Over the past five years, trade groups have joined some members of congress expressing concern over what they see as a troubling trend. They claim that municipal airport land owners, known as sponsors, are jumping into the FBO business and competing unfairly with privately owned and operated businesses. Sponsors are usually local governments represented by an airport authority or board, so this is viewed by some as unwelcome government intrusion into private enterprise.
On the other side, airport managers have argued that the practice is necessary, either to provide airport services at a location where a private business could not survive, or to create competition that better serves consumers.
Municipalities providing airport service is hardly a new practice. There is a visible cycle where government-operated FBOs increase in number after every economic downturn as private FBOs go under. So even critics acknowledge there are situations where it’s best for all involved when taxpayer funds support the airport’s ability to provide for its customers, be they operators of private aircraft or airlines.
But the fear is that airport-sponsored FBOs may be competing with private businesses on an uneven playing field. And supported by taxpayer money, the airport sponsor can slant the rules so the private business is the one running uphill. In essence, critics say, the landlord is going toe-to-toe with its tenants, and the landlord writes the rules of engagement.
Airport Real Estate
Both sides accuse the opposition of oversimplifying. That’s not really surprising, given the immense complexity of any FBO’s business plan, be it a small private enterprise or a huge public-backed entity. It starts with the very ground they rest upon, and works upward from there.
From the real estate perspective, an FBO is unlike any other business. Imagine renting acreage to build buildings and conduct a private business (the FBO) on municipally owned land (the airport) that is almost totally controlled by a federal agency (the FAA). If the airport has airline service, you can add the TSA to the mix. So negotiating (and renegotiating) a long-term lease is a major part of the FBO’s business plan. Terms of the lease can either be business-friendly, or a nightmare of high rents, fees, and restrictive sub-clauses. Also, the degree of enforcement of those restrictions could vary, depending on who is in power on the airport board.
How the local government views the airport has everything to do with the terms of the lease, as it is initially designed in a request for proposal (RFP) — and that lines up the challenges the FBO will encounter on a day-to-day basis. The government that controls the airport property could be at the city or town level, a county, or even the state. It may be overseen and administrated by an airport board or a private management entity, which could be a quasi-government agency such as a port authority.
Case In Point
No two airports present exactly the same scenario, and in fact, the landscape can change over the course of the terms of the lease. But let’s look at a snapshot of two fictional airports, each owned by its respective county:
At airport Alpha, things are pretty good. The county owns the airport and the local tax base is comfortably lucrative. Local businesses that support that tax base are thriving, real estate values are on the upswing as people move in to go to work, and the county fathers have launched a two-prong plan to boost development in the area even further: by increasing tourism at its lakefront marina; and encouraging new manufacturing to move in to prime, vacant space. The local government is savvy and innovative, realizing that the county’s small airport has the potential to funnel vacationing boaters and potential business interests into the economic mix of their community.
The leaseholder of the modest FBO, representing the second generation of the family-owned business, is similarly quick on the uptake. She grew up in the industry, studied business in college and would like to expand her operation, while also doing her part to stimulate the local economy. And she has some good ideas on what that would take, including a refurbished passenger terminal, new storage hangars, and an updated fuel farm that can accommodate more jet fuel. She even sees that expanding the flight school will help sustain a bedrock of local interest in aviation. The FBO regularly holds “open house” events, inviting the public out for airplane rides and to have a look at some of the antique and classic airplanes based there.
So the airport board supports and cooperates with the FBO, which it views as the “gateway to the community.” It even funds many of the municipal services such as plowing the airport’s private access road and parking lot; updating sewer and electrical service to accommodate the planned expansion; and vouching for the FBO when it comes time to apply for federal grants and construction financing for the new projects. There’s even talk of acquiring new land to extend the runway and add an ILS approach.
The FBO’s current 20-year lease has six years left to go, and both sides are already discussing terms for renewal — balancing the FBO’s plans to invest in upgraded facilities and the sponsor’s promise to support the airport with an eye toward its contribution to further economic growth in the area.
Sound too good to be true? These days, it probably is. This is what it looks like when everything goes right. But with the overall economic downturn since 2008, airports like this one are few and far between.
Airport Beta is not so pretty. Its county fathers have not planned wisely, and bad luck in the form of the failure of a large local business has touched off a series of tumbling fiscal dominoes.
First, the now-disappeared corporate and real estate taxes from the failed company historically represented a large chunk of municipal revenue. Housing prices (and corresponding property taxes) are in a downward spiral as displaced employees try to sell to move out. And the past summer was a rainy one, so income from tourism to the local lake region was down by 23 percent.
Out at the local airport, the FBO is also looking at the last six years of a 20-year lease. Even though this is a similar second-generation business with smart, dedicated management, the county is in no position to cut him any slack. In fact, they have even cut back on some services that were part of his lease. The airport board would like to see the facility as a leg-up to future economic development — for tourism in better weather and in hopes of attracting new business. But with the taxpayers crying for austerity, there are no pennies in the piggy bank for taking any steps forward.
To boot, a newly appointed airport board member tends to view the facility as a playground for the rich hobby pilots in town, and would like to see them pay a larger share in fuel flowage fees, higher hangar rents, and other added charges. Visiting pilots are viewed as cut from the same high-priced cloth — and the board member has publicly wondered why there are no landing, parking, and other service fees at the local airport, as there are in other places he’s “heard about.” The board member has gone as far as to suggest that if the FBO operator doesn’t like the new lease terms being offered, then he’s happy to have the county take over the business, since he’s sure the municipality could do a better job of management.
Yes, this is the nightmare scenario. And with the financial meltdown of 2008 still shaking out, unfortunately there are far more airports in the Beta category than there are Alphas.
Some have even suggested that airports are in local governments’ crosshairs as cash cows to help supplement depleted general funds. Under federal law, it is strictly illegal to divert funds collected at the airport to non-airport use, but some say creative bookkeeping (in the form of fees for municipal services and other ploys) are used to get around the rules. An expert in airport real estate issues said the FAA is mandated with enforcing “sponsors’ assurances” laws, and will levy steep fines on airport sponsors discovered to be flaunting the letter or spirit of the law of the land.
Since FBOs also compete with rivals at other nearby airports, there can be a double-whammy. They even compete with airports thousands of miles away, as in when a jet crew decides at which stop on a long trip they will upload the bulk of their fuel. As service levels and infrastructure crumble under the weight of economic distress, the well-supported competition at another airport in another county just 30 miles away begins to draw the traffic, compounding the problem for the struggling operation.
For these and many other reasons, advocates of the FBO business are proposing national standards for RFPs at airports. Arguing that each airport is part of the federal airway system, they say that it is in the national best interest that a level playing field is established. Opponents argue that such regulation would assume too much of a “one size fits all” inequity.
The debate is in full swing, and the resulting shakeout will have a profound effect on airport infrastructure going forward.
About the author
Mark Phelps is an aviation writer and editor living in New Jersey. His work history includes years on the staffs of Flying Magazine, the Experimental Aircraft Associations publications division, Dassault Falcon Jet and Aviation International News, where for 13 years he wrote the monthly column on FBOs “Touching Bases.” He is an instrument-rated pilot and owns an IFR-equipped 1954 Beech Bonanza.