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On FBO, two FBO’s, three FBO’s, four…

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A phone call we received this week from a potential client, asking us to please evaluate and hopefully sell their FBO, was routine. We receive at least one phone call a week with the same request. But as we asked questions about the proposed FBO operation we realized this was yet another example of One FBO, two FBO’s, three FBO’s, four . . .

This potential client had built a brand new state of the art FBO less than eight-years ago. They had done all the right things, and perhaps some not necessary, trying to fill every potential need and sparing little expense.

The client had built more than adequate, right sized hangar space to complement their FBO. They created a warm but functional reception area, pilot lounge, computer area, everything.

After we determined the specifics of the physical FBO we then began our inquiry of the metrics of the market.

How many annual Jet-a gallons at the airport? Approximately 4,000 Jet-a gallons was the answer. So far so good. (We don’t typically ask about Avgas sales for obvious reasons.)

Length of longest runway? 7,000 feet. Good as well! Manned tower, major metropolitan population area, strong local economy, reasonable sized number of based jet aircraft; check, check, check!

How many FBO competitors? One FBO, two FBO’s, three FBO’s, four . . . ?

SIX FBO’s! Yikes!

We were shocked. This was not Van Nuys, Teterboro, or Hobby for example where the sheer volume of general aviation activity generates tens of thousands of gallons of Jet-a annual fuel sales. This was a medium market city. How could this market support SIX FBO’s?

The answer? Not possible.

FBO Advisors has learned over our 40 year history that as an average rule of thumb a typical FBO needs to have a Jet-a fuel sales volume of at least 1 million gallons per year to have any chance of profitability. Of course there are many factors that influence the ability to generate a profit, competition, fuel discount programs, seasonality, airport fuel flowage fees, etc. But for the basis of our commentary let’s agree that the minimum 1 million gallons per year is a good minimum threshold.

Now back to our real life client. Our client is one of six FBO’s. Simple arithmetic (which does not apply but is just used to illustrate as an example) dictates that if you average the 4 million gallons per year divided by six FBO’s that the average per FBO would be 666,666 gallons per year. Not even close to our minimum 1 million gallons per year threshold for profitability.

We all know that this calculation method cannot be used to accurately predict or estimate the fuel sales of each FBO. We can however reasonably postulate that two of the six FBO’s will be selling the minimum of the 1 million gallons per year threshold, perhaps a little more. So for our example let’s assume that the two top-selling FBO’s dispense a total of 2.5 million gallons between themselves. That leaves 1.5 million gallons to be spread amongst the remaining four other FBO’s.

In our example the two top-selling FBO’s will be making a reasonable amount of profit, perhaps the next FBO, the third FBO, will be close to breakeven profit wise. But the remaining three FBO’s will not be making money at all and will be struggling to make payroll. A sad but all too common experience at many airports in the US today.

How is this possible? How did this happen?

Let’s start at the beginning. You decide that you want to build an FBO at your airport. Step one should be, is there enough fuel volume to support the existing FBO’s? Remember, the minimum fuel volume sales of 1 million gallons per year. If the airport has two FBO’s currently and 2 million gallons of annual Jet-a fuel sales then there is no practical room for a profitable third FBO. Sure, you could open a third FBO and cannibalize some of the fuel sales from the two incumbent FBO’s but the likely outcome will be something close to dividing the 2 million gallons of annual Jet-a fuel sales now among three FBO’s. Nobody “wins”, and all will report decreased individual fuel sales volume. It’s inevitable.

But such simple logic and common sense frequently does not apply… Why?

Because instead of focusing on the total market of fuel sales volume currently, many future FBO owners mistakenly believe that if they build it “they will come”. That is rarely the case. In our extensive experience in the industry we have rarely seen an example of a new FBO is added to an existing airport which then suddenly drew 1 million gallons of new airport fuel volume per year. (Now there are some circumstances where a major chain with contract customers, flight departments, fractional providers, can offer their customers service at a new underserved location that’s very much in demand, but these opportunities are extremely rare.)

Then who encourages the new FBO? … The airport!

Under the widespread misconception that if the airport currently has two FBO’s then three would be better. If it has three FBO’s then four FBO’s would be better. Remember the misconception, “build it and they will come”. There will be very little “new” volume because you have built an “unnecessary” third (or fourth) FBO. More than likely you will just be cannibalizing the existing airport volume from the existing established FBO’s.

And why would the airport do that, encourage more FBO’s?

Their argument will of course be that competition is good for the marketplace and that is difficult to argue against. Competition spurs competitive pricing and the purchaser benefits. Hard to successfully argue against that premise.
But the airport has its own agenda and its own personal objective which benefits only itself, the airport. The airport generates income from mainly a few sources, fuel flowage fees and ground rent fees. (We are excluding larger airports that have food concessions and terminals, and airports the charge FBO’s and all others a percentage rent of gross or net sales; these are typically larger airports and so such airports are different.)

The fuel flowage fees, baring any significant increase in fuel volume sales, will be about the same. What won’t be the same, will be ADDITIONAL new income to the airport which will be more ground rent received from the new FBO operator, who has just leased vacant airport land which heretofore has not generated any income for the airport. The airport puts unused assets to work by charging ground rent to the new FBO. The more ground the airport can lease to anyone, in this case another FBO, the better for the airport.

Not good for the financial health of the FBO’s.

So beware, the Airport in this case is not you “friend”. Their self-serving interest is to lease as much ground and generate the maximum ground rent. Buyer beware.

 

FBO advisors fixed based operations consultant

FBO Advisors, LLC
Serving the FBO industry for more than 40 years

The Real Estate “Angle” of the New Commercial Terminal Being Built at Paine Field Everett – Seattle Washington

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Part 2 of 2

In our previous Post we looked into the “Real Estate “Angle” of the New Commercial Terminal Being Built at Paine Field Everett – Seattle Washington” from the Commercial Aviation and Airport perspective. We discussed:

  • How was this real estate deal made?
  • Why did the airport choose to go this direction, a private partnership?

In this Part 2 let’s look at it from the perspective of the private developer and the FBO owner and user:

  • How did the private developer financially structure the 50 year lease, and what’s their return?
  • Does this have any application to FBO owners at their airport for their private facilities?

As we mentioned in our previous post, FBO Advisors, LLC background is heavily real estate (40+ years) and we have combined that knowledge and experience in applying it to our FBO and airport consulting activities over the years. We believe this is one of the factors why our consulting business, FBO Advisors, LLC has been so successful over these 40 years. We understand the real estate component of an FBO operation and sale transaction. So when this news that a private entity was building a new commercial terminal at Paine Field in Everett (north of Seattle) Washington, it piqued our interest.

In attempting to answer these questions (the two questions shown above, in this Part 2) please understand few businesses care to share the intimate financial details of how they make transactions such as this work financially. While we have requested public documents from the airport so that we can be more fully informed, we are forced to make generalizations and hypothesize how this transaction came to be and makes sense for the parties involved.

We do have personal knowledge, historically, of Paine Field having been engaged to conduct consulting work for the FBO years ago. And while our experience is dated we still understand the basics of that market. Paine Field is mostly a general aviation airport together with the famous Boeing aircraft factory where a large number of Boeing jets are successfully produced, tested, and sold from. It has a rich, rich history. And Paine Field’s past history, a military field, with long commercial 9,000 foot runways made it an excellent candidate for Alaska Airlines and Southwest Airlines to consider new service from this nearby Seattle suburb.

So who is the private developer Brett Smith?

According to a recent local AP news story:

“Smith is the founder and chief executive officer of Propeller Investments LLC., which secured a 50-year agreement with Snohomish County three years ago through a local subsidiary to build and operate the terminal in Everett, Washington. Operations are due to start in the fall, with announcements already made from Alaska Airlines, Southwest Airlines and United Airlines for up to 24 flights per day.”

“Brett Smith’s company is investing about $40 million to build the terminal. In the process, he wants to increase U.S. acceptance of a global trend: Putting commercial airport terminals in the hands of private companies instead of the government.”

“The deal stands out for U.S. airports because it’s structured as a public-private partnership, a model that divides the responsibilities of owning and operating public assets between governments and the private sector. It’s also notable because Propeller has no experience in building or operating airport terminals.”

It’s also notable because Propeller has no experience in building or operating airport terminals.

So how did Smith, the private developer financially structure the 50 year lease and what’s his likely return?

According to published reports, “Propeller sold $50 million of bonds in February to finance the project, paying investors about double the interest rate they would earn on similar U.S. Treasury’s, according to data compiled by The Associated Press. The company doesn’t have a credit rating.”

The quote from these public sources, “ . . . Paying investors about double the interest rate they would earn on similar US treasuries” is not surprising or unexpected. To explain the difference in the interest rate, the “double the interest rate” is the pricing by the bond purchaser/investor marketplace for the risk involved over the perceived “low risk” afforded by investing in safer U.S. Treasury’s.

Today that U.S. Treasury bond rate is approximately 3.0% so if Propeller Investments LLC borrowed at twice the bond rate that would be approximately 6.0% or above. Still not a bad

interest rate to start from when financing a $40 million project in which you are borrowing $50 million for.

Propeller Investments LLC pro forma is not available to us but we can reasonably assume that the $10 million “spread” between the project cost of $40 million and the $50 million of bond financing covers a well earned developers fee, assumption of risk, interest carry, and interest reserve, etc..

To successfully sell the $50 million in bond financing to the marketplace Propeller Investments LLC must have shown eventual positive cash flow and commitments from the major airlines who will be operating out of the new Commercial Terminal, Southwest Airlines, Alaska Airlines, and others. Those of us in the industry know however that the commitments made by the airlines contain short “out clauses” which allow them to terminate their leases should the airlines revenue expectations fall short. The future of Paine Field providing commercial aviation to the general public as an alternative for the population living north of Seattle, and up until this project, having no other option but commuting to SeaTac Airport, seems like a reasonable bet for success. Apparently the bond market agreed as Propeller Investments LLC successfully sold $50 million in bonds.

While nothing would be more pleasing than being able to disclose an investment rate of return that Propeller Investments is projecting we can only assume that it must be positive and of reasonable risk. (We will continue to research to see if we can further likely narrow down the % return to the private investor Propeller Investments LLC.)

The last question, “Does this have any application to FBO owners at their airport for their private facilities?” is equally intriguing.

It’s hard to contemplate that private developers would be interested in, or even be able to finance private FBO facilities for FBO owners.

Those in the know understand that FBO businesses are unique, complex businesses with no guarantees of long term of income. One can argue that the FBO income is more at risk than the income Propeller Investments LLC is banking on to make their bond payments from the commercial terminal. Propeller Investments LLC is also able to “show” the financial statements of its new tenants, Southwest Airlines and Alaska Airlines for example, and somewhat rely on those and their credit worthiness to convince bond investors to hand over their money. To sell that to the same bond investors, the underlying credit worthiness of the airport tenant which in this case would be your FBO, (unless you are Signature Flight Support, Atlantic Aviation, a heavy public company “hitter” with substantial assets and cash flow,) would be a difficult sale.

That we believe is why we haven’t seen many, if any similar private partnership investments from the airport side, a private investor as sub-landlord, into FBO leaseholds and businesses.

We don’t see anything in the horizon that would change this for FBO’s.

So for the present and the foreseeable future, FBO’s need to have their own money and won’t be able to depend upon the private sector, in this case the example of Propeller Investments LLC at Paine Field to provide them funding for expansions, acquisitions let alone operations.

Thus the translation, “Business as usual for FBO’s !”

 

FBO Advisors, LLC
Serving the FBO industry for more than 40 years

Please feel free to direct comments to us on our views and opinions cited . . .

The Real Estate “Angle” of the New Commercial Terminal Being Built at Everett Paine Field – Seattle Washington

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Part 1 of 2

FBO Advisors, LLC background is heavily real estate (40+ years) and we have combined that knowledge and experience in applying it to our FBO and airport consulting activities over the years. We believe this is one of the factors why our consulting business, FBO Advisors, LLC has been so successful over these 40 years. We understand the real estate component of an FBO operation and sale transaction. So when this news that a private entity was building a new commercial terminal at Paine Field in Everett (north of Seattle) Washington, it piqued our interest.

  • How was this real estate deal made?
  • Why did the airport choose to go this direction, a private partnership?
  • How did the private developer financially structure the 50 year lease, and what’s his return?
  • Does this have any application to FBO owners at their airport for their private facilities?

In attempting to answer these questions (the first two questions shown above in this Part 1) we can only surmise some answers as few businesses care to share the intimate financial details of how they make transactions such as this work financially. (We have requested the public documents from the airport so that we can be more fully informed, but we are forced to make generalizations and hypothesize how this transaction came to be and makes sense for all parties.)

It’s no secret to anyone that local governments are in a cash squeeze. The two main contributors to a local governments coffers are mostly real estate taxes and sales taxes. Of course there is some government funding but with the government in a deficit and the confusion in Washington it’s difficult to predict any meaningful long going federal government contribution. So the local government is stuck with real estate taxes and sales taxes and those have been stagnant and/or in some cases declining. So when a local government, in this case a suburban airport, has a capital requirement a private entity can perhaps be the answer. This is obviously what happened at Paine Field.

We have personal knowledge, historically, of Paine Field having been engaged to conduct consulting work for the FBO years ago. And while our experience is dated we still understand the basics of that market. Paine Field is mostly a general aviation airport together with the famous Boeing aircraft factory where a large number of Boeing jets are successfully produced, tested, and sold from. It has a rich, rich history. And Paine Field’s past history, a military field, with long commercial 9,000 foot runways made it an excellent candidate for Alaska Airlines, Southwest Airlines to consider new service from this nearby Seattle suburb.

The only “problem,” no commercial terminal or facilities to serve commercial aviation. Lack of funds on the local airport level and step in visionary Brett Smith.
To delve deeper into this fascinating transaction we reviewed a recent AP news story.

“Smith is the founder and chief executive officer of Propeller Investments LLC., which secured a 50-year agreement with Snohomish County three years ago through a local subsidiary to build and operate the terminal in Everett, Washington. Operations are due to start in the fall, with announcements already made from Alaska Airlines, Southwest Airlines and United Airlines for up to 24 flights per day.”

“Brett Smith’s company is investing about $40 million to build the terminal. In the process, he wants to increase U.S. acceptance of a global trend: Putting commercial airport terminals in the hands of private companies instead of the government.”

“The deal stands out for U.S. airports because it’s structured as a public-private partnership, a model that divides the responsibilities of owning and operating public assets between governments and the private sector. It’s also notable because Propeller has no experience in building or operating airport terminals.”

It’s also notable because Propeller has no experience in building or operating airport terminals.

That certainly is understandable. The U.S. is essentially devoid of examples of airport privatization. Recent attempts or conversations such as at Westchester (HPN) and Morristown (MMU) have faced opposition from local constituents and airport and FBO users and owners.

The main argument against the privatization of airport facilities and airports in general from the users and FBO owners is that (in theory), the government does not collect rents at full market rent levels which a private sector operator most certainly does. Translation: rents will go up! The private operators argument is they will be providing new facilities and new amenities that the government owner and operator lacks the expertise to create let alone efficiently operate. This is generally a true statement as well. So somewhere in the equation it’s a balance between finding the capital funds to provide the needed new facilities versus the increased costs (think rent) that the FBO owner and airport users will be forced to bear. This is the basis for airport and FBO users opposition to airport privatization.

The Everett project contrasts with about 500 commercial airports across the U.S., where local governments own and operate most of the facilities. Those airports have relied on decades of federal funding and passenger fees to help finance infrastructure improvements. But traditional funding sources have remained flat since the turn of the century, failing to keep up with increased air travel demand as we mentioned earlier.

Airport privatization proponents point to efficiencies and variety of passenger amenities like stores and restaurants found in major European hubs such as London’s Heathrow and Frankfurt Airport, both of which are run by companies and rated among the 10 best airports in 2018 by Skytrax, an independent agency that ranks airports and airlines based on traveler reviews. No U.S. airports made the list this year according to the AP.

It is reported that almost half of airports in the European Union are either “fully” or “partially” private, according to a study by Airports Council International, an advocacy group made up of airport operators. It estimates U.S. airports will need to implement $100 billion of infrastructure works by 2021 to accommodate passenger and cargo volume growth.

What we have in the US is an aging infrastructure of airports in the U.S.. Partnerships with the private sector claim to help improve facilities and competitiveness.

We believe that answers the first two questions we posed at the start of this conversation:

How was this real estate deal made?
Why did the airport choose to go this direction, a private partnership?

About the privatization of airport facilities at smaller airports.

In our forthcoming Part 2 we will discuss:

  • How did the private developer financially structure the 50 year lease, and what’s his return?
  • Does this have any application to FBO owners at their airport for their private facilities?
FBO Advisors, LLC
Serving the FBO industry for more than 40 years

Highlights of the NBAA 2017 National Convention in Las Vegas

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Highlights of the NBAA 2017 National Convention in Las Vegas The National Business Aviation Association (NBAA) brought to a close its 2017 Business Aviation Convention & Exhibition (NBAA-BACE) on October 13, 2017, and event organizers reported the show was an all-around success, highlighting the strength of the industry, the host community of Las Vegas, NV, and the association, on its 70th anniversary.

The convention was held Oct. 10–12 at the Las Vegas Convention Center and Henderson Executive Airport (HND), (in a biannual schedule the convention alternates year-by-year between Las Vegas to Orlando.)

“This year’s show was special in many ways,” said NBAA President and CEO Ed Bolen. “We celebrated NBAA’s 70th anniversary, and how our industry is stronger when we work together. We gathered in the company of aviation leaders and legends, like Capt. ‘Sully’ Sullenberger and Capt. Jim Lovell. We saw the launch of exciting new products, and we brought a citywide convention to Las Vegas, which the city welcomed with open arms.”

The show’s first two days featured standing-room-only opening sessions with engaging speakers, including local leaders who welcomed attendees to Las Vegas – Rep. Dina Titus (D-1-NV), Clark County Commissioner Lawrence Weekly and MGM Resorts International Chairman and CEO Jim Murren – along with top government officials, including FAA Administrator Michael Huerta and NTSB Chairman Robert Sumwalt.

Bolen said that with this year’s convention, NBAA hoped to “make Las Vegas proud, just as Las Vegas has made America proud.” Before the launch of the show, NBAA Charities made a $10,000 contribution to the Las Vegas Victims Fund, and throughout the event, the association encouraged show participants to contribute to the fund as well.

NBAA-BACE 2017 organizers pointed to several indicators of the show’s strength and enduring value:

  • The event featured about 1,100 exhibitors, including more than 100 new exhibitors. Attendees represented all 50 U.S. states, and dozens of countries.
  • With about 100 aircraft on static display, both at HND and inside the convention center, NBAA-BACE remains the preeminent venue for manufacturers to unveil new models. For example, this year, the Bombardier Global 7000, Gulfstream G600 and Pilatus PC-24 made their debut at the show.
  •  All three days of the show were packed with well-attended education sessions, including half-day programs at the NBAA National Safety Forum and Single-Pilot Safety Standdown.Discussions featured top safety experts and representatives from the Federal Aviation Administration (FAA) and National Transportation Safety Board (NTSB).
  •  On the final day of the show, some 1,000 students came to NBAA-BACE, many to participate in Careers in Business Aviation Day.

The sessions also included industry legends: Miracle on the Hudson heropilot Sullenberger and astronaut Lovell spoke out against Air Traffic Control (ATC) privatization, during the show’s opening sessions, and in a special N B A A v i d e o , u r g i n g a v i a t i o n p r o f e s s i o n a l s t o u s e t h e website www.atcnotforsale.com to tell Congress to oppose ATC privatization.

This year’s convention took place as debate continued in Washington over the future of the nation’s ATC system. In a media breakfast held just before the show’s opening, general aviation leaders united in mobilizing attendees to oppose legislation that would strip ATC oversight from Congress, and hand that authority over to a private, airline-centric board, unaccountable to the public.

Attendees took many opportunities throughout the week to send messages to Congress against ATC privatization, on their mobile devices and using dedicated personal devices on the show floor. Signage, lapel stickers and other promotional items visible throughout the exhibit hall and the static display of aircraft further encouraged attendees to contact their elected officials during the convention week at the show.

This was of particular interest to me, even though I am a non-pilot – the emphasis on opposition by the NBAA and its members against Air Traffic Control Privatization. As such my comments on this issue are personal in nature and mostly anecdotal observations as a passenger of aircraft transportation and not is a pilot having to deal with air traffic control.

This push by the current administration and our President to privatize the ATC follows the push to “drain the swamp” and reduce government. The argument is the private sector can do this more cost efficiently and effectively. It seems to me that the problem is not with the FAA even though it is utilizing a woefully inadequate and decades old ATC system.

I personally do not blame the FAA. Sure, it’s a bureaucracy, a big government one at that. But funding is the responsibility of Congress and even though users of air travel pay significant ticketing taxes and fees to fund the system, very little money of that trickles down for the specific improvements in technology the system badly needs.

I am skeptical anytime I hear that the private sector can absolutely do a better more cost-effective job. The problem, and we’ve seen this in healthcare and name any other number of areas in which the private sector has stepped in, the private sector is known to write the specifications, control the bidding process, and through lobbyists and campaign contributions write the legislation and regulations, plus influence the politicians to vote the way they want, and that is often not necessarily in the best interests of the user, the public.

So with that broad brush of skepticism and condemnation of what likely in my opinion would be the outcome should the ATC system be privatized, I welcomed the response of the NBAA and its members voicing strong opposition to any effort at privatization. And lastly and not insignificantly, when a world-famous pilot, Miracle on the Hudson Capt. ‘Sully’ Sullenberger articulated all the reasons against such a move, that was good enough for me to oppose this effort. I gladly will “place my bet” on the opinion of Capt. ‘Sully’ Sullenberger!

See you NBAA in Orlando in 2018!

 

FBO Advisors, LLC Serving the FBO industry for more than 40 years

AOPA & Affected Pilots File Three Official Complaints Over FBO Pricing

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The Aircraft Owners and Pilots Association (AOPA), along with seven
affected pilots, filed FAA Part 13 complaints over egregious FBO pricing
practices at Illinois Waukegan National Airport (UGN), North Carolina
Asheville Regional Airport (AVL), and Florida Key West International Airport
(EYW), on behalf of its membership. At each of these airports, a single
FBO controls all transient ramp space and fuel services, which means each
FBO possesses a monopoly position and significant power over access to
a public airport. AOPA contends each FBO has failed to fulfill its
responsibility to protect the airport for public use through reasonable and
fair pricing. The FBOs have instead engaged in egregious pricing practices
under minimal oversight and in violation of standards designed to protect
reasonable access to public ramp space.

The FAA Part 13 complaint process is a means for AOPA and impacted
pilots, who also signed the complaints, to ask the FAA to investigate these
practices and take any necessary action to ensure compliance with the
airport’s grant assurances.

The FAA has the responsibility and authority to ensure that airports are
complying with grant obligations the airports agreed to when they accepted
federal funding through the Airport Improvement Program (AIP).
Obligations include requiring their FBOs charge reasonable and
nondiscriminatory pricing for each aeronautical service rendered. This
requirement is necessary to protect the airport for public use. Otherwise,
permitting exorbitant FBO prices would restrict or deter access, and disrupt
the entire national system of publicly funded airports the FAA oversees and
has sought to create.

According to the a AOPA, of the many complaints it has received over
egregious FBO pricing, Waukegan, Asheville, and Key West are three of
the top five most complained about airports.The other two airports rounding
out the top five are Heber City, Utah (36U), and Rochester, Minnesota
(RST).

AOPA General Counsel Ken Mead commented, “The FAA really hasn’t
exercised proper oversight in this area for a very long time. These kinds of
pricing practices have put airports in violation of grant assurances and at
risk of losing federal funding. It’s the responsibility of the FAA and airport
sponsors to ensure the terms incorporated in each lease are upheld,
especially when they are accepting federal grants.”
The Part 13 complaints point out the importance of the airport sponsor’s
responsibility to “protect general aviation’s ability to access local
communities and, conversely, local access to the national transportation
system,” and how vital oversight is necessary to protect against
unreasonable and discriminatory pricing.

AOPA has requested the FAA “exercise its investigative oversight authority
and take appropriate action to ensure pricing complies with” each
governing body’s grant assurances. AOPA believes the FAA needs to help
airports use their authority to curtail egregious pricing practices.
“Our members have spoken and they’re tired of being forced to pay for
services they don’t want, ask for, or need,” said AOPA President and CEO
Mark Baker. “It’s all about price transparency and reasonable access to
places that are supposed to be public. We also believe that promoting more
competition will help relieve some of the ongoing problems our members
continually face at these locations.” Further, egregious pricing practices
deter and restrict airport access and severely affect all aspects of general
aviation from flight training to recreation. Unreasonable pricing practices
can also have grave effects on surrounding communities. By pricing out
certain GA traffic, FBOs are harming local economies. Pilots and travelers
who usually access these communities are scared away by the FBO’s skyhigh
prices. The money those travelers would normally spend never
reaches cities and towns across America.

The likely response from the FBO operators themselves will be pointing out
the cost of acquiring, creating, and operating mostly 24/7 facilities is quite
significant and must be done with a reasonable profit. That statement can’t
be challenged. In the observation of this blog, it needs to be pointed out
that the significant capital investment required for FBO facilities must be
recaptured, including an acceptable market rate of investment return over
the period of the concession granted by the airport, (i.e. the ground lease
which is typically 30 years or less). This puts significant “pressure” on the
owners and operators of FBO’s to recover their investment and make a
profit over a strictly defined (and ultimately expiring) lease term.
This “story” and complaint is far from over. It will be interesting to see how
the FAA responds and what the actual outcome of fuel pricing, specifically
at these 5 airports becomes. Stay tuned!

FBO Advisors, LLC
Serving the FBO industry for more than 40 years

 

 

Uber and Lyft Lyft Airport Revenues

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The headline for this edition of our frequent blog, Uber and Lyft Lyft Airport Revenues is of course a little tongue in cheek but actually true across most airports in the US (and possibly the supplies and the rest of the world as well).
 
Do you frequently park your personal vehicle at the airport when taking trips? Most of us do. In the parking rates are not inexpensive as we all know, and in the airports we frequent the daily parking rate is anywhere from a discounted $18 a day if you buy in advance to $25-$35 a day “posted retail” as they say. And until a few years ago it was either take a taxi or van transportation to the airport or drive your own vehicle and park it at the airport garage. Now there were some of those who skillfully sought out the most inexpensive parking solution and that was to park at “off airport” facilities, parking lots a few blocks away from the entrance to airports and this became big businesses in themselves charging rates from $5 dollars to $10 dollars a day. To snag this discount of course you had to write a shuttle from the airport to the off airport location and this of course added another 15 to 30 minutes at least to your total transportation time. I never felt it was worth the discount, where you now were adding an additional 15 to 30 minutes to the already “get to the airport two hours early” routine. “Time is money” as they say so for me, it was airport parking, no other practical option.
 
Well, things dramatically change with the arrival of Uber and Lyft a few years ago. In the beginning of their introduction most of us “more mature” travelers weren’t aware, or chose to ignore this new, what would become a true paradigm shift in transportation. Individual owners of vehicles providing transportation anywhere you wanted to go with the ease of an app. What could be more current than that? The younger generation embraced it immediately. It was cost-effective to say the least, especially in larger cities where the cost of maintaining your own vehicle was very cost prohibitive.
 
Finally we decided to try this newfangled “Uber thing” seriously about a year ago. We had been using a town car service booking directly with the driver which cost us $60 cash from home to airport or airport to home. This was for a 25 minute ride, approximately 30 miles to the airport.
 
So we tried out the Uber experiment, and not without a little bit of angst and wonderment how this “thing” was going to work for us. We tried it once, it worked extremely smooth. Nice person arrived in a fairly new personal vehicle, a nice conversation to the airport, and most of all our $60 ride to the airport in the town car became as low as $21 in the Uber!  That works out to 35% of the cost of the town car $60 trip. Now the Uber wasn’t a town car, (and you can get fancier vehicles, even town cars for a higher price which then pretty much matches the standard town car rate). But was the town car worth $39 more to go to the airport? That of course is a personal decision and for the traveler who doesn’t need work cares to watch expenses then it’s a nonissue, go with the town car. But you will find yourself a minority except in the expensive business centers of America like New York City and downtown Chicago.
 
The travelers commuting to and from airports began using Uber and Lyft for convenience, for price, and some just for a more pleasant experience. Notice next time you are returning home from a trip the Q stand for the ridesharing services. At the same time glance over if nearby to the taxi stand and town car Q stand for them. You will be astonished at the activity of the Uber and Lyft pickup points, and the lack thereof at the taxicab stand.
 
This is truly a paradigm shift.
 
But what does this have to do with airports? Let’s go back to our title, Uber and Lyft Lyft Airport Revenues. Many times a week there are reports of airport after airport reporting significant, large, drops in airport parking revenue which can be directly attributable to this paradigm shift to the use of Uber and Lyft services.
 
There’ve been some legal fights between the Uber and Lyft services versus the airports and the taxi service operators. Almost without exception these issues somehow become resolved and Uber and Lyft services become available for the Travelers choice and the travelers are voting with their wallets and purses. The losers, the taxicab companies, van services, and the airports, financially speaking. The winners, the travelers themselves enjoying huge, really huge discounts in transportation costs to and from airports.
 
The airports are scrambling to figure out ways to counter the decline in parking revenue as a result of Uber and Lyft services. The airports are not going down without a fight so expect “creative” implementation of airport user fees similar to those charged often by airports to the traditional transportation services like taxis and van service companies.
 
Let’s hope we don’t lose the cost-benefit that Uber and Lyft services have created!
 
FBO Advisors, LLC
Serving the FBO industry for more than 40 years

Deadline? What deadline? And what’s ADS-B?

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In May 2010 the FAA issued a mandate which if you own or operate turbine business aircraft, or operate general aviation single-engine piston aircraft in most airspaces, your aircraft will be required to be equipped with Automatic Dependent Surveillance- Broadcast (ADS-B) by no later than January 1, 2020.

ADS-B Out capability will be required to transmit aircraft identification and GPS-derived position information to air traffic control.

But why ADS-B? And what specifically is it? A search of the subject on the FAA’s website brings a wealth of information! The following FAQ from the FAA website will bring you “current” on this important pending requirement:

Why is the FAA transitioning away from radar and towards ADS-B technology?

ADS-B is an environmentally friendly technology that enhances safety and efficiency, and directly benefits pilots, controllers, airports, airlines, and the public. It forms the foundation for NextGen by moving from ground radar and navigational aids to precise tracking using satellite signals.

With ADS-B, pilots for the first time see what controllers see: displays showing other aircraft in the sky. Cockpit displays also pinpoint hazardous weather and terrain, and give pilots important flight information, such as temporary flight restrictions.

ADS-B reduces the risk of runway incursions with cockpit and controller displays that show the location of aircraft and equipped ground vehicles on airport surfaces – even at night or during heavy rainfall. ADS-B applications being developed now will give pilots indications or alerts of potential collisions.

ADS-B also provides greater coverage since ground stations are so much easier to place than radar. Remote areas without radar coverage, like the Gulf of Mexico and parts of Alaska, now have surveillance with ADS-B.

Relying on satellites instead of ground navigational aids also means aircraft will be able to fly more directly from Point A to B, saving time and money, and reducing fuel burn and emissions.

The improved accuracy, integrity and reliability of satellite signals over radar means controllers eventually will be able to safely reduce the minimum separation distance between aircraft and increase capacity in the nation’s skies.

The mandate covers the vast majority of turbine business aircraft as well as single- engine piston aircraft. In most cases we are told by avionics professionals an upgrade or replacement of existing transponders will be needed to bring aircraft into ADS-B compliance.

Currently, the ADS-B mandate is only for transmitting out. However, it may be useful for some operators to consider installing ADS-B In as well. The “In” capability would bring traffic and other information to the pilots, greatly enhancing situational awareness as just mentioned.

So if you’re thinking there’s plenty of time to get the ADS-B equipment installed, you may be in for a surprise. Three years ago the General Aviation Manufacturers Association estimated that only about 9,100 aircraft, mostly GA, had become compliant. A recent NBAA Advisory noted there are about 950 avionics repair stations in the US, of which 750 are installation shops. With the total number of general aviation fixed-wing aircraft registered in the US, approximately 170,000, it is not hard to imagine that as the deadline gets nearer, those shops will be booked further and further out.

No one will be exempt from the equipment requirement. It’s possible some operational aspects won’t be ready by 2020 however, but that will not give you a pass.

The impact of the rule means aircraft owners and operators will need to determine what ADS-B solutions are available for their aircraft, and to plan accordingly while also considering other upgrade options.

Preliminary data from a recent study carried out by NBAA indicated that about 92% of all aircraft in the business aviation fleet have identified an ADS-B solution.

The last step in validating your installation is to request a Public ADS-B Performance Report (PAPR) from the FAA. It is a free report and there are no penalties or violations if any concerns are identified. “The future health of your ADS-B system will be judged by what (data) the FAA is receiving. That’s it. There’s no required maintenance check or continuing airworthiness process,” said Mr. Peri. However, he does recommend adding ADS-B system checks to your maintenance program and conducting them concurrent with transponder checks.

The recommendation is more than clear! Now is not the time to procrastinate! Determine a solution and schedule the installation as soon as practicable. If you wait too long you may not be able to get scheduled installation before the deadline. And the result will be – you’ll be grounded until your aircraft is compliant!

FBO Advisors, LLC
Serving the FBO industry for more than 40 years

Helpful Links – https://www.faa.gov

The Latest From Our President And Does It Have Any Consequences For General Aviation?

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This is Mother’s Day weekend 2017, and we’ve just come through a tumultuous few days where President Trump has fired Attorney General James Comey. Oh, and also a return to tweeting about Rosie O’Donnell! (I never thought I would be saying that in one sentence following another . . .)

So what does all this have anything to do with general aviation?

I’m not sure but it gives me more than enough “provocation” to rant about what’s going on in this country today.

This is not meant to be political. I know that sounds strange but I really don’t mean it to be so. I’m just pointing out that our President seems to be acting with haste, without much forethought, and with an incredible inability to rely on those that he has nominated or appointed to be in his inner circle. And that’s not even mentioning that most of those he’s surrounded himself with don’t seem to be very well qualified or reasonably gifted in the brains department.

So that makes me worried about our country in general, and since we work in General Aviation, should we be concerned about irrational changes being applied to our industry? For instance the commercial airlines want general aviation to pay much higher fees to use the air traffic control system. We don’t think that’s fair or necessary. Our level of use of the system is small compared to Commercial Aviation.

And this has nothing to do with whether the president is Republican or Democrat.I could care less. What I do care about is when the President of the most powerful country in the world chooses to blog about how much he hates Rosie O’Donnell again and calls her names during periods of crisis, think North Korea for example. Now truthfully, I don’t care for Rosie O’Donnell at all. I don’t think she has any talent,

and for the rest, I’ll just leave it at that. But for the life of me I can’t understand why President Trump continues to spend valuable time, WASTING his time by tweeting about someone, in this case Rosie O’Donnell, who is about the least important person that he should be concerned with at this moment, this week, this year, and how about all the rest of the time he is in office! Why does he pick such a worthless “fight”, one in which there will be no winner and one in which there really is no issue to argue about. She doesn’t like him, he hates her, and neither of them are ever going to change. The President doesn’t need her and she sure as heck doesn’t need the President for anything other than to be the President!

So I’m starting to question, and at times worry, about the decision process our President uses, if any, to make major decisions. He doesn’t seem to have any processes from what I can tell, he just shoots from the hip and asks questions later, if att all.

In General Aviation we have several pivotal important issues facing us such as, attempts to privatize the Air Traffic Control System, continued funding of the FAA, and recently the 180° about-face by the FAA who recently granted permission to the Santa Monica Airport to shorten its runway by almost half effectively making the airport unusable by some 70% of the General Aviation jet aircraft that uses the airport. That’s an historic about face for the FAA . . . and none of us ever thought that ever had a chance!

I always think that logic will prevail, that eventually “they”, whoever “they” are will do the right thing. For the first time in my life, and I’ve been around for quite a while, I no longer have that slightly comforting feeling that senses will prevail, “they” will do the right thing, and things will then be all right.

It wasn’t that long ago when I would comment that, “No, they (in aviation) won’t do that because that doesn’t make any sense”. Today, and as a result of this past week with the fiasco of firing the FBI Director, whether or not you think he should have been fired, and the

Rosie O’Donnell nasty tweet exchange started by the President again as just two examples, I now no longer have any clue what’s going to happen in General Aviation. I don’t know what’s going to happen to oil prices, not that I ever really did, but now I really don’t think there’s any kind of plan or course that we are following and if there is, I bet our President would not hesitate to do a 180° turn, and then vector 90° after that, then vector back to the original heading all within a couple of days, and by the way without consulting air traffic control all the while Tweeting again about how $#&*! Rosie O’Donal is . . .

“Please fasten your seatbelts”, the Captain anticipates more “turbulence” ahead!

FBO Advisors, LLC
Serving the FBO industry for more than 40 years

 

Preliminary Application To Privatize St. Louis Airport Approved!

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We must confess, we have not reviewed the financial documents and application to the Department of Transportation (DOT) that was submitted by the airport to justify the concept of privatization of the airport. So our comments and opinions which follow are our personal and anecdotal at best but perhaps there might be kernels of “wisdom” to be considered.

As reported in The Hill.com on April 25, 2017, “The Department of Transportation (DOT) has accepted St. Louis’s preliminary application to privatize its airport operations, the agency announced Monday.

St. Louis said in its application that airport privatization would help boost Lambert International Airport, which is a medium hub airport, as well as the region. The city hopes to maximize additional parking revenue and increase cargo revenue by using additional land assets.

The Federal Aviation Administration’s (FAA) airport privatization program enables airports to use private capital for infrastructure improvements by selecting a private operator, negotiating an agreement and submitting a final application to the FAA for approval.“Today’s announcement to accept the St. Louis Lambert International Airport’s preliminary application to participate in FAA’s Airport Privatization Pilot Program demonstrates the administration’s commitment to leveraging innovative financing strategies to revitalize our nation’s aviation infrastructure,” said Transportation Secretary Elaine Chao.

“As we’ve already seen in San Juan, this approach to airport management increases productivity, revenue and operating efficiency for airports, creating greater access to capital for infrastructure needs.”

For the most part if you will study the aftereffects of privatization of essential government services or facilities (which include toll roads, power plants, and now airports) you will note in nearly every instance of privatization that fees and charges have increased, and some increases have been dramatic. There are those that argue this is exactly what has occurred for the Chicago Toll Roads.

Perhaps the San Juan Airport privatization is an excellent model to study the effectiveness of such a change. Again, we’ve not reviewed enough data about the San Juan Airport privatization form an opinion as to whether it’s claimed privatization success is truly a “success” in most aspects. So many questions need to be asked and researched: 1) What was the “condition” of the airport, its infrastructure, its facilities, at

the time of privatization? 2) What were the financial alternatives to funding the necessary needed improvements both current and ongoing? (Of course it’s widely known that the Puerto Rican Territory is for all practical purposes bankrupt so government funding by the territory was certainly not an option. And because of this perhaps Privatization was the only option available?)

The argument FOR privatization is mainly that the infrastructure being purchased by the private sector will continue to be maintained and improved at lower or no cost to the taxpayer (if government owned).

One can only wonder if this privatization effort which is being pushed by the private sector and cash strapped government really is for the best, the best for the users, the best for those that foot the bill – the taxpayers, the best for service and facilities.

There are those that argue that he central government services such as rubbish removal, electrical utilities, waste water and sewer utilities, etc. should be left to the government or quasi-government sector, or at the very least a “monopoly” operator to assure the balance of providing the necessary services at a cost structure to the user which results, those who believe in this, in a moderated charge to the end-user, the public, you and me.

The announcement comes as the Trump administration seeks to leverage more money from the private sector to help upgrade U.S. roads, bridges and airports. President Trump’s proposed $1 trillion infrastructure package is expected to focus heavily on public-private partnerships.

And Trump has also called for separating air traffic control from the federal government and handing it over to a nonprofit or nongovernmental agency. There surely is no shortage of arguments on both sides of this question! If air traffic control was privatized would it have been modernized more quickly, resulting in a large increase in air traffic efficiency, resulting in more cost savings, but certainly someone has to pay for those improvements and if it’s not the taxpayer, then it’s the private sector in the private sector operates on a profit model as it should. So please “stand by and hold” for newly proposed user fees or taxes or some other collection model . . .

There is no easy answer.

 

 

Helpful Links – http://thehill.com/policy/transportation

Congressman asks FAA, Why Did You Issue That Ruling to Allow the Closing of the Santa Monica Airport . . . ?

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US Representative Ralph Abraham is asking the U.S. Department of Transportation to explain why the FAA entered into a settlement agreement with the city of Santa Monica, allowing the city to close the airport in 2028 and shorten the runway in the meantime.

The settlement agreement with the city of Santa Monica by the FAA allows the city to close the iconic airport in 2028 AND shorten the runway in the meantime.The runway shortening to 3,500 feet from the existing 4,973 feet, is estimated to effectively eliminate about 47 percent of jet traffic that currently flies into Santa Monica Airport (SMO). (We predict that that estimated 47% reduction in jet traffic would actually be greater in the interim period and that the city will succeed in an even greater reduction in jet traffic.)

To quote directly from Representative Ralph Abraham’s (R-Louisiana) letter to U.S. Department of Transportation (DOT) Secretary Elaine Chao and FAA Administrator Michael Huerta, “This agreement departs from the long-standing principle that the federal government will preserve airport infrastructure and hold airport sponsors accountable, especially when they have accepted federal money and committed to deed-based obligations to operate an airport in perpetuity.” The city had signed a transfer agreement after World War II in which it agreed to continue operating the airport in perpetuity.

“The agency’s congressionally authorized mission includes ensuring that airports remain safe and efficient while also protecting our entire aviation system,” Abraham wrote. “This agreement not only appears to take the opposite approach, but [also] to be inconsistent with agency and congressional requirements that changes to airport obligations be fully publicized and documented. I would appreciate a thorough explanation of the FAA’s apparent departure from this mission.”

SMO is a vital asset as a reliever for Los Angeles International Airport (LAX) and a critical part of local and state emergency plans said Representative Abraham. “Further, this deal comes at a time when the president has made clear that the renewal of and investment in infrastructure is a top priority for the administration. Could you provide any analysis that the FAA has utilized or prepared regarding the consequences of its actions, such as negative impact on other airports, area residents, businesses, general aviation, the flying public, and the national aviation system?”

Congressman asks FAA to explain itself over its SMO ruling allowing the city of Santa Monica to eventually close the airport!

As we reported last week in our commentary, “Colossal Consequences to FAA’s SHOCKING Santa Monica Ruling . . . In a stunning reversal the Federal Aviation Administration recently did a 180° reversal of its position to enforce the FAA’s Grant Assurances requiring the Santa Monica Airport (SMO) to remain open for some additional 11 years.”

The National Business Aviation Association (NBAA) and five other aviation interests have petitioned the U.S. appeals court to review the legality of the SMO-FAA agreement. In their petition they also requested a stay against the FAA and an injunction against the city to halt the city’s efforts to shorten the runway, until the appeals court can conduct its review, according to the NBAA.

As we all know it’s impossible to predict the possible success of the industry group petition. The US appeals court can issue the requested injunction to stop the city from shortening the runway OR it can let the city proceed with its aggressive (as approved by the FAA) plan by simply denying the requested injunction and hearing the merits of the petition at an unknown future court date, which by the way can be potentially after the city has proceeded and possibly completed its aggressive runway shortening plan.

The city of Santa Monica can “place its bets” and “roll the dice” and take aggressive action during this time while our general aviation industry and FBO’s hold their breath for a positive ruling. Without the temporary injunction, the city of Santa Monica politically strongly positions itself if it takes quick aggressive action and then as is often said, pleads for forgiveness. We can assume that if the city does take aggressive action prior to a US appeals court hearing it will have determined that its chances of the FAA ruling in its favor being overturned are slim.

And let’s of course remember the most important part, the US appeals court can simply decline to hear the case. At that point those knowledgeable in legal circles have said the industry and the Santa Monica Airport FBO tenants can hope for their day in Federal District Court. As we all know, our court system moves slowly and a speedy trial or hearing at the appeals court level will neither be quick or timely enough for general aviation and the FBO community both in Santa Monica and throughout our country.

As we said in our earlier commentary, the Federal Aviation Administration ruling to effectively allow the city to close down the airport despite the Grant Assurances in place could have devastating and repetitive future impact on the financial health and viability of the FBO industry and general aviation in general.

No one saw this coming.

Stay tuned, the next chapter in this nightmare for the FBO and general aviation industry hasn’t been written yet. We will keep you posted.

March 16, 2017

FBO Advisors, LLC
Serving the FBO industry for more than 40 years

Helpful Links – https://www.FAA.gov

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Since 1975 we have successfully served the best interests of our clients by focusing on their specific FBO needs. By having a diverse staff, combined with being exposed to a wide variety of FBOs and aviation businesses with unique situations, we’ve cultivated a focused and high level of FBO expertise and resources.

We are specialists, not generalists, and we take pride in offering the best solutions and providing the highest level FBO services to our clients. We serve FBOs, aviation businesses, and airports:

 

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