FBO Survey 2008

 - March 31, 2008, 6:54 AM

It seems that not a week goes by without an FBO company announcing either the acquisition of more FBOs or a one-FBO company buying half a dozen more FBOs to establish its own growing chain. Witness, for example, Volo Aviation’s rapid accumulation of five bases, when just last year the company had one FBO to supplement its primary charter business. See also Encore FBO’s move into the European market following the purchase of the Landmark Aviation FBOs, charter and sales businesses from DAE Aerospace. The latest surprise, at least as this was being written in late February, was Signature Flight Support’s announcement of intent to buy Hawker Beechcraft’s FBOs (but not the maintenance operations).

Given the frothy activity in the FBO marketplace, we thought it would be interesting to take a snapshot of the chain structure and list all the FBO companies that own three or more FBOs and those FBO locations. We fully expect this list to change; next year either these companies will own even more FBOs or the organizations that provide the money for acquisitions will have decided that the business isn’t as lucrative as they had thought.

One thing is for sure, however: the rapid recent growth of FBO chains has no precedent. Earlier attempts to build chains never saw companies owning as many FBOs as some of these companies do now.

Finally, is there some number of FBOs that is simply too hard for a company to handle? So far, the overall number of FBOs owned hasn’t slowed any of these companies, so there doesn’t appear to be a negative to building a huge chain of FBOs. But time will tell if these are short-term successful businesses or another step on the road to building national networks of aviation service businesses.

Encore and Landmark
Dubai Aerospace Enterprise made no secret of its plan to sell the FBO business that it acquired as part of the $1.8 billion purchase of Landmark Aviation and Standard Aero from private equity firm The Carlyle Group. What is not known is whether DAE’s owners really wanted to sell the FBOs or if they were doing so to avoid scrutiny from security-conscious politicians.

This would not be the first time that foreign ownership has attracted the attention of those in Washington. When DP World announced plans to buy marine terminal operating company P&O in February 2006, a political firestorm ensued. DP World is wholly owned by the government of Dubai, and U.S. politicians were concerned about the security implications of foreign ownership of marine terminal operations in the U.S., which in fact were already owned by foreign-owned P&O. When the politicians viewed a U.S. Coast Guard intelligence analysis about the proposed DP World buy of P&O, they used that information to bolster their case. DP World, however, had already submitted to scrutiny by the U.S. Treasury Department’s Committee on Foreign Investment in the United States (CFIUS), which approved the deal.

The DAE purchase of Landmark Aviation, which consisted of multiple FBOs and maintenance facilities at major airports in the U.S., was also subject to the CFIUS approval process, and the sale went forward without objection. None of the politicians who had been so vociferous about DP World raised any concerns, at least in public, about DAE and Landmark. DAE, which is partially owned by Dubai’s government, went forward with its plans to sell the Landmark FBOs and last November announced that it signed a definitive agreement for Encore FBO to acquire DAE’s Airport Services Group, which included the Landmark FBOs, charter operations and some other businesses for $436 million. The deal closed on February 29. Encore is backed by private-equity firm GTCR Golder Rauner.

The Encore name, it turned out, was short-lived, and after completing the transaction, Encore adopted the Landmark brand name. Encore president and CEO Dan Bucaro is CEO of the new Landmark Aviation. Most of the current Encore/Landmark leadership helped form the Trajen chain, which was swallowed up by Mercury Air Centers, which in turn was purchased by Atlantic Aviation.

Signature Flight Support
The Signature FBO chain owned by BBA Aviation continues to grow and still has the most non-U.S. FBOs of any of the FBO networks and the most FBOs overall. Last year, Signature bought four Executive Beechcraft FBOs but decided to operate them under their original brand name instead of absorbing them into the Signature network.

Signature made a bigger move on February 22 when Hawker Beechcraft announced that it planned to sell its fuel and line service operations (but not the associated maintenance service centers) to BBA Aviation for $128.5 million. Hawker Beechcraft had earlier announced plans to sell the FBO network to focus on building its core service center operations, which were a better fit with the Hawker Beechcraft manufacturing business. The transaction should close next month and will bring BBA’s total roster of FBOs to 115 facilities, easily the largest FBO holdings of any company.

Signature did sell one FBO last year, its facility in Oxnard, Calif., to Harold Lee, at the time the owner of two Million Air FBOs. Lee, however, sold his Van Nuys, Calif. Million Air to Maguire Aviation, so he still owns two facilities.

Atlantic Aviation
With 68 FBOs in its chain now, Atlantic Aviation almost doubled in size last year. Backed by its owner, publicly traded Macquarie Infrastructure, Atlantic bought the 24-FBO Mercury Air Centers chain last year and added FBOs at Santa Monica and San Jose, Calif., and Stewart International Airport in New Windsor, N.Y. In early March, Atlantic Aviation added three more FBOs purchased from SevenBar Enterprises.

Atlantic’s strategy, according to CEO Lou Pepper, is to have an FBO at a large number of destinations so customers can find a familiar brand and level of service wherever they go. Atlantic isn’t just trying to be the biggest chain, he added: “Our number-one concern is that we have to be better, not just bigger.”

Ross Aviation
Jeffrey Ross, president and CEO of Ross Aviation, believes that now is a good time to be an FBO seller, and that’s not just because he is constantly on the lookout for opportunities to buy more FBOs. In early February, Ross Aviation purchased a majority share of Miami Executive Aviation at Opa Locka Airport in Miami. Ross Aviation owns jetCenter-branded FBOs and other facilities that retain their original brand.

At Miami Executive, as at the other FBOs that Ross purchases, the existing management stays in place, so Fabio Alexander and his team will continue running the FBO. “We think that Fabio will do a great job,” Ross said, “and we’re glad to have him.”

Ross’s reason for buying into the Miami FBO market is rapid growth in that area and Opa Locka’s proximity to downtown Miami, only seven miles away. “We think it’s a great market,” he said.

Right now it’s a seller’s market in the FBO business, according to Ross, due to continued strong buying enthusiasm and low capital gains taxes. “I recommend that everyone who wants to sell should sell,” he said.

Ross saw some possibilities with the Landmark FBOs that were for sale before Encore FBO bought the chain, but he would have been interested only in Landmark’s larger FBOs at major metropolitan airports. The many smaller Landmark facilities, like most of the Rhode Island FBOs, likely have a hard time making money, he suggested. “We’re trying to buy profitable FBOs.”

Nevertheless, Ross is impressed with what the Encore leaders have accomplished and believes they’ll be successful with their purchase of Landmark Aviation’s FBO and charter businesses. “The Trajen guys made out handsomely by buying lots of FBOs previously,” he said, including smaller secondary-market facilities. “At the end of the day, they were rewarded for doing so.”

While there are many buyers seeking FBO properties and not that many desirable FBOs on the market, the recent economic tremors are causing a slowdown in acquisitions, according to Ross. “There is ongoing consolidation but the question is, how small of an FBO will be qualified for that consolidation program?”

SevenBar Enterprises
Just before this issue went to press, SevenBar Enterprises sold its three FBOs in Albuquerque and Farmington, N.M., and Hailey, Idaho, to Atlantic Aviation. Interviewed before the transaction took place, Bill Koch, president and COO of SevenBar Enterprises, which also owns a charter company, said, “We had a good year just behind us and a good year under way. We’re pleased with the way the market is going.”

Koch isn’t talking only about the record number of business jet deliveries last year or the huge backlogs extending far into the future but something closer to home. “I’m pleased to see the continuing diversification in growth of business aviation users,” he said. “Every day–and I fly commercial way too often–I see more and more people have reached the point of being fed up with commercial aviation.” And now business travelers have many more diverse opportunities, both in cost and available equipment, besides the airlines, and consumers are rapidly exploring all these alternatives, he explained. Fractional shares and jet cards are growing faster than traditional business aviation traffic, and SevenBar has seen continued growth in jet fuel volumes at its three facilities despite rising prices.

“Across the board, it seems that the market is solid,” Koch said. “I’m worried about the overall economy, but I’m pretty confident that the justifiable business need for business aircraft is solid.”

One of the drivers of growth is that more companies are moving away from large metropolitan areas. Instead of eliminating the need for offices, the Internet has helped companies move to lower-cost communities, and aircraft ownership enables necessary travel, Koch said. This is opening new opportunities for FBOs to develop in the so-called secondary markets. “The really interesting trend,” he said, “is going to be the VLJ market and seeing if VLJs as a class will now create new FBO markets and awaken airports that have never before seen jet activity but have the capacity to accommodate VLJs. There are a number of airports in small- to medium-size markets or even on the edge of some major markets that will become VLJ homes and access points.”

The FBOs in these markets, however, need to prepare for these opportunities. “If all they’ve seen is avgas,” Koch said, “they need to get prepared for a market that is sophisticated and needs special attention. These VLJ owners are going to arrive and expect nice facilities, onsite rental cars, the things you see in major markets.”

Those secondary-market FBOs will become increasingly attractive to FBO chains, Koch said, foreshadowing Atlantic Aviation’s purchase of the SevenBar FBOs. “The last ten years have seen tremendous amounts of consolidation,” he said, “and yet outsiders still look at this market and believe it to be fractionalized. Private equity [firms] look at the fact that there’s still opportunities for more consolidation. They say this is a growth industry and they see thousands of FBOs to be consolidated.”

Ray Meyer, Jr. is a staunch proponent of developing secondary-market FBOs, but he is concerned that airports such as Madison County Executive in Huntsville, Ala., where his Executive Flight Center is the sole FBO, are underused. “It’s difficult to get the word out,” he said, “when [a traveler’s] habit is to go to the big international airport.” Meyer’s FBO competes with Huntsville International Airport’s only FBO, a Signature Flight Support facility.

One factor that may influence pilots’ choosing an airport is that Madison County, although it has a new ILS approach to its 5,000-foot runway, doesn’t have a control tower. Nevertheless, Meyer and his wife, Donna, both pilots, have been able to build the business from 300 gallons a month of jet-A four years ago when they opened the FBO to about 17,000 gallons per month.

Meyer attributes Executive Flight Center’s growth to reasonably priced jet fuel–$4.75 per gallon at the end of February– available hangar space and, a key factor for secondary-market FBOs, excellent ground transport in the form of onsite rental cars. “Any small FBO needs to learn right off the bat that ground transportation is paramount,” Meyer said. At first, it was hard to convince Enterprise Rent-A-Car to provide cars that would stay at the FBO, but customers didn’t want to have to wait for Enterprise to deliver a car. As traffic grew, however, Enterprise started leaving cars at Executive Flight Center, which customers appreciated.

Meyer is working on building traffic from the current 80 to 90 operations a day to the 150 necessary to justify adding a control tower. The FBO is doing well, he said, “there’s been no red ink in the last two years.”

Enterprising FBO
Loyd Turner, president of Enterprise Jet Center at Houston Hobby Airport, said that he gets calls every week from firms that want to buy the FBO. “It’s like a feeding frenzy,” he said. Enterprise is a huge facility, with a 10,000-sq-ft canopy fronting the two-story FBO terminal and an 85,000-sq-ft clear-span hangar. The new FBO opened in June 2006, although Enterprise has been operating at Hobby Airport since 1979 under various owners. Since the opening, Turner and team have raised the FBO’s annual revenues to $15 million from $3 million.

Enterprise’s hangar space is full and the FBO has land on either side on which it could build two new hangars, one 47,500 sq ft and the other 26,000 sq ft. “There’s not enough hangar space on Hobby,” Turner said, “and we’ve got a waiting list.” The airport is cooperative, he added, and offers excellent lease terms so that building new hangars is worthwhile.

The FBO’s designer selected attractive cherry wood accents to furnish the atrium-style lobby, and all the wood came from one tree, according to Turner. A feature unique to Enterprise is the many areas where pilots and visitors can relax; instead of just one pilots’ lounge, there are many spaces where people can get away from each other after spending hours together in a cockpit. Enterprise also spent a lot on lavatory facilities, because Turner knows that this is one of the first places visitors see.

Build It and…
Buying and selling FBOs is almost all anyone in the FBO business can talk about these days, but Ron Henriksen chose to build an entirely new airport and his own FBO. The result is the new Houston Executive Airport, just west of Katy, Texas, and not far from the “energy corridor,” where the offices of many major U.S. oil companies are located.

Henriksen was a corporate pilot for 14 years and made his fortune in the telecommunications business. According to his bio, he was sad to see the old Andrau Airpark near Houston closed and sold to land developers in 1998. “I decided that if I was ever in a position to do so, I would build an airport and put it in some kind of a trust, so it could never be closed after I am gone.”

Henriksen bought a small airport (formerly 78T) and built a new 5,050-foot runway with taxiways, six acres of ramp space, a fuel farm and a growing group of T-hangars. The first big storage hangar, a 26,000-sq-ft arched-roof design that looks like a modern Quonset-style building, is finished and partially occupied. The first executive T-hangars are already full, and plans are under way to build more hangars and an FBO terminal to replace the existing temporary facilities.

Because the airport is not funded by any taxpayer money, Henriksen can build what he needs to without a lot of government interference. The runway, for example, is long enough for most jets, but on a hot, humid Houston day, more runway is always better. So Henriksen is expanding the runway to 6,610 feet for now, then later will extend it to the final length of 7,604 feet. Long-range plans call for a parallel runway.

“Right now it’s kind of a blank canvas,” said FBO general manager Scott Andre, “which is what it is.” But traffic is growing, perhaps because Henriksen Center charges more than a dollar less per gallon of jet fuel than FBOs at Hobby Airport, and the west side of Houston and Katy are expanding toward Houston Executive Airport.

Survey Methodology

The annual AIN FBO survey is now in its second year with an online-only ballot form, and AIN has conducted the Survey of American FBOs 21 times thus far, soliciting readers’ opinions about FBOs that they visited during the previous year. For the 2008 FBO Survey, AIN sent a postcard inviting 14,781 subscribers to complete the online survey form and e-mailed invitations to 11,151 subscribers. As always, for statistical purposes at least 40 ratings are required for a U.S. FBO to be listed in the final results, or 25 for non-U.S. FBOs.

The AIN FBO Survey asks readers to rate FBOs that they frequent in four key categories: line service, passenger amenities; pilot amenities and services; and facilities. For each of the four categories, the survey participant can assign a number from one to 10, one being worst and 10 the highest rating.

To arrive at the averages for the categories, each FBO’s ratings for each of the four categories are added, and the resulting sum is divided by the number of responses received for that FBO. The overall average for that FBO is computed by adding the FBO’s four category scores and dividing that sum by the total number of responses received in all four categories.

AIN received 1,963 properly completed survey returns, for a return rate of 13.3 percent, down from last year’s 22.6 percent and 2,634 completed surveys. According to Forecast International, which designed and administered the survey in collaboration with AIN, “This response is still a quite valid basis for determining subscriber opinion.”

Readers provided a total of 33,725 evaluations for facilities worldwide and added 185 via write-in opinions. A total of 2,074 respondents responded to the survey (some did not complete the survey) and rated an average of 16 FBOs each, one more than during the 2007 survey.

This year, AIN expanded the number of FBOs on the ballot to a total of 1,420 facilities and service providers, up from 1,404 last year. Each year, AIN will add FBOs and facilities that are seeing increased traffic from AIN readers, based on previous years’ write-ins. More rest-of-world facilities will be added every year because more AIN readers are traveling internationally.

The results of the 2008 survey show some interesting moves up and down the list of the Americas’ 40 top-rated FBOs. Wilson Air Center’s Memphis, Tenn. base remains at the top of the list, and the FBO’s rating even climbed above the 9.00 mark, to 9.03. The facility is the only Americas FBO to garner a rating above 9.00.

Pentastar Aviation/Million Air Pontiac moved into second place from last year’s third-place position, displacing perennial favorite AirFlite, which slid to third place.
Making its first appearance in the top-40 list and the listing results, too, is Falcon Trust Air of Kendall-Tamiami Executive Airport, making a strong showing at fourth place with a rating of 8.79, hot on the heels of AirFlite’s 8.81. Fort Worth’s Texas Jet is also new to the list, with a respectable showing of 13th place.

The City of Sugar Land (Texas) took the fifth spot in the top-40 list, up from eighth last year and proving once again that a government-run FBO can wow its patrons. No other government-owned and -run FBO made it on this year’s list and Sugar Land was also the only government-owned FBO on last year’s Top 40 list.

Two Dallas Love Field FBOs–Business Jet Center and Million Air–consistently appear on the top-40 list, and this time both moved higher on the list. Business Jet Center was seventh last year and number six this year, while Million Air moved to number seven from last year’s 11th position. While Regal Aviation appeared on last year’s Top 40 list, it wasn’t rated this year because it did not receive enough ballots. (Incidentally the FBO’s name changed to JetDirect Aircraft Services.)

Banyan Air (Fort Lauderdale) and Premier Jet (Carlsbad, Calif.) tied for seventh position on this year’s top-40 list. Both FBOs built elaborate and attractive new facilities recently and are likely enjoying the results of those efforts.

Well represented on the Top 40 list are non-U.S. FBOs in the Americas,
including UVavemex and Manny Aviation in Toluca, Mexico; and Canadian FBOs Irving Aviation, Gander and Goose Bay, and Skyservice Avitat, Toronto.

'FBO Survey 2008' PDF

'FBO Survey 2008' Insert PDF