Fuel margins are the cash cows of the airport business, paying for everything from perky customer service representatives to comfy passenger lobbies and pilot lounges. Let’s not forget the extra investment cash those margins generate to spur economic development. Margins and how they’re used, in fact, pretty much makes the difference between a successful FBO and an “also ran.”
There’s always been a distinct firewall, though, with few exceptions, between privately operated FBOs and the municipalities that manage the airports themselves. For local governments, the lure of those margins can be incredibly tempting, especially during tough economic times.
One of the more well-known industry squabbles is happening at Chattanooga Metropolitan Airport where public money financed a new terminal building just a few years ago, one that’s now selling fuel in direct competition with the airport’s other FBO, TAC Air. Adding insult to injury, the Chattanooga Metropolitan Airport Authority hired TAC Air competitor, Wilson Air Center, to run the new municipally owned facility. Surprising to many in the industry, an FAA Part 16 complaint against this public FBO found for the airport. TAC Air is reportedly ready to sell its holdings to the airport authority leaving the airport in charge of all fuel sales.
Not all airport-operated fuel facilities evolved from such contentious relationships, however. At McKinney National Airport, 30 miles northeast of downtown Dallas, the city purchased the airport’s only FBO on November 1 as the facility’s management contract with Cutter Aviation was expiring (Cutter Aviation did not respond to Airport Business’ requests for comment).
Local entrepreneur George Schuler developed and managed most of the McKinney's property over the past 30 years attracting companies like Texas Instruments and HP and, for a while, EDS. “In 2006, we realized Schuler was a willing property seller looking for a buyer. But he wanted to sell everything (the FBO and hangars) all at one time,” says Ken Wiegand, director of McKinney National Airport and executive director of the McKinney Airport Development Corporation.
Schuler’s $25 million asking price worried some potential Cutter replacements that found McKinney’s million-gallon annual fuel flow too small to be of interest at that price. The City of McKinney, however, compared the airport’s budget to the price and saw a potentially good investment.
“The planets aligned for us and we knew this [purchase] was a one-time opportunity,” to also take on a larger role in airport economic development, says Wiegand, who as the former director of aviation for the State of Virginia, as well as the executive director and airport manager at Winchester Regional Airport in Virginia, brought a wealth of airport operations and planning experience to the deal.
As it turned out, there was more to critic’s concerns than just the price. Some were not thrilled about the local government taking control of the FBO and those fuel sales. Weigand says, “The Cutter people wrote to our elected officials and told them that FBOs are better managed by private industry,” a perspective with which National Air Transportation Association (NATA) president Tom Hendricks agrees.
“In general we support free enterprise,” Hendricks says. ”We just want to see business compete on a level playing field and when the government steps in, like it did at Chattanooga, it changes the entire playing field. In that case, Wilson Air didn’t need any upfront money [to enter the market].”
Despite the authority’s somewhat serendipitous purchase, as a former state aviation director, Wiegand’s also a bit of a pragmatist. "General aviation airports require subsidies," he says. ”There is nothing wrong with an airport … or a sponsor that wants to break even [on expenses]. Why not earn your keep?”
Wiegand's earlier responsibilities at Winchester Airport also included running that airport’s fuel sales, so he knew from the moment the idea of buying Schuler’s holdings came up that, "it would require a lot of work. You have to worry about [the FBO and the other real estate] like any other small business. The [McKinney’s] city council has a great deal of faith in this airport. I tell our city people that they pay me to worry and they let me handle it."
Boost Business Ops
Beside the opportunity to reap the benefit of fuel margins to help offset the cost of maintaining the airport, the city council, as well as the McKinney Airport Development Corporation wanted more of a hands-on role in creating future business opportunities at the airport. With a growing population now numbering 145,000, McKinney is the county seat of one of the wealthiest and most conservative communities in the State of Texas. As the home to nine successful golf courses, McKinney believes it understands business. Wiegand says McKinney's government predicts the local population will eventually swell to 400,000, hence its interest in helping the airport grow.
In December 2012, McKinney officially opened a newly constructed 7,002-foot by 150-foot runway to accommodate that growth, as well as the airport’s 250 based aircraft. With a 16-inch concrete base, Wiegand says the new runway will handle 767-size aircraft all day long, a nod to the potential for airline traffic someday as well. The airport is served by a contract control tower.
There are always hurdles in luring new tenants to any airport. "Some people think our building codes are pretty tough here in McKinney,” Wiegand says. “But I think an airport is the front door to a community so adherence to a standard actually makes us more attractive. If you want your own hangar, we’ll help you identify the best location on the airport and then turn you over to our city’s building development services branch.”
However, Wiegand’s team doesn't drop out of the development process at this point. "We’ll attend those city code meetings alongside potential tenants,” he says. ”We're here to assist to make sure the project goes through.”
There are 93 Fortune 500 company world headquarters within a 30-minute drive of McKinney National Airport and the airport people are already talking to companies based at nearby Dallas Love Field as the traffic-limiting Wright Amendment begins to sunset. Wiegand says the McKinney Airport Development Corporation also makes good use of many of those senior executives who sit on its board to help win new business.
“Our rent is not always the cheapest, but we’re building brand new sites when many of our competitors are redeveloping,” Wiegand says. “All the utilities are in, as are new taxiways, so we think we have a nice airport.”
Wiegand shares an anecdote ripped from his Winchester experience that he knows will help convince potential tenants to choose McKinney over competitors. ”At Winchester our employees all wore neat uniforms. I also told them to bring a red carpet out to each and every airplane, even if it was a Piper Cub. One day this Lear shows up and it’s the management team of Green Bay Packaging just stopping by for fuel on their way to scout a new plant. They liked our airport and our people so much that they asked to talk to our economic development people. In the end, they built their new plant in Winchester. And it’s still there today. I'll never forget that.”
Wiegand adds that his staff at the FBO and the airport itself is both his and the city’s greatest economic development asset.
Sustaining Success
In the end, airport success stories focus on money, or the lack of it. Waxing a bit philosophical, Wiegand says, "I think that if an airport has to subsidize itself and is being pressured by its sponsor, they [the airport management team] need to look at new ways of generating revenues.”
Everyone knows those opportunities are limited, however. “If you sell products and services to break even I think that should be the goal, to help pay back capital projects. I see what we’re doing with the FBO here with a break-even motive, especially if we’re trying to make our airport as financially sustainable as possible.”
NATA’s Hendricks, however, is still concerned about airports that dive into running too much on the field. ”This may be occurring more often than people realize," he says. "Some [airports] look at it all as a revenue opportunity to spur economic growth. The [airport’s] level of activity though is important in deciding who should run the FBO. Every airport is a little different.” NATA members represent approximately one-third of the nearly 3,000 FBOs in the United States.
But Weigand says, “We have a fire in our belly to be the most successful FBO and airport and in the country as we draw business to our community. We're going to do it too. If were wildly successful we might want to keep the FBO, but the council also thought that if it is successful we might also put it out for bids one day.”
BIO: Robert Mark, a 35-year aviation-industry thought leader, is CEO of CommAvia, a marketing-communications group that delivers leading edge media to the aviation industry. Mark, a commercial pilot who has logged 7,000 flying hours in airliners and business-jets, as well as dozens of small training aircraft, spent 10 years as an air traffic controller and supervisor with the FAA. He also writes the award-winning industry blog, Jetwhine.com. He can be reached at [email protected].
