Who Should Own an FBO?

June 30, 2014
There’s no right answer in the publicly or privately held FBO debate. What works in one community may not work well in another, and each community’s unique needs must determine who owns the FBO

The Battle of Chattanooga.  Brother against brother--the blue and the gray.  Its outcome would decide the rights of government, the states, and ultimately, the will of the people.  This isn’t a Ken Burns dramatization of the Civil War, but exactly 150 years to the month in the same city, another battle was decided as pivotal to Fixed Base Operators (FBOs) and airports, as the Chattanooga campaign was to the North and the South: The FAA ruled in favor of the Chattanooga Metropolitan Airport/Lovell Field Airport Authority in a Part 16 complaint by incumbent FBO TAC Air.

 Briefly in the case, the landlord--the Chattanooga Airport Authority--had built an FBO in competition with its tenant, the privately-owned and operated TAC Air facility.  The airport authority-owned FBO, the operation of which was contracted out to Wilson Air Center, was purportedly created to spur competition.  Bittersweet to TAC Air, the airport authority’s FBO operated at a loss--there simply wasn’t enough revenue for two FBOs.  It’s hard to imagine then, the irony was not lost on them when only months later the airport authority purchased the TAC Air facility for $12.4 million.  Now that it owns both FBOs, it would appear that competition isn’t that important to the Chattanooga Airport Authority after all; it is revenue.

Perhaps it is a reflection of the partisan nature of politics, but divisive questions about the nature of airport owned-or-operated FBOs ripple through the aviation community in the wake of the Chattanooga experience:  Is providing fuel and general FBO services an essential government service? Can an airport or airport authority, acting as landlord, unilaterally decide to compete with an its tenant?  And if so, under what funding mechanism? 

FBOs have justifiably complained for years about the lack of minimum standards at some airports; or worse, how lack of enforcement of published minimum standards have created unfair competitive environments in which FBOs operate.  Add to that pressure the increasing interest airports, counties, cities and other municipalities have demonstrated in “getting into the FBO business” and it is little wonder why such questions make many in the private-sector FBO community bristle. Yet, is there no middle ground?  What about airports that accidentally become the FBO operator when private industry fails?  Or a small airport in which there is no private-sector interest in FBO services?  Who then provides these essential services?

Manitowoc County Airport

One such airport now providing FBO services itself is Manitowoc County Airport in Wis..  Located to the south east of nearby Green Bay, Manitowoc County Airport offers a 5,000-foot runway and a precision instrument approach, among other features.  Originally served by Lakeshore Aviation, a small, privately owned FBO operating on leased land, the Manitowoc County Highway Department stepped in when the FBO grew insolvent.  Lakeshore Aviation, which had provided FBO services including fuel, aircraft maintenance and flight training, experienced a sudden and precipitous drop in revenues  as a direct result of the relocation of based corporate flight departments to another airport.  To be clear, this was not a case of mismanagement by Lakeshore Aviation, but a small airport with an FBO that survived almost exclusively on fuel sales. The prospect of a Manitowoc without an FBO just didn’t fly, and the county stepped in to provide those essential services.

Gary Kennedy, department director of the Manitowoc County Highway Department, explains that during the transition to a county operation, feelings at the county supervisor level were mixed.  Some suggested simply putting out another RFP for a new FBO.  

“Maybe this model [a county-operated FBO] may work; we don’t know for sure,” says Kennedy, “but operating the FBO for the here-and-now, to determine what next steps to take makes sense.  It’s a low-risk option for the county.” 

Forward-thinking Manitowoc also created a well-balanced airport advisory committee to help them, acknowledging the need for private-sector involvement in navigating the airport’s future. The advisory committee, which meets once a month, discusses and updates the airport’s minimum standards, other related airport business and “…is made up of private businesses, aircraft owners and government officials,” notes Kennedy.  

While Manitowoc County may eventually choose to release an RFP, the current model seems to be working, says Kennedy. “It’s worked out well.  We outsourced flight training and [aircraft] charter services, and we kept the expertise at the FBO by hiring former Lakeshore Aviation employees to fuel airplanes, and provide light aircraft maintenance.” 

 McKinney National Airport

While Manitowoc’s entry into the FBO marketplace could be considered accidental, the City of McKinney’s purposeful acquisition its FBO and related improvements at McKinney National Airport in McKinney, Texas, for $25 million is far from it. Having run the airport at a deficit for years, only able to collect leasehold and fuel flowage fees while using city personnel to operate the airport and its facilities, an acquisition made sense financially.  As Executive Director Ken Wiegand notes, “There’s nothing wrong with a publicly owned airport or airport sponsor desiring to be financially self-sufficient.” 

Now well publicized, the City of McKinney was provided the opportunity to purchase the improvements, hangars and FBO from area aviation pioneer H. George Schuler, who was then seeking retirement.  Schuler owned the FBO at McKinney, and had contracted the FBO management services to Cutter Aviation of Phoenix, Ariz.  Cutter, who held a first-right-of-refusal to purchase the FBO and improvements, chose not exercise it when its sublease was scheduled to expire. Schuler could have sold to another private FBO entity, one of the traditional ways in which FBO changes hands, when he went to the McKinney Airport Development Corporation to see if there was interest.

The timing was perfect for McKinney. Cutter’s sublease with Schuler expired October 31, 2013, and the airport development corporation stepped up with a pro forma and strong recommendation to the McKinney City Council to purchase the FBO from Schuler.  The council did and operations began November 1, 2013.  “With the acquisition,” explains Wiegand, “…we wanted to hire an experienced general manager from the private sector to come in and run the FBO.” Mark Jaraczewski, formally of Executive Air at Austin Straubel Intl., Green Bay, filled the role and hasn’t looked back since.  

Jaraczewski’s private sector FBO experience and Midwest charm is clear as he talks about the FBO, which is named McKinney Air Center.  “We want to create a family-type atmosphere, make it fun for our customers and still promote a professional atmosphere.  Our CSRs [customer service representatives] come from behind the counter to greet customers and our line service technicians are involved in the monthly goals for gallons pumped so all of us have a sense of ownership.  We all want to represent our city well.”

Auburn Municipal Airport

Still smaller airports have retained FBO rights from the outset.  Auburn Municipal Airport in Wash. has operated the FBO and airport using contract management services since the airports’ earliest years.  As Shelley Coleman, finance director for the City of Auburn notes, one of the reasons for contracting out FBO services is straightforward: “As a municipality, it is difficult to find [city] staff that have airport knowledge.  We want to operate the airport as efficiently and responsibility as possible, and this [contracted services] has worked for us.” 

In addition to acting on behalf of the City of Auburn providing traditional FBO services, the contracted airport management company provides security, collects rent, performs annual hangar inspections, and provides general airfield maintenance, such as light facility and equipment repair, and grounds keeping.

Perhaps the most commonly associated role of an FBO is its life blood, i.e., fuel sales.  And as might be expected with that revenue stream, public sector and contract FBOs receive eerily similar feedback about their fuel prices as their private sector FBO counterparts.  As Coleman says, “While it [contracted FBO services] gives us a little bit more control over the price of fuel, we can’t give the fuel away.  It is a very sensitive market, credit card processing fees are high, and we still hear complaints every time the cost of fuel goes up.” 

Sadly, there is no one-size-fits-all answer to the many questions created by the recent battle of Chattanooga.  The experiences in Manitowoc, Auburn and McKinney are unique and positive, and each represents just one of many ways FBOs transition from a private to a public-sector operation, and blur the lines between FBO models.  Certainly arguments can be made about the proper way for an airport to become engaged in the FBO business, and how to foster competition at an airport.  

But whatever the means, communities need thriving airport businesses and deserve a vibrant and healthy airport.  Whether private or publicly owned and operated, both contribute to the local economy, and both provide jobs and access.  Rather than seek the answer to the overly broad and contentious question of who should be in the FBO business-- the private sector or the public sector--healthy debate should surround which model best serves a given community in a given situation, and what role each should play.  

About the Author

Douglas Wilson is the president and founder of FBO Partners LLC, an aviation consulting firm that provides asset management of hangar facilities for FBOs, and offers specialized consulting in due diligence, contract life-cycle management, and other FBO disciplines.  Wilson can be reached at [email protected]  

About the Author

Douglas Wilson