FBOs and airports ask for assistance

 - October 3, 2007, 5:10 AM

For some FBOs, the cost of remaining closed for the days (in some cases weeks) after September 11 has been catastrophic. In a low-margin business such as an FBO, especially an independent facility, cash flow is the lifeblood of the business. Cut off the flow for too long, and the patient cannot survive, no matter what measures are taken after the fact. The bulk of the cost of complying with new FAA-mandated security measures may not fall directly on the necks of FBOs, but down the road, observers say, it’s a safe bet they will absorb some of the fiscal pain associated with upgrading an airport’s security infrastructure.

One glimmer of light for even the most beleaguered FBOs has been the fact that crude oil prices have actually decreased in the weeks since the attacks. Ironically, the decrease has been attributed to lack of airline travel and the resulting surplus of crude. With crude prices down, the wholesale price of jet-A takes a corresponding dip, though not usually as precipitous as the drop in prices for auto fuel, which is manufactured in much greater quantities and not stockpiled as is aviation fuel. Over the past several years, FBOs have learned to insulate their retail fuel prices with enough padding that they can survive regular increases in wholesale prices. All that means is that prices are less volatile than those of auto fuel. When wholesale prices go down, there’s a bit of extra profit for the FBO to help weather the next storm of higher prices from the refinery.

From the airport operator’s perspective, new security mandates may be a much tougher pill to swallow. In a letter to Congress in the weeks following the attacks, the presidents of the Airports Council International (ACI) and the American Association of Airport Executives (AAAE) outlined the mountain of potential new obstacles they may be facing in the rush to make our airports safer from terrorism.
The groups called upon Congress to consider the possible loss of war-risk insurance, the cost of complying with FAA security directives and the many sources of lost revenue already suffered by airports due to the initial grounding of all air traffic, followed by reduced airline schedules as Americans slowly return to the skies.

The war-risk insurance issue is in the forefront for many aviation businesses. For airports, the implications are no less severe. Insurers are in the process of negotiating with their reinsurers for next year’s rates. How those negotiations pan out will have a great effect on what airports (and all others, for that matter) will pay for their premiums. Aviation officials have requested government intervention should insurance rates skyrocket, as feared. In their letter to Congress, ACI president David Plavin and AAAE president Charles Barclay asked that the government consider “a fix similar to that for the airlines or outright indemnification as the Canadian government has provided its airports.”

The letter goes on to assert that airports face “overwhelming costs in complying with FAA security directives issued shortly after the attack.” The letter calls upon Congress to provide direct federal assistance to help airports meet the following mandates:
• Increase the visibility of law-enforcement personnel at airports to identify and respond to potential security threats and serve as a deterrent to potential attacks. This is projected to cost more than $1 billion nationwide.

• Provide additional staff to conduct increased security and employee identification checks throughout the airport. The cost of complying with this requirement is estimated at $100 million in operating costs.

• Provide additional access control equipment (gates, locked doors and so on), estimated to cost airports nearly $400 million.

The letter cites the plight of smaller airports, for whom plummeting revenues from reduced passenger levels, lost concession revenue and reduced parking and landing fees further compound the effects following September 11.

Barclay and Plavin ask that airports be given temporary flexibility to use Airport Improvement Program (AIP) funds and/or passenger facility charges (PFCs) for security operations. As it currently stands, those funds are eligible only for other infrastructure upgrades such as runway repaving or installing runway lights. Neither AIP funds nor PFCs were originally intended to be used for operational expenses. The group presidents also asked for an increase in PFCs to $4.50 from $3 to help airports defray the costs of airport security upgrades.

In addition, Barclay and Plavin wrote, “We believe Congress should consider measures to provide federal guarantee to support airport bonds, provide standby lines of credit, provide three to six months of debt service to compensate for the halt and subsequent declines in traffic and give airports greater flexibility to refinance existing debt.”

The character of general aviation at America’s airports changed, probably forever, on September 11. While FBOs at large airports face significant challenges in complying with new security mandates, they already were at least cognizant of FAR Part 107 security restrictions. Small- and medium-size airports, however, are now swimming in unfamiliar waters and FBOs and airport personnel must rise to the challenge. The National Air Transportation Association has stepped up with a program to provide FAA-compliant employee background checks.

At Savannah Aviation at Savannah (Ga.) Airport, there’s a paper sign taped to the door leading out to the ramp. Though the airport is relatively free of traffic and it’s a quiet day on the ramp, the sign says no one without a valid airport badge is allowed to exit without escort. Employees feel embarrassed about walking visiting pilots and passengers out to their airplanes, but they do it. The customer service representative behind the counter said, “A few weeks ago, I could have loaned anyone a golf cart to head off down the ramp on their own to look at those P-51 Mustangs in the hangars to the south. I don’t think we’ll ever be able to do that again.”