For the past month, business aircraft operators flying into New York La Guardia Airport (LGA) may have been surprised to see a fresh new name going on the fuel trucks and above the counter at the field’s sole FBO. As of the first of this month, the incumbent Signature was out, and SheltAir (a new name for the former Jet Center group of FBOs from Florida) has moved on up north for a piece of the Big Apple pie–and maybe more lucrative fruit to come.
For now, at least, the big winner is the airport operator, the Port Authority of New York and New Jersey (PANYNJ). A complex, two-state political entity that controls airports, bridges, tunnels and seaports in and around New York City, the PANYNJ oversaw a controversial and protracted bidding process at La Guardia (LGA) that dragged on for almost three years (AIN, March, page 1).
Emerging from a pack of nine bidders, SheltAir prevailed, signing a contract on May 20 for a four-year lease (with a pair of three-year extensions). The not-so-good news for SheltAir is that the pact comes with a whopping 26.26-percent concession fee on all business aviation goods and services (or a minimum annual payment of $1.35 million, whichever is greater). It’s a windfall for the PANYNJ, since Signature’s old contract exacted only 9 percent of gross sales (or a minimum of $448,000). But the big unknown for business aircraft operators is how the new deal will ultimately affect service and prices at one of the industry’s least favorite destinations.
To say that La Guardia is a challenging venue to run an FBO is an understatement. Many pilot customers, after suffering through the stress of New York air traffic, the long taxi from the runway and a van ride from the remote parking area, are already in a foul mood before they even get to the counter. Having to pay premium fuel prices for the “privilege” of landing at La Guardia is sometimes the last straw.
They can be tough customers to satisfy, and a heavily unionized labor force makes it even more of a challenge for management. Illustrating the point, the LGA facility has consistently garnered low ratings in AIN’s FBO survey.
Nevertheless, Signature’s v-p of sales and marketing, David Vaughan, would not resort to calling the loss of the leasehold sour grapes. He told AIN, “You never want to remove one of the flags from your map. Signature has had the leasehold at La Guardia since the company was formed in 1992–and its corporate predecessors were on the airport for decades before that. But SheltAir–the new name of the company–won the contract fair and square and we wish them the best.”
And a new name it is. Having done business for the past 15 years at several sunshine-state airports as “Jet Center,” the company is making an identity switch. According to COO Ed Zwirn, the reason is this: “The parent company, a real estate/construction firm, got its start in aviation building hangars–Sheltair. When it first got involved in the FBO business, it adopted the Jet Center name. But there are a lot of companies around the country using that designation. So, to avoid confusion as we branch out of Florida, we’re phasing in the new name, SheltAir Aviation Services.”
The La Guardia facility has started out with the new SheltAir name, and the company’s Jet Center facilities at Daytona Beach (DAB) and Orlando Executive Airport (ORL) are also switching immediately. The original FBO of the group is at Fort Lauderdale/Hollywood International (FLL). Zwirn said that facility would phase in the name SheltAir over the next 18 months or so. SheltAir has a commercial fueling concession contract at Miami International (MIA) but no terminal facility. Rounding out its current FBO holdings is SheltAir’s new location at Jacksonville, Fla. (JAX), which is scheduled to open from temporary buildings next month, with a new permanent terminal complex scheduled for completion by January.
So, if the Florida company can make it in New York, it ought to be able to make it anywhere–as the song lyric goes. But what are the chances for any FBO to prosper at such a high concession fee? Zwirn’s original explanation was that, since SheltAir didn’t have to pony up an acquisition fee for the leasehold–estimated at $12 to $14 million based on revenues–the money it saves on finance charges offsets the high cost of the concession fees. A former Signature employee, Zwirn later admitted, however, that Signature has not been paying finance charges either, and the big chain struggled to show a profit at LGA even with a modest 9-percent concession fee.
Will SheltAir raise fuel prices to cover the added costs? Thankfully for fuel-price watchers, the PANYNJ leasehold contract includes a cap on fuel prices at the airport based on a formula that incorporates the highest retail prices posted at surrounding airports, including Newark, Teterboro, Westchester County and others.
Some industry observers have speculated that SheltAir might be the proverbial dog that finally catches a car but doesn’t know how to drive. Pasquale DiFulco, a spokesman for the PANYNJ, said that fears of the company folding are unfounded. He said, “All bidders had to meet certain criteria: they had to be engaged in the general aviation business for at least 60 months; they had to have provided services
totaling more than $10 million annually; and they had to have realized at least $4 million in annual aggregate earnings from third parties at one airport. At some point, you have to plow ahead and accept some things on faith. They were the high bidder. There’s no question that the contract was a good one for the Port.”
Asked what would happen to general aviation services should SheltAir default, DiFulco said the company had posted a $1 million bond (financed at a bargain 1.5 percent, according to SheltAir’s Zwirn), so the PANYNJ would be paid, no matter what. As for filling any void in service, DiFulco said that he was confident one of the eight other bidders for the leasehold would step up if SheltAir faltered. “We consider that to be a remote possibility,” said DiFulco. For his part, Signature’s Vaughan said Signature would consider returning to the airport, “if necessary–and if possible.”
Asked his opinion of the contract, another FBO manager who asked not to be identified expressed skepticism that the location could turn a profit at the 26.26-percent concession fee–and further worried that the deal could set a dangerous precedent in other major-market locations. He said, “The national average concession fee in major markets is 7 to 9 percent. The La Guardia deal is a little scary.”
But Win Perkins, a Morristown, N.J.-based consultant who specializes in evaluating FBOs and their business plans, was less strident. He saw the acquisition of the La Guardia operation as, quite possibly, a good move.
Long a critic of overenthusiastic but under-informed FBO buyers, Perkins said, “I’ve talked with [SheltAir’s financial parent] Jerry Holland and I know a lot of the people who do business with him. He’s nobody’s fool, and his record shows he’s not prone to commit fiscal hara-kiri with a kamikaze bid just to get onto the airport at La Guardia. If eight others were willing to put in bids at a minimum of 23.25 percent [concession fee], then the delta is really only three points. Maybe he sees something the others don’t.” A Boomer-age Harvard graduate, Perkins cut his business teeth in the commercial real-estate market in Manhattan.
Maybe it’s timing. Zwirn told AIN that, as of mid-year, general aviation traffic at LGA has increased by 30 percent compared with the first half of last year. There is also the relatively unknown factor of airline-service contracts. Under the PANYNJ terms, SheltAir has to pay only 9 percent of its gross on airline-related revenue. Zwirn didn’t emphasize that aspect of the business, however, saying that SheltAir would start off by providing de-icing for airlines at LGA, but only as the secondary contractor. “When it snows there, it really snows,” he said, adding that when de-icing service is needed, there’s plenty of opportunity to go around.
The FBO leasehold at La Guardia is centered at the airport’s Marine Air Terminal, the historic facility by the water from which Pan Am dispatched its globetrotting flying boats in the 1930s. Signature completed a significant building upgrade at the FBO in 1992. The building is renowned for its architectural significance as an example of art deco design, though the remote general aviation parking area is not a favorite among passengers and crew. In all, the leasehold covers some eight acres, according to Zwirn, with additional aircraft parking space sometimes available depending on the level of airline activity.
SheltAir has retained most of the 25 Signature employees at LGA, though Zwirn said some chose to remain with Signature and move to other locations. He said employees can expect an increase in pay; additional training; new, improved equipment; and a transition period during which SheltAir management will communicate the company’s corporate message. Customers will notice new limousine-configured shuttle vans and concierge services at the terminal.
One New York-area FBO manager said the first time the request for proposals was circulated, he looked it over for two days, then shredded it. The second time it came around, he said, “I shredded it immediately. We wanted no part of La Guardia.”
But Zwirn told AIN his company wasn’t cowed by the steep finances, “We pay a wide range of ground rents at different locations, ranging from 13 cents a square foot to 60 cents a square foot, so SheltAir sees no mystery in the effect real-estate considerations have on FBO operations.”
And La Guardia isn’t the last stop for the SheltAir expansion train, according to Zwirn. He said, “This has been a long, hard transition, but we’re still on the acquisition track. We’ll be focusing on the real-estate aspect of any future locations. I can’t be specific about which locations might be next, but I can tell you this: it will be cold.”