Creating an SMS Environment a Plus for FBOs

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group (ABSG)

Whether or not your FBO is planning on attaining an IS-BAH registration, creating an internal culture that embraces a Safety Management System (SMS) is highly recommended to help protect and enhance the value of your enterprise.

Because of heightened awareness by aircraft owners and operators to maintain a safe and secure environment both at home base and when traveling, more and more FBOs have increased their safety training. They find that SMS-integrated protocols set the tone for the internal culture while providing the desired structure, reporting systems and resolution procedures.

Not only does an effective SMS program help manage and mitigate risk, it can also improve your bottom line by lowering the rate of costly incidents involving aircraft on the ramp as well as nagging hangar rash problems.  In addition, an active SMS program helps build your insurance story which can lower your insurance premiums. As we teach in our NATA FBO Success Seminar, that's free money.

Over the past several years, various aviation sectors have come to embrace SMS including commercial airlines. The FAA has mandated that U.S. commercial airlines have SMS in place by 2018. In addition, many FAR Part 135 charter operations have also made SMS part of their operational environment.

So what's next for the aviation industry? In the not too distant future, you'll see airport authorities embracing SMS, especially at locations where commercial airlines operate. The FAA has already published a Supplemental Notice of Proposed Rulemaking (SNPRM)  for SMS in the airport area. 

For FBOs, this could be the writing on the wall, especially if you operate a facility at an airport where there is commercial traffic and even more so if you have airline fueling contracts and/or offer U.S Customs services as a Port of Entry. The airlines, and to a degree the airport authorities, will no doubt develop vetting procedures for vendors and suppliers of aviation services.

Creating SMS for any size FBO is not a formidable task and owners/operators should not be intimidated by the process. However, if you are going to get on the SMS bandwagon, make sure you do it in such a way so as to conform with IS-BAH standards in case you want to obtain an IS-BAH registration down the road. We work with many FBO clients who want us to help them frame their SMS to be IS-BAH compliant. Please refer to our previous blog where we talk about whether or not IS-BAH is right for your FBO.

One of the main things to remember when creating an SMS is to establish an internal culture where safety is a priority and anonymous hazard and incident reporting by employees is encouraged without retribution. In this way, the safety culture flourishes. 

Please leave a comment on this subject below. If you have any questions, please give us a call or send us an email: jenticknap@bellsouth.com, 404-867-5518; ronjacksongroup@gmail.com, 972-979-6566.

ABOUT THE BLOGGERS:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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© 2016 ABSG

Is IS-BAH Right for Your FBO Operation?

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

We often receive inquiries from FBOs and business aircraft handlers wondering whether IS-BAH (International Standards for Business Aircraft Handling) is right for them.

To answer this question properly, we have to take a look at each FBO and service provider individually to determine the merit an IS-BAH registration brings to the enterprise.

At face value, an IS-BAH registration has importance for many FBOs seeking to demonstrate to customers a commitment to a high level of international safety standards. Of course, safety is both a practical and necessary core value for a successful FBO operation. The IS-BAH registration process is a qualitative measure through which to demonstrate this commitment.

The benefits of an IS-BAH registration can include:

• Enhancing the image of the company by demonstrating to current and potential customers that it operates and conforms internationally to a very high standard of safety.
• Creation of an internal culture that has a heightened awareness for achieving greater operational and safety levels throughout the enterprise.
• Potential discerning customers will look for the IS-BAH registration designation as a way to differentiate one service provider from another.

Promotional information for the IS-BAH registration process states that:

IS-BAH was established as a way to identify and promote the use of industry best practices by means of a progressive Safety Management System (SMS) for both Fixed Base Operations and Business Aircraft Handling Agencies (BAHA). IS-BAH follows the structure of the International Standard for Business Aircraft Operations (IS-BAO) Program and incorporates the NATA Safety 1st Ground Audit Program. The standard is based on the International Civil Aviation Organization (ICAO) standards as well as recommended practices in the preparation of handling business aircraft.

Although conforming to IS-BAH established standards is voluntary at this time, recognition for implementing and conforming to the standards can be confirmed through an auditing process which results in an International Business Aviation Council certificate of registration.

Central to the IS-BAH registration is the SMS that most charter operators have adopted over the past several years. Some of the FBOs that have already established IS-BAH registration have operated a charter department and have an SMS in place. Many of the FBOs seeking IS-BAH registration will probably not have an SMS in place, so they must develop one.

When we do an evaluation for a client seeking a potential IS-BAH registration, we look for whether or not the FBO or business aircraft handling company has truly invested in creating an internal culture that is safety oriented. We also want to see whether the organization has in place any of the required manuals and procedures that are described in the following evaluation checklist. If not, we can assist in writing and developing company-specific manuals along with training and implementing these plans.

The following is an abbreviated version of our IS-BAH registration checklist:

SMS Processes in Place and Being Utilized

Having a written SMS document is one thing. Utilizing it and making it part of your safety culture is quite another. As mentioned, the SMS is central to the IS-BAH registration process. In order to attain an IS-BAH registration designation, there has to be demonstrable proof that the SMS is being utilized and that safety issues are being reported and acted upon.

Employee Safety Training Program and Record Keeping in Place

Safety training programs, such as NATA's Safety 1st, help create a standardized teaching tool to ensure consistent levels of training. When IS-BAH auditors are engaged, they want to see that safety training records are kept on each individual employee involved in the aircraft handling process. They also want to see a history that the records are kept current and updated as needed. Therefore, a commitment to implementing and honoring these types of training programs needs to be demonstrated.

Designated Person of Accountability, Safety Manager and Training Manager in Place

Part of the evaluation is determining whether the FBO or ground handling company has the proper staffing in order to ensure there is a commitment to both safety training and safety accountability. Usually, the owner/operator or FBO manager is the designated person of accountability. As President Harry S. Truman said, the buck stops here.

Standard Operating Procedures (SOP) Manual in Place and Functioning

Adhering to current industry standards of effective best practices and detailing these practices in an SOP manual that is taught and utilized within the FBO enterprise are major parts of the IS-BAH audit review.

Emergency Response Plan (ERP) Detailed and Simulated

An ERP is a valuable resource that should be kept in a convenient and accessible location. It details emergency procedures and should include records of simulated emergencies that are being conducted and managed. An ERP is written to include protocols for interacting with specific emergency agencies on a local, regional and national level.

Environmental Management System (EMS)

FBOs need to develop an EMS plan that incorporates their environmental responsibilities for dealing with hazardous materials and environmental issues including, but not limited to, sump fuel, batteries, waste oil, international garbage and aircraft noise abatement. As part of an EMS, FBOs must also include management of their SPCC (Spill Prevention, Control and Countermeasure) plan and coordinate with the airport staff on the proper procedures for the SWPPP (Storm Water Pollution Prevention Plan).

For the FBO that is not currently utilizing an SMS or is missing one or more of the items on the checklist, the IS-BAH registration process will take a little longer.

So is IS-BAH right for your operation? Hopefully we've provided enough information that you can get a sense of what you want to achieve. We encourage FBOs and ground handlers to consult with an IS-BAH specialist and, as required, attend the Fundamentals of IS-BAH Workshop. Also, you can give us a call or send us an email with any questions you have (404-867-5518; email: jenticknap@bellsouth.com).

ABOUT THE BLOGGERS:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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© 2016 ABSG

FBO Connection at 2016 NATA Aviation Business Conference

FBO Connection blogger and Aviation Business Strategies Group principal John Enticknap presented at the NATA Aviation Business Conference held in Washington, D.C., in early June.

He contributed to the "Industry Consolidation: What's Next?" panel (shown above; John is on the far right). The next day, he led a session called "Separating Your FBO from the Crowd: Maximizing Customer Service." Read more about customer service and FBO industry consolidation.

Dissecting The Fourth Element of the Six Intangibles that Build FBO Equity

Part One: Building a Sound Balance Sheet with Consistent EBITDA Performance

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our continuing series expounding on the six intangibles that can build equity in your FBO, we break down the fourth intangible: Building a Sound Balance Sheet with Consistent EBITDA (Earnings Before, Interest, Taxes, Depreciation and Amortization) Performance.

The value of putting together a sound balance sheet consistently over several years has a lot of weight with the banking community, which is your primary ally when it's time to finance capital improvements to your facility. A strong balance sheet can also be viewed favorably by the airport authority when it's time to renew a lease or extend a lease for multiple years.

Adding in the dimension of demonstrating a consistent EBITDA performance is a plus when an FBO ownership is looking to sell the enterprise. Often, investors and buyers look to EBITDA performance in order to determine the value of an FBO, or for that matter any business. The resulting evaluation, and thus the offer, is usually based on a multiple of the EBITDA number.

The benefits of producing a sound balance sheet include:

• Provides a business snapshot of your FBO at a specific time.
• Easily calculates financial ratios to determine the company's fiscal outlook and profitability.
• Determines credit worthiness for investors and banks in order to obtain loans and funding.
• Show financial transparency into the company's assests and liabilities.
• Discloses the solvency of the FBO business to minimize investment risks.

In future blogs, we'll share some tips on how you can use your balance sheet to understand your current ratio, cash–to-debt ratio and debt-to-equity ratio. These numbers allow you to fully understand your FBO's financial position and how to measure liquidity. In addition we will discuss how to achieve consistent EBITDA performance.

There are many factors and nuances to developing a sound balance sheet that we will not be able to cover in this blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing this important topic as well as others.

Please Share your comments in the space below.

ABOUT THE BLOGGERS:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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© 2016 ABSG

Pazos FBO Services: Putting the Customer First in San Juan, Puerto Rico

Part Two: Customer Service, the Universal Language Spoken Everywhere

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Employees of Pazos FBO Services refuel an aircraft on their ramp at Luis Munoz Marin International Airport, San Juan, Puerto Rico.In a previous blog post, we talked about delivering our customer service training program to the good folks at Euro Jet in Prague and how great customer service in the FBO business is truly a universal language spoken everywhere.

Last week we had the privilege of conducting another international training seminar of our Don't Forget the Cheese!™ customer service training program for Pazos FBO Services located at the Luis Munoz Marin International Airport, San Juan, Puerto Rico. And once again we were blown away by the friendly reception we received and the way this FBO goes about its business of delivering a great customer service experience.

Although Pazos is currently operating out of a very limited space, this does not stop the hardworking and dedicated employees from greeting every aircraft and its passengers and crew with the same zeal and enthusiasm that is embodied in their call-to-action statement: Powered by a Passion for Excellence!

Without exception, they were already practicing one of the basic customer service tenets of putting the customer first.

Under the leadership of FBO president José Maldonado and manager Zuleika Caballero, Pazos is making great strides to go to the next level. As a World Fuel Air Elite fuel provider, the FBO has a new expansive fuel farm in place and a fleet of refuelers including two 10,000 gallon trucks.

At the heart of the expansion program is a new 12,000 sq. ft. FBO terminal facility, which is currently under construction and scheduled to open in August. A strategic and integral part of the new terminal will be a ramp side U.S. Customs and Border Protection services facility. This feature will help make Pazos an important turnkey port-of-entry facility for international flights with a U.S. destination.

Customer Service Tip

As part of our customer service training, we introduced Pazos to the art of turning a disgruntled transaction into a tranquil transformation. It all starts by being tactful and choosing your response carefully.

Adding some cheese to the equation means you think tactfully about your response and look and act in a responsible way. In a sense, you become re-sponse-able. That is, your facial expressions display openness and show you are ready to listen.

If you are being confronted by a customer who is disgruntled, show your concern by listening with empathy. Nod your head up and down to show you understand the complaint or the grievance or the criticism. By doing so, you are not showing you agree with the complaint but rather that you are genuinely concerned.

By listening, apologizing, problem solving and acting quickly on a solution, you can transform a dissatisfied customer transaction into a profitable long-term client relationship.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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© 2016 ABSG

Rules and Regulations Section of a Lease Provides Protection

Part Four of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we wrote about developing a tie-down agreement as the third post for our series about crafting advantageous hangar, office and tie-down agreements, which together are the third component of the six intangibles that can build equity in your FBO.

In this final post for the series, we discuss the rules and regulations section of crafting these types of agreements.

The rules and regulations section should not be taken lightly as it provides the language that spells out the expected performance of both the leasee and lessor. Therefore, it can be viewed as protection should one of the parties in an agreement default in some way.

Here are few tips to keep in mind when writing and adopting a rules and regulations section as part of a hangar, office and/or tie-down agreement:

• It’s important to stipulate in all agreements that aircraft, either in a hangar or a tie-down area, must be in airworthy condition. This includes keeping tires inflated and keeping the aircraft free from other obvious maintenance issues. Be sure to include language regarding aircraft maintenance. Do not allow maintenance on the aircraft unless you authorize the specific maintenance to be performed in writing.
• Your tenant should have aviation liability insurance coverage. We recommend at least $1 million in coverage. Your agreement should also include a good indemnification clause for your protection.
• If your tenants expect to drive their vehicles onto the ramp, they should have to comply with the airport’s safety and security requirements as well as your FBO training and insurance policy standards. Aircraft towing movements should be restricted to trained FBO personnel only.
• Tenants are subject to the terms and conditions of your FBO master lease. Therefore, when you draft an agreement, include language that covers this requirement. Specify that any fueling of aircraft is restricted to being performed solely by your FBO. Also, hangar and office tenants should be apprised of any regulations concerning controlled access points for guests or other visitors.
• Spell out what specific services tenants will receive. Office tenants should not expect the FBO to provide free office services such as copy, fax, phone answering, etc. This section should also have specific language regarding normal operating hours and restrictions for setting up on-site living accommodations. Hangar and office tenants should also be made aware in writing of any restrictions regarding pets/animals on the premise.

There are many factors and nuances to developing a rules and regulations section of a lease that we will not be able to cover in the blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing these important topics as well as others, in addition have your legal counsel review your agreements.

Please Share your comments in the space below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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© 2016 ABSG

The Best Ground Might Be Your Tie-Down

Part Three of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we wrote about developing a favorable office lease agreement as the second post for our series about crafting advantageous hangar, office and tie-down agreements, which together are the third component of the six intangibles that can build equity in your FBO.

In this post, we discuss creating a tie-down agreement that can turn often overlooked space into some the best ground at your FBO location.

Your aircraft tie-down ramp should be viewed as a viable leasing area that has the capability of creating a consistent revenue stream, whether it’s a month-to-month lease with base tenants or an RON situation with a transient customer.

Here are a few tips to keep in mind when developing a tie-down agreement:

• Don’t give it away. Put a true value on the tie-down space and stick to it.
• Just like hangar queens, be wary of aircraft owners who fly their aircraft infrequently. We’ve seen tie-down areas at some FBOs that are full of aircraft with flat tires and parts missing. Chances are these customers are not paying their tie-down fees on a regular basis and not buying fuel.
• Keep the tie-down areas up to snuff. Attracting and keeping tie-down tenants requires a ramp that is attractive and well kept. That also means replacing the tie-down ropes on a regular basis.
• It’s important to keep in mind that, like hangar agreements, FBOs should not devalue the true worth of tie-down space based on promised potential fuel sales. Work with the tenant to determine monthly fuel sales potential, spell out specific fuel sales goals in the lease, and revisit these amounts frequently. Include language that escalates tie-down rates if consistent fuel sales goals are not met.  
• All aircraft that tie down on your ramp should have an agreement. This protects you and the tenant in case of insurance claims by establishing the terms of the tie-down agreement.
• As part of your agreement, make sure you establish the rules, such as prohibition of derelict aircraft, flat tires and aircraft maintenance conducted in the tie-down area.
• Tie-down agreements are usually simple contracts and for the short term. You can make them month-to-month and evergreen, meaning they renew automatically. Also, you can make provisions to terminate the agreement upon a 30-day notice. This gives you flexibility in running your business.

Tie-down lease agreements are a sublease just like hangar and office lease agreements, They must conform to the master lease agreement between your FBO and the airport authority. Signatories to tie-down subleases have a right to know the contents of your master lease because they must also comply with its contents. In addition, terms for rate increases in your subleases should be similar to the master lease, and the term of subleases cannot be longer than the master lease term.

There are many factors and nuances to crafting an advantageous office lease agreement that we will not be able to cover in the blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing these important topics as well as others.

Share your comments in the space below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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© 2016 ABSG

Why Office Space Is Premium Space at Your FBO

Part Two of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we wrote about developing a favorable hangar agreement as the lead post for our new series about crafting advantageous hangar, office and tie-down agreements, which together are the third component of the six intangibles that can build equity in your FBO.

In this post, we center in on crafting an advantageous office lease agreement.

As with a hangar lease agreement, an advantageous office lease agreement can help generate passive rental income for the FBO. Therefore, it should stand as a separate but complementary component if it is to be tied to a hangar lease package for a flight department.

In determining the value of an office space to be let, keep in mind that an office area is really premium space. It is often finished out and is heated, cooled and may be plumbed for hot and cold water as well as lavatory facilities.

An FBO has a couple of options to consider when leasing commercial office space. First, a triple net formula is often applied that takes into consideration the tenant or lessee agreeing to pay all real estate taxes, building insurance and maintenance in addition to any normal fees that are expected under the agreement  to include rent, utilities, etc. In such a lease, the tenant may be responsible for a portion or all costs associated with the repair and maintenance of any common area.

The second option for a prospective tenant would be for the utilities, taxes, repair and maintenance to be included in the rental cost. This may be a simpler option for office space that is part of an office/hangar building. Multiple offices in a building may not have separate meters for electricity or water and may include multiple common areas such as lobbies, elevators, etc. The key issue for the FBO is knowing its costs of the facilities. They include the common areas and expenses for utilities debt service, lease costs, etc.

It’s important to keep in mind that like hangar agreements, FBOs should not devalue the true worth of office space in order to please a current or potential base tenant who wants a deep discount for the space based on promised potential fuel sales. It’s better to hold the tenant to measureable specific fuel sales goals that are spelled out in the agreement when considering any rent discounts.

As with hangar lease agreements, office lease agreements are a sublease and must conform to the master lease agreement your FBO has with the airport authority. Signatories to office subleases do have a right to know the contents of your master lease because they must also comply with its contents. In addition, terms for rate increases in your subleases should be similar to the master lease, and the term of subleases cannot be longer than the master lease term.

Please keep in mind that there are many factors and nuances to crafting an advantageous office lease agreement, and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing these important topics as well as others.

If you have a comment you'd like to share, please do so in the space provided below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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How FBOs Can Craft Advantageous Hangar Agreements

Your Hangar Sits on Golden Ground

Part One of the Four-Part Crafting Advantageous Hangar, Office and Tie-Down Agreements Series

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our previous blog, we concluded our four-part series on the 10 essential elements of a favorable fuel supplier agreement, which is the second component of the six intangibles that can build equity in your FBO.

In this blog post, we begin a new series about the third component, crafting advantageous hangar, office and tie-down agreements. Let’s start with the hangar agreement.

Hangars are among the most important real estate investments from which an FBO can generate true passive rental income. Therefore, the hangar footprint is golden ground to the FBO enterprise.

Too often, FBOs devalue the true worth of a hangar agreement. In the process of trying to please a current or potential base tenant, FBO owners and managers will provide a deep discount on hangar rent based on fuel sales potential. That’s why it’s important that the details of potential fuel sales be spelled out in the hangar agreement with specific language based on measurable fuel sales milestones.

Hangar lease agreements are a sublease and must conform to the master lease agreement your FBO has with the airport authority. Signatories to hangar subleases do have a right to know the contents of your master lease because they must also comply with its contents. In addition, terms for rate increases in your subleases should be similar to the master lease, and the term of subleases cannot be longer than the master lease term.

FBOs should have a more detailed agreement for the lease of an entire hangar complex to an individual or flight department, especially if the agreement is for a multiple-year term. Just as you have a written agreement with your airport authority, all prospective tenants should have written agreements for space within your FBO. In addition, FBOs should develop a rules and regulations document that spells out the dos and don’ts of tenants. Our final blog in this series will detail the rules and regulations section.

As part of your evaluation to determine rates and charges, it is imperative that FBOs determine the true cost of your real estate, including your hangars. Costs of the underlying land lease, construction or rent, maintenance, taxes, and utilities are all part the calculation. All these costs should be detailed and broken down on a per-square-foot basis.

FBO owners and managers should conduct a market study of comparable local and regional rental rates to determine the final rental cost to offer to the tenant. As mentioned, we recommend leasing your hangars for a profit and not subsidizing the lease cost based on potential future fuel sales. Instead, commit your lessee in writing to specific fuel uplift targets at an established price. Then detail an alternate pricing method that would go into effect if the targets are not met.

Please keep in mind that there are many factors and nuances to crafting an advantageous hangar lease, and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing these important topics as well as others.

If you have a comment you'd like to share, please do so in the space provided below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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Essential Fuel Supplier Agreement Elements: Contract Fuel Programs

Part 4 of 4: Detailing the 10 Essential Elements of a Favorable Fuel Supplier Agreement

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Publisher’s note: Our bloggers, John Enticknap and Ron Jackson will be discussing these topics and others affecting the FBO Industry at the next NATA FBO Success Seminar, March 8-9, New Orleans.

Previously, we talked about nine of the 10 essential elements of a favorable fuel supplier agreement: Term of agreement, pricing methodology,  transportation and delivery, terminal locations, credit terms taxes, quality control/training, marketing support and credit card processing. A favorable fuel supplier agreement is one of the six intangibles that can build equity in your FBO.

For this blog post, we’ll discuss the final element of the favorable fuel supplier agreement, contract fuel programs, and provide insight and tips to help you protect your business while adding intrinsic value.

Contract Fuel Programs

When it comes to developing the contract fuel programs section of your fuel supplier agreement, keep in mind you have the ability to define the program or programs that make the most sense for your FBO. Too often, FBOs accept without question what is written in the agreement.

Here are a few tips:

1. Do your homework. Know the amount of gallons you are pumping to contract customers. Are they based customers, all transient, fractionals such as NetJets or Flight Options, FAA Part 135 operators, or something else?
2. Contract fuel suppliers do not operate for free. Before you establish your pricing, ask the question: What additional fee(s) are being added on to your already established FBO fees for a final price to the end customer? Extra fees can be substantial.
3. Determine what margin you want to receive for all your labor and cost of delivery. That means you must figure out what it costs you to pump a gallon of fuel. Use a simple formula by adding up all of your line service costs and divide that number by your total fuel pumped.
4. Are you being paid according to the contract including being paid promptly and no fees for processing?
5. If you have based customers on a contract fuel program, it might be more profitable for you to negotiate your own discount rate and, in the end, make a better margin.
6. Maintain a before and after record of non-contract fuel sales versus contract fuel sales. Are you selling more gallons at a reduced margin? If so, how much? Sometimes it’s beneficial to sell less fuel at a greater margin by reducing or eliminating contract fueling altogether. In the end, you may make a greater profit.
7. Keep your contract fuel agreements short, no longer than one year. The market is ever changing and one year contracts, to some extent, force you to reevaluate your pricing structure.

Please keep in mind that there are many factors and nuances and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend our next NATA FBO Success Seminar, March 8-9 in New Orleans, where we spend additional time discussing these important topics as well as others.

If you have a comment you'd like to share, please do so in the space provided below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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Essential Fuel Supplier Agreement Elements: Quality Control/Training, Marketing Support and Credit Card Processing

Detailing the 10 Essential Elements of a Favorable Fuel Supplier Agreement, Part 3

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Publisher’s note: Our bloggers, John Enticknap and Ron Jackson will be discussing these topics and others affecting the FBO Industry at the next NATA FBO Success Seminar, March 8-9, New Orleans.

Previously, we talked about six of the 10 essential elements of a favorable fuel supplier agreement: Term of agreement, pricing methodology,  transportation and delivery, terminal locations, credit terms and taxes. A favorable fuel supplier agreement is one of the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three additional elements of the favorable fuel supplier agreement and provide insight and tips to help you protect your business while adding intrinsic value.

Quality Control and Training

Putting safety first is paramount in developing a good relationship with your fuel supplier. Often your fuel supplier will have resources to help you train your employees in all aspects of the fuel delivery process to help insure not only safety but the quality of the product as well. Your fuel supplier agreement should detail what type of training program they will provide. It may include their own program or supplement your own in-house safety and quality assurance program such as NATA Safety 1^st. Determine during your fuel contract negotiations what quality program your fuel supplier will provide. For example, will they come to your facility for training or just conduct an audit? Will they complete quality assurance seminars and at whose expense — yours or theirs?

Marketing Support

Many fuel suppliers offer support for marketing your facility and their brand of fuel. This support often comes  in the form of a co-op program that creates a marketing fund based on your fuel volume. Like many parts of your fuel agreement, the terms or percentage of fuel sales put into these funds by the fuel supplier is somewhat negotiable. We suggest you have a well thought-out marketing program in place to help your negotiations.

Credit card processing

If you want to have a real impact on your bottom line, watching your credit card processing fees is a very important factor. Here are a few tips to keep in mind when you come to this part of your fuel agreement:

1. These fees are negotiable.
2. Do your research on what your fees are prior to negotiating with your fuel supplier or local bank.
3. Train your CSR staff to ask for the no-fee card or card with the lowest fee.

Keep in mind that there are many factors and nuances, and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend our next NATA FBO Success Seminar, March 8-9 in New Orleans, where we spend additional time and discussion on these important topics as well as others.

If you have a comment you'd like to share, please do so in the space provided below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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Essential Fuel Supplier Agreement Elements: Terminal Locations, Credit Terms and Taxes

Detailing the 10 Essential Elements of a Favorable Fuel Supplier Agreement, Part 2

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Previously, we talked about three of the 10 essential elements of a favorable fuel supplier agreement: Term of agreement, pricing methodology, and transportation and delivery. A favorable fuel supplier agreement is one of the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three additional elements of the favorable fuel supplier agreement and provide insight and tips to help you protect your business while adding intrinsic value.

Terminal locations

The location of fuel terminals is essential to understanding the transportation cost element of every gallon of fuel you purchase from your supplier. When you talk to your fuel supplier you should establish both a primary and secondary fuel terminal for distribution of your Jet fuel. You need to make sure that the terminals have the storage capability for your product as well as locations within a reasonable distance of your FBO. Know the cost of transportation from each of the terminals as well as any surcharges and extra waiting expense. The cost per mile can be different for each common carrier; therefore, you need to manage this cost. Of course, your fuel supplier may want to assure themselves of good quality control by the carriers, but most all common carriers of aviation fuel are aware of quality control issues and utilize dedicated trucks and trailers. Avgas may come from a long distance due to the limited refinery capacity in the United States. Therefore, the cost of transportation for this fuel type may not be as negotiable as the cost for Jet-A.

Credit terms

Did you know the credit terms provided in your fuel agreement can be negotiated? Providing good financial statements is the primary key and can assist you in discussions with your fuel supplier. It is standard practice today to use electronic payment methods for fuel and reimbursements back to you of your credit card receipts. This system assures both the FBO and the fuel supplier of prompt payments in accordance with your negotiated credit terms.

Taxes: Federal, LUST, State, Local and Flowage Fees

There are five taxes you have to deal with in your fuel agreement: Federal, state, local, LUST and flowage fees. You can’t do much about the fees set by the federal, state and local governments. The flowage fee is a “tax” because it is imposed by your airport authority. An FBO can try to negotiate the flowage fee with the airport authority, but in many cases it is set by the local government and you just have to pass it along to your customer. There are two methods of payment for flowage fees. The first, and most common, is paid based upon the amount of fuel delivered into storage, and the second method is based upon the amount of fuel pumped into wing.

Keep in mind that there are many factors and nuances, and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend our next NATA FBO Success Seminar, March 8-9 in New Orleans, where we spend additional time and discussion on these important topics as well as others.

If you have a comment you'd like to share, please do so in the space provided below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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What FBOs Can Take Away from the NBAA S&D Conference

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

The transient business aircraft customer is still the lifeblood of FBO fuel sales. Attracting them to the FBO ramp is the primary reason the annual NBAA Schedulers & Dispatchers (S&D) Conference is heavily attended by FBO owners and operators.

At this year's event, held January 19-22 in Tampa, Fla., we witnessed both a record crowd and a record number of exhibitors. More than 2,800 attendees were kept busy with 29 scheduled educational sessions and 517 exhibitors consisting mostly of FBOs displaying under fuel company banners.

It's truly a symbiotic relationship. The schedulers and dispatchers benefit from numerous educational sessions and scholarships provided by various aviation services companies. The FBOs get to network and meet face to face with the S&D contingency to make a positive impression in order to attract their coveted turbine aircraft fleet.

Of note is the splendid job of the Schedulers and Dispatchers Committee, along with the NBAA, in putting together and running an excellent conference. Every year seems to get better. Hats off to their tireless chairperson for this year's S&D, Eve Gregory, flight services manager, C&S Aviation.

As we conversed with many of the exhibiting FBOs, we were able to get a feel for some of the top opportunities, issues and concerns facing the FBO industry. In order of ranking, with No. 1 being the liveliest topic, we believe the following statements represent the overall opinion of each topic:

Tankering of fuel and more efficient aircraft

• Although we will probably see a slight increase in uplifts this year, we are also seeing a few of the larger customers purchasing fuel at previous stops or tankering fuel from their home base through to their destination.
• We are a transient/resort destination. There is a lower percentage of aircraft taking fuel now than there used to be.

Aging GA owners

• General aviation is losing people that fly. This hurts our Avgas sales. A lot of the old timers are aging out, and there aren't as many younger pilots and owners taking their place due to high costs of airplane ownership.

Facility fees on rise

• There's going to be a bigger spotlight put on the cost of providing facility services that was previously paid via fuel sales. With FBOs dealing with contract fuel pricing and better fuel management by aircraft operators, we are going to have to charge ramp, parking and facility fees.

Contract fueling

• Now more than ever, an FBO seems to have to compete with low contract fuel prices. Also, courtesy fuel purchases are disappearing.

Better customer service

• An FBO that provides a better customer service experience, one that exceeds expectations of the client to some degree, will be fine in this coming year.

Lower fuel prices

• Lower fuel prices have contributed to higher fuel margins if we manage these margins wisely. However, the higher margins are countered by the increased salary that is necessary to keep skilled and experienced workers.
• With lower fuel prices, it proves that fuel is becoming more and more a commodity and no longer the stable source of operational revenue relied on by FBOs for many years.

In addition to attending the S&D Conference, we also released the results of our Annual FBO Fuel Sales Survey. Please click here to see the results.

If you would like to add a comment about the opportunities, issues and concerns facing the FBO industry, please do so at the end of this blog in the comment section.

In addition, we cover many of these topics in detail at our Annual NATA FBO Success Seminar scheduled for March 8-9 in New Orleans. We urge all FBO owners, operators, managers and supervisors to attend this seminar and participate in lively discussions on these topics and others.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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FBO Fuel Sales Survey: 54 Percent of FBOs Say Fuel Sales Increased in 2015

Fifty-four percent of U.S. FBOs say their fuel sales increased in 2015 compared to 2014, according to the 2016 Annual FBO Fuel Sales Survey results released by Aviation Business Strategies Group at the 2016 NBAA Schedulers & Dispatchers Conference in Tampa, Fla.

Of the 54 percent of FBOs surveyed that reported increased fuel sales in 2015, 23 percent reported a 1 to 4 percent increase, 15 percent reported a 5 to 8 percent increase, and 16 percent reported an 8 percent or greater increase, ABSG principals John Enticknap and Ron Jackson say. Enticknap and Jackson are the AC-U-KWIK FBO Connection bloggers.

The increase in fuel sales in 2015 builds on increases in the two previous years. For 2014, 49 percent of responding FBOs reported a year-over-year increase in fuel sales. Surveyed about 2013, 43 percent of FBOs reported greater fuel sales compared to 2012.

“This is the first time since we started the survey that more than 50 percent of the respondents experienced an increase in fuel sales over the previous year,” Enticknap says.

Although a majority of FBOs reported increased sales, 28 percent of FBOs responding to the survey experienced a decrease in fuel sales in 2015, Enticknap says. The other 18 percent of FBOs says fuel sales were flat.

“This is still a fractured marketplace that is showing some positive signs of recovery,” Enticknap says.

FBOs also provided a forecast for 2016. Most FBOs participating in the survey — 58 percent — say they expect an increase in fuel sales in 2016 compared to 2015, Jackson says. Although no respondents expect to increase fuel sales by more than 8 percent, 18 percent expect a 5 to 8 percent increase, and 40 percent expect a 1 to 4 percent increase.

“Looking ahead, more than 90 percent of surveyed respondents said they expect to have the same or increased fuel sales this year compared to their 2015 results,” Jackson says. “If this forecast holds up, 2016 could prove to be a watershed year for the industry.”

These expectations for 2016 are similar to expectations FBOs had for 2015. One year ago, the Annual FBO Fuel Sales Survey found that 61 percent of FBOs were predicting an increase in 2015 fuel sales. In all, 89 percent had been expecting flat or increased fuel sales in 2015.

When asked about their expectations for the economy in general, 41 percent of the responding FBOs said the economy is not heading in the right direction, and 27 percent have a positive outlook about the economy. The rest — 32 percent — were undecided.

Transients’ Tankering Taking Hold

Finally, Enticknap and Jackson asked about fuel purchases by transient customers in this year’s survey.

“Nearly half the respondents indicated that up to 40 percent of aircraft customers coming onto their ramp did not buy fuel,” Enticknap says. “With the current U.S. FBO business model relying on fuel sales to fund their operation, this is an alarming development.”

Enticknap attributes this phenomenon of aircraft stopping on an FBO’s ramp without a fuel purchase to two factors. More flight departments are choosing to tanker fuel to their destinations and back to their bases. And more jets are more fuel efficient.

To adjust to this trend, Enticknap offers the advice he and Jackson share with FBOs at the NATA FBO Success Seminar: FBOs can charge customers a ramp fee and a fee to use the facility, he says.

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Essential Fuel Supplier Agreement Elements: Term of Agreement, Pricing Methodology, and Transportation and Delivery

Detailing the 10 Essential Elements of a Favorable Fuel Supplier Agreement, Part 1

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our last blog post, we introduced our new series on the 10 essential elements of a favorable fuel supplier agreement which is one of the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three of the favorable fuel supplier agreement elements and provide insight and tips to help you protect your business while adding intrinsic value.

Before we detail each of these elements, it is important to understand that you should act in your own best interest by first going out for competitive bids to several fuel suppliers. This will give you a better understanding of the parameters set by each fuel supplier and which incentives are available that may help you in your negotiating process.

Term of agreement

In a nutshell, you should protect your enterprise from engaging in an agreement that is excessively long in order to maintain flexibility within an ever changing industry landscape. As you grow your business, and in particular your fuel volume, you can gain leverage by keeping the term of your fuel supplier agreement within a three- to five-year period. You may find that you can obtain a better fuel price by a longer-term agreement, but you may lose the desired flexibility that a shorter term provides.

Pricing methodology

Understanding fuel pricing methodology will increase your odds of negotiating a favorable agreement. If your FBO is pumping at least 300,000 to 400,000 gallons per year, you should be able to get a contract that has an index-based pricing formula. That way, you can negotiate the differential fee to be paid to your supplier. The differential is the profit margin that the supplier will be receiving on each fuel purchase by the FBO. Unbundle your pricing structure so you know each cost element. For example:

• Index price
• Differential
• Transportation
• Federal taxes
• State and local taxes
• Flowage fees at the airport

This pricing formula applies to Jet A purchases. Avgas pricing, on the other hand, is determined at the time of purchase.

Transportation and delivery

Don't overlook or downplay this element, for there are savings that you can negotiate. First, you need to know the primary terminal and secondary terminal where your Jet A fuel and Avgas will be picked up by the transportation company. Delivery should favor your FBO schedule, such as at night or during the slow periods during the day. This will optimize time for quality control to be completed efficiently.

Also, obtain proposals from multiple transportation firms. Although they must be approved by your supplier, this can benefit your effort to minimize costs. After all, you, as the FBO owner/operator, are the ultimate customer. You should also determine any extra charges, such as delays in delivery, extra charges for high cost of fuel or other fees. Although extra charges for high cost of fuel are not an issue in today’s market, they have been in the past.

As we work through each of these elements, please keep in mind that there are many factors and nuances that we will not be able to expound on in the framework of a blog. Therefore, we encourage you to attend one of our NATA FBO Success Seminars where we spend additional time and discussion on these important topics as well as others.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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10 Essential Elements of a Favorable Fuel Supplier Agreement

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our last blog post, we concluded our series on the 10 critical elements of an FBO airport lease that was first on our list outlining the six intangibles that can build equity in your FBO.

Next up is a discussion about another intangible that will help build equity in your FBO enterprise: A favorable fuel supplier agreement.

One of the most important agreements you can have with any vendor in the FBO business is the one you establish with your fuel supplier. When done properly, it can add real intrinsic value to your business and, quite frankly, make or break your bottom line.

Over the years, we've reviewed and helped write many fuel agreements and have coached FBOs on the intricacies of arriving at a favorable agreement.

As we teach in our NATA FBO Success Seminars, your initial approach and mindset to developing a favorable fuel supplier agreement is one of partnership. Working as partners with your fuel supplier will provide a win/win agreement where both parties want the other to succeed and are willing to work in concert to that important end.

With this in mind, here are the ten essential elements of a favorable fuel supplier agreement:

1. Term of Agreement.
2. Pricing Methodology.
3. Transportation & Delivery.
4. Terminal Locations.
5. Credit Terms.
6. Taxes: Federal, State, Local & Flowage Fees.
7. Quality Control & Training.
8. Marketing Support.
9. Credit Card Processing.
10. Contract Fuel Programs.

In coming blogs, we’ll discuss each of these and make recommendations on how to improve the equity in your FBO.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 4

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In previous blog posts we discussed nine of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

In this final post for this subject, we will discuss the last critical element, Airport Minimum Standards.  The Airport Minimum Standards document is basically what creates a level competitive playing field. It further helps protect the intrinsic value of your enterprise by spelling out the minimum requirements for an FBO or SASO (Specialized Airport Service Organization) operating at your airport and sets the standard of compliance for existing or potential competition.

In essence, it states that if a new operator wants to start an FBO at your airport then they must make the same investment in facilities, pay the same rentals and fees, provide similar services, and operate on the same level as your business.

Although an FBO Minimum Standards document is generally separate from your lease and resides as part of the rules and regulations of the airport, it is important to make sure it is called out in your lease. Many airports do not have minimum standards and this may cause a problem for the existing businesses.

Two important elements of an airport minimum standards document are its purpose and the issuance of a permit, lease or operating agreement.

Purpose

The purpose of minimum standards is to establish and make requirements for general aviation aeronautical activities.  They are established in the public interest for the safe and efficient operation of the airport in order to enhance orderly growth and comply with federal, state and local government legal requirements. It also provides information to parties operating or desiring to operate at the airport. These standards in general establish minimum levels of service that shall be offered in order to protect the public welfare and prohibit irresponsible, unsafe or inadequate services.

Permit, Lease or Operating Agreement

No person, including an aeronautical service operator, shall offer or perform a commercial aeronautical activity, operation or service at an airport without written authority for such service. Such authority will generally be contained in a Permit, Lease or Operating Agreement that has been negotiated between the FBO/SASO and the airport.

Keeping these elements in mind will assist you in maintaining your FBO business no matter what the competition may bring to the airport environment.  Make sure the minimum standards are up to date. Many documents we review for our clients are up to 20 years old.

In our next blog, we’ll start a new series based on the second intangible that can build equity in your FBO: A Favorable Fuel Supplier Agreement.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 3

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In previous blog posts we discussed six of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three additional key airport lease elements and provide insight and tips to help you protect your business while adding intrinsic value to your enterprise.

Improvements, New Buildings and Renovations

FBOs should view this section as a way to spell out and secure future equity in their enterprise. Making lease hold improvements, building new facilities and making timely and needed renovations are critical in negotiating a longer lease term and potentially additional optional years.

In this section, it is critical that you consider the best investment in facilities that gains two things:

• Longer lease term
• Return on your investment (ROI)

Having a business plan that details what your goals are will greatly assist you in getting the project financed and approved by your board of directors.

During your evaluation of expansion projects, it is important to keep in mind the goals of the airport authority. Airports like to see investments into the infrastructure of the airport environment, expansion of the business base and job creation. Make sure your project meets these goals and adds to the success of the airport master plan.

Insurance, Indemnity and Hold Harmless Agreement

Protecting your enterprise from unforeseen perils that can expose you to risk and harm is what this section is all about.

Insurance must meet the requirements of the lease. In many cases the lease insurance amount requirement may be too low, such as $2 million or $5 million in aviation liability coverage, auto liability and workmen’s compensation insurance. You should review these requirements with your insurance broker to make sure you are adequately insured and there are no clauses in the agreement that cannot be met. The airport will want to be a named insured on your policy. This is a standard requirement.

Both the Indemnity and Hold Harmless clauses are very important to the FBO. When there are problems at the airport that involve your business and the airport authority, these clauses may come into play. Unfortunately, in many cases the legal language in both of these paragraphs can be onerous to the FBO. The airport may want to be completely indemnified for any actions on its part and held harmless for any acts, gross negligence or misconduct.  Your legal counsel should review this language to make sure you can live with it. In many cases, since you are operating at a government owned facility, the FBO may have to accept less than ideal language.

Environmental Liability

In running the day-to-day FBO operations, owners and operators are constantly dealing with aviation fuels and other chemicals that can be environmentally hazardous. With this in mind, it is important to understand that if you are operating a tank farm system for fuel storage you are required to provide environmental insurance. If you are operating at an older airport and you are new to the facility or the ground, you may want to consider completing a Phase 1 environmental assessment  prior to use. This inspection could be a requirement of your insurance underwriters. Your legal counsel and insurance brokers should review the inspection and subsequent lease language prior to signing an agreement.

In our next blog, we’ll examine the remaining critical element of your lease, the Airport Minimum Standards section. We consider this one of the main six intangibles and will treat this as a separate subject because it is a very important component with distinct elements.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 2

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

Previously we discussed three of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

For this blog post, we'll break down three more of the airport lease elements and provide insight and tips to help you protect your business while adding intrinsic value to your enterprise.

Payments, Including Rental, Gross Revenue, Flowage Fees and out Years to Include Escalators

By paying attention to the exact wording of this very important element, you can protect yourself from any future disagreements or disputes. Payments may include investments in refurbishment of your terminal building and/or hangars to keep them up to date. Payments may include capital investments for a new hangar or building to exercise lease extensions. These rent payments and additional investments are all financial obligations that contribute to the success or potential failure of your FBO. Please note that each one of these elements is negotiable; therefore, do your homework by getting other comparable FBO leases in your area and region. If you have a competitor at your airport, ask to see its lease. Because it is considered a public record, you can obtain a copy under the Freedom of Information Act (FOIA). Remember, knowledge is the key to negotiating your best rates.

Building/Ramp Maintenance Responsibilities

Be sure to be very specific with the language for this element. Any ambiguity can lead to finger pointing, and the FBO can end up on the short end. If you are leasing buildings owned by the airport, most leases provide for the lessee (FBO) to pay for building upkeep, utilities and taxes. If you operate in the snow belt, it is incumbent on the FBO to understand whose responsibility it is for snow plowing ramps, approach taxiways or other areas.

Be very clear on taxes. In many cases you don’t have to pay property taxes on buildings owned by a city or municipality. In some states you may have to pay school taxes or other fees. Therefore, be clear on defining responsibilities.

Termination by the FBO or Lessor

In this section, it is wise to spell out unequivocally how the lease can be terminated by either party in cases of dispute, natural disaster, fires or other unforeseen events. What is most important is that the parties to the agreement have sufficient time to correct and negotiate any disputes or other occurrences. The “cure” clause should be at least 30 to 60 days to fix problems. This length of time is generally not used if the issues are late payment of rents or fees.

When there are issues, prompt resolution is the best way to solve problems. As Colin Powell once said “Bad news isn’t like wine. It never gets better with age.”

In our next blog, we’ll examine the final three critical elements of your lease with additional tips that can help you build equity in your FBO.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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NBAA from an FBO Perspective

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

The 2015 NBAA Business Aviation Convention & Exhibition is now in the books, so let's break down the show from an FBO perspective.

With more than 27,000 attendees and over 1100 exhibitors, the show was very lively, and most FBOs exhibiting said they were pleased by the amount of traffic and activity at their booth. In general, the atmosphere was upbeat with several OEM airframe manufacturers introducing new aircraft and reporting healthy orders to help fill their delivery slots going forward.

The one lament that FBOs seemed to repeat was that business jet operators continue to tanker fuel from their home base resulting in only courtesy fuel buys.

As in the past, many look with anticipation to hearing the results of Honeywell Aerospace's Annual Global Business Aviation Outlook, which is traditionally released at the annual NBAA show. Here's a look at some relevant predictions.

First of all, Honeywell states that “as a slow-growth economic environment takes hold across many global markets, the business aviation industry is not immune to its impact."

In past blogs, we've talked about the slow-growing economy and our Annual FBO Fuel Sales Survey backs up this statement. We are seeing some bright spots in select markets while fuel sales continue to grow at a slow pace.

As for new business jet deliveries going forward, Honeywell forecasts up to 9200 new business jet deliveries worth $270 billion over the next 10 years. This is actually a downgrade of 3 to 5 percent over the value noted in its 2014 forecast.

The reason we look at new business jet deliveries is that it's a leading indicator of the need by business jet operators either to replace or upgrade their existing aircraft or to expand their current uplift capability.

Another indicator we watch closely is the used jet market to see if inventories have risen or diminished. This gives us another barometer with which to measure and monitor the current health of the business jet industry.

Honeywell's findings indicate a used business jet market that has stabilized at 10 percent of the existing fleet up for resale, which is significantly down from the 16 percent high-water mark recorded in 2009.

According to Honeywell, operators responding to their survey increased their used jet acquisition plans by about 4 points, equating to 32 percent of their fleets in the next five years. For FBOs/MROs who specialize in avionics and cabin upgrades, this is good news.

Other key global findings in the 2015 Honeywell outlook include:    

• Operators surveyed plan to make new jet purchases equivalent to about 22 percent of their fleets over the next five years as replacements or additions to their current fleet.
• Of the total new business jet purchase plans, 19 percent are intended to occur by the end of 2016, while 17 and 20 percent are scheduled for 2017 and 2018, respectively.
• Operators continue to focus on larger-cabin aircraft classes, ranging from super mid-size through ultra-long-range and business liner, which are expected to account for more than 80 percent of all expenditures on new business jets in the near term.
• The longer-range forecast through 2025 projects a 3 percent average annual growth rate despite the relatively flat near-term outlook as new models and improved economic performance contribute to industry growth.

As we have written previously, the business jet market and the FBO industry is operating in what we are calling a new normal where the U.S. business economy is slowly growing. Increased tankering of jet A fuel by medium and large business jet operators is also part of the new normal. We have heard from Fortune 500 corporate aircraft operators that they tanker up to 70 percent of their fuel from their own corporate tank farm.

Therefore, it's important for FBO operators to provide excellent customer service in order to enhance and increase fuel sales at the point of transaction. FBOs should also look at ways to increase and diversify potential revenue streams in order to garner a greater share of the customer wallet. We will have more on this topic in future blog discussions.

If you attended NBAA, please give us your perspective in the comment section below.

About the bloggers:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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