Company targets the midsize market

 - December 11, 2006, 5:08 AM

The strategy for large FBO chains backed by big private equity funds is to buy FBOs in wealthy destination markets, either major metropolitan areas with lots of business activity or high-end resort areas that are frequented by business jet travelers. Midsize markets don’t get as much attention, and that is fine with Greg Arnold, president and CEO of Truman Arnold Companies, which owns the 11-base TAC Air FBO chain.

“We operate in some larger markets,” Arnold said, “but we like the 500,000 to one million population cities with strong business centers with enough activity to justify our existence.” The larger cities are far more expensive to operate in, he explained, and have much tougher employment environments.

“Midsize markets such as Omaha, Lexington, Knoxville, Chattanooga, those markets are the types we do really well in. We’re seeing more companies locate in these midsize markets, but they’re underserved by the airlines; hence general aviation works better.”

TAC Air evolved, as many FBOs do, from the owner’s interest in aviation. Truman Arnold Companies, founded by Greg’s father, Truman, bought its first airplane, a Cessna 402, in 1976. Ten years later the company bought an FBO at Texarkana Regional Airport in Arkansas, renaming it Road Runner Aviation after the company’s chain of gas station convenience stores.

Truman Arnold Companies acquired its second FBO in 1989, at Fort Smith Regional Airport in Arkansas. In 1991 the company bought an FBO at Shreveport Regional Airport in Louisiana and changed the budding chain’s name to TAC Air.

Subsequent FBO acquisitions– most in midsize markets–came at an average of one every 18 months, according to Daniel Walsh, vice president of the Truman Arnold Aviation Division. “The real growth started in 1997. It was a concentrated effort to expand the network,” he said.

TAC Air has two FBOs–Bradley International Airport, Windsor Locks, Conn., and Denver Centennial–in large markets. Both were purchased from the former AMR-Combs FBO chain. TAC Air’s most recent FBO acquisition was McGhee Tyson Airport in Knoxville, Tenn., where it bought two FBOs and combined them into one base.

FBO Becomes Profit Center
Truman Arnold Companies is a large privately held petroleum marketing and distribution company with operations in 48 states. The attraction of the FBO business, which accounts for 5 to 6 percent of company revenues, is that FBOs deliver consistent, stable earnings, Arnold said.

The petroleum distribution side is a high-volume, low-margin and volatile business with unstable earnings. As the TAC Air chain grew, the family realized that the FBOs’ smoother earnings could help offset the instability of the fuel-distribution business. The FBO chain ended up contributing 40 percent of annual earnings to Truman Arnold Companies.

TAC Air’s Texarkana base used to house a flight school, charter operation, aircraft sales division and maintenance shop, but TAC Air eventually shut down those ancillary profit centers after the challenging economy in the early 1990s made it difficult to justify. “It forced us to tighten our focus,” Arnold said. “We found out that what we were really good at was managing property and the fuel business.”

All TAC Air FBOs appear similar in décor and interior furnishings, to make each facility familiar to customers. The FBOs feature amenities such as wireless Internet access, pilot lounges with computers hooked to the Internet, WSI weather and fresh cookies. Line personnel are trained by a dedicated in-house trainer in the NATA Safety 1st system.

A key TAC Air attribute is that people stick around. Scott Field, general manager of the Texarkana base, worked his way into aviation in line service at the Fort Smith FBO, eventually becoming general manager, then stayed on after TAC Air purchased it. Field took over as general manager of the Texarkana FBO in April last year and has worked for the company for 16 years.

Daniel Walsh, with TAC Air for 10 years, also began his aviation career working the line, at Atlantic Aero in Greensboro, N.C. Walsh attributes employee longevity to TAC Air’s above-average compensation and benefits and the autonomy that he gives general managers.

TAC Air tracks customers using the Total FBO software package by Horizon Business Systems. FBO managers can easily share customer information, but the system is also helpful in tracking customer activity. TAC Air has no formal ramp fee system, but if a customer consistently uses the facilities without buying fuel, then the general manager will meet with the customer and point out that the service must somehow be paid for.

General managers are free to negotiate fuel discounts with their customers. Managers are responsible for running a safe and high-quality operation while minimizing costs and maximizing revenues, but they have plenty of latitude to accomplish these goals without micromanagement from headquarters. Of course, they are also responsible for high levels of customer service, too.

Customer Relationships

All FBOs care about customer service, but TAC Air seems to take seriously
not only delivery of service but also  communication with customers. A search of the AirNav archives turned up few negative comments about TAC Air FBOs, most from piston pilots focusing on fuel prices and items like difficulty using a self-serve pump or problems getting an airplane ready for departure.

One commenter complained about having to pay a $285 upload fee when using a UVAir contract fuel card at the Shreveport TAC Air. Ten days after writing his AirNav complaint, the complainer wrote another AirNav comment about how Shreveport general manager Wes Williams had called him and issued a credit for two visits worth of upload charges.

Williams also told the commenter that he had changed the policy so that customer service representatives warn about contract fuel upload charges when taking the fuel order. The same commenter appears again four months later, this time complaining that he was charged $75 for a ground-power unit, even though he bought fuel. There is no follow-up AirNav comment on this one.

The first Shreveport issue and its follow-up comment is just one example in AirNav where pilots say that TAC Air managers contacted them to try to fix a problem. TAC Air has taken this one step further and offers customers an online system to provide feedback directly to the customer service supervisor, the FBO general manager and to vice president Walsh.

This system proved its worth one day at the Windsor Locks FBO when a customer entered a critique from his laptop using the FBO’s wireless Internet system. General manager Edward Malec saw the complaint and resolved the problem with the customer before he departed. “If we make a mistake,” Arnold said, “our job is to get one on one with the customer and repair it.”

The fun side of TAC Air comes at the annual NBAA Convention, when the FBO chain gives away a big prize. The annual drawing began in 2000 with a VW Beetle and has included a 1945 Piper J-3 Cub and a Rolex watch. Shane Kelley, the 2006 winner, went home from Orlando with a Hummer H3. Next year’s prize has not yet been chosen, according to Arnold.

Walsh and Arnold want to continue expanding the TAC Air chain. “The midsize FBOs are still part of our strategy,” Walsh said. Acquisition targets are becoming more difficult to find, he added, because of all the money flowing into the industry from private-equity firms behind the big FBO chains. “Being privately held,” he explained, “allows us to focus on the long term, what makes financial sense.” Right now, he added, what makes sense is to sit tight and wait for the private equity firms to lose interest in the FBO business, then capitalize on any opportunities this might offer.