Airport Management Guide for Providing Aircraft Fueling Services (2019)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Fuel System Improvements and Feasibility P A R T 3 83 Chapter 7 Fuel System Improvements and Funding 83 7.1 Demand Forecasts and Projected Sales Revenue 90 7.2 Proposed Fuel Products and Services 92 7.3 Needed Improvements, Facilities, and Equipment 94 7.4 Funding Sources and Cost Estimates 98 7.5 Uncertainties and Disruptive Risks 99 7.6 References 100 Chapter 8 Feasibility Evaluations 100 8.1 What is a Feasibility Study? 102 8.2 Setting Goals for Fueling Operations 103 8.3 Income and Expenses Baseline 106 8.4 Amortized Capital Costs 108 8.5 Financial Statements and Pro Formas 109 8.6 Return on Investment 111 8.7 System Compatibility 111 8.8 Organizational Readiness 112 8.9 Report to Decision-Makers Part 3 of the management guide provides a basis to determine capacity requirements for an airport fuel system to either build a new fuel facility or improve an existing fuel facility. Methods to evaluate project feasibility are also presented.

83 7.1 Demand Forecasts and Projected Sales Revenue 7.2 Proposed Fuel Products and Services 7.3 Needed Improvements, Facilities, and Equipment 7.4 Funding Sources and Cost Estimates 7.5 Uncertainties and Disruptive Risks 7.6 References Part 3 of the management guide deals with planning and feasibility evaluations for fuel system improvements. The tables in this chapter can be downloaded from Appendix B at the TRB website as Excel worksheets and customized for specific airports. Appendix B can be found by searching on “ACRP Research Report 192.” Chapter 7 describes a planning process to forecast fuel sales, determine the fueling facilities needed, to estimate costs, and to identify funding sources. 7.1 Demand Forecasts and Projected Sales Revenue Airports can find themselves in one of four situations regarding fuel facilities: • The airport has decided to provide fuel services for the first time, • The airport is considering taking over fueling operations from a failed FBO or an expired lease, • The airport-owned fuel facility is in need of improvement, and • The airport is planning a brand-new fuel facility to replace an existing facility. Every airport supports a unique customer mix and as a consequence, no one fuel system is the best solution for all. When determining the most appropriate fueling types, services, and equipment needed to serve customers, an airport would go through the planning effort outlined in this chapter and summarized in Figure 7-1 to determine what is needed to best improve the fueling business. Forecasts of monthly fuel sales (in gallons and dollars) are useful to right-size fuel storage facilities, to estimate staffing needs, to anticipate frequency of fuel deliveries, and to plan for payments to fuel suppliers. This section describes a straightforward approach to fuel forecasts and projected fuel sales revenue. 7.1.1 Fuel Demand Forecasts Forecasts of fuel demand can follow a basic approach as shown in Figure 7-2. C H A P T E R 7 Fuel System Improvements and Funding

84 Airport Management Guide for Providing Aircraft Fueling Services Existing Demand for Avgas and Jet A If an airport already operates the fueling services, fuel sales records are available. Chapter 4 of this management guide describes record-keeping of fuel sales for Avgas and Jet A in terms of gallons sold, delivered cost, markups, and net revenues. For airports that maintain these records, existing demand is known as is the performance of fueling operations over time. Table 7-1 shows an example of an 8-week fuel sales record. The record would extend 52 weeks. This particular example is a weekly record that shows Avgas inventory, deliveries, and gallons sold. A similar record could be established for Jet A. In this instance, fuel is ordered when 500 to 2,500 gallons remain in the storage tank. Fuel orders would depend on current inventory and the size of the storage tank. Fuel records are often aggregated to show monthly or yearly activity. The weekly and monthly displays are useful to estimate order schedules and to identify any seasonality in fuel sales. In this example, if Avgas sales are steady throughout the year, existing demand would be approximately 42,000 gallons per year.1 Complexity is introduced when an airport does not have records of previous fuel sales either because this is a new fueling operation or the airport is not privy to fuel sales data from the pre- vious FBO. In these instances, the airport manager can meet with existing tenants and transient traffic to determine their local fuel requirements and fueling practices. Further detective work is also possible when existing records are not available. An airport can look at fuel flowage receipts to extrapolate sales, contact the fuel supplier to obtain delivery records, or contact the state or local offices that administer fuel tax receipts to extrapolate an estimate of existing demand. Catalysts for Change For many airports, fuel sales remain relatively stable over the short term (1 to 3 years). However, because recreational and personal flying correlates strongly with economic condi- tions, aviation activity tends to increase with a strong economy and decline during recessions. Figure 7-3 shows jet fuel and Avgas supplies in the United States from 1981 to 2016. The vertical lines indicate recessions. Where jet fuel serves as a proxy for business and commercial aviation, recovery after downturns is faster. This is not the case for Avgas where fuel supplies continue to lag after each recovery begins and, in fact, demand for this fuel has experienced a sustained decline. Source: Prepared by KRAMER aerotek, 2018. Demand and Sales Forecasts Product and Services Offered Needed Facilities or Improvements Cost Estimates and Funding Figure 7-1. Planning process for fueling operations. Source: Prepared by KRAMER aerotek, 2018. Existing Demand for Avgas and Jet A Catalysts for Change Future Fuel Demand Figure 7-2. Components of fuel demand. 1 In Table 7-1, average monthly fuel sold is 3,500 gallons × 12 months = 42,000 gallons per year.

Fuel System Improvements and Funding 85 Documented declines in general aviation, particularly in the single-engine piston aircraft segment, suggest that growth in Avgas fuel sales at a particular airport are driven primarily by changes in market share. At the local level, these changes can result in meaningful gains or losses in fuel sales. Catalysts for change include: • Changes in the number, size, and mix of based aircraft because of the following: – Hangar development; – Improved airport access; Week # Fuel Delivery Gallons Sold End of Week Inventory Cumulative Gallons Sold 1 8,500 450 8,050 450 2 540 7,510 990 3 660 6,850 1,650 4 1,020 5,830 2,670 5 1,100 4,730 3,770 6 1,500 3,230 5,270 7 8,500 990 10,740 6,260 8 748 9,992 7,008 *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 7-1. Example of an airport’s Avgas deliveries, fuel sales, and inventory.* Note: Vertical bands indicate recessions. Source: U.S. Energy Information Administration and National Bureau of Economic Research. - 100,000 200,000 300,000 400,000 500,000 600,000 - 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 20 07 20 09 20 11 20 13 20 15 A vg as (t ho us an d ga llo ns ) Ke ro se ne -T yp e Je t Fu el (t ho us an d ga llo ns ) Jet Fuel Avgas Figure 7-3. Jet fuel and Avgas supplied from U.S. refiners.

86 Airport Management Guide for Providing Aircraft Fueling Services – Sale or purchase of individual aircraft based at the airport; and – Increased airport activity attributable to charters, flight schools, or maintenance and repair services; • Frequency and value of fuel purchases by transient aircraft, including – Retail purchases; – Contract fuel transactions; and – Discounted fuel for volume purchases, buying clubs, or pre-arranged rates; • Delivered fuel costs and airport pricing strategy, such as – Changes in the cost of delivered product; � Costs for product at the refinery terminal, � Transportation costs, � Elimination or sharing of partial load fees, – Reduced airport margins to attract price sensitive customers; and – Low-price leadership at nearby airports; • Other efforts to expand airport market share, including – Special promotions or events; – Marketing and advertising; – Additional services to pilots and passengers; – Hangar promotions; – Reductions in airport rates and charges; – Addition of Customs and Border Protection facilities; and – Early availability of alternate fuels; • New activity generators in the area, such as – Arrival of Fortune 500 headquarters; – Special sporting or entertainment events; and – Development of destination facilities such as casinos, resorts, or convention centers. When preparing forecasts of airport activity or fuel sales, these potential catalysts of change should be considered. Often these catalysts are already factored in the airport’s master plan. How- ever, if a master plan is more than 3 years old, it is best to review current drivers of airport fuel sales. In addition, talking with airport tenants and transient pilots can provide very useful information. Based aircraft represent the most consistent and most readily available fuel customers, although sometimes airports do not capture all the potential fuel sales of their based tenants. To improve capture rates, airport staff can interview tenants about fuel purchases to discern: • Quantities of fuel purchased per month; • Location and frequency of typical purchases; • Average annual flight hours and typical trips; • Anticipated changes to aircraft utilization; • Evaluation of the airport’s fuel services in terms of price, hours of operation, and service; • Preference for full-service or self-service fueling; and • Fuel brand loyalties (if any). Interviews or surveys of transient pilots also can shed light on: • How and why pilots or dispatch offices selected the airport as a destination or stopover; • Frequency and reasons for traveling in the region; • Role of contract rates, pre-negotiated rates, or discounts in a decision to stopover; • Brand loyalties (if any); • Reasons for frequenting the airport as opposed to a competitor; and • Suggestions for improving fueling operations and airport services. Tables 7-2 and 7-3 summarize interview information that can be collected about based and transient pilots.

Fuel System Improvements and Funding 87 Fuel Sales Forecasts After reviewing the historical trends (if available) and evaluating potential catalysts for change, it is possible to make a fuel forecasts for the next 3 to 5 years as part of a business planning cycle, beginning with existing demand and estimating future growth or decline. Table 7-4 shows an example. Table 7-4 is a conservative forecast where catalysts for change either cancel each other out or have minimum short-term impact. A slow growth forecast such as this is not likely to have a material effect on the needed storage capacity or frequency of fuel deliveries. 7.1.2 Fuel Revenue Estimates In order to evaluate the return on investments in the fueling operation, it is critical to translate fuel sales forecasts into revenue forecasts. To do so requires additional assumptions about: • Cost of goods—the delivered price of fuel including state and federal taxes; • Sales price—the price paid for the fuel today and in forecast years; • Gross margins—airport markup on the retail cost of fuel (and discounted markup on self-service fuel); and • Credit card fees—fee paid for each transaction (percent of total sale). In reality, assumptions about cost of goods and the sales price would have much more vari- ability in the course of 1 year but for forecasting purposes, annual assumptions are sufficient. Table 7-5 presents an example of the estimated Avgas sales revenue for full-service and self-service operations. Gross revenue takes into account the delivered cost of the fuel and credit card fees Item Data Collection Task Comments Profile of Based Tenants 1 General Pilot name Organization (if any) Aircraft type 2 Flight Patterns Type of flying (personal, business, commercial, military, other) Average annual flight hours and typical trips 3 Fuel Purchasing History and Preferences Fuel purchased at airport per month Frequency of typical purchases Preference for full-service or self-service Fuel brand loyalties (if any) 4 Anticipated Plans for Use of Airport's Facilities Anticipated changes to aircraft utilization Anticipated changes to leasing plans Anticipated changes to flight patterns 5 Evaluation of airport's services (price, hours, service, availability, other) 6 Suggestions for improvements to airport services 7 8 *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 7-2. Based tenant data collection.*

88 Airport Management Guide for Providing Aircraft Fueling Services *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. **This information can be attained via IFR flight plans for airports with no air traffic control tower. Source: Prepared by KRAMER aerotek, 2018. Item Data Collection Task Comments Profile of Transient Pilots 1 General Pilot name Organization (if any) Aircraft type** 2 Flight Patterns Airport arriving from** Airport departing to** Frequency of travel to airport Frequency of traveling in the region 3 Motivations for Travel Plans Reasons airport selected as destination or stopover (as opposed to competing airport) Reasons for traveling in the region 4 Fueling Preferences Role of contract rates or pre-negotiated rates in decision to stop Role of discount program in decision to stop Preference for full-service or self-service Fuel brand loyalties (if any) 5 Evaluation of airport's services (price, hours, service, availability, other) 6 Suggestions for improvements to fueling or airport services 7 8 Table 7-3. Transient pilot data collection.* Time Period Avgas Jet A Last Year 50,000 100,000 Forecasts Year 1 50,250 101,000 Year 2 50,501 102,010 Year 3 50,754 103,030 Year 4 51,008 104,060 Year 5 51,263 105,101 Assumptions Annual Avgas Sales Growth 0.5% Annual Jet A Sales Growth 1% *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 7-4. Example of airport fuel sales forecast (gallons).*

Table 7-5. Example of fuel revenue estimates for full-service Avgas and self-service Avgas.* Time Period Total Gallons Sold Gallons (60%) Gallons (40%) Delivered Price including Taxes Retail Price Price Total Cost of Goods Total Retail Revenues Credit Card Fees Gross Profit Gallon Formulas a b c d e Last Year 50,000 30,000 20,000 $3.50 $1.25 $4.75 $4.05 $175,000 $223,500 $6,705 $41,795 $0.84 Forecasts Year 1 50,250 30,150 20,100 $3.54 $1.28 $4.81 $4.11 $177,634 $227,633 $6,829 $43,170 $0.86 Year 2 50,501 30,301 20,201 $3.57 $1.30 $4.87 $4.17 $180,307 $231,844 $6,955 $44,581 $0.88 Year 3 50,754 30,452 20,302 $3.61 $1.33 $4.93 $4.23 $183,021 $236,135 $7,084 $46,030 $0.91 Year 4 51,008 30,605 20,403 $3.64 $1.35 $5.00 $4.30 $185,775 $240,508 $7,215 $47,518 $0.93 Year 5 51,263 30,758 20,505 $3.68 $1.38 $5.06 $4.36 $188,571 $244,965 $7,349 $49,045 $0.96 Assumptions: Annual Sales Growth 0.5% Annual Increase in Delivered Price 1% Annual Consumer Price Index on Markup 2% Self-Service Discount on Retail Price $.70/gal Airport Full-Service Markup $1.25/gal Credit Card Fee 3% *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. N���: FS = full-service, SS = self-service. Source: Prepared by KRAMER aerotek, 2018. Profit per Gross Markup F=d+e H=a*d J=i*.03 l=k/aG=f-$0.70 I=(b*f)+(c*g) K=i-h-j FS SS FS SS Retail FS

90 Airport Management Guide for Providing Aircraft Fueling Services associated with the sale but does not factor in any operating and maintenance costs or debt service associated with an airport’s fueling operations. In this example, a fuel operation that sells approximately 40% at the self-service pump yields an average gross margin of 84 cents per gallon before operating costs and capital investments. Figuring in operating costs and capital investment to determine project feasibility is discussed in Chapter 8 and to set fuel prices in Chapter 12. 7.2 Proposed Fuel Products and Services Fuel facility planning includes decisions about what fuels to offer and whether it makes sense to provide both full-service and self-service options. 7.2.1 Fuel Products It is rare for a general aviation airport not to offer Avgas if there are based tenants requiring this fuel. When the airfield can accommodate an aircraft that uses Jet A, typically both fuels will be offered. Avgas is primarily sold to pilots of single- or multi-engine piston aircraft, while Jet A is sold to more complex aircraft such as business jets and turboprops. Some airports also offer automotive gasoline or Mogas, but this market tends to be limited for aviation fuel use and highly competitive as an airport would not only be competing with other airports in the area but also local gas stations. 7.2.2 Self-Service, Assisted-Service, and Full-Service Options As price competition has intensified, most airports offer a self-service option for Avgas. In the research for this project, all but three of the 16 airports in the sample had a self-service option. However, two of these airports have plans to introduce a self-service option for Avgas within the next 2 years and the third airport has space limitations on the airfield. Self-service for Jet A is less frequent, primarily because pilots of larger, more complex aircraft often prefer into-plane services provided by the FBO or airport line service. Some airports also offer assisted-service at a self-service station. In these instances, an on-call line service person, when scheduled in advance, can fuel at a self-service station. The self-service option allows a pilot to fuel an aircraft and complete the transaction with a credit card reader provided at the pump. Self-service fueling requires far fewer staff and allows the airport to offer unattended fuel services 24 hours per day. To provide full-service, an airport must have refueling trucks and staff trained in the fueling of different aircraft. Full-service facilities require additional operating expenses, equipment, and employee training and benefits. Table 7-6 identifies the 16 airports participating in this project. Also shown is the primary runway length and width, 2016 fuel sales, and fuel services offered. The airports are arranged according to total fuel sales from smallest to largest. Of note, with the exception of Leadville Lake County Airport, airports selling under 100,000 gallons of fuel are relying primarily on self-service. Leadville is a special case in that a large percentage of fuel sales are supporting high altitude testing of helicopters. Burlington Municipal Airport also solely offers self-service and prides itself on low-price leadership (and high-volume sales). 7.2.3 Service Comparisons Self-Service Avgas Avgas is most commonly sold to pilots operating their own aircraft. The Avgas market is highly sensitive to fuel price. Advantages for self-service Avgas include:

Fuel System Improvements and Funding 91 • Airport can sell fuel at a lower price and attract price sensitive customers, • Self-service is preferred by pilots who wish to fuel their own aircraft, • Airports have lower labor requirements and operating costs for self-service, • Self-service is available beyond normal business hours, • No fuel trucks are required, and • Self-service is economical for small quantity fuel sales. Full-Service Avgas Full-service Avgas caters to the less price sensitive general aviation pilot who is willing to pay for fueling services. Advantages to offering a full-service Avgas option include: • The ability to reach the entire market of pilots operating aircraft that require Avgas, • The potential for fast-turn fueling service with airport line staff, and • Customer interactions can lead to additional requests from the customer. Some case study airports reported that providing full-service Avgas is less profitable than providing full-service Jet A. A full-service crew must complete several small-volume Avgas trans- actions to match the volume of fuel sold to a single aircraft requiring Jet A fuel. That said, once the line service and customer service staff are trained and scheduled for a full-service operation for one fuel type, adding another type of aviation fuel requires less logistics and organization. Full-Service Jet A Full-service Jet A targets a market composed of business, charter, and commercial jets. Advan- tages of providing full-service Jet A include: • Full-service attracts charter and business jet aircraft, • Large-volume fuel sales can cover line service costs, 2016 Fuel Sales Avgas Jet A Airport State Primary Runway Avgas Jet A Total SS FS SS FS Hulett Municipal Airport WY 5500 x 75 1,451 3,270 4,721   Pine Bluffs Municipal Airport WY 5300 x 75 15,000 none 15,000  Salida Airport CO 7351 x 75 9,005 20,796 29,801    Skylark Field TX 5495 x 100 55,203 21,369 76,572    Mesquite Municipal Airport NV 5121 x 75 32,000 48,000 80,000    Meriden Markham Airport CT 3100 x 75 84,000 none 84,000  Leadville Lake County Airport CO 6400 x 75 15,093 73,874 88,967     Thomas C. Russell Field AL 5422 x 96 47,500 54,700 102,200   Eagle River Union Airport WI 5000 x 76 36,236 69,670 105,906   Burlington Municipal Airport WI 4300 x 75 125,153 48,689 173,842   Huntington Tri-State Airport WV 7017 x 150 5,385 171,006 176,391   Southern Illinois Airport IL 6506 x 100 135,326 58,054 193,380    Montgomery County Airpark MD 4202 x 75 150,000 175,000 325,000    Front Range Airport CO 8000 x 100 130,205 244,350 374,555    Cheyenne Regional Airport WY 9270 x 150 58,000 570,000 628,000   San Bernardino Int'l Airport CA 10000 x 200 69,824 1,726,778 1,796,602    N���: FS = full-service, SS = self-service. Source: Prepared by KRAMER aerotek, 2018. Table 7-6. Services provided by case study airports.

92 Airport Management Guide for Providing Aircraft Fueling Services • Full-service fueling can lead to additional requests from the customer, and • Full-service Jet A sales tend to result in higher profit margins than Avgas full-service. Aircraft requiring Jet A fuel tend to be larger and pilots tend to purchase more fuel in a single fuel buy. Jet A purchases are often pre-negotiated by flight departments. Table 7-6 confirms the prevalence of a full-service option for Jet A fuel. Self-Service Jet A Self-Service Jet A is rarer and typically offered at smaller GA airports that have one or two jets based at the airport. The advantages for self-service Jet A are virtually the same as for self- service Avgas: • Ability to sell fuel at a lower price and capture the price sensitive market, • Flexibility to sell fuel 24/7, and • Minimal labor with no fuel trucks required. 7.3 Needed Improvements, Facilities, and Equipment The next step of the planning process is to consider what fueling facilities are needed. The first and salient question: Is the airport starting a new fueling system or improving existing facilities? In the United States, public airports that do not have any fueling services are somewhat limited. However, in these instances, a prefabricated self-service unit that incorporates a dedicated fuel tank, dispensing pump, and credit card reader may make the most sense. However, when an airport has offered full-service fuel in the past and already has a fuel farm, installation of a self- service station often involves a pipeline from the fuel farm to the fueling station. The location of the fuel farm in relation to the desired spot for the self-service unit may determine whether a pipeline to the fuel farm is more cost effective than a prefabricated self-service unit that includes its own tank. Airports with a large number of self-service customers may opt for a prefabricated unit if space permits and fuel demand justifies the cost of the unit. Beyond the fueling facilities needed and their location, part of the planning process includes considering equipment required to operate the facility. Specifically, full-service operations require a significant amount of specialized equipment to service aircraft. 7.3.1 Observations About Fuel Facilities from Case Studies Table 7-7 summarizes the fuel facility solutions of case studies completed for this research and is instructive. Hulett Municipal Airport installed a prefabricated Avgas unit in 2007 and a Jet A unit in 2012. Pine Bluffs also installed its self-service unit in 2007. Most of the other airports are running pipelines from fuel farms to self-service stations on the ramp. Southern Illinois Airport, Front Range Airport, and San Bernardino International Airport offer both full-service fueling and a prefabricated self-service station for Avgas. Southern Illinois Airport and San Bernardino International Airport offer the self-service option at locations convenient for tenants that hangar their aircraft at the airport. Front Range Airport features the self-service fuel station 100 yards west of the general aviation terminal. Also noteworthy in Table 7-7 are the sizes of the fuel tanks. To allow for expansion of fuel products, storage tanks are sized to receive full truckloads of fuel. Fuel delivery trucks come in many sizes but on average carry between 7,500 and 9,000 gallons. To avoid extra fees for the delivery of partial loads, storage tanks need to accommodate the remaining inventory—new fuel, 10 to 12½ percent empty space for fuel expansion, and a portion of the tank at the bottom that

Fuel System Improvements and Funding 93 is unusable.2 Based on this research, a standard size tank is 12,000 gallons. The usable capacity is 9,600 gallons, leaving 12.5% expansion and a 900-gallon capacity for the bottom unusable fuel, assuming a full delivery of 8,000 gallons. This leaves 1,600 gallons of remaining inventory. Airports such as Meriden Markham Municipal Airport sells only Avgas and with sales of approximately 84,000 gallons per year and a 6,000-gallon storage capacity, the airport orders partial loads of fuel twice per month, except during the winter months. Hulett Municipal Air- port has low-volume sales and storage. To keep the Avgas fresh, the airport orders partial loads of fuel twice per year. 7.3.2 Review of Components of a Fueling System Chapter 3 presented a discussion of the components of a fueling system in some detail. Figure 7-4 summarizes the major building blocks and equipment needed for both self-service Fuel Farm 20,000 15,000 15,000 Cheyenne Regional Airport 58,000 570,000   Fuel Farm 12,000 12,000 12,000 12,000 San Bernardino International Airport 69,824 1,726,778    Pre-fab SS 12,000 - Fuel Farm 12,000 50,000 50,000 50,000 N���: FS = full-service, SS = self-service. Source: Prepared by KRAMER aerotek from case study airports, 2018. 2016 Fuel Sales Avgas Jet A Fuel Tank Capacity Airport Avgas Jet A SS FS SS FS Storage Avgas Jet A Hulett Municipal Airport 1,451 3,270   Pre-fab SS 2,000 12,044 Pine Bluffs Municipal Airport 15,000 none  Pre-fab SS 12,000 - Salida Airport 9,005 20,796    Fuel Farm 12,000 12,000 Skylark Field 55,203 21,369    Fuel Farm 12,000 12,000 Mesquite Municipal Airport 32,000 48,000    Fuel Farm 12,000 10,000 Meriden Markham Airport 84,000 none  Fuel Farm 6,000 - Leadville Lake County Airport 15,093 73,874     Fuel Farm 12,000 12,000 Thomas C. Russell Field 47,500 54,700   Fuel Farm 12,000 12,000 Eagle River Union Airport 36,236 69,670   Fuel Farm 12,500 12,500 Burlington Municipal Airport 125,153 48,689   Fuel Farm 12,000 12,000 Huntington Tri-State Airport 5,385 171,006   Fuel Farm 10,000 18,000 Fuel Farm 10,000 18,000 Southern Illinois Airport 135,326 58,054    SS unit 1,000 - Fuel Farm 15,000 15,000 Montgomery County Airpark 150,000 175,000    Fuel Farm 12,000 12,000 Front Range Airport 130,205 244,350    Pre-fab SS 10,000 - Table 7-7. Storage capacity, services, and fuel sales at case study airports. 2 For a standard 12,000 gallon-cylindrical steel tank, of dimensions 8 feet in diameter by 32 feet long, the bottom 1 foot of tank height approaches 900 gallons. With an 87.5% maximum level leaving 1,500 gallons air volume in top, and the 900 gallons of unusable tank bottom, this equates to approximately 2,400 gallons of unavailable tank volume, or approximately 1⁄5 (20%).

94 Airport Management Guide for Providing Aircraft Fueling Services and full-service fueling systems. There is much overlap in self-service or full-service fueling systems and both systems can be scaled to fuel demand. Self-service does not require line staff during hours of operation to fuel aircraft and fueling vehicles are not needed. A prefabricated self-service unit also may require less engineering and site design. 7.3.3 Planning for Fuel Facilities Figure 7-5 summarizes the scope of planning needed to bring a new fueling facility on line. The initial determination of fuel demand, infrastructure requirements, location, and cost esti- mates are commonly identified in an airport’s master plan and shown in the airport layout plan. If new facility planning or existing facility expansions are performed outside of a master plan process, then an update of the airport layout plan would be necessary. Compliance with taxiway and taxilane object free area standards, identification of access and site improvement requirements, and evaluation of potential impacts to other airfield facilities would all be cov- ered in an airport layout plan update. Additionally, the fuel facility must be shown on the FAA approved airport layout plan to be eligible for federal funding. Once the project is funded, more detailed planning and design work will be accomplished by the airport’s engineering team or consultants. Improvements to existing facilities would be narrower in focus than the scope listed in Figure 7-5. 7.4 Funding Sources and Cost Estimates 7.4.1 Cost Estimates Through the fuel facility planning process, multiple cost estimates are developed and care- fully refined as the planning moves from preliminary to advanced design. A planning estimate is initially conceived to provide a conservative and approximate understanding of the project Self-Service • Storage system • Filtration • Fuel pumping system • Unloading fuel delivery • Self-service dispensing • On-airport pipeline (if required)* • Pump control and card reading terminal • Containment pavement area • Meters, tank gauging systems, inventory • Fire suppression system • Fuel reclamation and waste system Full-Service • Storage system • Filtration • Fuel pumping system • Unload or load fuel transport trucks, • On-airport pipelines • Off-airport pipelines (larger airports) • Hydrant fueling carts** • Fueling vehicles(s) • Containment pavement area • Meters, tank gauging systems, inventory • Fire suppression system • Fuel reclamation and waste system *Some self-service systems have skid-mounted piping adjacent to the tank and just a hose reel so there is no need for a pipeline. Others may have remote dispensers with buried piping running to them from the tank adjacent pumping system. **Air carrier airports only with more than 12 to 20 gates, otherwise refueler trucks are more economical to use. Source: Burns & McDonnell Engineering Company, 2018. management systems management systems refueler trucks, aircraft Figure 7-4. Major components of airport fueling systems.

Fuel System Improvements and Funding 95 costs. As the design comes into fruition, the planning estimate is fine-tuned to a more detailed project cost estimate. In most cases, the cost is finalized through the competitive bidding process mandated by federally funded projects or local requirements. Planning Cost Estimates Planning estimates are often incorporated into an airport’s master plan update. This type of estimate provides a general idea of potential costs with the understanding that the project may not be constructed for several years. As this is a planning document, general project elements are assigned conservative and rounded costs, but specific details and quantities are not included. Source: Prepared by KRAMER aerotek, 2018. Planning and Design • Facility Location and Access Planning • Utility Evaluation • Site Improvement Requirements • Feasibility Studies • Airport Layout Plan Update • Environmental Documentation • FAA Form 7460 • Engineering Design Services Fuel Farm • Containment Area Pavement • Bulk Storage Tanks (underground or aboveground) • Plumbing, Hoses, Connections • Access Scaffolding and Ladders • Maintenance Equipment or Additional Supplies • Potential Inclement Weather Protective Structures Self-Service • Pumps, Hoses, Meters, Plumbing, and Nozzles • Credit Card Reader and Pump Control Terminal • Additional Self-Service Tank • Maintenance Equipment or Additional Supplies Full-Service • Mobile Fuelers (number and size) • Hoses, Meters, Connections • Maintenance Equipment or Additional Supplies • Garages or Maintenance Bays for Fuel Truck Storage Emergency and Environmental Response • Emergency Response Equipment (fire extinguisher, emergency shut-off system, etc.) • Spill Prevention Control and Countermeasure Plan Development • Spill Cleanup Kits • Drainage and Shut-off Valves Administration • Office Supplies • Web-Based Inventory Tracking Software • Web-Based Maintenance and Inspection Tracking Software Figure 7-5. Planning areas for fuel facilities.

96 Airport Management Guide for Providing Aircraft Fueling Services As planners develop this estimate, they use conservative pricing strategies and assign heavy contingencies. This can provide a buffer to account for the following circumstances: • Additional design details requiring higher construction costs, • Unexpected design complexity, • Uncertainty as to when the construction will take place, and • Planning for future construction costs instead of current construction costs. Project Cost Estimates Project cost estimates are built by experienced professionals after project planning is fully vetted and the sponsoring parties move forward to design. While planning documents are more general, the project-specific estimate is based on quantities, specific pricing, and defined line items. There is less built-in contingency and the estimate is less conservative. A fuel facility project estimate would incorporate detail and consider all facility aspects including but not limited to: • Facility system components; • Grading, paving, and pavement section; • Utility connections; • Spill containment; • General site improvements; and • Access. Final Construction Pricing For federally funded projects, the cost is finalized by a competitive bidding process as con- tractors assign costs to line items. The final cost is heavily dependent on the level of competition in the construction industry at the time of construction. Depending on the market demand of construction and the timing, an airport could have several bids or only a few. Figure 7-6 summarizes the development of a cost estimate. 7.4.2 Funding Sources Fuel facilities are funded typically from multiple sources, including: • Municipal funds, • Federal funds, Source: Prepared by KRAMER aerotek, 2018. Planning Level • Big-picture planning estimate • High contingency and conservative pricing • Round costs assigned to overall project elements Project & Design • Professionally developed and project-specific estimate • Low contingency and accurate pricing • Specifically detailed line items, quantities, and dollar amounts Construction • Cost estimate finalized through contractor bids Figure 7-6. Planning areas for fuel facilities.

Fuel System Improvements and Funding 97 • State grant, • FBO financing, • Airport financing, • Private donors and corporations, and • Fuel suppliers. Federal Funding Prior to 2003, Airport Improvement Program (AIP) funds were not available for funding fuel system installations or upgrades. However, eligibility was changed in 2003, and funding became available for new fuel facilities at non-primary airports under the Vision 100—Century of Aviation Reauthorization Act (Quilty, 2015). The FAA imposed some restrictions that limit available funding for revenue-producing facilities such as hangars and fuel farms. In general, AIP funds can be used to support the costs of constructing new facilities that increase the airport’s ability to generate revenue. The airport sponsor must demonstrate that all other airside needs and safety requirements are met before using funds for a revenue-producing facility. AIP dollars will be directed toward poor airside pavement and safety concerns before going toward a new fuel facility. According to the FAA’s Revenue Producing Facility Policy summarized on the FAA’s Central Region Airport Improvement Programs webpage (August 2017) and detailed in FAA Order 5100.38D—Airport Improvement Program Handbook (September 2014), the following costs are ineligible for AIP funding: • Costs associated with maintenance, including replacement or upgrades of existing fuel systems; • Replacement of existing pumps with pumps that have card reader capability; and • Costs associated with the demolition of an existing fuel farm, environmental mitigation, and cleanup. However, on a case-by-case basis, the FAA may allow funding of replacement or upgrades of an existing fuel system if the airport sponsor takes over from an FBO that has gone out of busi- ness. These situations are reviewed individually and require specific FAA approval. For large and medium primary hub airports, the AIP grant will cover 75% of eligible costs (or 80% for noise program implementation). For small primary, reliever, and general aviation airports, the grant covers 90% to 95% of eligible costs.3 The local match requirement is often covered by states, municipalities, the airport sponsor, or a combination of parties. An airport must be careful and completely transparent with the FAA as they seek funding. According to Chapter 16 of FAA Order 5190.6B—Airport Compliance Manual (September 2009), improper use of AIP dollars could result in several penalties such as: • Withholding approval of future grant applications, • Withholding modifications or payments of existing grants, • Withholding passenger facility charge approval, • Withholding any other additional funding, and • Civil penalties up to 3 times the diverted amount. State and Municipal (Airport Sponsor) Funding GA airports projects funded through the AIP often receive 90% funding from the FAA, though this percentage can vary based on the size of the airport. The remaining 10% is the responsibility 3 https://www.faa.gov/airports/aip/overview/.

98 Airport Management Guide for Providing Aircraft Fueling Services of the sponsor. Many states offer financial assistance to sponsors by covering some portion of the 10% match on the AIP grant. The amount of match assistance varies by state, but gener- ally ranges between half to all of the match amount. In addition, some states, such as Florida, Wyoming, and Colorado, will fund fuel facility projects through state grants and loans when no federal funding is available. Prior to embarking on new fuel facilities or improvements, it is prudent for airport sponsors to investigate the availability of state funding. Other Funding Sources FBO Self-Funded. Some private FBOs will fund their own fuel farm and fueling system without public funds. When a lease expires or is not renewed, these facilities will revert to ownership by the airport sponsor if this is written into the lease. When an FBO closes its business, the airport sponsor typically takes over fueling facilities if the sponsor doesn’t already own these assets. Airport Authority. Airport authorities can self-fund a fuel facility project. This may be the most expedient option if the upgrade or improvement is time critical. For federally eligible projects, the authority can fund the required grant match. Private Donations. Private donors or tenants can contribute to the cost of the facility. In the Hulett Municipal Airport case study, based aircraft owners contributed along with a Wyoming state grant to the funding of a prefabricated fueling facility. Fuel Supplier Loan or Bank Loan. An airport can receive a loan from a fuel supplier, a bank, or a state loan program and pay back the cost of the fuel facility or improvement over time from operating revenues. It is not uncommon for a fuel supplier to front some initial costs if the terms are spelled out in a fuel supply contract. 7.5 Uncertainties and Disruptive Risks Demand forecasts, facility planning, and cost estimates can reduce the financial risk of taking on a fuel facility or improvement; however, some risk is inevitable. Potential risks could involve: • Economic recessions, • Volatility in the price of aviation fuels, • Addition or loss of based aircraft or other tenants at the airport, • Delay in expected grants or change in local matching requirements, • Increase in financing costs, • Municipal actions that limit hiring or development projects, • Unexpected weather events that impact fuel supply or operations, • New environmental or security regulations, and • Adoption of alternative fuels. General aviation is an industry highly sensitive to economic conditions and the price of fuel. Airports taking on a fueling operation will become part of a network of airports and FBOs com- peting for fuel customers. This business environment makes it necessary for airport staff order- ing and pricing fuel to pay attention to fluctuations in the cost of aviation fuels and the prices offered by competing airports. Fuel sales ultimately will fund some or all of the operations and maintenance of a fuel facility and pay down capital costs over time. Chapter 8 presents ways to evaluate a new fuel facility or improvements to determine whether the project is feasible and how long it will take to pay off the initial capital investments.

Fuel System Improvements and Funding 99 7.6 References FAA. Airport Improvement Program Handbook, Order 5100.38D. September 30, 2014. Available: https://www. faa.gov/airports/aip/aip_handbook/media/AIP-Handbook-Order-5100-38D.pdf. FAA. Chapter 16: Resolution of Unlawful Revenue Diversion. Airport Compliance Manual, Order 5190.6B. September 30, 2009. Available: https://www.faa.gov/airports/resources/publications/orders/compliance_5190_6/ media/5190_6b_chap16.pdf. FAA. Revenue Producing Facility Policy. Central Region Airport Improvement Program. August 23, 2017. Available: www.faa.gov/airports/central/aip/revenue_producers/. Quilty, S. M. ACRP Synthesis 63: Overview of Airport Fueling Operations. Transportation Research Board of the National Academies, Washington, D.C. 2015.

100 8.1 What is a Feasibility Study? 8.2 Setting Goals for Fueling Operations 8.3 Income and Expenses Baseline 8.4 Amortized Capital Costs 8.5 Financial Statements and Pro Formas 8.6 Return on Investment 8.7 System Compatibility 8.8 Organizational Readiness 8.9 Report to Decision-Makers Chapter 7 described the important planning steps that would proceed the construction of an airport fueling system. These steps included forecasts of fuel demand, assessment of facility needs, consideration of alternative solutions, selection of a project, and estimated project costs. Chapter 8 brings this information together and discusses how to evaluate a proposed project’s financial feasibility. The tables presented in this chapter can be downloaded as Excel worksheets from Appendix B on the TRB website and customized for specific airports. Appendix B can be found by searching on “ACRP Research Report 192.” 8.1 What is a Feasibility Study? Decision-makers use feasibility analysis to determine potential positive and negative outcomes of a project before investing a considerable amount of time and money into it.1 Feasibility studies consider economic outcomes, potential obstacles to success, and other factors that will influence the success of a project. They can also lead to refinement of the plan to achieve goals and minimize risk. A full feasibility study has five basic components as shown in Figure 8-1. These are: 1. Description of the proposed project, 2. Market feasibility, 3. Technical feasibility, 4. Financial feasibility, and 5. Organizational readiness. Development of some of the components of a feasibility study were described in previous chapters. Chapters 4 and 5 covered the market feasibility review by sizing the fuel market and C H A P T E R 8 Feasibility Evaluations 1 https://www.investopedia.com/terms/f/feasibility-study.asp#ixzz507psVRTu.

Feasibility Evaluations 101 establishing a knowledge base about fuel customers and local competition. Chapter 7 discusses how to plan for fuel facilities and prepare a project description sufficient to examine the financial feasibility of the project. This chapter focuses on the financial feasibility and organizational readiness for proposed fuel service improvements as well as the compatibility of the proposed system with the existing airport infrastructure and operations. Sections in this chapter address three key questions: • Is it important to the local airport sponsor that the fueling operation breaks even? • Will new revenue from the aviation fueling operation be able to offset additional capital project costs? • Are there other alternative revenue streams at the airport that will offset or reduce potential losses from fueling operations? Figure 8-2 outlines how this chapter tackles these questions in the context of financial feasibility, system compatibility, and organizational readiness. Source: Prepared by KRAMER aerotek, 2018. • Overview of existing fueling operations • Scope of new fueling services and products to be offered • Location of services on the airport • Target customers for proposed services Description of Proposed Project • Current demand for Avgas and Jet A at the airport • Underserved market segments • Nearby and regional competition • Demand forecasts with or without the project Market Feasibility • Estimates of startup capital required • Identification of funding sources • Understanding of existing airport FBO financials as baseline • Estimates of incremental revenue and costs with proposed project • Expected return on proposed project Financial Feasibility • Plans for fuel facilities, equipment, and technology • Interface with existing fueling operations and airport infrastructure • Preliminary design • Planning challenges and solutions Compatibility Check • Labor, management, and training requirements of the new project • New or changes to fuel supplier arrangements • Emergency and environmental response • Back office administration Organizational Readiness Figure 8-1. Components of a feasibility study.

102 Airport Management Guide for Providing Aircraft Fueling Services 8.2 Setting Goals for Fueling Operations Whether the FBO is operated by an airport or private enterprise, fueling operations can be a key driver of revenues and a magnet for customers. Before attempting any type of feasibility evaluation, it is important to consider the many possible goals of the airport’s fueling operation. Goals serve as a benchmark to determine if the startup of a fueling operation or the proposed capital investments to an existing operation make sense. Fueling operations can strive to achieve different goals, such as: • Provide a breakeven service primarily for tenants at the airport, • Serve as a low-price leader to attract transient traffic to the airport, and • Generate revenue for the airport sponsor or FBO. Fuel is a basic service at most airports. Some airport managers equate it to a basic utility, necessary to support airport tenants and required to attract transient aircraft. In this context, a breakeven approach to fueling operations would be an acceptable goal. However, some airport sponsors or FBO staff look to fuel sales as a principal source of operating revenue. It is noteworthy that most airport staff interviewed for this publication shared this expectation but reported that fuel revenues were less than anticipated, citing a number of reasons, including: • Reduced demand for aviation fuel because of less recreational flying, tankering practices by corporations, or the addition of more fuel-efficient aircraft to the GA fleet; • Aggressive price competition in the Avgas market as well as negotiated contract rates and discounting for Jet A customers; Source: Prepared by KRAMER aerotek, 2018. Set goals for fueling operation Understand existing fueling business contribution to the airport Study the effects of incremental (or new) investments Consider necessary changes to the organization to implement a new project Bring components of feasibility study together and present findings and conclusions to decision- makers Figure 8-2. Financial feasibility, system compatibility, and organizational readiness.

Feasibility Evaluations 103 • High delivered costs for Avgas, particularly when a partial load of fuel is ordered; and • Low-price leadership at other airports that set a floor for fuel prices and tend to dampen fuel margins at airports that wish to remain competitive with a nearby low-price fuel provider. For many fuel operators, it is hard to get a handle on the direct and indirect costs for fuel and improvements to fueling facilities, primarily because at smaller airports, the fueling operation is but one of several services offered and staffed by the same personnel. This chapter takes a basic look at the cost components that go into the price of fuel and fueling improvement and uses this information to help evaluate the feasibility of setting up new fueling facilities or improving existing fueling facilities. Figure 8-3 describes a way to visualize the financial evaluation of an airport’s fueling operations. In practice, feasibility evaluations can be somewhat complex, except for an airport that is starting a self-service fueling operation for the first time. In this instance, the capital costs for design, purchase, and installation would be known and clear, as would startup costs and fuel sales. Most airports have existing fuel facilities, equipment, and staff fully or partially dedicated to fueling operations. The feasibility of additional investment would logically be considered as incremental additions to existing operating revenues, expenses, and capital investments. The current operating situation, in this way, serves as a baseline to understand how a proposed project will incrementally affect operating revenues and expenses. The next sections present examples of revenue and operating expense accounts that can be used to build an income statement or pro forma2 statement if this is a new fueling operation. These tables can be downloaded as Excel worksheets from Appendix B on the TRB website and customized for specific airports. 8.3 Income and Expenses Baseline Whether an airport is starting a new fueling operation, improving its existing facilities, or taking over a third-party FBO operation, it is important to get a handle on current operating revenues and expenses. This section describes the income and expense categories an airport may want to include in its records for FBO services. For many small airports, staff would perform multiple jobs including fuel line services. In this sense, it may be difficult to allocate expenses Source: Prepared by KRAMER aerotek, 2018. Operating Revenues Operating Expenses Amortized Capital Costs Net Profit or Loss Figure 8-3. Simplified financial model of fueling operations. 2 Financial statements prepared with the pro forma method are made ahead of a planned transaction such as an acquisition, merger, changes in capital structure, or a new capital investment. These models forecast the anticipated result of the transaction, with emphasis placed most specifically on estimated net revenues, cash flows, and taxes. Pro forma statements, therefore, in summary, indicate the projected status of an enterprise in the future based on current financial statements. https://www. investopedia.com/terms/p/proforma.asp#ixzz502FX3Fd0.

104 Airport Management Guide for Providing Aircraft Fueling Services explicitly to fueling operations only, and easier to look at all airport services as a single operating unit and investigate the contribution of fueling to the airport’s bottom line. 8.3.1 Operating Revenue Table 8-1 shows an example of revenue accounts an airport might use. Airports keep these records weekly, monthly, and annually, and often compare this year’s activity with results from the same time period in previous years. A worksheet similar to Table 8-1 (with columns for 12 months) is available for download from Appendix B on the TRB website. The table shows a number of revenue categories that the airport may or may not have. The point is to identify all the categories of operating revenue that the airport tracks and customize the spreadsheet as an ongoing record of operating revenues. Many airports have some form of accounting already set up. 8.3.2 Operating Expenses Table 8-2 shows a list of typical operating expenses that may apply to the sale of aviation products such as fuel, aircraft oil, or deicing fluids, and to the maintenance of equipment and buildings on the airport. This spreadsheet, like the previous one is available to download Operating Revenue Month 1 Month 2 Month 3 Total for Year Previous Year Percent Change Fuel Self-Service Avgas Full-Service Avgas Self-Service Jet A Full-Service Jet A Other Aviation Supplies Aircraft Oil Pilot Supplies Services Line Services Other Services (e.g., catering, aircraft cleaning, equipment rental) Fees Flowage fees Tie-Down and Ramp Fees Fuel Storage Fees (if any) Rentals and Commissions Hangar and Office Rentals Car Rental Commissions Other Income Total Operating Revenue *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 8-1. Example of revenue accounts.*

Feasibility Evaluations 105 Operating Expenses Month 1 Month 2 Month 3 Total for Year Previous Year Percent Change Cost of Fuel Delivered Cost of Jet A Delivered Cost of Avgas Cost of Other Aviation Supplies Aircraft Oil Deicing Fluids Pilot Supplies Other Line Supplies Fees Credit Card Processing Fees Other Finance Charges Employees Employee Salaries Employee Health Insurance Training Uniforms Equipment Small Equipment Purchases (expensed) Equipment Rental or Lease Software and Licenses Maintenance Equipment Maintenance Hangar Maintenance Maintenance Labor Equipment Fuel and Oil Utilities Fuel Farm Utilities Hangar Utilities Other Airport Utilities Insurance Fuel Farm Hangar Liability Pollution Workers Compensation Marketing, Advertising, and Website Other Expenses Total Direct Operating Expenses Startup Costs Administrative Overhead Allocation Total Operating Expenses *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 8-2. Example of operating expense accounts.*

106 Airport Management Guide for Providing Aircraft Fueling Services and customize. Of note are three cost accounts that appear at the end of the spreadsheet and include: • Costs for marketing, advertising, and maintaining the airport website; • A line item for startup costs that are associated with a new or expanded fueling operation;3 and • A line item for administrative overhead allocation.4 8.3.3 Gross Operating Profit or Loss Net operating profit or loss is equal to total operating costs subtracted from total operating income as shown in Table 8-3. Typically, operating revenues, expenses, and gross profit or loss are shown in one table for a more holistic view of airport operations. 8.4 Amortized Capital Costs A major input to a financial feasibility analysis is the cost of facilities and equipment. This would include planning and engineering design services, environmental assessments, construc- tion of fuel farms, containment areas, self-service stations, pipelines on airport property, fueling vehicles, maintenance and emergency response equipment, etc. For financial planning purposes, it is important to identify the sources of funding and financing for these services, equipment, and facilities. In this way, local capital contributions can be separated from federal and state grants for the project. 8.4.1 Funding Sources For capital projects that are already included in the airport layout plan, airport sponsors usually have a good idea about potential sources of funding that will pay for the project. If it is a federally qualified project5 for small primary, reliever, and GA airports, the FAA will cover 90% and the remaining 10% is covered by state or local contributions. Ineligible AIP projects may be funded by state grants with a local share or may be 100% funded by local governments, airport authorities, or private contributions. Funding sources were discussed in greater detail in Chapter 7, section 7.4.2. Table 8-4 shows an example of funding allocations for different fuel facility projects. Estimated costs are examples only and would be different for every airport. Month 1 Month 2 Month 3 Total for Year Previous Year Percent Change Operating Revenues Operating Expenses Gross Profit or Loss *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 8-3. Example of gross operating profit or loss.* 3 Non-recurring costs associated with setting up a business such as accountant’s fees, legal fees, and registration charges as well as advertising, promotional activities, and employee training. Also called startup expenses, preliminary expenses, or pre-opening expenses. 4 Administrative expense allocation is a method to allocate expenses that are not directly identifiable to a particular activity in a consistent, fair, and equitable basis. Every airport accounting office has its own ways to allocate administrative costs. As a rule of thumb, administrative overhead can be approximately 20% to 25% of reoccurring operating expenses. 5 Typically funded by AIP.

Feasibility Evaluations 107 Local government and airport authority funding is highlighted as they are key inputs to a feasi- bility analysis. 8.4.2 Amortization Amortization of capital expenditures makes it possible to set goals for annual repayment of local funding contributions over the useful life of an asset. Each component of a fueling facility has an estimated useful life. Examples of useful life of fuel facilities and equipment are shown in Table 8-5. For financial planning purposes, capital projects are divided into two groups. Expenditures on items that cost less than $25,000 and have a useful life of less than 5 years are expensed in the fiscal year that they occur. Capital expenditures that have a cost in excess of $25,000 are amortized6 Source of Funding Project Description Estimated Cost AIP Grants State Grants Local Government Airport Authority Private Funds Aboveground Fuel Tanks $500,000 $450,000 $25,000 $25,000 Fueling System Refurbishment $45,000 $40,000 Self-Service Prefabricated Unit $125,000 $50,000 $65,000 $10,000 Construct Fuel Island $40,500 $30,375 $10,125 Install Jet A Fuel Tank (12,000) $150,000 $112,500 $37,500 *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 8-4. Example of funding allocations for fueling facility projects.* Equipment/Software Useful Life (Years) Fuel Trucks (new) 20 Inventory Management Software 15 Pipelines aboveground 30 underground 20 Plumbing, Valves, Meters 20 Point of Sale Software 15 Prefabricated Self-Service Unit 20 Single Pump Unit from Fuel Farm 20 Storage Tanks aboveground 30 underground 20 Source: Prepared by Burns & McDonnell Engineering Company, 2018. Table 8-5. Amortization schedule for different fuel facility components. 6 The spreading out of capital expenses for intangible assets over a specific period (usually over the asset’s useful life) for accounting and tax purposes. Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources. Amortization roughly matches an asset’s expense with the revenue it generates.

108 Airport Management Guide for Providing Aircraft Fueling Services over the life of the project. Capital projects that are expensed or that have annual amortization in this way can become part of an annual profit-and-loss statement. Most airports would have multiple capital projects that would be amortized each year. Investment in fueling facilities or equipment would be added to the list of either expensed or amortized items. 8.4.3 Calculating Amortization The amount of annual amortization for each improvement is dependent on: • The amount of local funding, • The useful life of the improvement, and • The amortization rate or imputed local government cost of capital (interest rate). Table 8-6 shows a calculation of annual amortization for the example projects shown in Table 8-4 and their useful life estimates shown in Table 8-5. These examples are intended for instructive purposes only. Fuel system refurbishment has the highest annual amortization because (1) all of the costs are born by the airport authority and (2) the useful life of this improvement is 5 years, where other projects may have a longer useful life and a greater number of years to spread capital costs. In the case of aboveground fuel tanks, the most expensive capital project, annual amortization is low primarily because most of the cost of the tanks in this example is paid for with a federal grant and the local share of funding is amortized over a 30-year period. Amortization is a useful way to incorporate local capital costs into an annual profit-and-loss statement. The next section shows how operating revenues and expenses as well as amortized capital costs can go into one financial statement. 8.5 Financial Statements and Pro Formas The previous sections each serve as detailed building blocks for a financial statement that can describe the past performance of a fueling operation and expected performance in the future. When a fueling operation is brand new, these financial statements would be considered pro forma as they reflect estimated performance rather than actual results. Table 8-7 presents a summary financial statement for a fueling operation based on detailed operating revenue and expense worksheets already presented in Tables 8-1 and 8-2. Local Funding Amortization Calculation7 Project Description Estimated Cost Government Airport Authority Useful Life Amortization Rate Annual Amortization Aboveground Fuel Tanks $500,000 $25,000 30 3.75% $1,402 Fueling System Refurbishment $45,000 $45,000 5 3.75% $10,037 Self-Service Prefabricated Unit $125,000 $65,000 20 3.75% $4,678 Construct Fuel Island $40,500 $10,125 20 3.75% $729 Install Jet A Fuel Tank (12,000) $150,000 $37,500 30 3.75% $2,103 *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Local Table 8-6. Calculating amortization.* 7 Annual Amortization = PMT(Amortization Rate, Useful Life, Local Funding to be Recovered)*–1

Feasibility Evaluations 109 8.6 Return on Investment When airport sponsors decide to add a new fueling operation, acquire an existing fueling operation, or upgrade components of the fueling facilities, inevitably the question arises: will the investment pay for itself? This section presents ways to examine whether an investment in fueling facilities or equipment will pay for itself over its useful life. 8.6.1 Return On Investment for a Self-Service Avgas Prefabricated Unit Suppose an airport or FBO decided to install a prefabricated Avgas unit that had a storage tank and pumping station and that was equipped with point of sale and inventory management software. One way to evaluate whether revenues from self-service fuel sales will cover the cost of capital investments is to estimate annual costs (including amortization) and to estimate gross Year 1 Year 2 Year 3 Years 1-3 Years 2-3 Operating Revenue Fuel Other Aviation Supplies Services Fees Rentals and Commissions Other Income Total Operating Revenue Direct Operating Expenses Cost of Delivered Fuel Cost of Other Aviation Supplies Fees Employees Equipment Maintenance Utilities Insurance Marketing, Advertising, and Website Startup Costs Other Expenses Total Direct Operating Expenses Gross Profit/Loss before Indirect Expenses and Amortization Indirect/Overhead Expense Allocation Annual Amortization of Locally-Funded Capital (total of all capital projects that are amortized) Net Profit (Loss) *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. % Change % Change Table 8-7. Summary financial statement.*

110 Airport Management Guide for Providing Aircraft Fueling Services profits from fuel sales. Table 8-8 presents a set of assumptions about the cost and funding of a self-service Avgas unit and annual operating expenses. Table 8-9 shows an example of gross profits from the sale of 30,000 gallons of self-service Avgas. Given these assumptions about the price of delivered and retail self-service fuel, an operator would breakeven on this self-service fueling operation. In this example, a fuel operator would have to net in excess of $17,000 in self-service Avgas sales per year to cover present value operating costs over a 20-year period. Required fuel sales over the useful life of the unit would change depending on the delivered cost of fuel, fuel sales, and changes in annual expenses. While assumptions will undoubtedly change, there are few takeaways from the analysis: • Gross profit on self-service Avgas sales are lean. Self-service Avgas typically has lower gross profit than full-service Avgas. • Minimizing the amount of the local capital contribution and cross-utilizing staff will reduce labor and amortization costs and thus lower breakeven requirements. • Some fuel suppliers will offer point of sale and inventory software for free or at a discounted rate and consequently lower operating expenses on a self-service unit. Assumptions Total Capital Cost $125,000 Less Grants $60,000 Net Local Contribution $65,000 Useful Life before Recapitalization—Year 20 Imputed Local Government Cost of Capital 3.75% Annual Operating Expenses Annual Capital Amortization Expense of Local Contribution $4,678 Annual Allowance for Maintenance $1,500 Wages (1⁄4 person @ $15.00/hr.) $7,800 Self-Service Share of Utilities $800 Self-Service Software Fees $1,200 Marketing $300 Administrative Overhead at 5% of Annual Operating Costs $814 Total Estimated Annual Operating Costs $17,091 *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Table 8-8. Example of annualized costs for a self-service Avgas unit.* Time Period Gallons Sold including Taxes Retail Price Cost of Goods Retail Revenues Credit Card Fees Gross Profit per Gallon Formulas a b c=FS price-$0.50 d=a*b e=a*c f=e*.03 g=e-d-f h=g/a Avgas Sales 30,000 $3.50 $4.25 $105,000 $127,500 $3,825 $18,675 $0.62 *Available as an Excel worksheet in Appendix B. Search ACRP Research Report 192 at www.trb.org. Source: Prepared by KRAMER aerotek, 2018. Self-Service Total Delivered Price Self-Service Gross Profit Table 8-9. Example of gross profit from self-service Avgas sales.*

Feasibility Evaluations 111 • There may be economies of scale to be achieved if demand also exists for self-service Jet A, as both units could be constructed and managed simultaneously. It is possible to project fuel sales and operating expenses into the future to test how breakeven points will shift. Adjustments to the assumptions will influence the projections. • Future sales assumptions: – Annual fuel sales growth, – Annual increase in delivered price of fuel, – Consumer Price Index (CPI) on markup, – Airport full-service markup, – Self-Service discount to the retail full-service price, and – Credit card fees. • Future operating expense assumptions: – Employee wages, – Maintenance costs, – Equipment replacement, – Technology replacement, and – Utility cost changes. 8.6.2 Return On Investment for Improvements to Existing Fueling Operations The previous example of a self-service Avgas unit examined financial feasibility by estimating capital costs, annual amortization, fuel sales, and operating costs for this unit only. Financial feasibility of incremental improvements to an existing fueling operation must be examined in the context of an airport’s operating revenue and cost profile. This becomes an incremental analysis. The profit-and-loss statement developed at the beginning of this chapter can serve as a baseline of operating expenses and revenues for the airport. From here, new invest- ments can be analyzed for their incremental impact on the baseline. 8.7 System Compatibility This portion of a feasibility study ensures that the airport has the existing infrastructure and technical expertise to support the proposed project. This is primarily a concern for airports adding new facilities to an already existing facility. Depending on the age of certain equipment, there may be challenges that arise to operate newer and older equipment within the same system. Preliminary design and planning of the fuel facility would call attention to some of these potential issues and challenges. 8.8 Organizational Readiness Organizational readiness refers to an airport’s ability to either institute a new fuel operation or to bring in management and staff resources to implement changes in an existing fuel operation. Four areas of organizational readiness are relevant here: • Labor and management requirements for expanded fueling services; • New contract or needed changes to fuel supplier arrangements; • Modifications to emergency and environmental response plans that include new facilities; and • Training and staff to any manage new facilities, point of sale software, inventory management, and record keeping.

112 Airport Management Guide for Providing Aircraft Fueling Services 8.9 Report to Decision-Makers Since the airport sponsor will review most proposed capital projects, airport staff will prepare a summary of the feasibility study. This summary would include the following suggested elements to explain and justify the project: • Goals of the airport fuel program and how this project fits into the airport’s business plan; • Description of the proposed fuel project; • Justification of the project in terms of demand, competitive position, or improved approach to management of fueling operations; • Estimated cost of the project and sources of funding; • Financial impacts of the project; • Anticipated changes in levels of activity at the airport; • Potential challenges for implementation of the project; • Project sensitivity to risk; • Recommendations from the airport manager; and • Schedule for design, construction, and readiness for public use.