aware of any details here.  I get dozens of emails a day related to my duties and responsibilities; I don’t need extra ones that I don’t need.  Brian Kuhn

- Brian Kuhn email to Guy Cobb, sent on March 24, 2010

I found this Resolution for $300,000,000 in “Refunding Bonds” authorized by Shelby County Attorney Brian L. Kuhn.

The following appeared in the Memphis Daily News on November 19, 2009:

Below is the MSCAA’s online newsletter from April 2009. This newsletter validates that the primary goal for the new runway’s construction was the MSCAA’s promise to FedEx Express to complete the runway by December 1^st.

The Memphis Airport Authority has not responded to any of my requests to speak with the Regions Bank loan officer to confirm all of the details about the $45 million dollar revolving credit line. They have also been unwilling to share financial records showing exactly how the runway was paid for.

Shelby County Attorney Brian Kuhn replaces Memphis Airport Authority Legal Counsel Sara Hall in September 2010. Read story.

“Kuhn said he called Hall “because she was an old friend and I’d always admired the airport authority and her” to offer his services as an assistant attorney.

“It just happened to be the same week she accepted the position she was going to, so she said, ‘I’ve got one better than that, I’m leaving so you may want to look at this job,’” Kuhn said, later earning an appointed by airport president and CEO Larry Cox and approval by the board of commissioners.”

IF YOU HAVE INFORMATION YOU WOULD LIKE TO SHARE ABOUT HURRICANE CREEK, ANONYMOUSLY OR OTHERWISE, YOU MAY CONTACT ME AT guy@guycobb.com

This documentation and the author, Guy Cobb, are protected by the United States Sarbanes-Oxley Act of 2002 Section 806 -- Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud; the False Claims Act; the Wendell H. Ford Aviation Investment and Reform Act For the 21^st Century (AIR21) Public Law 106-181, April 5, 2000 49 USC Section 42121 Subchapter III – Whistleblower Protection Program and the American Reinvestment & Recovery Act, Article 4 Section 1553.