Surviving in the aftermath
A canvass of aviation businesses on the current, future state of activity
By Lindsay M. Hitch, Assistant Editor
November/December 2001
Insurance After September 11Tom Coughlin, president of Air-Sur, Inc., explains the rates and categories for the new war risk insurance perils. FBOs fall into four categories that determine their war risk premiums: • FBO at a GA airport with no scheduled service — 20-25 percent of airport liability premium. • FBO at airport with airline service; FBO does not provide services to airline — 30 percent of airport liability premium. • FBO at airport with airline service; FBO provides fueling, maintenance, etc. to airline — 50 percent of airport liability premium. Those providing catering or cleaning — up to 100 percent. • FBOs providing security, passenger screening, baggage handling services to airlines — coverage not available. War risk "hull" insurance is running at about $0.25 per $100 in value for aircraft up to $1 million in value. Anything above $1 million is charged $0.15 per $100 in value. War peril liability premiums for aircraft are at 20 percent of the annual aircraft liability.The economic impact the weeks following September 11 on airport-based businesses is best described as a mixed bag. Some charter operators report increased interest and opportunities, while FBOs relying heavily on fuel sales have been hit hard. Maintenance shops have been busy due to backlog, but aren’t sure how much longer that will be the case. All are hoping for a more stable economy and renewed interest in general and business aviation, but recognize that it will not be a quick recovery.
"FBO businesses throughout North America are quite fragile in the best of times," says Harry Holt, president of Columbia Air Services in Groton, CT. "They require all the elements of the FBO working in harmony, and they rely on the synergy of the departments to make the company profitable."
BUSINESS TODAY
For Leonard Concepcion, owner of SkyLink
Charter LLC in Hawthorne, CA, the grounding and changing flight rules
have completely altered the focus of the business.
"We were very heavily involved in Grand
Canyon tours," says Concepcion. "It went from 100 percent of
what we were doing to 5 percent. That whole business structure went upside
down, so we’re now focusing just on on-demand charter for the bulk
of our business."
To aid the company’s cash flow without
jeopardizing employees, Concepcion is in the process of selling one of
the airplanes in his fleet.
FATA survey results
The Florida Aviation Trades Association (FATA) conducted an economic impact survey of its membership. Here, a summary of the 250 responses received.
• 89 percent of Florida aviation
companies have suffered "significant" to "devastating"
impact.
• 80 percent of Florida aviation
companies will lay off some employees.
• Jobs lost in the first 30 days
could reach as high as 30,908.
• Approximately 727 companies (49
percent of Florida’s aviation industry) may reduce employee pay
as much as 26 percent.
• Lost revenue anticipated to be
as high as 52 percent in the 30 days since September 11, equal to
nearly $735 million in one month.
• 23 percent of Florida aviation
businesses (340 companies) may close or seek bankruptcy.
*Survey conducted by Enterprise Florida.
Complete results available at www.fata.net.
For Elliott Aviation in Moline, IL, the
effect has been mixed, says Al Nitchman, vice president. "We have
seen areas where it has had a positive effect — charter, aircraft
management opportunities. But there’s definitely been a slowdown.
"A lot of that is fuel driven. There
definitely has been a slowdown in line services, airline opportunities,
the airline fueling we do. And our shops have slowed down," says
Nitchman.
Like other FBO chains, Signature Flight
Support had some bases heavily affected by "no-fly zone" restrictions,
while others just outside those areas benefitted from increased traffic.
"We found ourselves with quite a few
locations that were closed entirely to Part 91 or entirely to everything
for the better part of a month. It has had a big impact," says Steve
Lee, vice president for marketing and business development.
"Having said that, we also saw an increase
in activity in places like Morristown (NJ), White Plains (NY), that were
picking up slack in the New York area. We saw an increase in activity
in Baltimore when Dulles and DCA were closed. And now that Dulles is back
open we’ve seen quite a bit of activity there picking up slack for
DCA," says Lee.
Duncan Aviation in Lincoln, NE, which focuses
primarily on aircraft maintenance, has seen little effect thus far, says
Lori Johnson, marketing communications coordinator. "We had a few
days where we had trouble getting parts... But really, September did not
turn out to be a bad month."
Johnson notes that fuel sales and line services
were down, while charter was operating at nearly normal levels.
Receiving Instructions
The grounding of U.S. aviation on September 11 was a foreign idea to all involved. Of note is how aviation businesses knew what to do.
"We heard it on the news first,"
says Leonard Concepcion, owner of SkyLink Charter LLC of Hawthorne,
CA. "So I just called the control tower at the airport and they
told me that everything was being shut down.
"Nobody contacted us from the airport
at all; that was really generated on my side. An operator, especially
a heavy operator, on an airport should be notified. What if we didn’t
turn on the news?"
For Al Nitchman of Elliott Aviation
in Moline, IL, information came from the flight department and industry
association websites. "The information that we got from NATA
and NBAA has really helped us, in checking our checklist, making sure
that we had covered all the bases… And I think it was very helpful
to be actually giving that information to the people who have a need
to know the information."
At the time of these conversations, most
businesses had not yet examined their September books. John Enticknap
of Mercury Air Centers, however, estimates that September revenues across
Mercury’s bases would be off "in the neighborhood of $2 million."
For Mercury, jet fuel and avgas dropped
to about 50 percent of normal, but have been steadily climbing in the
last few weeks. Airline servicing is also far below normal, but Enticknap
says that a few locations are almost back to 100 percent.
AN OPPORTUNITY FOR CHARTER
Charter companies are reporting near-normal
activity levels, and in some cases, growth.
"The economic impact over the last
month has been positive for us," says Charles McLeran, executive
vice president and CEO of TAG Aviation. "Our charter revenues and
overall interest in our aircraft management services have been impacted
positively. I guess somebody has to benefit from even tragedies like this."
Fort Lauderdale-based Air Partner USA, a
charter brokerage firm, also views the changing market as an opportunity
for charter and corporate aviation. "We have seen an increase in
other inquiries; we’ve seen an increase in first-time inquiries.
I think as we move forward and we get through the next few weeks, and
we see more business activity ... I’m hoping that there will be more
and more of these first-time interests in using a charter jet," says
Mike Guina, president.
RETAINING ASSETS
Assisting with the Business of Airports
A number of airports, faced with
economic challenges of their own due to lost revenues brought on
by reduced passenger counts, are nonetheless taking initiatives
to help tenant operations weather the financial storm. Here’s
what two major airports and a private strip are doing.
LOS ANGELES
The Los Angeles World Airports (LAWA),
which oversees LAX, Ontario, Van Nuys, and Palmdale airports, has
created an Economic Impact Assessment Task Force to work with air
carriers and other tenant businesses, it was reported.
The task force is working with the
L.A. Board of Airport Commis-sioners and the mayor’s office
to implement measures that will lessen negative impacts on airport
employees following the terrorist attacks.
It is estimated that the LAWA system
is suffering daily losses of some $1.4 million due to lost revenues
and increased security costs.
DENVER INT’l
Meanwhile, at Denver Interna-tional
Airport, the airport is offering terminal merchants rent cuts and
loans to assist businesses. Mayor Wellington Webb announced in October
that concession operators would be eligible for $4 million in low-interest
(2 percent) loans and have the option of terminating lease agreements
without penalty, according to the Denver Post.
DIA also announced that it will not
allow additional concession start-ups until traffic rebounds.
HAMPTON ROADS (VA)
In Chesapeake, VA, the privately owned,
public-use reliever, Hamp-ton Roads Executive Airport — the
second largest non-towered airport in the state — formed a
Disaster Relief Loan Fund that is being made available to corporate
aviation tenants based at the facility.
The airport’s owners are offering
companies low interest (4 percent) loans with 90-day deferred payments,
with the goal of helping tenants get back into daily operations,
according to the airport.
Explains Steven Fox, one of the airport’s
principals, "We have received interest, and distributed loan
proceeds to our first recipient, a large fixed-wing flight school.
Subsequently, they made good use of the funds by bringing all outstanding
debts current."
Like Concepcion, many are looking to alternative
cost-saving and revenue-generating measures to avoid employee layoffs.
"On the FBO side, we didn’t lay
off anybody; we did cut some hours," says Dean Harton, president
and CEO of Piedmont Hawthorne Aviation. "We cut back the numbers
of people on shifts... We sent a number of our line people from Dulles
over to Leesburg because Leesburg was getting a lot of traffic as a reliever."
Clive Lowe, senior vice president of aviation, says AMPORTS took similar steps. "We did have to cut hours. We did get people to use up vacation time, cut overtime and part-time hours. We did everything we possibly could do to avoid taking more permanent, drastic measures."
SKYROCKETING INSURANCE COSTS
Shortly after the September 11 attacks,
aviation insurance companies cancelled war risk coverage to all aviation
businesses. The federal government’s bailout bill included provisions
for war risk coverage for airlines, but not for most aviation-related
businesses. Coverage is now being offered to some of these businesses,
but at much higher premiums.
"It’s going to have a major effect
on all the larger companies that really don’t want to operate without
full insurance coverage. It’s an expense that nobody ever had before,"
says Harton.
While coverage is now available, it is not
available to everyone, and is not economically feasible for many.
"Our CFO has been heavily involved
with our insurance agent and insurance carriers on that issue," says
Nitchman. "It’s going to be too expensive for us to go on and
carry that war risk coverage. We’re going to, through our security
plan, try to ensure that that doesn’t impact us."
For Signature, Lee explains that getting
coverage has not been as big a problem as getting sufficient coverage.
"We have coverage. We were notified on the 17th, cancelled on the
24th. And we had coverage by Thursday, the 27th. We’d like some additional
coverage, it’s just not available in the marketplace."
WHAT LIES AHEAD
Though the next few months will likely be
rocky along with the economy, most are expecting good things for aviation
in the long run — particularly business aviation.
"I think that the outlook into the
future looks good, but it will not be a fast recovery," says Holt.
"It will take time for people to recognize the advantage of the 5,000
GA airports throughout North America. It will take time for them to recognize
the tremendous capability of our general aviation aircraft, safety, and
utility."
"I hope that the on-demand charter
business will improve, and I believe that there are going to be more larger
businesses going to private charters and re-establishing their own flight
departments," says Concepcion.
Johnson echoes those sentiments, saying,
"The economy is still unpredictable. But I think in the long run,
corporate aviation can really only see an increase in business interest."
There are still many uncertainties, however.
Lee says, "I don’t think any of us understand what the true
impact of the additional security is going to be. I think that the verdict
is still out on what impact that’s going to have."
NATA Economic Impact Membership Survey
Clif Stroud, director of communications at the National Air Transportation Association (NATA), says that over 600 member companies responded to a recent economic survey, reporting nearly $500 million in lost revenue. Here are a few of their comments.
• Southwestern FBO & flight school:
Aircraft traffic has dropped; "If things do not improve drastically
they may have to close business."
• Northeastern flight school: Estimate
$20,000 lost revenue; "Business is in jeopardy; very high risk
for failure."
• Southeastern aircraft management
company: $50,000 lost revenue; "Believe things will improve."
• Midwestern avionics sales & service
company: Revenues down by 50 percent; "Bankruptcy."
• Northwestern fuel sales & aircraft
rental company: Business not open — 100 percent loss of revenue;
"Will have to close business."
• Southwestern FBO: Lost revenue
in fuel sales only; "Do not think they will be seriously affected
in the long run."
• Northeastern maintenance company:
No economic impact; "Do not forsee any economic impact."
• Southeastern FBO: Estimate $250,000
in lost revenue; "Short term will be negative — 10-20 percent;
long term should be positive."
• Midwestern air charter company:
Business as usual; "Worried about what the long term effects
will be."
• Mid-Atlantic air charter company:
Full week of no income; 29 percent of employees laid off; "Drastic
cuts — possibly bankruptcy."