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Signature Flight Support “OUT” at John Wayne Orange County Airport (SNA)

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What some have described as a “soap opera” unfolding, the Orange County Commissioners have voted to award the RFP for FBO services to ACI Jet Center, a California-based FBO operator instead of the incumbent Signature Flight Support. (The other John Wayne Orange County Airport incumbent FBO, Atlantic Aviation, was awarded a renewal of its concession in the RFP process.)

On a 4-1 board vote, ACI Jet — which originally was awarded the contract in January before the vote was contested and then rescinded — won it anew to replace incumbent Signature Flight Support, the world’s largest fixed- base operator. ACI Jet’s interim lease, good for about two years, is effective once the operator provides the required insurance and security deposit. (ACI Jet is a smaller, San Luis Obispo-based FBO operator.)

Reviewing reports of the hearings and process by the Orange County Commissioners in industry publications and the local Orange County Register has made for an entertaining insight (as long as you’re not Signature Flight Support) into the politics of airport RFPs for FBO’s.

The brief history in case you lack that background is the Orange County Commissioners decided to entertain an RFP process to qualify either the renewal of the two FBO incumbents, Signature Flight Support and Atlantic Aviation, or possibly award one or both of the two FBO concessions to new operators. It was reported that the County Commissioners had received complaints over possible “price gouging” by these two FBO chain operators, and in particular a complaint by a long term flight school tenant at the airport.

Not surprisingly, what followed was a two-year “exercise” by the Airport Administration Staff in researching, writing, and issuing finally the RFP submittal.

Let the “games begin” or so they say, and with that Signature Flight Support, Atlantic Aviation, Ross Aviation, and a host of others both local and national entered the foray. Four entrants made it to the final round and

were scored by the Airport Administration Staff who made their recommendation for Signature Flight Support and Atlantic Aviation to be (renewed), awarded the two FBO concessions at the airport.

But not so fast. The recommendations to the County Commissioners by the Airport Staff were just that, recommendations subject to consideration by the County Commissioners of Orange County. And apparently the Commissioners were ready for battle.

Several public hearings ensued and some who attended report that for Signature Flight Support it wasn’t “pretty”. The incumbents were accused of highly inflated retail fuel pricing and that pricing by them was not competitive compared to other nearby airports, by approximately a dollar higher per gallon the reports suggested. Signature Flight Support countered by saying that very little fuel they actually dispensed at the airport was sold at the posted rate, (what some refer to as the “rack” or posted retail price). It was also reported that during this process Atlantic Aviation made a significant reduction in their posted fuel price. The “Orange County Register” reported, “When supervisors in July announced their intent to search for alternate contractors, Atlantic rapidly dropped its fuel price by 31 percent, according to Flightaware.com, which tracks airport information. After waiting at least three months, Signature lowered its fuel price by 16 percent around the deadline for contract applications.”

The County Commissioners on February 28, 2017 also re-awarded Atlantic’s fixed-base operator contract. Both roughly two-year interim leases for Atlantic Aviation and ACI Jet will allow for services to be provided while the airport conducts a study for future development of its general aviation facilities, according to county documents.

Signature Flight Support’s response, according to published reports in the Orange County Register was, “Signature, which realized in January it could lose the contract, previously alleged the county had violated federal and local procurement laws and sent complaints to the Federal Aviation Administration and the Department of Transportation”. As quoted in the “Orange County Register” on February 28, 2017, Geoff Heck, Signature’s senior vice president of sales and marketing, said, “The board’s decision, Tuesday, to substitute “an under-qualified bidder” for Signature is in

violation of the county’s agreements with Federal Aviation Administration rules on safety and efficient operations at the airport. Today’s action was not transparent, fair, or objective, and will cause unnecessary disruption at the airport,” Heck added, “Additionally, the disparaging, unfounded and meritless allegations that have been made against Signature to justify this decision are patently false.” Heck said Signature “will vigorously pursue all avenues of redress.”

So what’s next?

ACI Jet is busily preparing to take over for Signature Flight Support at SNA. Atlantic Aviation is continuing their existing operation though probably a little more “price-sensitive”. And Signature Flight Support, well they’ve turned it over to their attorneys and the filing of a complaint with the FAA.

We’ll just have to see where that goes. Our prediction is the FAA will let the local decision stand and not overrule the County Commissioners, and Signature reduces its location count by 1 . . .

 

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

Helpful Links –

http://www.acijet.com https://www.atlanticaviation.com http://www.ocregister.com https://www.signatureflight.com

Colossal Consequences to FAA’s SHOCKING Santa Monica Ruling . . .

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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.

As reported in the AOPA newsletter of February 2, 2017, “A deal between the FAA and the city of Santa Monica, California, became official Feb. 1 when the Honorable John F. Walter of the U.S. District Court for the Central District of California signed a detailed stipulation and order/consent decree that requires the city to keep Santa Monica Municipal Airport open and operating with reasonable services until Dec. 31, 2028, upon which time it has the option to close the facility.”

To say that the industry was shocked would be an understatement. As far as we can determine this has either never occurred before, or if a similar FAA ruling was issued long ago no one can recall such a ruling truly against the FBO industry.

So what can likely be the effect of this shocking reversal and ruling by the FAA? Well, if you’re an FBO owner or FBO chain like Signature Flight Support, Atlantic Aviation, Sheltair, and the others you might now wonder if your lease term with the airport, say 20, 30, or 40 years or more could be trumped by the airport deciding to bend to the occasional vocal minority of its constituents complaining about airport noise, congestion, or danger from airport accidents and move ahead with closing the airport much as the city of Santa Monica done.

Don’t think this is a far-fetched possibility. FBO Advisors LLC was involved in a similar situation approximately 15 years ago in Stuart Florida where the newly elected county commissioners made good on their campaign promises to vocal constituents to close the “noisy” Stewart Florida airport. FBO Advisors was retained to assist the

airports FBO operators in making their case to the county commissioners against closure. The process was long, expensive, and rife with politics as you can imagine. No matter that the Stuart Florida airport contributed to the economic base of this somewhat sleepy County, the newly elected county commissioners, one in particular who rode to office on the campaign promise to close the airport, were unsympathetic to put it gently to the benefits that an airport and FBO’s serve to the local community.

Back to the potential impact on existing FBO owners such as Signature Flight Support, Atlanta Aviation, etc. Whereas all of them made their decision to purchase a particular FBO at a particular airport based upon the business the FBO (via the airport) generated and the length of the concession granted in terms of lease term, say 30 years or 40 years, these FBO owners conducted extensive pro forma’s and amortization calculations to justify their initial investment.

So it’s not difficult to understand the potential devastating effect this shocking FAA ruling can have on the investment made by these FBO owners and FBO chains. If your pro forma was based upon a 30 year or 40 year amortization schedule and analysis and now you’re faced with a situation like in Santa Monica that Atlantic Aviation is facing, your recapture of your investment originally based upon say 30 years for example has now been shortened by 50% to only 15 years instead of the original 30 years you modeled. The word shocking is appropriate.

Do the FBO’s and FBO chains that might face a surprise accelerated shutdown of the airport or early termination of their lease have any options or redress? That’s yet to be determined and certainly the attorneys on both sides of the issue are going to have a field day, and an expensive one at that.

While we confess not to be attorneys, it strikes FBO Advisors that the early termination of a lease due to the city or county’s desire to close an airport is effectively a “condemnation taking” by the government

and if our conclusion is correct at the very least the FBO’s affected (Atlantic Aviation in Santa Monica for example) perhaps have a condemnation claim, a government “taking” as is described in some leases, and hopefully they can receive significant monetary damages from a court ruling in their favor.

At least that’s better than nothing.

Because of this shocking FAA ruling, fasten your seatbelts if you’re an FBO owner because you now have something new to worry about!

Helpful Links – https://www.atlanticaviation.com

About Us

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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