2016 Aviation Business Conference | Gathering in Washington During Interesting Times

June 20, 2016

NATA members attending the association’s second annual Aviation Business Conference are arriving in Washington, D.C. at an interesting time. Congress will still be in session but can already see on its horizon July 15th, the date it will adjourn for the two national political conventions and its annual summer recess. Returning shortly after Labor Day, Congress will meet for only a few short weeks before adjourning to campaign in advance of the November 8th general election.

Not by coincidence, July 15th is also the date of the expiration of the FAA’s current authorization. On the House side, Chairman Shuster’s (R-PA) proposal to create an air traffic corporation continues to languish due to objections from other congressional committees, conservative Republicans, and virtually the entire House Democratic Caucus. NATA continues to voice its strong objections to the corporation concept at any and all venues that provide us the opportunity to discuss the dangers it poses to general aviation. Like presidential candidates, NATA has been on the road, updating the aviation business community in Florida, Wisconsin, Illinois, South Carolina, Indiana and Texas on the status of the Shuster proposal. We also continue to work the issue at the national level, educating the press and appearing at public policy forums here in Washington, D.C., to rebut the outrageous claims of the airline interests campaigning for ATC corporatization.

I am also pleased to report that in April the United States Senate took a different, more hopeful path than the House, approving by a vote of 95-3 a bipartisan FAA bill that does not include provisions to create an ATC corporation. The legislation instead embraces NATA’s long-stated belief that Congress should build upon its previous work and continue to improve the consistency of FAA decisions across its offices and regions, streamline the FAA certification process to better reflect today’s pace of innovation, and assist the agency in operating as efficiently as possible.

The Senate’s action now puts the impetus for further action in the hands of House Transportation Committee Chairman Shuster to decide whether or not to continue to press forward on his proposal to create a user fee-funded, air traffic control corporation, accept the Senate proposal, or simply extend the FAA’s authorization beyond its current expiration on July 15th. Senator John Thune (R-SD), Chairman of the Senate Commerce Committee, who steered the legislation through the Senate, has publically expressed his hope there will be no more extensions and that the House will give serious consideration to the bipartisan approach taken by the Senate.

This puts NATA members in Washington, D.C. this June smack dab in the middle of it all. Our annual fly-in on June 9th will once again feature key aviation policymakers sharing their perspectives on the FAA reauthorization debate. We are also fortunate that once again Tom Hendricks and the leaders of the other general aviation associations will brief you in advance of your trip to the Capitol Building. And, of course, we will also gather informally that evening on Capitol Hill with aviation policymakers and their staffs for our annual industry reception.

However, the Aviation Business Conference is more than about politics. For that reason, we will be joined by TSA Administrator Peter Neffenger, who will discuss the security challenges facing our nation. FAA Associate Administrator for Aviation Safety Peggy Gilligan will be on hand to answer your questions about the FAA’s regulatory agenda. Finally, the conference will be packed with sessions providing insights on the state of the industry and the latest in effective business and safety practices.

So bring some good walking shoes (we can never guarantee the operating state of our subway), your questions and your insights. We look forward to seeing you in our nation’s capital!

By Bill Deere, Senior Vice President for Government and External Affairs (republished from Q2 2016 Aviation Business Journal)


NATA 75: An Industry Voice Is More Important Than Ever

December 28, 2015

 

As we launch into our anniversary year, reading the excellent history of the association written by Paul Seidenman and David J. Spanovich (page 18) underscores just how important it is for aviation businesses to have a voice to represent them in the public policy arena. As the article demonstrates, NATA’s birth was directly linked to the future of civil aviation, when the association’s founders had the vision to join together and intervene at a critical juncture, not letting the military in effect—take over—American aviation. In fact, the article is replete with examples, large and small, of how the association’s intervention made a difference in supporting aviation businesses’ contin­ued growth in this vital, and uniquely American, part of our economy.

It is easy to understand the advantages of membership when viewed from a purely business perspective. Many NATA members, for example, take advantage of the association’s industry leading workers’ compensa­tion insurance program or perhaps its Safety 1st training. However, the need for a public policy presence is not something that is always readily apparent nor easily quantified.

Perhaps because of our history, NATA members see that need. In our recent membership survey, advocacy was rated as one of the most important aspects of membership. It is also borne out by the fact that when the call for help goes out to aviation businesses, NATA members respond.

Looking ahead to 2016 we, like our founders, continue to see challenges and opportunities for aviation busi­nesses. On our immediate horizon is the upcoming FAA reauthorization bill. While events in 2015, the leadership crisis that resulted in a new Speaker of the House, Paul Ryan, and the difficul­ties of financing a multi-year surface transportation bill, slowed down the FAA bill in Congress—make no mis­take about it—the airlines still want the keys to the air traffic control system.

In early December, Airlines for America (the trade group representing the major carriers) and the CEOs of the nation’s six major airlines were in Washington, D.C., talking to lawmak­ers about their desire to create an independent, user-fee funded air traffic control organization. Don’t think they are serious? When the world’s largest airline, Delta, announced it was leav­ing the trade group in a disagreement over this and other policies the airlines are pursuing, the remaining members waived the association’s required de­parture notice allowing Delta to leave immediately.

The idea of privatizing air traffic control has been one pursued by others as well, some frustrated by the pace of modernization, others concerned the congressional budget process has bro­ken down to the point where funding for the agency may no longer be able to keep up with the future needs of the system.

While NATA agrees the FAA could certainly stand the injection of more private sector practices, we view the unknowns associated with corporati­zation as simply too great to risk. Can such a proposal be safely implemented in a system many times larger and far more complex than any other in the world? Will its implementation set back the cause of modernization rather than enhance it? And what happens to general aviation, a uniquely American user not really a large factor elsewhere in the world? Will new costs and fees in effect deny your businesses and cus­tomers access to airports and airways necessary to your operating a viable business?

While a huge concern, I don’t want to leave you with the impression this is the sole issue confronting avia­tion businesses. We are still working to unwind a 2012 IRS opinion that concluded that aircraft management fees are “transportation” and therefore management service providers should be assessing the 7.5 percent commer­cial ticket tax on amounts paid for those services. We are also working as part of a broad national coalition to bring certainty to investment policy by making permanent bonus depreciation and Section 179 expensing. Finally, the NATA regulatory team is working across a myriad of issues, before the FAA, the TSA, and Customs, among others, looking to bring common-sense and your real world perspective to the issues under consideration by the exec­utive branch.

Our issues are not always defen­sive. Our committee members were instrumental in developing a positive agenda for the FAA reauthorization bill. In fact one agenda item, requiring the investigative arm of Congress, the Government Accountability Office, to conduct a study of diversions of non-commercial jet fuel tax revenues to the Highway Trust Fund, was just incorporated into the recently enacted surface transportation bill. We are also particularly proud of the ongoing effort by NATA and AAAE members to identify and address the issues that divide and can unite airports and their tenants.

So as Tom Hendricks says, our future is bright and getting brighter by the day. As we move into what could be a watershed year in aviation, stay involved, and stay engaged. In the end, you are aviation businesses best advocates!

By Bill Deere, Senior Vice President for Government and External Affairs


A Confession about Community

April 17, 2013

I moved to the Denver, Colorado area about a year and a half ago, and I have a confession to make. I joined the Colorado Aviation Business Association (CABA) pretty early on in my stint in Colorado and even sit on the legislative committee, but I only just recently attended my first big CABA meeting. Why did I pass on the last two holiday parties and several other events? It snowed – a lot. The roads were bad. I traveled for work that week and my flight was late the night before. I was sick. I broke my foot and spent six months on crutches. Basically, I had one excuse after another (although that crutch thing seemed kind of legit), because the truth was rather embarrassing for a full-grown adult to admit. Joining a new group like that – even a group of like-minded aviation professionals – felt a bit like going to a new junior high school. What if I don’t know anyone in this new community? It might be awkward. I might be bored. It might be a waste of my time.

When I worked for NATA and lived in the Washington, DC area, my sense of “community” was never in question. From the outside looking in, one might think the aviation community in DC is forced. We were “required” to spend quite a bit of time together at seemingly endless receptions, dinners, meetings, and other functions, but the people who make up that community – my trade association friends and colleagues, our wonderful association members, and even to a varying degree the regulators with whom I worked – are such incredible people that I felt blessed to be part of such a great community. Since I left DC, life has taken me to Kentucky, Kansas, and now Colorado and my incredible Beltway community seemed irreplaceable. I never even tried to be part of the aviation communities of those other states. They were just bases from which I parked my car at the airport and flew to visit a client somewhere else.

I attend most of the “big” national aviation trade conferences with a soft spot in my heart for NATA events. For me, NATA functions are like class reunions, and I am always excited to visit with other attendees and hear what’s new in our industry. In fact, I’m currently getting revved up to attend NATA’s Aviation Business and Legislative Conference next week in DC. But I always assumed the local events were unnecessary – a drain on my already limited time at home with my family.

Let me share with you what I learned at that CABA meeting last week: Our local aviation community is essential to our professional development and even sense of well-being. I cheated a bit at this event and found a client of mine to visit with at the beginning of the evening, but soon found my way to colleagues who overlap with my DC community and yes – met new people. I came away from the event energized for the future of my own business, excited about the opportunities to participate more fully with CABA, and amazed at the power of shared passion.

Are you active with your state or regional aviation business organization? The national trade associations increasingly rely on these state and regional groups as essential pipelines of state and regional issues and concerns. Aside from the obvious networking opportunities these local groups provide, I learned they can bridge the gap between the national events most of us attend and give us that injection of energy only found in large groups of people that have a zealous devotion to the same industry.

NATA’s new Aviation Business and Legislative Conference is being held next week in conjunction with the association’s committee meetings. I am looking forward to seeing my DC community, catching up on important issues, and experiencing the enthusiasm of my colleagues. Are you in need of a little community? It’s not too late to register for the Aviation Business and Legislative Conference and committee meetings!

Submitted by Guest Blogger Lindsey C. McFarren

President of McFarren Aviation Consulting

www.mcfarrenaviation.com


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.

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