The State of FBOs

Sept. 5, 2014

During recent discussions with fuel distributors for an article on the changing face of distribution (page 22), the subject turned to how fixed base operators have fared the economic tornado of recent times. After all, the suppliers often are the first ones to know if an FBO is having trouble payings its bills.

Comments Avfuel’s Craig Sincock, “What we’ve seen with the FBOs they’ve been able to deal with the down economy. We were very happy to find out that during the 200-2010 period most of the FBOs did make their bills.

“We just didn’t see a tremendous amount of fallout of FBOs closing their doors or not being able to deal with the economy. Now, we do fully appreciate that like all businesses, things were much tighter for them.”

Says AirBP’s Steve McCullough, “I do think that the financial health of the FBO side of the business is still a little fragile. While I think volume seems to be growing pretty steadily, it is nowhere near the levels of where it was three to four years ago. I think that people are still somewhat cautious, and we, along with our vendors, our suppliers, and our competitors are monitoring credit pretty carefully and the financial health of the industry. We haven’t seen any major spike in defaults or bad debt, but we monitor it.”

Both men cite the consolidation in recent years in the FBO sector as one possible reason companies have fared better than might be expected. The major chains which account for much of the consolidation have deep pockets behind them. The fact they haven’t dumped many suggests a long-term positive vision of the market.

Regarding fuel supply and fluctuating oil prices, both suggest that despite geopolitical concerns, supply should not be an issue.

Says McCullough, “I think the market volatility that we have seen over the course of the last 6 months will continue. Where it winds up is anybody’s guess, really. We expect that trend to continue, along with the volatility of the market.

“I think the volatility certainly requires the FBOs to be a lot more prepared to adjust their price based upon their cost changes. With the swings in the market, which are generally led by the price of crude and refined products, the FBO that was unwilling to adjust price from one week to the next needs to be on top of their game because the swings are pretty dramatic these days. We encourage our FBOs to take the necessary time and make adjustments as needed so that their costs are covered and they can preserve their markets.”

Adds Sincock, “I still stand by my quote of many years ago: ‘The best cure for high prices is high prices.’ In general energy is going to be higher-priced in the future, and the path along that way is going to be kind of a volatile up-and-down, but it will keep finding its real value in society; it will oscillate towards that price, whether that price is $80 a barrel or $100 or $110, the marketplace will dictate it.”

Thanks for reading.