The recently completed Premier Jet FBO at McClellan-Palomar Airport in Carlsbad, Calif., isn’t just an FBO; it’s a new kind of facility that Premier backers call an airport business center.
Sure, there is an FBO, with all the amenities one would expect from one of the most modern facilities around: private snooze rooms; flat-screen tvs; coffee service; wireless Internet access; Navigance Technologies Safe security system; NATA Safety 1st-trained line crew; a concierge; large and small conference rooms; space-saving vertical lifting Megadoor fabric hangar doors (at a cost of $1 million more than regular doors); hygienic bathrooms; large showers; valet parking; and reasonable fuel prices.
Premier Jet was financed (to the tune of $33 million) by Foundation Properties, Bow River Capital, Jeff Rush and Jeff Ross, who is president and CEO of Ross Aviation. Ross also operates FBOs Denver Air in Colorado, Scottsdale AirCenter in Arizona and Santa Fe Jet Center in New Mexico.
A New Approach to Financing
When the construction plans for the facility began to take shape after many years of planning and after the County of San Diego’s airport division decided that business growth at McClellan-Palomar was a good idea, the investors opted to try
a different approach to financing the extraordinarily high building cost and attracting high-end tenants. Instead of building a large FBO and renting hangar space, why not sell long-term leases on hangar and office space?
Judging from sales as of the grand opening on July 13, the $33 million cost has already been well spent. The pre-paid lease concept is simple: for $235 per square foot of hangar space and $225 per square foot of office space, tenants can purchase a 30-year lease and then do whatever they want with the space, including run an aviation-related business, modify the space to fit their needs, sub-lease the space to other tenants or even sell the lease after, say, 10 years when there is enough time left on the lease and prices have climbed high enough that they can recoup their initial investment.
According to the investors, the pre-paid lease benefits everyone involved. The money to build the facility is easily available, much of it before construction is finished. Tenants get to “own” something of value (for the length of the lease) that likely will appreciate and that they can depreciate for tax purposes, without having to pay rental fees that are likely to escalate and not provide any return on investment. And the airport gets a new facility that will deliver a lot of fuel flowage fees, attract new business and elevate McClellan-Palomar to a business jet destination for visitors to San Diego.
If all the hangar and office space were sold at the prices listed, the sale would bring
in more than $41 million. Premier Jet is retaining ownership of 13,000 sq ft of office space, two 15,000-sq-ft hangars and two 4,000-sq-ft hangars, so the sales revenue won’t reach $41 million. But with almost all available space sold as of the middle of last month, the numbers look quite favorable for Premier Jet’s backers.
There’s another twist to Premier Jet, an idea hatched by FBO manager Nelson Carrick years ago at McClellan-Palomar. Carrick’s idea is to run what he calls a virtual FBO using temporarily empty tenant hangar space. By keeping track of which hangars have aircraft that are on trips, Premier Jet can offer transient customers hangar space on an as-available basis and help participating tenants earn a little extra revenue.
Ross is running Premier Jet as an independent FBO and doesn’t consider Ross Aviation’s growing stable an FBO chain–yet. Someday, he said, it might make sense to brand as a chain, but he doesn’t feel that his company is large enough to justify that move.
Ross also values independence because he likes to hire good people and turn them loose to run his FBOs the way they feel necessary to take excellent care of customers. At Premier Jet, Ross hired Craig Foster as general manager, having persuaded Foster to leave his job as regional director for Atlantic Aviation in Southern California. Foster will be rewarded with an equity stake in the business as the company grows and meets performance targets.
Fuel Market Designs
Premier Jet’s strategy at McClellan-Palomar is to secure 50 percent of the fuel sales market within one year, Ross said. He doesn’t see that as too challenging, even with three other FBOs on the airport. If Premier Jet tenant charter operator Schubach Aviation buys between 80,000 and 90,000 gallons of jet-A a month, the charter firm will account for a quarter of the fuel needed for Premier Jet to reach its first-year market-share goal.
Tenants can buy fuel at cost-plus prices that vary according to volume purchased. The introductory price for jet-A at Premier Jet (mid-July) was $3.75 per gallon.
At 4,897 feet, McClellan-Palomar’s single runway is not ideal for heavily loaded large business jets, but being near sea level means the airport is constrained only on high-density-altitude days. The county is considering adding 1,100 feet to the runway, according to Peter Drinkwater, director of County Airports, an improvement that would also help reduce the noise impact for residents because departing airplanes would be higher as they fly over housing areas.
Ross, who is always scouting new FBO acquisition opportunities, isn’t sure if the pre-paid lease model will work at other facilities because pre-paid leases depend greatly on the willingness of the local airport authority to bless the project with long-term leases such as Premier Jet’s 30-year lease with an expected 10-year extension.
Premier Jet by the Numbers
• 12 years in development
• 2 years in construction
• 15 acres
• 19 corporate hangars
• 52 small airplane hangars
• 223 automobileparking places
• 61,000 sq ft of office space
• 140,000 sq ft of corporate hangar space
• 5 million cu ft of interior volume