Airport Operator Options for Delivery of FBO Services (2018)

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5 CHAPTER ONE INTRODUCTION The role of fixed base operators (FBOs) at U.S. airports is clearly changing with the times. FBOs, for their part, have been highly responsive to these shifts. Diminished general aviation (GA) activity at almost every U.S. airport, an aging demo- graphic of participants inspired by a passion for flight, and large shifts in customer service preferences and fuel purchasing habits are each contributing catalysts to the change. Despite and perhaps because of these challenges, the FBO industry is solution-driven and, in that sense, a nimble participant in the evolution of the delivery of aeronautical services at airports. In the prosperous 1970s and early 1980s, aircraft sales peaked and FBOs flourished. The growth of aircraft ownership and GA activity supported many private FBOs that operated in an environment where expansion in the industry made it possible to increase product and service margins and to expand sales (Wells and Chadbourne 1994). This operating environment changed in the mid-1980s when aircraft sales and GA activity began a sustained decline. The contraction of the GA industry continues today and has contributed to reductions in the number of FBO locations in the United States from 10,000 to an estimated 3,440 in 2016. Although the first FBOs were full-service operations, today this is not always the case, for a variety of reasons: • Fewer recreational GA aircraft are in operation and newer models are more fuel efficient and often operate with a turbine engine. • Software applications make it possible for dispatchers and pilots to evaluate the tradeoffs of tankering fuel versus pur- chasing fuel en route. • EFB (Electronic Flight Bag) applications allow pilots to plan routes and shop fuel prices with mobile devices. • The formation of network providers and consolidation of multiple FBOs at larger airports has introduced new benefits to using networks. • Contract Jet-A fuel prices and lower margins on fuel have reduced fuel revenues as a source of regular FBO revenue. Airport sponsors and FBO companies have faced significant structural changes within the industry and have adjusted. At some airports, FBOs failed and the airport took over FBO services. Other independent FBOs became viable acquisition targets. The largest FBO chains went on a buying spree, such as Signature’s acquisition of Landmark, Atlantic Aviation’s purchase of Black Canyon Jet Center, and the formation of a “new” Ross Aviation chain to address the Department of Justice’s concerns about adequate competition at the airport. For the smaller airport-owned or independent FBOs, other options exist today to affiliate with large FBO networks, join fuel supplier networks, or contract for specialized aviation services. These changes present a variety of solutions for the delivery of FBO services. This chapter presents a discussion of the current structure of the FBO industry and an overview of how the synthesis is organized. FBO DEMOGRAPHICS As of 2016, 3,332 public use airports operate in the United States. They are part of the National Plan of Integrated Systems (NPIAS) and are shown in Figure 1. An estimated 336 NPIAS airports have no FBO. Of the remaining airports, approximately 3,440 have FBOs. This diverse group is composed of airport providers, independent FBOs, small networks of FBOs often co-located in a geographic area, and large global networks of FBOs. FBOs are located throughout the United States in a pattern that approximates the country’s population density (as shown in Figure 2), with the largest and greatest number of FBOs situated in metropolitan areas and many individual operators in more rural and suburban areas.

6 FIGURE 1 NPIAS airports. Source: National Plan of Integrated Airport Systems (NPIAS), 2017–21. FIGURE 2 U.S. population density, 2010. Source: U.S. Census, 2010. FBOs can be divided into groups according to ownership characteristics: FBOs operated directly by airport sponsors, independent FBOs with one or two locations, small networks of FBOs operating three to five locations, and large networks of wholly owned or affiliated FBOs with more than five locations. Figure 3 shows the segmentation of the FBO industry. The groups are arranged from left to right to approximate the depth of resources available to FBOs. Self-service fueling facili- ties are often operated by airports that rely on fuel suppliers for quality control, training, and marketing. Independent FBOs work with individual airports and fuel suppliers to brand services and market the FBO. Some independent FBOs and smaller networks are forming alliances to share marketing, referrals, and FBO service resources. The largest networks have extensive resources and programs to support their customer base. FIGURE 3 Segmentation of the FBO industry. Source: Prepared by KRAMER aerotek inc. Table 2 and Figure 4 estimate the number of FBOs in each group and their share of total FBO locations. These estimates come from August 2016 data provided by AC-U-KWIK and processed by the research team. Given the fluid nature of the FBO industry, the numbers best reflect order of magnitude estimates. Airport-operated FBOs are the most numerous group with 1,630 locations—47% of total FBO locations. The number of airport-operated FBOs has expanded over the past decade, in part because diminishing GA activity at small airports made some private, unsubsidized FBO operations unsustainable. Together, airport-operated and independent FBOs make up 89% of all locations—a poignant reminder that the national airport system is composed of many, many small airports. The relatively

7 small number of large network FBOs shown in Table 2 belies the fact that the vast majority of general and business aviation activity takes place at a relatively small number of larger airports. TABLE 2 TYPES OF FBOs OPERATING IN THE U.S., AUGUST 2016 Types of Facilities Number of Locations Percent Distribution Airport Operated 1,630 47% Independents (1 to 2 locations) 1,437 42% Small Network (3 to 5 locations) 92 3% Large Network (>5 locations) 281 8% Total FBOs 3,440 100% Source: Prepared by KRAMER aerotek based on airport/FBO data provided by AC-U-KWIK®, a property of Penton Media. FIGURE 4 Types of FBO locations, August 2016. Source: Prepared by KRAMER aerotek based on airport/ FBO data provided by AC-U-KWIK®, a property of Penton Media. Table 3 divides FBOs into groups of airports with runway lengths shorter than or equal to 5,000 ft and longer than 5,000 ft. Airport-operated and independent FBOs dominate 98% of all airports with short runways. They are also key players at airports with longer runways. Large network FBOs concentrate at airports with longer runways. TABLE 3 U.S. FBOs BY TYPE AND AIRPORT RUNWAY LENGTH Major Runway Length Percentage of Total Types of Facilities ≤5,000 ft >5,000 ft ≤5,000 ft >5,000 ft Airport Operated 967 663 62.2% 35.2% Independents (1 to 2 locations) 561 876 36.1% 46.5% Small Network (3 to 5 locations) 16 76 1.0% 4.0% Large Network (>5 locations) 11 270 0.7% 14.3% Total FBOs 1,555 1,885 100.0% 100.0% Source: Airport/FBO data provided by AC-U-KWIK®, a property of Penton Media, August 2016. FBO TRANSITION POINTS Over the past decade, much has been written about consolidation in the FBO industry. This merger and acquisition activity has resulted in fewer FBO locations at large- and medium-hub airports and at the largest GA airports. Industry analysts have described the consolidation as a response to less recreational and business aviation activity and to an aging group of family- owned FBOs that began in the 1950s and extended leases through renewals in the 1980s. These leases began to expire in the past decade, making valuable airport real estate available to new owners and expanding FBO networks. By 2016, mergers and acquisitions had resulted in a large concentration of FBO business among eight large network operations, with the largest

8 being Signature Flight Support (122 owned domestic locations), followed by Atlantic Aviation (65 locations). Other network FBOs with more than five locations include Million Air (23 locations), Sheltair (17 locations), Avflight and TAC Air (each with 14 locations), Jet Aviation and Ross Aviation (each with seven locations), and Air Service Hawaii and AvPORTS (each with six locations). At airports where the largest network FBOs operate, there is little doubt about the airport’s ability to support private FBOs. When bidding for the privilege to operate at these airports, FBOs typically propose substantial capital investments. Private FBO capital investments at small GA airports are much less prevalent. At the smallest and largest airports, questions about how best to provide FBO services are mostly settled. The current inflection point is occurring at U.S. small hub and nonhub airports, such as Ft. Wayne International, Greenville-Spartanburg International, and Chattanooga Metropolitan airports, where some of the network FBOs have operated but airport sponsors have opted to use a different FBO delivery system when FBO leases expire. Inflection points will change as the FBO industry moves on to the next challenge posed by new technology, another wave of consolidation, integration of replacement fuels for the piston fleet, incorporation of unmanned aircraft into regular airport operations, or an issue not presently evident. The provision of FBO services is ultimately a customer solution business. The changes going forward should be interesting as airports and FBOs right-size operations and employ new technologies to streamline operations and provide higher levels of customer service. RESEARCH APPROACH AND REPORT ORGANIZATION This synthesis focused on the different ways airport sponsors provide FBO services at GA and commercial service airports. The case study approach was foundational for the synthesis findings. Ten airports and three FBOs participated in the effort. In addition, an FBO database was developed from information acquired from AC-U-KWIK to gain an understanding of the prevalence and ownership patterns of FBOs in the United States. Figure 5 describes the report’s organization. FIGURE 5 Report organization. Source: Prepared by KRAMER aerotek inc. OTHER TRANSPORTATION RESEARCH BOARD RESOURCES Many articles have been written about the FBO industry, but little research has been published. However, TRB has sponsored a number of studies and syntheses that complement this research. Table 4 lists the relevant studies.

9 TABLE 4 RELATED ADDITIONAL ACRP AND TRB PUBLICATIONS Project Number Project Title ACRP Legal Research Digest 8 The Right to Self-Fuel ACRP Legal Research Digest 11 Survey of Minimum Standards: Commercial Aeronautical Activities at Airports ACRP Report 47 Guidebook for Developing and Leasing Airport Property ACRP Report 60 Guidelines for Integrating Alternative Jet Fuel into the Airport Setting ACRP Report 77 Guidebook for Developing General Aviation Airport Business Plans ACRP Synthesis 63 Overview of Airport Fueling Operations ACRP 01-30 Airport Management Guide for Providing Aircraft Fueling Services ACRP 09-13 Considering Life Cycle Costs in Airport Asset Procurement Source: Compiled by KRAMER aerotek, inc., 2016.