Supply Side

Oct. 8, 2001

Supply Side

Long-time FBO distributor relates what he sees for the industry

By John F. Infanger, Editorial Director

October 2001

LONG BEACH, CA — Michael Delk grew up in the family business of fuel distribution, becoming an aviation supplier in the Northwest in 1978. His company, Valley Oil, today markets nationwide. Delk is a measured man, who has grown his company methodically during the past two decades. At this year’s NATA convention, Delk sat with AIRPORT BUSINESS to share his thoughts on the aviation services industry today.

Based in Salem, OR, Valley Oil merged with Seattle-based Seaco in 1991, and began broadening its distribution while remaining a family business now into its third generation. As Delk is quick to point out, his company reflects the history of many of the fixed base operations it serves.
Following is an edited transcript of the interview with Delk.
AIRPORT BUSINESS: As you look around the industry, what do you see in terms of the health of fixed base operators, your dealers?
Delk: I don’t think there’s been more exciting times than there are right now in the aviation industry.
Five years ago there were questions as to whether there was even going to be an FBO industry, almost.
Everyone wants to get into fractionals, even the airlines. It’ll be interesting to see if the airlines can make that mental shift to total customer service. An airline, I think, is more typically run as a commodity, getting people from here to there, than what the fractionals and the rest of us are looking at.
My sense is that it’s a very good time to be in the industry. Like most times, you have to pay attention to managing the business.
AB: Any particular ways an FBO should be managing its business today?
Delk: There’s a lot of changes going on in the industry, in terms of consolidation, mergers, shifts toward fractionals, and how to work with them. Unless companies really stay tuned and are in the middle of those changes, talking to those people, they can be left behind.
All businesses right now, I think, are running on thinner margins, which makes it more critical for companies to really know where their operating costs are, know what it takes to have their margins, and just really run the business.
I come from an oil distributorship background, a business that I grew up in with my Dad, and it’s not unlike the FBO business. There are a lot of FBOs that have been passed down through generations; their folks taught them how to do business and that’s how they’re doing it.
And there’s a lot of people who are making changes, a new generation of people that are coming in, and they’re making changes in their business that their folks never did.
AB: What specifically are you hearing from dealers today, in terms of services or advice they’re looking for from a supplier?
Delk: The thing that I see changing in the marketplace, and we seem to have gone through a cycle, has been the big consolidation of FBOs. Just like there is in the oil companies. It’s almost like the dot-coms that went through a feeding frenzy. That’s changing now.
A lot of our fbos today are going through questions like, Should I sell? Shouldn’t I sell? If I sell, what’s the best way to sell? For those that are staying in, I think the biggest question is, How do we deal with the fractionals and the risks associated with those large users? How do we deal with the discount structures? How do we optimize the value?
AB: Regarding fractionals, how do they meet the needs?
Delk: The answer, I guess, is to just work with the fractionals. Obviously, they need the service from the FBOs for their customers. They’re getting a bit more aggressive on price, but they don’t want to sacrifice the service. So the FBOs are feeling that pressure.
The fractionals are also starting to need maintenance as their fleets are growing and the FBOs are starting to get involved in field maintenance. There’s some innovative ways that FBOs are starting to deal with that, through nighttime service, fixed allocation of people for the fractionals.
AB: Your company has introduced its Flight2Ground Internet-based customer tracking program, as have a few others. It would seem like that type of technology is where the business is going.
Delk: I think it will transform the business. We originally were looking at it like some of the other systems that oil companies or chains are putting out — a system that can help basically control our customers and bring them into our FBOs.
But what we learned at the (NBAA) Schedulers & Dispatchers (conference) is that if they’re going to use it they want one system that’s going to solve their problems. They don’t want to have to deal with ten different systems. So by listening to that, we did a 180-degree shift. We can’t control the customers; we can’t control the flight department. On the contrary, if we don’t create something that really works for them, we’re not even going to have access to them.
AB: It seems that systems such as these can have the impact on an FBO of demonstrating how technology can change and benefit the business.
Delk: That’s what it’s all about.
I think what we’ve seen in the past year with the fall of the dot-coms is, technology for technology’s sake, with all the hype around it, is gone. Now we’re getting down to the nitty gritty of how do we use technology in meaningful ways to make our business easier and more efficient. I think ultimately there are going to be one or two systems that lead the path.
AB: For FBOs, fractionals have not only had the impact of increasing the business, but they’ve changed the market with the multitude of high-end aircraft and the associated insurance considerations; the handling versus ramp fee issue; courtesy fuel, and so on.
Delk: I know that many of the fractionals and the large flight departments are looking very closely at Safety 1st (NATA’s line training program); it’s turning out to be the right product at the right time for providing that level of assurance.
Such a small fraction of the FBOs actually go to these line service training seminars. As you know, there’s a big turnover in line personnel. One of the biggest problems FBOs have is they always need training. The key is to figure out ways to do it in a fast, effective manner.
AB: Regarding the situation with fuel pricing this year, what can FBOs expect in terms of supply? Should we be alarmed?
Delk: The markets have never been more volatile than they are right now due to a few things. Number one, because of costs to upgrade refineries to the current environmental standards, it’s not that cost-effective, so a portion of independent refineries have shut down.
Secondly, the number of different fuels that the refineries have to make has increased significantly because of regional specifications. It wasn’t long ago that a major fuel supplier had all these storage tanks to basically handle four, five, six products, max. Now they make some 20 different kinds of gasoline. From season to season you go through different formulations.
The other thing that is coming real soon is getting away from MTBE as an additive in aviation fuel. As they get away from MTBE, the demand for alkylate becomes greater and the price for it is going to go up significantly. There is some real concern that we’re going to see a real jump in aviation gasoline.