MARKET ANALYSIS

Can FBOs remain competitive in their local markets? How will the actions of airport sponsors affect the industry?






Airport sponsor-owned FBOs that compete with FBO tenants

Sample tax and fee structures of 3 similarly situated airports in the NYC metro area that compete for the same customer base of business.

AC 150/5190-6 also states that an airport sponsor may contract the management of an airport sponsor-owned FBO to a management agent.

If the sponsor uses such an agent, that agent becomes the de facto airport sponsor and must abide by all grant assurances—with the exception that the agent does not possess any proprietary right to provide services, and must allow competing service providers that meet the minimum standards to operate.

In the event that the airport sponsor decides to provide an aeronautical service in direct competition with a tenant service provider, the airport sponsor must meet the same minimum standards as other similarly situated service providers.

The problem is that an FBO tenant cannot effectively compete with its landlord, especially when the landlord is the airport sponsor. When airports use federal and state grants to build hangars, and then set prices below those needed to recover the cost of construction of such infrastructure, it makes it impossible for private industry to compete.

In certain cases, this may be considered to rise to the level of an "unlawful taking" in that an airport sponsor has the ability to push well established and competitive FBOs out and away from a location, thus leaving themselves to set all the rules and service standards for the traveling public using the airport.

In a letter dated Aug 6, 2012 addressed to FAA Acting Administrator Michael Huerta, 12 members of the US House of Representatives expressed a concern that "there is a recent trend of airport-sponsored fixed based operations (FBOs) competing with privately-owned FBOs".

The members state that "[they] are concerned that airport-sponsored FBOs, whose budgets are supplemented by federal funding, have a competitive advantage stemming from these taxpayer subsidies when compared to privately-held FBOs. Therefore, [they] request that FAA provide guidance to ensure that Grant Assurance 22 (economic nondiscrimination) is properly enforced so that all FBOs, both privately and publicly owned, compete on a level playing field."

There has been a lot of aviation press concerning an airport at which a privately-owned FBO weathered a rocky economy and managed to sustain financial viability in the wake of what I believe was 2 former competing FBOs closing up shop and ceasing operations.

The city decided that it was in consumers' best interests to use state airport grants funded from aviation fuel taxes to build new FBO facilities at the airport. Once it had built these beautiful new facilities, the airport contracted with a small, reputable, well-known FBO chain to manage the airport-sponsored FBO.

Banyan Air Service at FXE (Exec, Fort Lauderdale FL).

The aforementioned letter to FAA Acting Administrator Huerta from the US House of Representatives makes specific reference to this airport and to the current situation, stating that "recent evidence from the 'airport' proves that airport-sponsored FBOs do not operate efficiently and require unnecessary and costly taxpayer support.

The city reported losses of $317,000, which was $200,000 more than anticipated. Since airport-sponsored FBOs do not have a profit motivation, capital losses do not present a fundamental problem. However, these losses are passed on and result in wasted taxpayer dollars. Such scenarios can be avoided by the use of privately-owned FBOs [which] do not rely on taxpayer subsidies and must operate within a budget."

The CEO of said airport maintains that, although it is true that the new FBO has lost more money in its first 11 months of operation than originally anticipated, this is "because competition is working." He further states that "fuel prices at the airport have dropped so remarkably that the primary source of revenue for the 2 FBOs has also dropped."
I believe that this statement warrants careful consideration.

One must ask oneself whether this really means that the reduced margins that the airport-sponsored FBO established—and that the existing FBO was forced to compete against—led to a financial loss because the reduced margins were not enough to sustain financial viability. It may also be worth asking the following questions.

Clay Lacy Aviation VNY (Van Nuys CA).

What will happen when or if the privately-owned FBO closes its operations at the airport and goes out of business because it can no longer sustain the losses caused by operating with reduced margins?

Will the airport terminate its contract with the FBO chain that was managing its FBO's day-to-day operations and exercise its proprietary right to be the exclusive provider?

In the event that it does not, will any other privately-owned FBO want to execute a lease and compete with its landlord? Once the airport-sponsored FBO is the only FBO on the airport, will it then set margins back to a level that will properly cover the costs of providing service? Will the users of the airport actually benefit in the long term if the airport-sponsored FBO is the only FBO doing business at the airport?

The airport's CEO claims that "the temporary loss is covered by significantly increased net operating revenues in other areas of the airport, and is a small price to pay for saving corporate pilots, general aviators, airlines and cargo carriers an estimated $1.5 million in the first year alone." He also states that the airport built the new FBO facilities with state airport grants funded solely from aviation fuel taxes, not through general taxpayer funds. In other words, only those who bought aviation fuel in the state paid for it.

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