Report Prepared by: Rhett Williams, Airport Manager
Title
SUBJECT: Approval of a Lease Agreement between Contour Airlines and the City of Merced for 347 Square-Feet in the Merced Yosemite Regional Airport for a Four-Year Term, July 1, 2026 Through June 30, 2030
REPORT IN BRIEF
Considers approval of Lease Agreement between City of Merced and Contour Airlines which includes leased space and common area maintenance terms for office use, ticket counter space, and other amenities in the Merced Yosemite Regional Airport.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving the Lease Agreement between Contour Airlines and City of Merced, in form; and,
B. Authorizing the City Manager and City Attorney (Approved As To Form) to make further revisions to the Agreement without changing the base rates in the Agreement; and,
C. Authorizing the City Manager to execute the necessary documents.
Body
ALTERNATIVES
1. Approve the Agreement, as recommended by the Regional Airport Authority; or
2. Approve the Agreement, subject to modification by City Council (identify specific items to amend in the motion): or
3. Deny;
AUTHORITY
Charter of the City of Merced, Section 200.
CITY COUNCIL PRIORITIES
City of Merced FY 2025-2026 Budget, Section 7, Economic Development - AIRPORT, GOALS, “Enter into new leases and agreements for provision of aviation related services to general additional operating revenues.”
DISCUSSION
The Department of Transportation (DOT) awarded Contour Airlines a four-year contract to provide commercial air service to Merced Yosemite Regional Airport as part of the Essential Air Service (EAS) program. The new DOT contract allows Contour Airlines to begin service on July 1, 2026, and will expire on June 30, 2030, unless extended by the DOT. To operate from the new terminal, Contour Airlines will need to enter into an Agreement with the City of Merced. A copy of the Lease Agreement, in form, is attached.
Key terms of the Lease Agreement include the following:
Rent: The rents to be paid by Contour Airlines shall be the sum of the following:
Area to be leased: 347 square-feet @ $26.27/per square-foot (base rate)
Year 1: $9,115.69 per month
Year 2: $9,389.16 per month
Year 3: $9,670.84 per month
Year 4: $9,960.96 per month.
Beginning July 1, 2026, rent shall increase three percent (3%) annually on July 1st of each year.
Landing Fees: Contour Airlines will also pay landing fees of $93.00 per landing.
CAM Charges: As compensation for common area maintenance (CAM), Contour Airlines will pay a CAM fee each year and adjust (3%) annually increase.
CAM Area: 4,593 square-feet @ $0.55/per square-foot (base rate)
Year 1 (July 1, 2026, to June 30, 2027) $2,526.15 per month
Year 2 (July 1, 2027, to June 30, 2028) $2,601.93 per month
Year 3 (July 1, 2028, to June 30, 2029) $2,679.98 per month
Year 4 (July 1, 2029, to June 30, 2030) $2,760.32 per month
Should Contour Airlines exceed 10,000 revenue passenger enplanements in a fiscal year, the City will reduce the rent by $1,000 per month for the duration of the fiscal year as a performance incentive. Achieving the 10,000 per year revenue passenger enplanement number will make the Merced Yosemite Regional Airport eligible for $1,000,000 of additional FAA funding for airport improvement purposes.
Passengers flying Contour Airlines from the Merced Yosemite Regional Airport to the Los Angeles International Airport (LAX) and Harry Reid International Airport (LAS) will be subject to TSA screening. Travelers will be able to book connecting flights from the respective airports without having to go through TSA. The seamless service may result in an increase in passenger counts leading to more funding from the FAA.
Regional Airport Authority Action
During its May 19, 2026, meeting, the Regional Airport Authority reviewed the proposed Lease, in form, and unanimously recommended approval of the Lease Agreement to the City Council.
IMPACT ON CITY RESOURCES
Based on the terms and provisions of the Lease Agreement with Contour Airlines, staff projects revenues from rent, CAM charges, landing fees, and equipment rental will generate approximately $217,581.00. Comparatively speaking, the current Fiscal Year rent from Advanced Airlines is expected to be $115,401.00. The Net Revenue Increase leasing and working with Contour Airlines is projected at $102,180.00.
ATTACHMENTS
1. Lease Agreement with Contour Airlines