Airports, FBOs and Users Role in Fostering Airport Health

March 29, 2018

Airports and their tenants provide essential services to keep general aviation healthy, sustainable and successful, as well as support the economic viability of local communities. In a recent Airport Business/AviationPros.com article, NATA Board Member Curt Castagna discussed pathways to maintain the sustainability of airports and to encourage stakeholders, including users, to collaborate on achieving a robust airport that supports both economic development and public access to aviation.

Is Your Airport Healthy?

BY CURT CASTAGNA, President and CEO of Aeroplex/Aerolease Group
Originally posted by Airport Business/AviationPros.com ON DEC 26, 2017

For managers of general aviation airports across the nation, the definition of sustainability is as diverse as the stakeholders whom they serve. However, most contend that maintaining both economic viability and social responsibility are vital to maintaining a healthy airport.

The Airport Cooperative Research Program (ACRP), which is funded by the Federal Aviation Administration (FAA) and undertakes research in a variety of aviation subject areas, defines airport sustainability as practices that ensure:

  • Protection of the environment, including conservation of natural resources
  • Social progress that recognizes the needs of all stakeholders
  • Maintenance of high and stable levels of economic growth and employment

There is no simple formula for achieving airport sustainability, as each facility has a unique operating environment, business structure, governance and market. In addition, airport management face diverse challenges in relation to meeting user needs in the areas of maintenance, modernization, budgeting, security, grant assurances, and local political and community initiatives.

This discussion is designed to encourage visionary thinking from airport, business and community leaders, as well as airport users, on how to collaboratively achieve a robust airport that supports both economic development and public access to aviation.

Navigating the Path to Self-Sufficiency

When it comes to maintaining the economic health of an airport, it is crucial to understand its unique operating environment. In broad terms, general aviation airports must comply with a host of federal regulations and requirements, while navigating local market forces and economic and environmental pressures.

General aviation airports traditionally generate revenue from lease rates, fees and charges collected from tenants and users who provide a broad range of aeronautical services to the aviation community including: aircraft sales and acquisitions, fuel, aircraft ground support, passenger and crew services, aircraft parking and storage, on-demand air charter, aircraft rental, flight training, aircraft maintenance and overhaul facilities, parts sales, and business aircraft and fractional ownership fleet management.

Development at general aviation airports often takes the shape of public-private partnerships, modeling the discussions currently underway at the nation’s commercial service airports. For example, an airport sponsor enters into a type of public-private partnership with a fixed based operator (FBO) that provides airport users with a wide range of aeronautical services. In return, the airport sponsor receives a fee for the land and the community receives the economic benefit, with minimal risk for the business enterprise that is created. An increased number of airports are also entering into agreements with private companies that provide renewable energy sources, such as solar panel installations, that can diversify revenue streams, significantly reduce energy costs and benefit the environment.

A third revenue stream at airports comes from specialty companies that serve aviation-related segments of the economy. Corporate and general aviation services are augmented by a diverse array of mixed-use facilities, including business parks and industrial centers, which make airports a powerful economic engine.

Finally, public-use airports benefit from grants provided by the FAA for vital infrastructure projects. Eligibility for these Airport Improvement (AIP) funds is specifically based on the airport’s ability to maintain a level and competitive playing field for leaseholders engaged in aeronautical activities. To maintain its grant assurances, airport sponsors are responsible for ensuring that its tenants provide services at prices that are fair, reasonable and non-discriminatory.

Competition, Not Regulation, Creates Healthy Airports

At some general aviation airports, as well as commercial airports with general aviation facilities, corporate aviation accounts for a disproportionate share of revenue generated compared to smaller general aviation aircraft. How then, do airports achieve economic sustainability while maintaining a healthy mix of jet, propeller and helicopter operations?

A proper mix of operations and aircraft cannot be achieved through increased federal regulation or market manipulation. Rather, airports must aggressively work to implement policies that maintain balance among the needs of diverse airport users, while extending the benefits of aviation to the local community.

This includes using a competitive selection process to attract tenants that make significant capital investment and offer quality services at reasonable prices. Airport sponsors must also establish fair and equitable lease rates and charges appropriate to the local market, as well as address mixed land use in their long-term master and business plans. When airport operators view their tenants as true business partners, they achieve mutual success and advance the airport’s mission to achieve both economic and social sustainability.

Case Study – The Airport Sponsor/Tenant Relationship

Currently, the Aircraft Owners and Pilots Association is calling for the FAA to regulate the price of aeronautical services provided by FBOs, such as fuel and ramp fees, to achieve unfettered airport access. While this suggests that private pilots would receive the lowest costs available, it actually constrains the airport’s ability to serve the aviation community and achieve its goals.

The investments made by aviation and FBO facilities not only serve local pilots, but are gateways to economic investment in the community. As leases come up for renewal, an increased number of airports are requiring FBOs to make significant capital investments which revert back to the sponsor at the end of the ground lease. Each airport and each market is different. Thus, based on local and regional knowledge, FBOs construct pricing that enables them to provide quality service at a reasonable rate of return.

The economics of airport business place great importance on master lease terms and available revenue streams to create viable airports. While FBOs frequently comply with guaranteed service levels and facilities dictated by airport minimum standards, their business model does not guarantee income. Sparing airports the risks of an open and volatile market, they provide a steady revenue stream in the form of rent. Ultimately, the rates and charges collected by the airport sponsor are reinvested to help create a healthier airport.

In circumstances where pilots feel they do not have access to the best prices for fuel and other FBO services, the situation is best mitigated locally through the airport sponsor, which is obligated by federal law to ensure access on fair and reasonable terms. This does not equate to the lowest prices, but does require FBOs to offer equal rates to similarly-situated pilots. If the situation is not resolved, a last resort is the formal FAA Part 13 or 16 complaint process.

Clearly, this does not remove responsibility for the fair and equal treatment of pilots and other airport users from the realm of the airport sponsor. Rather, airports are held accountable for supporting policies and programs that best serve the diverse needs of the entire aviation community.

At Van Nuys Airport, for instance, progress on a 30-acre development project dedicated to propeller aircraft is climbing full speed ahead. This site, still under construction, provides hangars, tie-downs and office facilities for up to 270 propeller aircraft and related businesses. It also features a self-serve fueling station for private pilots. By relocating approximately 85 portable hangars from other leaseholds, this facility enabled other development projects to move forward and generate substantial economic impact.

Practices to Achieve Economic Sustainability

Creating an environment where airport businesses can thrive provides benefits to airport sponsors, users and operators, while creating high-skilled, high-paying jobs in the community. A business-friendly environment also attracts public-private partnerships to the airport, including those that advance green technology and neighborhood compatibility.

The following are a few practices that can help propel an airport toward economic health and, in so doing, promote policies that are both responsive to business and responsible to the community:

  • Develop and enforce airport minimum standards that promote the highest levels of safety, security and service for all airport users.
  • Ensure the airport has a current business/redevelopment plan and schedule of rates and charges that reflect its overall vision and mission.
  • Consider a transparent RFP process to solicit business proposals for real estate that is designated for both aeronautical and FAA approved non-aeronautical uses.
  • Review and maintain compliance with all airport grant assurances and regulatory measures established by federal, state and local government agencies with jurisdiction over the airport and its users.
  • Think globally, but work locally with airport users and operators, public officials and prominent business, civic and community organizations to form an airport business support team.

Finally, aviation industry leaders and policymakers should take advantage of organizations throughout the world, such as ACRP, that contribute guidance and research on subjects of importance to airports. Many of their findings derive from the day-to-day challenges faced by airport managers and can lead to innovative solutions.

Curt Castagna, president and CEO of Aeroplex/Aerolease Group, is a member of the Los Angeles County Airport Commission, president of the Van Nuys and Long Beach Airport Associations, and a board member of the National Air Transportation Association. A certified private and instrument-rated pilot, he has instructed courses in aviation administration at Cal State Los Angeles for over two decades.


More Fixing of Things That Aren’t Broken

October 3, 2017

By Bill Deere, Executive Vice President of Government and External Affairs

The campaign to economically regulate FBO pricing took its latest step recently, when a national pilot organization filed informal complaints against aviation businesses at three airports. It is certainly reasonable for an association that represents pilots to act as a consumer ombudsman, just as NATA does on behalf of aviation businesses.

However, I very much agree with NATA’s President Marty Hiller who, pointing to the big picture noted, “This action is disappointing, coming at a time when the general aviation community is confronting a serious effort to privatize our nation’s air traffic control system. General aviation (GA) as we know it in this nation is under a real threat. We need to stand united right now and not be concerned with distractions like this.” Think Marty is exaggerating? I was on a recent call where the same national pilot organization was telling pilot groups from around the country the debate on ATC privatization has reached a point where the next seven days are critical to the future of GA in this nation.

To be clear, neither NATA nor its membership is afraid of a debate on FBO pricing. In fact, I am proud that NATA insists that viewpoints on controversial issues be aired directly with our members. On November 8th, NATA members will hear directly from AOPA General Counsel Ken Mead, who has agreed to join us at the 2017 Aviation Business Roundtable, to discuss pricing on a panel that will also include FBOs, airports and fuelers. I have assured Ken that no flak jacket is required.

The issue of FBO pricing is not new, and the pressure aviation businesses often face for more improvements and additional private investment can ignore the reality that these costs are ultimately paid for by the users. However, what is new, is the increasing lack of collaboration to address these issues. Historically, industry groups work in partnership on issues on behalf of their memberships, and in this case aircraft owners, aviation businesses and airports should be sitting down to address concerns and develop solutions, not looking for government regulation. This campaign to economically regulate FBOs began in secrecy, and ignores the fact the Department of Justice reviews FBO consolidations and requires adjustments if necessary to assure adequate competition continues. It seems reasonable that if a pilot organization felt its members were threatened at these locations, that their historic mission would have brought aircraft owners, aviation businesses and airports together, not pitted them against each other.

The commitment of the industry to work together on an unleaded avgas replacement exemplifies the potential of collaborative relationships. This effort provides users, businesses and airports opportunities to review incentives for alternative fuels as they hopefully become more readily available in the next several years.

While NATA does not take a position on pricing at individual FBOs, the association is providing important industry perspective, supplying both the FAA and local decisionmakers context as to the factors that go into FBO pricing. As you may recall, earlier this year NATA presented a state of the aviation business sector overview to the FAA. The overview, developed with the assistance of FBO and air charter members, discusses the costs of operating airport businesses and the many variables
that go into determining its pricing structure—including capital invested, lease duration, fuel volume, personnel expenses, hours of operation, and traffic types.

Press coverage of the informal complaints has been balanced and, most important, not accepting as axiomatic the assertion that FBO pricing is “egregious.” Especially gratifying to NATA are the comments that follow the related news stories. This would be a natural place for pilots to “pile on.” And while some do, there are also thoughtful comments from
writers who understand that FBO pricing is more complex than its glib portrayal in what is essentially an association’s membership renewal campaign. Some of the best discussion centers around the role of airports and the impact on FBO economics of a local airport or community’s desire for highend facilities, ways to most easily address security concerns or their own investment challenges. Federal requirements and local conditions can be managed together, and the industry has traditionally united to seek the necessary balance.

The FBO services market is and remains a very competitive industry. As the filings demonstrate, pilots, flight departments, charter companies, and fractional operators make a choice every day of what airports to fly into and which provider meets their requirements. Pilots have more technology than ever to create options to assist them in deciding where to land, purchase fuel, and remain overnight based on cost, convenience, reputation and services a fixed base operation provides. Currently, in the case of Jet A fuel there are no less than 26 providers of contract fuel (a method of payment offered by fuel suppliers and other transaction entities), most if not all posting weekly prices at most FBOs across the country. There are numerous websites that offer the piston and turbine pilots prices, with flight planning and other services, including FltPlan.com, AirNav, and RocketRoute.

Those within the aviation industry fully understand that FBOs compete vigorously with each other on price, service, and quality of facilities. Often, an FBO’s primary competitor is not a competing operation on the same airport but rather another airport in close proximity, or the airport where the plane came from or its final destination.

Pilots, take some of the self-congratulatory back patting of organizations with a grain of salt. The reporting has a tendency to peter out when the news turns inconvenient. For example, taking credit for a second FBO at Jackson Hole has stopped. Why? Because the airport authority may buy out the existing operation in favor of a city-run FBO. How about prices at John Wayne Airport now that an incumbent FBO was turned out? Looks like the total user price for fuel, handling fees and rents are still about the same. Economic regulation of FBOs is no different than trying to privatize air traffic control, another example of trying to fix something that isn’t broken. (Visit www.nata.aero to read NATA’s state of the aviation business sector overview.)

Republished from the 2017 Q3 Aviation Business Journal.


Walk a Mile in His Shoes – Aviation Business Journal Article Series

February 13, 2013

We have all heard the saying: Walk a mile in his shoes. Many of us have used it to help our children understand that different people view things differently. How does that apply to aviation businesses though? A new three-part article series appearing in the first quarter’s Aviation Business Journal (ABJ) explores this issue.

Paul Meyers, the Principle in Charge at Aviation Management Consulting Group, Inc. an NATA member company, wrote Walk a Mile in my Shoes – the Art and Science of Doing Business with Airport Sponsors. In this three-part series, Paul explores the airport management/airport tenant relationship from the perspective of each of the parties with the aim of creating a better understanding of the concerns and values faced by all involved.

The first article in the series, now available in NATA’s Aviation Business Journal, takes a look at the airport sponsor perspective, exploring the many rules and regulations that an airport sponsor must adhere to when negotiating lease agreement.

In the second and third quarter edition of Aviation Business Journal, the series will continue with a look at the airport tenant business perspective and a review of best practices for negotiations between airport sponsors and airport businesses.

A special thanks to Paul and the entire team at Aviation Management Consulting Group for their work on this project.

The first quarter ABJ is available online right now and print copies should arrive at your location in the next few days. Be sure to take a few minutes and read Walk a Mile in my Shoes.

Click here for the digital version of NATA’s Aviation Business Journal.


A Changing FBO Business Model: You Can’t Give It Away

August 25, 2011

Submitted by: John L. Enticknap & Ron R. Jackson, Aviation Business Strategies Group

For many years, the FBO Business Model in the United States has been fairly simple and straight forward: markup fuel to cover all the operational business expenses; the greater the margin, the better the profit.

When fuel prices were fairly stable and the old inefficient heavy iron aircraft were commonly seen on ramps, this worked out pretty well.

But as singer-songwriter Bob Dylan so poignantly penned, “The Times They Are a-Changin’.”

From the last quarter of 2008 we’ve seen some real changes in our industry including political bashing and a prolonged recession. As we struggled through 2009, we saw the ‘average’ FBO experiencing a 20 to 25 percent drop in business sales with some losing more than 50 percent of their fuel sales. In 2010 there was some recovery with an encouraging increase in charter activity and the resulting increased fuel sales.

Now in 2011, we are struggling with ever higher fuel costs and a general business malaise. Just as we are writing this article, we experienced more unfortunate politics conveying a negative image for business aviation. And we are seeing the restart of the continued consolidation of the FBO industry; some failures; and most of all, much continued pressure on fuel margins.

The cost of fuel peeked in the first week of May and has dropped .40 cents to early July; now it’s on the way back up. Just about the time we sell the high priced inventory in our fuel farms and look for some stability, the higher prices are again reality.

Changes in operator fuel purchasing habits

Over the last few years we have seen a strong push from corporate customers towards a utilized alternate fuel purchasing strategy, rather than the traditional retail fuel purchase. Of course, the full retail fuel purchase has always been a myth – purchasers of Jet A fuel expect and get discounts off the posted price.

The trend over the last 15 years, especially within the last few, is to pre-negotiate fuel purchasing with many of the contract fuel sellers prior to arriving at your FBO. Calling ahead for the best discount available or changing plans to get the best overall operating costs are all tactics for reduced fuel costs and gallons purchased. This is savvy cost control for corporate operators.

Add to this the fact that corporate aircraft operators are getting more sophisticated in their flight planning:

  • Using fuel tankering models
  • Pre-established fueling points
  • Better ATC routing for weather and flight planning to minimize fuel costs
  • The purchase of more fuel-efficient aircraft

FBO profit misconceptions

Today’s FBO business model has not changed much over the last 30 years. It is still highly dependent on the retail fuel sale. The successful FBOs look for the fuel sales – retail, contract, or other – to essentially support the entire FBO operation.

But do all the aircraft that taxi onto an FBO ramp purchase fuel? NO THEY DON’T! Yet the cost of doing business goes on, including exposing your FBO to potential insurance claims should the customer’s aircraft get mishandled. This has given rise to the Ramp Fee which is still a controversial subject in some aircraft operator’s minds.

Again, there is this misconception by many in the aviation business that FBOs are super-high profitable organizations and are “ripping off” the flying public. This, of course, is highly exaggerated.

There has even been a string of emails lately that draws attention to the continuing misunderstanding of the FBO business. These emails contend FBOs are making more than $4.30 per gallon gross margins and, after fuel cost and lease expenses, are earning $334,000 per week before labor and other expenses.

In reality, margins are running more in the $1 to $1.50 range while insurance costs alone can run $1,000 per day. So the operator who comes onto the FBO’s ramp and doesn’t contribute to the income stream is not cost free to the FBO> To be sure, the FBO business is still a good business to be in. If an FBO chain or individual location can make 10 to 15 percent EBIDTA, then it is a very good business. In perspective, look at the oil companies who may be earning in the nine percent range; on the other hand, a general consumer company like Coke is running 25 percent plus.

Changes in the wind

However, today’s FBO model in the U.S. is destined for change. As mentioned, fuel margins are being squeezed from both ends. At one end is the higher cost of fuel which drives up the base price. At the other end is the more savvy aircraft operator trying to drive down the posted price. In the middle is your margin, being squeezed like a lemon in a juice press.

So how do we make lemonade out of the tart extracted juice? Here are a few observations to ponder.

Having operated FBOs in both the U.S. and in the Middle East, we are very familiar with the European FBO Business model where fuel is not part of the income equation. Rather, fixed base operators in this part of the world depend on revenue generated solely by fees associated with providing various services common to an FBO operation:

  • Marshalling
  • Handling
  • Parking
  • Ramp
  • Ramp transportation
  • Over the road transportation
  • Baggage handling
  • GPU
  • Lavatory service
  • Customs/visa
  • A handling fee for collecting navigation fees
  • A handling fee for collecting landing and over-flight fees
  • Lounge fees
  • Catering

We are not suggesting that you should follow this model, at least in its entirety.  However, as margins get squeezed, you need to get creative in shoring up your bottom line by creating other streams of income.

Don’t give it away!

Our advice is:     DON’T GIVE IT AWAY!

In operating Mercury Air Centers, we looked at every aspect of our business to see where we could recoup some of our expenses.

If a customer doesn’t buy fuel, or at least doesn’t buy a minimum quantity for the type of aircraft being flown, why not charge a facility fee for use of the ramp, including labor for safely parking and towing the aircraft and repositioning for passenger loading?

If aircraft operators want a significant discount off the posted price, why not charge for taking out the trash, cleaning the lavatory, servicing the galley with ice and coffee or hooking up the APU?

If a fuel broker drives a hard bargain, why not charge for the courtesy vehicle or the newspapers? (This often entails a requested set for the pilots and a set for the passengers.)

If, during the course of a transaction, your fuel margin is significantly compromised in any way, why not consider a facility fee for that clean restroom which is kept tidy by paid staff? Or how about the nicely furnished and well equipped conference room; or pilot and customer lounges that often include the coffee and cookie bar that is kept well stocked throughout the day?

Perhaps you don’t need or want to charge for everything you do, but you need to analyze your various income streams and make sure you are not giving your services away. Your business deserves to make a profit – and that is not a bad word! Your business should not subsidize corporate aircraft operating companies, or subsidize your airport sponsor. If you do that, your business will not survive and you’ll lose your investment. Profit allows for growth, sustainability and the continuation of your business.

Here is a short checklist to consider moving forward:

  • Stabilize your selling prices and your margins. Don’t be all over the place. Customers will notice and your employees with be confused.
  • Use a consistent discount program that is easy to understand for the FBO and your customer – and stick to it!
  • Don’t discount your hangars. Make sure you know the true cost of your real estate.
  • Don’t give away all your other services unless you get the ‘right’ fuel sale that protects your margins. More fuel sold equals more ‘free’ services. No fuel sale; customer must contribute to your revenue.

No one can predict the future of the FBO business, but it is possible high fuel prices are here to stay which, out of necessity, will cause change to the way we do business. It’s how we prepare ourselves for this change that’s important. By developing our own consistent approach to our FBO business model, we can make ends meet before someone else decides to move the ends for us.

Let us know your thoughts – email us at jenticknap@bellsouth.net or thejacksongroup@earthlink.net. Ron and John developed NATA’s acclaimed FBO Success Seminar Series curriculum. Click here to learn more about the upcoming FBO Success Seminar on November 8-10, 2011 in Atlanta

This blog post originally appeared on ACUKWIKAlert.com, The FBO Connection.

To visit or return to NATA’s site, visit www.nata.aero.