Fresh Air - Negotiation

PON235
PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL

AN INTER-UNIVERSITY CONSORTIUM TO IMPROVE THE THEORY AND PRACTICE OF CONFLICT RESOLUTION
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FRESH AIR
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Confidential Instructions for City of Boston Negotiation Team
MEMORANDUM
To: Boston Negotiation Team

From: Sarah Seidmann, Office of the Mayor of the City of Boston, Boston Team
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Date: March 2, Year 0
Re: Fresh Air Negotiations
This memorandum details your goals for this week’s negotiations with Fresh Air. I have
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discussed these issues with all members of the team working to bring Fresh Air to Boston
and have negotiated internally with these parties where necessary to arrive at these
objectives. I trust that after reading this document you will fully understand Boston’s
negotiating interests and the terms to which we are willing to agree. You must be
intuitive, imaginative, and intelligent to get the job done well. Best of luck!
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Introduction
Boston experienced a boom in the second half of the 20th century, as financial services,
mutual funds, and health care increased in importance in the American economy. The
many universities of Boston also grew in popularity and stature, bringing in some of the
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brightest minds in the country, many of whom decided to stay after graduation. Several
of these schools developed top-notch performing arts schools which contributed to a
regional cultural boom. Some of the fast-growing high-tech sector also settled in the
Boston area.
However, the economic decline of the last few years has hit Boston hard. In addition to
general economic factors felt across the country, Boston’s interests in the high-tech
industry experienced particularly steep decline. Office space development in the city
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came to a halt. Furthermore, Boston saw the leadership of some of its homegrown
institutions move to other cities. Even though the institutions plan to keep operations in
This case was written by Candace Modlin with the help and under the supervision of Robert Bordone, Thaddeus R. Beal Lecturer on
Law at Harvard Law School. Copies are available online at www.pon.org, Telephone: 800-258-4406, 781.239.1111, Fax:
781.239.1546. This case may not be reproduced, revised, or translated in whole or in part by any means without the written permission
of the Director of Curriculum Development, Program on Negotiation, Harvard Law School, 518 Pound Hall, Cambridge, MA 02138.
Please help to preserve the usefulness of this case by keeping it confidential. Copyright © 2004, 2006, 2008, 2010 by Candace
Modlin. Distributed with permission. (Rev. 4/10)
This document is authorized for educator review use only by Christopher Rajkumar, Xavier Institute of Management & Entrepreneurship (XIME) until Jun 2024. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860
FRESH AIR: BOSTON NEGOTIATION TEAM PON235
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the city, having leadership elsewhere communicates that Boston is no longer at the center
of business deals, decisions, and innovation.
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While as leaders of Boston we believe the city much lot going for it -- the improvements
resulting from the Big Dig, the strong biotechnology industry, an amazing array of
universities -- the recent developments make us anxious. Therefore, we want to bring
new businesses to the city, showing the country and, most importantly, other companies
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looking for a home, that Boston is a great place for business. We are in the process of
developing new incentive programs and a more streamlined process for attracting new
companies. As the negotiators, you must reach an agreement so that we can kick off this
effort by bringing in Fresh Air.
Cash is Scarce
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Even though we really want Fresh Air, there is only so much we can afford right now to
bring them here. Fresh Air paints a strong financial picture of itself, and given the
relative success of Express and the recent success of LCCs in general, these projections
seem realistic. But we cannot afford to make a solid long-term investment if it strips us
of much-needed funds in the short-term. Such cash constraints could leave us unable to
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pay basic city or state expenses and would also be politically unpopular among the
electorate, given the tough financial straits of so many of our citizens. Already the mayor
is only offering minimal pay and budget increases of 1.5% to important city
constituencies, such as the police and waste collection departments. (This negligible
increase amounts to a decrease in real pay.) And, with an important convention coming
up in July, we must have ample funds available for aesthetic and structural improvements
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to the city during the next few months. Furthermore, the mayor does not want to anger
city groups to the point where they would protest at the convention. She can think of
nothing worse, in today’s times of safety concerns, than television cameras broadcasting
police picketing outside the convention.
We would like to contribute no more than $6.0MM in incentives to Fresh Air, including
property tax abatements, training, infrastructure, and any other incentives to which you
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may agree. This will enable us to meet all of our cash needs noted above. But, we are
also forward-thinking enough not to limit ourselves and to potentially exclude a fast-
growing and eye-catching company from the city. So, if truly necessary, you may create
a package worth $8.0MM. While we would have to decrease some of our spending in
various city departments (such as only a 1% increase to the police department), a high
level of anger and unrest would probably not result. But nothing more will be acceptable.
There would be too much risk – 10 years ago, we gave the police department just a 0.5%
increase, and they staged a walk-out. Any such reaction would be unacceptable with the
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upcoming convention.
If you do not reach agreement with Fresh Air, the mayor and governor will certainly be
disappointed – they believe that the company’s presence will pump money into the
community as well as raise the city’s visibility in the business community. They will also
Copyright © 2004, 2006, 2008, 2010 by Candace Modlin. Distributed with permission. (Rev. 4/10) 2
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lose face since Fresh Air’s visits and negotiations have been highly-publicized both
locally and nationally.
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The only other company that Boston is in discussions with currently is Tabletops, Inc., a
company that manufactures tables and desks. It is currently located in Mobile, AL, but
due to the declining labor market there, is looking for a new home. Tabletops plans to
bring 900 jobs, similar to Fresh Air’s 1,000. However, it is not projecting much growth
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and, obviously, a table company is not as high-profile and potentially rejuvenating to a
business community as an airline.
Headquarters Building
Introduction
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We would like to persuade Fresh Air to locate its headquarters in certain buildings rather
than others because of the politics and implications surrounding specific buildings and
areas. As noted earlier, Fresh Air has already negotiated rent prices with the owners of
the buildings. However, we are still involved in the negotiation process because of our
ability to offer real property tax abatements. Although Fresh Air is planning to lease the
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building space, the abatements will be passed on to the tenant from the landlord, giving
Fresh Air real savings. (Such a practice is not entirely uncommon; when Kinko’s moved
to Dallas recently, the city gave the company a tax abatement on real property worth
$4MM, even though they leased their office space.) You will be negotiating for present
value dollar amounts of abatements.
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As noted earlier as regards the total incentive package, the Boston team has agreed that
we must place a ceiling on the property tax abatements offered. Unlike other cities that
have offered huge incentive packages including property tax abatements in the past, this
technique is relatively new for Boston. We do not want to begin our new business
campaign by offering overly generous tax discounts, which could anger local residents.
While we can educate the electorate over time regarding the long-term benefit that such
companies can bring to the city, offering excessive direct tax abatements right now could
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prove troublesome.
Downtown Building
With the slump in economic activity, the traditionally full downtown offices now have a
15% vacancy rate, compared with only 1% six years ago. Such prime space in the heart
of the city sitting vacant is an embarrassment for us and is a situation we would like to
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ameliorate. In addition, the particular space Fresh Air is considering is left open from
mutual fund giant’s Crooked Guys, Inc.’s decision to close its Boston office. While
filling any space would generally look good for the city, filling this specific space would
be great publicity given the business capital that was lost when Crooked Guys left. Please
try as hard as you can to get Fresh Air in this building.
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The price that the landlord is offering on this building is a steal; we are lucky that the
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landlord was willing to offer such a low rate. However, the price still might be more
expensive than rates that other cities are offering to the airline. (In fact, we have heard
rumors that some cities may be offering rent-free space for several years.) While we (and
the landlord) cannot go as far as to offer free rent (and would not want to set such a
precedent), we are willing to offer up to a $5MM tax abatement, if Fresh Air decides to
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locate in this building.
We believe this building could meet Fresh Air’s interests, since the heart of the city is
very close to Logan. The building is also already close to public transportation, which
would make work travel easy for Fresh Air employees. Just as importantly, the building
is close to the Government Center MBTA subway stop, which provides direct access via
the Blue line to Logan Airport.
Boston Marine Industrial Park (MIP)
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This is our last choice for Fresh Air’s headquarters location. We do not have a particular
problem with it, but given our interests in Downtown and the Boston World Trade Center,
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we would like to use our incentive dollars to persuade Fresh Air to locate there. If Fresh
Air is adamant about locating in the MIP, then by all means let them locate here; we do
not want to lose the company because of building selection. But if you sense that they
are open to the other locations, then please do all you can to get them in one of the other
buildings.
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We would like to offer an abatement of no more than $1.4MM for this building. Besides
the fact that we do not particularly want them in this building, its price is less than the fair
market value of office space in San Francisco, so we do not feel that we must offer
significant tax abatements. But if this is where they really want to go, we are willing to
offer the sizeable abatement of $3.6MM if it will bring them to Boston.
If Fresh Air insists on this building, they will likely want public transportation or some
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sort of shuttle service between the South Station MBTA subway station and the office
building. We would be happy to help them pay for this, but the expenditures will count
towards the total incentive package spending. It might behoove Fresh Air to have us pay
for at least part of this service as opposed to paying for it on their own, since we receive a
20% discount from standard market rates. (Because we contract regularly with local
private bus companies to supplement our regular public bus lines we receive volume
discounts.) This shuttle service will cost approximately $4.3MM in present value dollars
over the next 15 years. (Note that this figure is a fair market value amount, not a
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discounted one.) There are ten other major tenants in the industrial park that might also
benefit from such a service.
One advantage that Fresh Air will certainly find in such a building is its proximity to
potential space for flight simulators. Fresh Air has told us that they need a building to
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hold several flight simulators and 10 computer-based training stations. The industrial
park has several open, unrenovated buildings which could house such facilities at a low
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cost.
Boston World Trade Center East (BWTC)
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As noted above, we prefer this building to the MIP. The BWTC is part of a new complex
at the Boston Waterfront, consisting of two office buildings completed within the past
several years, a major hotel, Commonwealth Pier, and retail stores. While the opening of
the development was much-anticipated, it has not experienced the success we would have
hoped. Major tenants initially seemed interested, but then many selected space
downtown or outside the Boston area. This result has been extremely disappointing for
us, since we worked with developers for years to create an area plan, publicized the new
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buildings, and spent upwards of $20MM on site and transportation improvements. In
addition, the city guaranteed certain lease amounts to the developers which have not been
met and for which the city is now financially responsible. The mayor’s office has
received much flak recently from the Boston Globe about the fledgling project.
Due to these general vacancy issues with the buildings and the fact that a tenant
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(international bookseller Noble Narratives) recently broke a multi-year lease, the landlord
is offering a very favorable rate on this space. This rate makes the building only slightly
more expensive than the fair market value of similar buildings in the other finalist cities.
Therefore, you should explore the possibility of no incentive at all on this building. In
fact, we think this would be extremely fair. If Fresh Air will not locate in the Downtown
building, we have a strong interest in having them locate at the BWTC rather than the
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MIP. But we cannot offer too high an abatement for fear of angering our constituents and
setting a bad precedent. Thus, you may offer a tax abatement of up to $4.25MM. In
addition, if Fresh Air locates at the BWTC, we can increase the total maximum incentive
package we can offer from $8.0MM to $9.5MM. This accounts for the financial
obligation to the developers that Fresh Air’s lease will fulfill for us.
We also like this building because shuttle buses are already operating back and forth to
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the South Station MBTA subway.
You should assure Fresh Air that the management company of BWTC would be a superb
landlord. I remember reading an article about their negotiations with Dribble, Driscoll,
and Duluth (“Dribble”), the blue-chip insurance giant whose satellite office occupies
more than 60% of the building. When Dribble decided to expand its operations in Boston
and to use the BWTC building as an experimental work environment (i.e., unique cubicle
set-ups, large open spaces, casual dress), the landlord cut them a great deal on the
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building improvements and assisted with the changes.
A potential problem that Fresh Air may have with this location is the lack of space for
flight training facilities. The BWTC area cannot accommodate such a facility due to its
building density.
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Transportation
Fresh Air has mentioned several times to us that their headquarters must be within
walking distance from or have adequate transportation to the airport. They see regular
communications and interaction between employees of all different levels as paramount
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to the satisfaction of their employees and, indirectly, through friendly employees and
innovation, to the satisfaction of their passengers. Only the downtown location features
public transportation to the airport. None of the locations is within walking distance, all
being over 2.5 miles from the airport. Therefore, unless Fresh Air chooses the downtown
location, they will have to create transportation between headquarters and the airport.
We would be willing to contract with our regular bus contractors in order to meet this
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need. Like the shuttle from the subway to the headquarters building, we estimate that this
would cost $4.3MM fair market value for 15 years of service (present value dollars). We
would like to contribute towards these shuttle services rather than other incentives for
several reasons: First, we receive a 20% discount from fair market value since we
contract with these bus companies regularly; thus, having us provide the services is an
efficient solution. (Keep in mind when calculating the total money expended that a
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discount means that we do not have to pay the fair market value of what Fresh Air
receives.) Second, it is not likely that every company considering Boston would value
additional transportation services as much as Fresh Air, so we would be setting a less
problematic precedent. Third, last year, we signed a contract with a local bus company to
complement our own local bus service. We had anticipated a shortfall in buses and
contracted with a bus company to pick up the slack. However, as it turned out, we have
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not needed the extra bus service. We now have a contract for bus services that we do not
need and would like to be able to offer these services as an incentive to Fresh Air. (Even
though we already have this contract, any transportation subsidies must still count
towards the overall incentive package amount.)
Given our preference for transportation incentives, we would like the first $2.5MM that
you agree to spend after property tax abatements to be spent on transportation. This
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should be fairly easy to persuade Fresh Air to agree to, since with our discounts the deal
would be efficient, and we know that Fresh Air needs the transportation. But, obviously,
our overall goal is to minimize how much we must spend in total -- if you sense that this
guideline will cause us to spend more overall, then it would be prudent to ignore it.
Training
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While we prefer transportation incentives to employee training, we prefer employee

training to property tax abatements. We receive discounts for employee training
(although not as high as for transportation), so the arrangement is more efficient.
Furthermore, employee training is more accepted by the public than tax abatements since
it injects money into the community by training the constituents themselves.
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You can agree to any amount of training up to the total incentive amount if necessary,
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although please keep in mind our preference for transportation, if possible.
Miscellaneous Incentives
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Besides the issues noted here, if you come up with other ideas, you should certainly
discuss them with Fresh Air. The mayor values imaginative thinking and would be even
more pleased with the agreement if it demonstrates creativity, since such solutions often
satisfy both parties. It would be best not to commit unless you are sure that solutions fit
closely with our goals and concerns. And if you do commit, be sure to distinguish
between those solutions that impose costs and those that do not, since even the most
creative ideas could still be expensive. Please make reasonable estimates about what
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such solutions might cost and include these totals in the total package cost.
Airport Gates
Initial Number of Gates

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The Commonwealth of Massachusetts believes that bringing Fresh Air to Boston should
be a top priority, which is why we have granted it the opportunity to move ahead of other
more established airlines. Therefore, we will give Fresh Air at least one gate. But we
absolutely cannot offer them more than three. Southeast will relinquish this number of
gates soon pursuant to the Justice Department order. (This number has not previously
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been released to the public and should not be released at this point in time. Please be
discreet in how you communicate our constraints to Fresh Air.) However, numerous
other airlines are also waiting for additional gates, so please try to get Fresh Air to agree
to only one or two gates. That way, we will have the flexibility to offer additional gates
to other airlines, some of which have been waiting more than five years.
Fresh Air’s current projections estimate six to 10 turnarounds per day at Logan for the
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first two years of its existence. This number is reasonable – we know that Northeast and
PlaneRed had similar turnarounds at their initial airports in the beginning.
Most of our leases for gate space include a provision mandating that the airlines
relinquish one or more gates if their average turnarounds per gate do not reach the airport
average for two consecutive months. (FlyAway is allowed to keep its gates at lower
levels only because it came to the airport before such clauses were included in leases.)
We have told Fresh Air about this clause and sense that they might dispute it since they
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naturally may fear that they will have ups and downs. We are willing to compromise on
this issue if Fresh Air protests too strongly, but you might want to use this flexibility
strategically. Fresh Air knows that we have required this clause in every other contract,
so it would seem natural that we would require it with this one.
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Future Number of Gates
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Terminal A, currently closed for renovation, should be completed in Year 3. Fly- Away
Airlines will then be leaving 13 of its gates in Terminal C and relocating to Terminal A.
We can offer Fresh Air additional gating at this point in time, but will be limited to
offering only six total gates. Of course, the fewer gates we have to give Fresh Air, the
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better. Numerous other airlines have been on the waiting list for these Terminal C spaces
for several years. While we are somewhat flexible, we cannot be patently unfair to our
other airline constituents. And, even though we are willing to be flexible with meeting
the requirement of average number of turnarounds per day, we must insist that this
requirement be met by Year 3 in order to offer Fresh Air additional gates then. Other
airlines are already going to be angry with us for moving Fresh Air ahead in the waiting
line for gates. But if we give them additional gates even if they are under-utilized, the
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backlash from other airlines could be significant -- the re-opening of Terminal A has been
much-anticipated for years.
Beyond offering these new gates in Year 3, you should not offer any more in future years.
In the next few years, Logan Airport will undergo significant changes and we cannot
know what the airline industry will look like given its great instability in the recent past.
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While you are free to commit to a 10-year lease on the gates available now and the gates
available in several years, do not offer any additional gates beyond Year 3.
Also, remember that the price structure for these gates has already been determined
between the Commonwealth of Massachusetts and Fresh Air, so does not need to be a
point of discussion.
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Location of Gates
We would like to offer Fresh Air a dedicated terminal in Terminal D, where low-cost
carrier (“LCC”) FlyTron is currently located. FlyTron has leased space at Logan for over
10 years. Their major point of differentiation is not service but price, although I am not
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sure how well this strategy is working for them, since I read recently that they are
severely cash-strapped. For several years, FlyTron has asked to move from this terminal,
but we have not previously had space anywhere else. The gates that Southeast will
relinquish are in Terminal E, so we would like to move Flytron into Terminal E and
Fresh Air into Terminal D. Terminal D is our oldest facility. For food and beverage, it
currently offers a snack bar in the departure area, serving hot dogs, pizza, cookies, chips,
etc. If we unilaterally give the spaces in Terminal E to Fresh Air rather than FlyTron,
FlyTron would surely react negatively about the lack of respect shown by Massport,
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Boston, and even Fresh Air. Not only would this generate a slew of negative publicity
about both the airport and Boston, but it could also impair our political capital for
bringing additional corporations to the city.
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With this FlyTron problem, it seems very unlikely that we will be able to offer Fresh Air
the space in Terminal E. Otherwise, though, Fresh Air would likely be thrilled with this
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location since the terminal just underwent a major renovation. The modern amenities
should certainly satisfy their customers. While the rental prices for Terminal E are
normally greater than Terminal D, this will not be an issue before you, since prices have
already been negotiated.
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We absolutely cannot offer Fresh Air space at any of the other terminals. Airlines
currently in these terminals will not want to move around to help out a new LCC and
their leases do not require such action.
This Terminal D versus Terminal E issue is only one for the short-term. After Terminal
A opens and we offer Fresh Air additional gates, they will have to leave either terminal,
since Terminal D only has three gates and Terminal E only has eight. At that point in
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time, we will need to move them to Terminal C, where FlyAway will be leaving gates.
This terminal has been renovated fairly recently, so we hope that it will meet Fresh Air’s
expectations and needs.
The exact location of gates even within a specific terminal is extremely important to
Fresh Air. While there will be no choice of gates in the short-term in Terminal D or E,
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all gates will be reassigned in Terminal C when FlyAway leaves. Therefore, the location
of gates after Year 3 is definitely an issue to negotiate.
FlyAway currently has the most sought-after gate positions in Terminal C, those closest
to the security checkpoint. Not only are these the most convenient for passengers, they
have the most space allotted for each plane. These larger gates will hold full-body as
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well as narrow-body planes. Tightly spaced gates can also sometimes create delays,
since planes may have to wait to push back from gates until planes at neighboring gates
have pushed back.
These most advantageous gates will be assigned by seniority to other airlines at Terminal
C and Logan Airport. We absolutely cannot give these coveted gates 1-13 to Fresh Air.
However, the other gates should be fine for Fresh Air since, according to their plans, they
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will only fly narrow-bodied planes. All gates will accommodate narrow-bodied planes.
If Fresh Air is concerned about proximity to the security checkpoint, you can offer them
gates along the middle of the terminal. There are 30 gates at Terminal C. If necessary,
you can offer gates beginning at Gate 14. Of course, doing so will necessitate pushing
other longer-standing airlines down the terminal, so the farther down the terminal you can
place Fresh Air (higher numbers are farther away), the better.
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It is possible that Fresh Air will have additional airport requests, since they seem to have
exacting ideas as to how their passengers should be served in order to build their brand.
As with the incentive package, feel free to discuss these requests, but before you commit,
make sure that they fit closely with our goals and concerns. Again, if you do commit, be
sure to distinguish between those solutions that impose costs and those that do not or are
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self-supporting, since even small requests could be expensive. Also remember to make a
reasonable estimate of the costs of such solutions.
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On behalf of the city of Boston, the Commonwealth of Massachusetts, and the authorities
of Massport, thank you for the time and effort you will put into this very important
project. Best of luck in your negotiations!
rP
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PON235

PROGRAM ON NEGOTIATION AT HARVARD LAW SCHOOL

To: Boston Negotiation Team

Boston Marine Industrial Park (MIP)

Boston World Trade Center East (BWTC)

the South Station MBTA subway.

building improvements and assisted with the changes.

While we prefer transportation incentives to employee training, we prefer employee

Initial Number of Gates

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