TAC Air: 10 FBOs and counting: Plans call for more growth via acquisitions

Nov. 8, 2004

Business Profile

TAC Air: 10 FBOs and Counting

Plans call for more growth via acquisitions

By John Infanger

November/December 2004

TEXARKANA, AR — Just as this is actually two cities integrated asone on the Texas-Arkansas border, so is TAC Air much more than a mini-FBOchain, one of five of the locally based Truman Arnold Companies (TAC). All,explains TAC Air president Greg Arnold, have one thing in common — eachis driven by fuel. TAC Air is also driven by the resources of a $1.5 billion company, meaning growth by acquisition should continue.

Greg Arnold, TAC Air president and COO

GM Mike Ryan

GM Mike Ryan (above) heads up TAC Air’s headquarters FBO in Texarkana. It is the chain’s smallest, but still turns a profit, says Ryan. TXK is one of the few locations TAC Air performs airline servicing, with SkyWest and American Eagle here.

Says Arnold, the 40-year old son of founder Truman Arnold, “Everything our company does, whether it’s fuel brokerage, motor fuel marketing, aviation — everything we do is tied to petroleum products in some way. That’s our core competency: petroleum marketing.”

Truman Arnold Companies started as a petroleum jobber in 1964, then built a chain of Road Runner convenience stores that was eventually sold in 1989. That transition has led to a greater emphasis on the fixed base operation division. Today, TAC encompasses TAC Air, charter, and other fuel distribution divisions. According to Arnold, TAC Air accounts for some “5 to 10 percent” of a projected $1.5 billion in revenues for 2004. However, he points out, the FBO chain brings in much higher profitability due to the extremely low margins in TAC’s other businesses.

Today, the TAC Air chain counts ten FBOs, primarily in the South Central U.S. That should change, says Arnold, as the company continues its pursuit of growth by way of acquisitions.

User, Then FBO Novice
As with many FBO owners, TAC got its start in the business after being a user of corporate aircraft as it grew its Road Runner chain. And, headquartered in a more rural market like Texarkana, the corporate flight department soon discovered that as its needs grew the local airport didn’t provide the support.

Recalls Arnold, “We’ve operated aircraft since the mid-70s. We got into the FBO business because in a market like Texarkana we couldn’t get the service we needed. They weren’t open early or late; we’d be flying out at 5 a.m., getting home at midnight. We took over the FBO and found out we could make a profit at it. Then we extended it.”

Yet, with its history in the convenience store market, the company had a different idea on how to go to market, explains Arnold. It wasn’t apples to apples.

“We really didn’t know much about this business,” says Arnold. “We called it Road Runner Aviation, and we put up these big price signs and tried to run it like a convenience store. We had candy and snacks in the lobby.

“We found out pretty quickly that it was not all about price. It was more about service. So, we hired some people who were more experienced in it and changed the name to TAC Air.

“We changed our focus more to the service aspect, though we didn’t change our pricing strategy. We focused on service, on improving our people and facilities.”

Arnold says that the original intent with the FBO business was to grow it within a seven-state region. “We limited ourselves,” he says. “Now, we have our top ten, 20 cities or locations where we’d like to be. But quite honestly, we’re only going to be in these markets if the right opportunity comes along.”

One of those markets, Little Rock, AR, is going to be the site of a new TAC Air fixed base operation at Adams Field, a diversion from the normal growth through acquisition strategy, “It will be our first ground-up location in Little Rock; we should break ground within 90 days,” says Arnold.

Acquisition Strategies
While TAC Air has been a player on the acquisition circuit for more than a decade, and according to Arnold has looked at some multiple FBO buys, the company prefers to be methodical with its due diligence and then seal the deal quickly.

Explains Arnold, “We’ve looked at a lot of different deals. We’re pretty picky.

“We want to be in the mid-sized to larger markets. There needs to be a good, solid business community in the area; good facilities. Whether or not they have maintenance operations or flight operations is not critical. If people are in those businesses does not mean we wouldn’t look at it. The first thing we’ll do is look for partners to take care of those operations.” TAC Air is first and foremost a line service/property management FBO, contracting out other services as required by airport leases and market demands, says Arnold.

While the company’s ten FBOs are predominantly in the mid-section of the country, it is not solely focused there, says Arnold, as evidenced by its move into Hartford’s Bradley International. Anywhere in the U.S. is a possibility for an acquisition, according to Arnold.

As might be expected, Arnold places the greatest emphasis when looking at an acquisition on the term of the lease. There needs to be the potential for at least 25 years, he says, though the company prefers 40.

“We will not even look at an operation unless we can get over 25 years,” he says. “That’s just something that’s a sacred value. We don’t mind investing back into the facilities.

“It’s critical for airports to understand that if they want to attract outside investment onto their airports, they need to have good, solid leases where tenants can build equity, where they can amortize their investment. Otherwise, there’s too many opportunities where you can get a return on your investment on a fee simple title,” says Arnold, who also worked a number of years in non-aviation real estate.

TAC Air prefers to walk into an airport relationship that has a history of win-win for both parties, he says, but he recognizes that sometimes relationships sour and it may take new players to correct.

“We pride ourselves on having good relationships with the airports,” he says. “As a matter of fact, when we go into a new location, the first thing we hand an airport director that he can show his board is a list of all the airport directors at all the airports where we operate, with the phone numbers listed. We encourage them to give them a call.

“But the most critical thing is the long-term lease. Granted, they need to be fair leases where the airport can get adequate return on its investment as well.”

Emphasis on Training
Over the past several years the FBO chain has been placing an increasing emphasis on training for operations, safety, and management growth, according to Arnold. [For more on this, see page 24.]

“As we grew we found it was more difficult to give the quality and level of service on a global scale,” says Arnold.

“We brainstormed on how we could do a better job at training, and that led to what type of incentive programs we could put in place to retain people and do a better job of hiring. We concluded that we needed a comprehensive program.

“It starts with the type of person we hire. We hire for attitude and train for skill. Then let’s create an environment where they can also create a career out of it.

FBO Locations
• Texarkana, AR (TXK)
• Amarillo, TX (AMA)
• Ft. Smith, AR (FSM)
• Greenville, SC (GMU)
• Lexington, KY (LEX)
• Omaha, NE (OMA)
• Shreveport, LA (SHV)
• Denver (APA)
• Hartford, CT (BDL)
• Chattanooga, TN (CHA)