FBOs Confront Competition From Airport-operated FBOs

Aviation International News » December 2011
Wilson Air is managing an FBO at Chattanooga on behalf of the airport authority.
Wilson Air is managing an FBO at Chattanooga on behalf of the airport authority. Competitor Tac Air asserts that the use of government funds to build the facility has created an unfair competitive environment.
December 5, 2011, 12:25 AM

Amid several recent cases of airports establishing FBOs to compete directly with existing service providers, the National Air Transportation Association (NATA) is concerned that this could become a growing paradigm. The association has been an interested participant in disputes between FBO owners and airports, usually driven by the airport’s use of public funds to construct or renovate facilities.

NATA does not want to see the airports competing against our members, because they are the landlord and they are also receiving local, state and federal funding,” said Eric Byer, NATA’s vice president of government and industry affairs. “When that private business is not playing on a level playing field, it’s a distinct disadvantage and we feel it is unfair.”

That level playing field is all the incumbent FBO operators claim to be seeking in two cases where they are challenging the airport authority’s opening of an FBO. In August, when the Chattanooga Metropolitan Airport Authority opened a second FBO at Lovell Field Airport, it said that the new facility would provide a challenge to the existing facility, which has been home to Tac Air for the past decade. “Our goal was to add competition into the marketplace because we believe that competition is the driving force behind lower prices,” said Christina Siebold, the airport authority’s director of marketing and communications. “Uncompetitive fuel pricing was a top complaint from airport users, and we have responded to their concerns.” The authority said it had made many unsuccessful attempts to deal with these complaints with Tac Air before it decided to establish the new FBO.

Tac Air disputes the authority’s belief that the airport’s traffic can support more than one FBO. “We tried to stress that to the airport when it first announced plans to build the FBO and issued the request for proposal [RFP],” said David Edwards, Tac Air’s marketing director. The FBO chain countered the airport’s claim of necessary competition by noting there was already competition from fuel dealers at other airports in the region. “When you compare Tac Air’s price at Chattanooga to, say, the FBOs in Memphis, Atlanta or Nashville, you’ll see that our prices historically have consistently been lower than any of those other markets,” Edwards told AIN

Local politicians hailed the opening of the new facility, with Chattanooga’s mayor quoted as saying he hopes the second FBO will lead Tac Air to do “new and inspiring things with the properties that it manages.” 

“That’s what they are saying,” Edwards told AIN, “but with the way this thing is structured financially it’s difficult to be inspired to compete with free money or taxpayer subsidies.” According to the Metropolitan Chattanooga Airport Authority, the funding to construct the new $5 million terminal and hangar–which is managed by Wilson Air as its fourth FBO–came from state aeronautical grants. Those grants are derived from aviation fuel taxes. “If you paid for aviation fuel in the state of Tennessee, you contributed to this development,” said Siebold, who noted that no federal funds were used in the construction of the new FBO buildings; airport improvement project (AIP) funds were used–as they were in the past with the previously existing Tac Air FBO–for construction of ramp space.

FBO Legal Challenges

In response to the new facility, Tac Air filed a Part 16 complaint with the FAA to examine the situation. Part 16 addresses the FAA’s “Rules of Practice for Federally Assisted Airport Enforcement Proceedings,” under which complaints and adjudicating compliance matters involving federally assisted airports are handled. The agency says it will not consider a complaint unless the plaintiff certifies that substantial and reasonable good-faith efforts to resolve the issue have been made and that there is no prospect for a timely resolution.

“The big factor here is the issue of capital investments,” said Edwards. “If the airport had issued an RFP for someone to come in and put up their own capital for the facilities, paying the lease on it monthly, the build-outs, buying their own fuel trucks and installing all of the communications and furnishings, we would have no complaint about that. If the [authority] is determined to have another FBO on the airport that the free market obviously could not produce, then that FBO should have to perform under the same financial conditions as Tac Air.”

The terms of the deal from the airport clearly spell out the relation between the airport authority and its new partners. “We own the facilities, and the team at Wilson Air manages the operation,” said Siebold. “The airport authority retains the revenue from the operation and pays Wilson Air a management fee and incentives.”

Bob Wilson, president of Wilson Air, sees little difference between this situation and ones involving his other FBO locations where nearby airports have used public funding to upgrade their facilities and possibly siphon traffic away from his FBOs. “That’s part of the business. I don’t know how you holler for that,” Wilson said. “If the airport wants to increase the level of service and the FBO doesn’t partner with them and figure out a way to make it happen, what other opportunities does an airport have?” At press time, the agency had not determined the validity of Tac Air’s complaint.

In another case, Vincent Wolanin, the founding CEO and chairman of PrivateSky Aviation Services–the sole FBO at Southwest Florida International Airport (RSW)–filed a U.S. District Court lawsuit against his landlord, the Lee County Port Authority (LCPA) in Florida, claiming the county agency used nearly $40 million in federal and state grants to renovate an airport-owned FBO at nearby Page Field to draw traffic away from his business. The FBO now known as Base Ops at Page Field (seven miles from RSW) re-opened over the summer and is the lone FBO on the airport.

The lawsuit alleges that the LCPA used government and special district status to obtain no-recourse loans, avoid return-on-investment costs and pay no taxes or fees. With little or no interest expense, no requirement to repay construction costs and no rent to pay, the airport-run FBO can price PrivateSky out of business, according to Wolanin. “We’ve seen that [LCPA] has openly marketed and advertised to GA users to go to Page and not go to the international airport,” said Byer. “Here you are with an incumbent FBO that’s been there for a long time in good standing; it’s now seeing the airport where it’s a tenant all of a sudden pushing GA traffic to another airport where it set up infrastructure. That’s a little disconcerting, to say the least.”

Wolanin believes his case could eventually become a benchmark for the future of both private and public non-governmental investment in aviation. In response to inquiries from AIN, a spokeswoman for the LCPA said that the agency does not comment publicly on an ongoing legal matter. The LCPA recently filed a motion to have the PrivateSky suit dismissed, in response to which the court requested more documentation from PrivateSky early last month.

In another example of FBO competition from the airport authority itself, the management of Corpus Christi International Airport is considering plans for the future of its two FBOs (currently operated by Signature Flight Support and Atlantic Aviation). The FBOs’ 30-year leases either recently expired or are due to expire next year, and city authorities presented a plan at a September meeting whereby one of the locations would be put out to bid in a traditional RFP, while the other would be owned directly by the airport and managed by a third party along the lines of the arrangement in Chattanooga, again with the rationale of providing competitive pricing.

Financial Motivation

Some clearly believe that the airports in question have ulterior motives fueling their strategies. “I certainly sympathize with everybody, including the airports,” Byer told AIN. “We are in tough financial times right now and everybody is scratching to find new revenue, but I think you are robbing Peter to pay Paul if you are just going out to try and shut down the FBOs.”

While airports might occasionally find themselves in a position to compete unfairly with their tenants, Byer doesn’t believe that many have nefarious intent at the beginning. “The bottom line here is dollars, and people get pushed into doing this kind of thing because they need to generate revenue to maintain a budget and meet with their boards,” he said. “We all have those pressures.”

Despite that understanding, he and the association remain vigilant about other cases where airport authorities might be taking advantage of concessions not available to the private sector. Cautions Byer: “The next thing you know, we start seeing a dozen FBOs at a time in a year getting squeezed out because an airport steps in and says ‘This is a great opportunity; we have tax revenue, we’re the landlords and [with our own FBO] we can generate a good chunk of change to support our budget at the airport.’” 

FILED UNDER: 
Share this...

Comments

No Avatar
Tommy Brand
on December 9, 2011 - 12:40pm

There would be far less complaints about prices at KCHA if the Airport Authority would eliminate the stupid landing fee. I avoid KCHA like the plague because of that. They are the only airport I know of in the SE that charges a landing fee. It has to be paid even if you purchase fuel. The FBO has to collect and it makes them look like the bad guy.

No Avatar
Dave
on December 9, 2011 - 5:52pm

Governments should not be competing with the private sector. Inevitably the taxpayer will be asked to fund the bureaucracy that is sure to follow. Also agree that it is unfair to existing FBO and he is right, it's an easy thing in most cases to fly to cheaper fuel.

No Avatar
Mike Dempsey
on December 27, 2011 - 12:11pm

There is an easy solution to this, and that is to allow TacAir to operate as always, but the City/County/State Government should haev no involvement in the management of the FBO.

The proper procedure wuld be to bid the service out to another vendor, and let another company open up to compete, not Government! This will lead to taxpayer money be used to subsidize the business, put TacAir out of the airport, again no competition and in the end, the services will be worse than they are now.

Don't believe me? Look at Bismarck ND. For years they offered a FBO service that had administration costs, secretary, etc. and then the line department, never made a profit and cost taxpayers money. FBO opened with a nice facility and did all the business. Guess what? City owned FBO CLOSED!

No Avatar
Rod Beck
on December 27, 2011 - 11:40pm

Ok - Lets "cut to the chase". Airports are massive amounts of real estate, and, by traditional real estate standards, aren't very "cost efective" - peroid! Many Airport Managers see just where the $money$ is, FUEL! They see annually, which is public information, the financial statements of all FBO's on their airport and suddenly, $$$$ signs goes off - "Why don't WE get into the FBO business - we just won't renew the FBO's lease -a quick fix solulution to closing the deficent gap". There concern is keeping AND justifing their jobs and answering to the Airport Board/Mayor/Commitee's. If this "pushing" out of private enterprize FBO's continues, and UNLESS airport real estate can be used and allocated for OTHER non-aeronautical uses, ie. commercial/retail development such as mini-malls and office complexes in lieu of Airport Authotities getting into the FBO business, the "corporate" FBO will be going the way of the Bald Eagle"!

Whats next -Federal Government to Buy Wal-Mart?

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X