Guidebook for Developing General Aviation Airport Business Plans (2012)

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123 CHAPTER 10 AVIATION PRODUCTS, SERVICES, AND FACILITIES 10.1 Introduction 10.2 Market 10.3 Organization 10.4 Operations 10.5 Marketing 10.6 Financial 10.7 Wrap-Up 10.1 INTRODUCTION The range, level, and quality of aviation products, services, and facilities being provided at a general aviation airport can play a key role in achieving the goals established for the airport. Once demand for aviation products, services, and facilities has been ascertained through the market assessment process, a determination needs to be made about who—or what entity—is best suited to meet the demand and how—in what manner—demand is going to be met. During the economic downturn, the airport did not perform well from a financial standpoint. Although airport management and staff worked hard to hold the line on expenses, revenues declined and the operating subsidy increased. The airport’s FBO struggled too. The airport manager knew that the FBO’s revenues, especially relating to line, fueling, and location-based services, had declined significantly during the prolonged downturn. The FBO owner had been talking about selling the business, but nobody seemed interested in buying it. The airport manager’s fear that the “perfect storm” might be too much for the airport’s marginally profitable FBO came true when the FBO owner advised the airport manager that the FBO would not renew its lease agreement at the end of the year. The airport manager realized that, as part of the airport business planning process, the demand for aviation products, services, and facilities would need to be assessed; the options for meeting the demand would need to be evaluated; and, the most appropriate way to meet the demand would need to be identified. The airport manager knew that the alternative, having no FBO at the airport, would not be a viable option.

124 Guidebook for Developing General Aviation Airport Business Plans Aircraft Passengers and Crew Facilities Make service your first priority, not success, and success will follow. Anonymous Only those portions of this chapter relevant to achieving the goals established for the airport need to be consulted. When examining the relevant areas, the planning team should look for opportunities to develop objectives that will help achieve the goals. Each goal can have multiple objectives. Figure 10-1 identifies some of the most common aviation products, services, and facilities being provided at general aviation airports today. Figure 10-1: Aviation Products, Services, and Facilities 10.2 MARKET Regardless of the entity meeting demand, an assessment of the key assets, amenities, and attributes of the airport and the community and an analysis of the industry and the market is essential, as discussed in Chapter 6. By way of the market assessment process, the level of demand in the market can be ascertained and compared to the capacity at the airport to identify any deficiencies. The availability of aviation fuels is one of the key factors driving the decision of based or transient aircraft operators to select one airport over another. By providing aviation fuels, aviation businesses can generate revenue through fuel sales, and airport sponsors can recover costs through fees (if charged) which helps maximize financial self-sufficiency. Guidance and parking Ground services and handling o Towing o Ground power o Deicing o Lavatory o Potable water Aircraft cleaning o Cabin o Exterior washing and detailing Fuel o Jet, avgas, and mogas Lubricants o Piston and turbine Technical services o Airframe and powerplant o Avionics and instruments o Paint and interior Loading and unloading Baggage handling Catering Pilot supplies Ground transportation arrangements o Shuttle service o Crew cars o Rental cars o Limousines Concierge reservations o Hotel/motel o Restaurant o Entertainment Flight services o Flight training o Aircraft rental o Aircraft charter o Aircraft management General aviation terminal buildings Aircraft parking (ramp) Aircraft hangars Office Shop Storage Vehicle parking

Aviation Products, Services, and Facilities 125 For airport sponsors who have decided to provide aviation products, services, and facilities directly to customers, the market needs to be examined much more closely. Although many of the same areas identified in Chapter 6: Airport and Market need to be studied, a more detailed analysis is required. This would include (1) examining the range, level, and quality of products, services, and facilities being provided by airport sponsors and private entities in the industry, at comparable and competitive airports, and at the subject airport; and (2) identifying the key assets (e.g., vehicles, equipment, tools, and materials) and the key resources (e.g., time, people, and funding) that will be required to provide each product, service, and facility. 10.3 ORGANIZATION Aviation products, services, and facilities can be provided at a general aviation airport in the following three ways: (1) by a private entity using the private entity’s assets and resources and operating under a lease agreement or operating permit with the airport sponsor; (2) by a private entity using the airport sponsor’s assets and the private entity’s resources operating under a management agreement with the airport sponsor; and (3) by the airport sponsor using its own assets and resources. This section defines each approach and discusses the actual and perceived advantages and disadvantages of each approach from an airport sponsor and customer perspective. Although the entity (private enterprise or airport sponsor) providing products, services, and facilities at a general aviation airport varies from one airport to the next, many believe that the private sector is best suited for engaging in these activities. Private entities, generally, have the qualifications, experience, and ability to offer a wider range, superior level, and higher quality of products, services, and facilities. However, at some general aviation airports, based on the level of demand in the market and the amount of investment required, a private entity may not be able to generate a reasonable financial return. In such situations, the airport sponsor may need to provide, or facilitate the provision of, certain products, services, or facilities to customers. Regardless of the situation at the airport, within the market, or in the industry, the Airport Sponsor Assurances give airport sponsors the ability to exercise a proprietary exclusive right to engage in commercial aeronautical activities and exclude others from doing so. Although, in such cases, the airport sponsor needs to meet the same requirements imposed on private entities and, most important, the airport sponsor needs to use its own assets and resources to do so. In essence, an airport sponsor exercising a proprietary exclusive right must provide aviation products, services, and facilities directly—not indirectly or under contract with a third party. An airport sponsor can provide aviation products, services, and facilities on a non-exclusive basis as well. In such a case, the airport sponsor would still need to meet the same requirements imposed on private entities, but would not be required to use its own assets and resources. The survey of general aviation airports conducted for the development of this Guidebook revealed that airport sponsors provide aviation products, services, or facilities at approximately one-third of public-use general aviation airports. Most of these airports are smaller general aviation airports that provide limited products, services, or facilities (aircraft parking and self-serve avgas only—in many cases) and many of these airports may not be able to support private-sector investment. At most of the larger general aviation airports serving the business segment of the market, aviation products, services, and facilities are typically provided by private entities.

126 Guidebook for Developing General Aviation Airport Business Plans Ultimately and consistent with best practices, the market should dictate the most appropriate means for providing aviation products, services, and facilities at an airport. To ascertain the interest, qualifications, experience, and capabilities of private entities to engage in commercial aeronautical activities at an airport, an RFQ/RFP can be issued by the airport sponsor, as discussed in Chapter 6. However, if a qualified, experienced, and capable private entity has already expressed interest in providing products, services, and facilities, the airport sponsor may forego the RFQ/RFP process and negotiate directly with the entity. The advantages and disadvantages of each of the three primary approaches depend on the situation or circumstances that exist at the airport, within the market, or in the industry. PRIVATE ENTITY—LEASE AGREEMENT OR OPERATING PERMIT Under the private entity–lease agreement/operating permit approach, the airport sponsor allows a private entity to lease land or improvements or receive a permit to provide specific aviation products, services, or facilities at the airport. The private entity’s employees operate and manage all aspects of the provision of products, services, and/or facilities using the private entity’s assets and resources. Under this option, the private entity may (1) lease land only from the airport sponsor and make improvements (e.g., general aviation terminal buildings, hangars, office, shop, and ramp) to the land; (2) lease land and certain improvements and make additional improvements; or (3) lease land and all associated improvements. The potential advantages and disadvantages from the airport sponsor and customer perspective are presented in Table 10-1.

Aviation Products, Services, and Facilities 127 Table 10-1: Advantages and Disadvantages to the Airport Sponsor and Customers from a Private Entity — Lease Agreement or Operating Permit Airport Customers A dv an ta ge s The airport sponsor would not have the capital costs or operating expenses associated with providing products, services, and facilities unless the airport sponsor made the associated improvements from which the products, services, and facilities are provided. The airport sponsor’s airport-related revenue (land and/or improvement rents) would increase. The airport sponsor’s airport-related revenue (fees) may or may not increase, depending on the airport’s fee schedule. The airport sponsor would have limited exposure or risk associated with the provision of products, services, and facilities because it would be transferred to the private entity. The range, level, and quality of products, services, and facilities available at the airport would likely be higher, depending on the amount of private capital available. Customers may be less concerned about “free market” competition since the airport sponsor cannot grant an exclusive right to a private entity under the Airport Sponsor Assurances. Customers may become more aware of the range, level, and quality of products, services, and facilities available at the airport, depending on the private entity’s marketing program. Customers may be less concerned about the qualifications, experience, and abilities of the private entity’s staff. D is ad va nt ag es The airport sponsor has only minimal, indirect control over the range, level, and quality of products, services, and facilities provided and associated pricing. The airport sponsor’s net proceeds relating to the provision of products, services, and facilities would decrease. The range, level, and quality of products, services, and facilities provided would be dependent on the ability of the airport sponsor to attract and retain a private entity and on the qualifications, experience, and abilities of that entity. Customers may or may not pay higher prices, depending on the pricing orientation of the private entity. Airport Customers

128 Guidebook for Developing General Aviation Airport Business Plans AIRPORT SPONSOR—PRIVATE ENTITY MANAGEMENT AGREEMENT Under the airport sponsor—private entity management agreement approach, the airport sponsor owns the assets (e.g., vehicles, equipment, tools, and facilities) used to provide the aviation products and services. The private entity’s employees operate and manage all aspects of providing aviation products and services using the airport sponsor’s assets under a management agreement with the airport sponsor. The potential advantages and disadvantages from the airport sponsor and customer perspective are presented in Table 10-2. Table 10-2: Advantages and Disadvantages to the Airport Sponsor and Customers from an Airport Sponsor—Private Entity Management Agreement Di sa dv an ta ge s • The airport sponsor’s net proceeds from the provision of products, services, and facilities may decrease, depending on the structure of the management agreement and the performance of the contractor. • The airport sponsor may be required to provide capital for purchasing vehicles and equipment, making improvements, or developing facilities. • The airport sponsor has to rely on a third party to operate and manage all aspects associated with the range, level, and quality of products, services, and facilities provided and establish pricing. • • • The airport sponsor would be required to entertain interest from third parties who may want to operate a competitive FBO or SASO since the sponsor cannot exercise its proprietary exclusive right. Customers may still be concerned about a lack of “free market” competition, even though the airport sponsor would not be able to exercise its proprietary exclusive right under this type of arrangement. The range, level, and quality of infrastructure, improvements, assets, or amenities associated with providing products, services, and facilities may not meet the needs of customers, depending on the amount of public capital available. • Customers may or may not pay higher prices, depending on the pricing orientation of the airport sponsor and the private entity, the structure of the management agreement, or the performance of the private entity. Airport Customers Ad va nt ag es • The airport sponsor would retain ownership of the assets associated with providing products, services, and facilities. • The airport sponsor’s capital costs and operating expenses associated with the provision of products, services, and facilities would decrease, depending on the structure of the management agreement. • The airport sponsor would have less liability exposure and less risk, depending on the qualifications, experience, and abilities of the private entity and the terms and conditions of the agreement. • Customers may be more aware of the range, level, and quality of products, services, and facilities available at the airport, depending on the private entity’s marketing programs. • Customers may be less concerned about the qualifications, experience, and abilities of the private entity’s staff. • Some range, level, and quality of products, services, and facilities will be available at the airport. This is especially important if the airport sponsor could not attract and retain a private entity under the lease agreement approach. Airport Customers

Aviation Products, Services, and Facilities 129 AIRPORT SPONSOR MANAGEMENT ARRANGEMENT Under this approach, the airport sponsor provides, on an exclusive or non-exclusive basis, aviation products, services, or facilities at the airport using the airport sponsor’s assets and resources. The potential advantages and disadvantages from the airport sponsor and customer perspective are presented in Table 10-3. Table 10-3: Advantages and Disadvantages to the Airport Sponsor and Customers from an Airport Sponsor Management Arrangement D is ad va nt ag es The airport sponsor is responsible for resolving any issues, challenges, or problems relating to the range, level, and quality of products, services, and facilities provided and associated pricing. The airport sponsor has greater liability exposure and more risk. The airport sponsor’s capital costs and operating expenses are higher. To be successful, the airport sponsor has to attract and retain management and staff with the qualifications, experience, and abilities required to properly provide the range, level, and quality of products, services, and facilities desired by customers. Customers may be concerned about “free market” competition based on the airport sponsor’s ability to exercise its proprietary exclusive right to be the sole provider of products, services, and facilities at the airport. Customers may be concerned that the airport sponsor has not given the private sector the opportunity to engage in the provision of products, services, and facilities at the airport. Customers may be concerned about the ability of the airport sponsor to provide the range, level, and quality of products, services, and facilities expected. Customers may be concerned about the qualifications, experience, and abilities of the airport sponsor’s staff. Airport Customers A dv an ta ge s The airport sponsor has full control over all aspects of the type, range, level, and quality of products, services, and facilities provided and associated pricing. The airport sponsor has direct influence on activity levels at the airport as well as on product, service, and facility revenues. The net proceeds generated through the provision of products, services, and facilities are realized directly by the airport sponsor. There are inherent synergies of operating and managing the airport and providing products, services, and facilities which result in lower overall costs or expenses. Customers can be assured that some range, level, and quality of products, services, and facilities will be available at the airport. This is especially important if the airport sponsor could not attract and retain a private entity to provide products, services, and facilities. Customers may or may not pay lower prices, depending on the customer service and pricing orientation of the airport sponsor. Customers have a public forum to raise concerns about the type, range, level, and quality of products, services, and facilities provided and associated pricing. Airport Customers

130 Guidebook for Developing General Aviation Airport Business Plans 10.4 OPERATIONS If the airport sponsor has chosen to provide aviation products, services, or facilities using the airport sponsor’s assets and resources, this decision will have a significant effect on the airport business plan. Each product, service, and facility will need to be thoroughly investigated and specific goals, objectives, and action plans will need to be incorporated into the airport business plan. From an operational standpoint, the following areas should be considered by the planning team if an airport sponsor has decided to engage in these activities directly. STAFF The type, number, qualifications, experience, and abilities of employees will be directly related to the range, level, and quality of products, services, and facilities provided. If relevant, reasonable, and appropriate, airport staff could be cross trained to provide products, services, and facilities. Specialized training programs would need to be implemented as well. While there are a number of industry resources available in this area, many product, service, and facility providers use a combination of in-house and third-party training materials. EQUIPMENT Depending on the products, services, and facilities provided, the airport sponsor may need to procure, maintain, and repair a wide variety of specialized vehicles and equipment, including fueling vehicles, towing vehicles, towbars, towheads, ground power units, lavatory carts, potable water carts, oxygen and nitrogen carts, cabin service carts, emergency response carts, ramp vehicles, courtesy vehicles, crew vehicles, utility vehicles, preheat units, deicing units, compressed air units, and more. INSURANCE For any product, service, or facility provided by the airport sponsor, a risk assessment should be performed and relevant, reasonable, and appropriate insurance coverages and policy limits should be secured with consideration given to premiums, deductibles, exclusions, and other factors. Examples of insurance coverage that airport sponsors may need to secure when providing products, services, and facilities follow: • • Additional information on airport insurance is provided in Chapter 8. STANDARD OPERATING PROCEDURES When providing products, services, and facilities, various standard operating procedures (SOPs) need to be considered, including (1) aircraft fueling and location-based services; (2) aircraft, vehicle, and equipment operations; (3) safety, security, and quality control and associated checks, inspections, and reporting; (4) passenger and crew services; (5) hazardous materials and waste handling; and (6) processing payments at the point of sale, reconciling sales and inventories, collecting and paying taxes, and maintaining financial controls. Completed products and operations—includes coverage relating to the sale of aviation products and services to the public. Hangar keepers—includes coverage relating to property damage for all non-owned aircraft under the care, custody, and control of the airport sponsor.

Aviation Products, Services, and Facilities 131 If providing fueling services, the method of fueling (self-serve fueling stations, fueling vehicles, or a combination thereof) needs to be determined and airport management and staff are required to understand every aspect of fueling, including (1) ordering, maintaining, and reconciling fuel inventories; (2) receiving fuel into storage; (3) storing and handling fuel, including transferring fuel from storage into fueling vehicles and aircraft fueling; (4) fuel quality assurance; (5) vehicle, equipment, and facility maintenance and repair; and (6) record keeping. If providing location-based services (including aircraft line services, parking, and hangars), airport management needs to have an intimate understanding of all aspects of these functions as well. While the initiatives used to market these activities may overlap with some of the initiatives for the airport, several unique approaches need to be considered by the planning team in promoting the aviation products, services, and facilities provided by the airport sponsor. Most important, industry directories convey essential information about the airport and the products, services, and facilities being provided to customers in print or online formats. Additionally, there are organizations that negotiate contract fuel prices with aviation fuel providers and FBOs on behalf of aircraft owners and operators. Consideration should be given to identifying the contract fueling program preferred by the customers using the airport and negotiating a contract price for fueling services that will improve the financial performance and position of the airport sponsor. For those airport sponsors providing aviation products, services, and facilities, a separate financial department should be established to record, track, and report the financial performance and position of the department. If possible, the department should be established as an independent legal entity to help protect the airport sponsor from a liability standpoint as sovereign immunity may not extend to proprietary endeavors. In addition, the department should be treated as an independent lessee of the airport. Appropriate market rents should be charged for the land and improvements being occupied or used by the department and appropriate cost recovery fees should be charged based on the department’s activities at the airport. This best-practices approach will provide the framework for establishing the department’s pricing for products, services, and facilities and for accurately recording, tracking, and reporting the department’s financial performance and position. A Statement of Financial Activities, discussed in Chapter 11, can be used for an aviation products, services, and facilities department. A worksheet is provided at the end of Chapter 11 and in Part 4 of the digital files. 10.7 WRAP-UP This chapter identified some of the most common aviation products, services, and facilities being provided at general aviation airports today; discussed the importance of ascertaining the level of demand in the market and capacity at the airport; and outlined the various approaches—and the actual and perceived advantages and disadvantages of each approach—for meeting the needs of customers. This chapter also examined some key operational, marketing, and financial considerations that can be helpful for developing objectives if an airport sponsor chooses to provide aviation products, services, or facilities directly to customers. 10.5 MARKETING 10.6 FINANCIAL