By Ralph Hood
Ralph Hood is a Certified Speaking Professional who has addressed aviation groups throughout North America. A pilot since 1969, he’s insured and sold airplanes at retail and distributor levels and taught aviation management for Southern Illinois University. Reach him at firstname.lastname@example.org
Not so long ago and not so far away, a long-time customer and friend (those two words are not mutually exclusive) was thinking of buying a small private airport and FBO, and wondered what I thought of the idea. Friend, sez I, I think that's one of the worst ideas you've come up with. I've seen owners of that airport lose money for lo these many decades, and you would too.
But Ralph, sez he, the airport property alone is worth a high percentage of the total selling price.
The property, I explained, is worth a bundle only if you sell it for development. If you operate an FBO on property that you own, that property represents not profit, but insurance, interest, property taxes, maintenance, liability, and a myriad of other expenses. If you want to own and operate a small FBO, I suggested, go to some little county airport where they will lease the facilities to you and perhaps even pay you a little bit to mow the grass.
How much is airport property worth? How can a fair rental rate be determined for businesses on the airport, whether FBOs, maintenance shops, or Burger King?
As reported a few issues back, shop owner Charles Linenfelser wrote to the Roanoke (VA) Regional Airport wondering if basing his lease payments on the Consumer Price Index (CPI) was still fair. I called airport director Jacqueline Shuck, who told me she kinda wondered about that herself. In fact, she said, they had an aviation consultant working on that problem, trying to arrive at a formula that would make all leases on the airport both fair and easily determined. The consultant is Jeff Kohlman, Aviation Management Consulting Group, based near Denver . I ate breakfast with Jeff later on a trip to Denver , and found him to be an open and informed fellow.
To determine leases, it has been customary to determine property values. Off-airport, this is done by a real estate appraiser who compares the property with nearby property that has been recently bought/sold. The problem with airports, Jeff points out, is that no part of the airport has been recently bought or sold. Nearby but off-airport property is not subject to the same restrictions and opportunities of airport property, so does not provide a fair comparison.
Using the cost of the property to determine rental rates is seldom the answer, as most airports were purchased so long ago that the original purchase price is meaningless — like basing Anchorage rates on the original price of Alaska .
The perfect rental rate would charge for the profit potential . Income streams of the tenant have been one way to estimate the potential, but income varies with so many vagaries (not the least of which is the business competence of the tenant) that it, too, has proved to be a less than perfect basis.
Jeff and his company are developing an all-inclusive formula that he believes will provide the best-yet method of consistently determining on-airport rental rates. Here's hoping that it works, and that we will be allowed to report on the final formula (and its results) in the future.