Of CPI and Leases

Feb. 8, 2004


by Ralph Hood

Cometh via e-mail a copy of a letter sent by Charles Linenfelser, Roanoke Aero Services, Inc., to the FBO's landlord, Roanoke Regional Airport (VA). Mr. Linenfelser's letter brings up an old story that's forever new.

Ralph Hood is a Certified Speaking Professional who has addressed aviation groups throughout North America. A pilot since 1969, he's insured and sold airplanes at retail and distributor levels and taught aviation management for Southern Illinois University. Reach him at [email protected] His lease on "building 2," originally signed in the 1980s, calls for rent adjustments based upon the Consumer Price Index (CPI). As Mr. Linenfelser points out - and his letter is more logical than many on this subject - the world has changed muchly since the 1980s, and, he argues, the CPI is no longer a good "yardstick" by which lease increases should be measured. He has a point, and he explains that his cost for the "insurance required by the commission" is now three times what it was before September 11, 2001. (I thought that bit about "required by the commission" was a nice touch.) This problem probably first arose with the first FBO. When tenants do better than expected, airports often want to change the lease. When tenants are hurting, tenants want to change the lease. What's different right now is that both airports and tenants are hurting, and therein lies the rub. Both sides want (need) every dime they can collect or avoid spending. This seems to be true throughout business and all levels of guvmint, and conflict abounds. I talked with Jacqueline Shuck, airport director at Roanoke, and found her to be quite pleasant and just as logical as Charlie Linenfelser. She agrees that pegging rents to the rise and fall of the CPI is not perfect. She points out, however, that none of the apparent alternatives seems clearly superior. Current leaseholders never want the lease opened up for bids, for all the obvious reasons. An appraisal of airport values to determine rents costs the airport thousands of dollars, forcing rents even higher. Interestingly, Shuck says the airport is working with consultants to search for a better way to determine rents. She has promised to keep AIRPORT BUSINESS informed of developments. We're interested. A better mousetrap in this area could benefit the entire industry. Back in the old days, municipalities and aviation often grew faster than expected, so many tenants had a very good deal indeed. Airports often tried to renegotiate the lease, and many tenants answered in so many words, "Nope, a deal's a deal." Some airports sought other ways to change the long leases. I saw one airport increase an FBO's fuel farm rent by 500 percent in one fell swoop. At other airports, a second FBO was brought in to compete, sometimes making it impossible for either FBO to make a profit. Conversely, I've seen FBOs stubbornly refuse to negotiate anything, fighting like crazy about every penny. Other FBOs, operating on lease payments tied to FBO sales, have (dare I say it?) just flat out lied about sales. The best leases take place when landlord and tenant each recognize the value, worth, and problems of the other and cooperate to serve airport customers. The worst leases happen when landlord and tenant are at war, and customer be damned.