The Conundrum of GA Airports

While the largest commercial service airports produce substantial operating surpluses and can finance their investment needs for capital expenses, this does not apply to all airports, especially general aviation airports. In fact, many smaller airports have an operating deficit and therefore generate no funds for capital projects. The FAA’s Airport Improvement Program (AIP) pays for at least 90% of capital investments (runways, taxiways, ramps, etc.) at GA airports, but they must rely on the local community’s tax revenues to cover operating deficits. The federal government supports GA airports because they connect smaller communities to the nation’s air transportation system. But the federal government does not fund operating expenses. School, public safety, roads, transportation, and social programs compete for these dollars at the local level. In times of economic uncertainty, local support for a GA airport wanes. Education, safety, etc. trumps attracting and maintaining an economic and employment base in the community.

Revenue at GA airports is generated by land and building leases, fuel flowage fees, and for a very few, landing fees. What can airports (and their local communities) do to improve the financial position of these smaller airports? Basically, the answer is the same as it is for any underperforming business:

• Increase revenues

• Decrease operating expenses

• Make investments revenue-generating and self-financing

Now, let’s briefly look at each of these three options and how they might be accomplished.

Increasing Revenues
Small airports generally rely on lease income from land leased to aircraft service businesses (FBOs, maintenance providers, charter companies, etc.), and fuel flowage fees collected from anyone delivering fuel on the airport as their principal sources of revenues. Strategies to attract companies that operate business jets and turboprop aircraft should be pursued. These aircraft consume a large amount of fuel compared to small piston powered aircraft. Business jets require hangar space whereas the majority of small aircraft can simply be tied down on the ramp. Maintenance, part sales, and other services for these turbine powered aircraft are substantially higher than for the piston fleet. Attracting these types of aircraft depends on the facilities at the airfield both in terms of safety and amenities. On the safety side, precision instrument approach capability as well as runway length and runway safety areas are required.

Commercial service airports charge a landing fee, but very few GA airports charge a landing fee. This should change. A small fee of $5 to $10 per landing could put most GA airports in the black.

Controlling Costs
Many GA airports have public employees staffing the airport. A full-time airport manager and other public employees at the airport perform administrative, maintenance (grass cutting, snow removal, etc.) and other functions. A lower cost alternative might be for the fixed based operator to assume these responsibilities on a contract basis. For example, fuelers and other FBO personnel could be trained in airport maintenance duties. The cost reduction to the community could be substantial. The municipality that owns the airport could maintain governance of the airport including control of master leasing of land and buildings.

Investments
Local communities might consider converting land that is surplus to the operation of the airport, or land that might be restricted because of building height or other FAA horizontal surface limits, to commercial uses. A good example is a golf driving range in the runway protection zone (RPZ) that would not interfere with aircraft operations.

Solutions for this GA airport dilemma are not easy, but creative out-of-the box thinking is paramount.

Private Airports

The majority of the 7,400 airports in the United State are publicly owned. The land, runways, taxiways, and other infrastructure are titled to municipalities and airport authorities that are often governed by boards of directors appointed by multiple jurisdictions. A good example and one I am very familiar with is the Washington Metropolitan Airports Authority or MWAA. While MWAA is typical of other airport authorities, its history is unique. The two major Washington, DC airports, Reagan National and Dulles International, were originally owned by the Federal Government and operated by the FAA for many years. For as long as I can remember (which is before World War II and I won’t disclose the year), National Airport, and beginning in 1962, Dulles Airport operations and development were subject to the whims of Congress. The most visible evidence of this was the dozens of parking spaces marked Reserved for Members of Congress a few steps from the airport’s front door.

The real and somewhat hidden problem was money. Congress controlled the purse stings. Dollars needed for operations, and capital improvements had to be appropriated by Congress and were expense lines in the Federal budget. Long range planning was one year. Airport employees were government employees. Hiring and firing practices were subject to Federal regulations. In the late 1980’s Congress saw the light and leased these airports to the newly formed MWAA. (Of course part of the deal was a continuation of the parking perks.) Overnight these airports were transformed into modern marvels of air transportation. The private capital markets provided billions in bond financing after carefully buying into long-term plans for the airports. The FAA airport employees left the Federal till and became private employees of MWAA. Freed of the chains of government, the cream, and there was a lot of it, rose to the top and more miracles happened. All this was led by my friend Jim Wilding who spent most of his career with the FAA beginning as an engineer. Jim was always a great leader and visionary, but MWAA gave him the opportunity to really shine.

Today we have yet another new airport model emerging. The FAA has a pilot program to privatize a few airports. The most notable is Chicago Midway. Chicago got a taste of what privatizing can do when they leased the Chicago Skyway toll bridge to Australia’s Macquarie Bank for $1.8 billion for 99 years. In many ways Midway reminds me of the old rundown National Airport. Hopefully privatization will shine a new light on Midway. As with highway funds, airport funding is finding stiff competition for a share of Federal dollars in the face of growing deficits, as well as disaster, terror, and war funding.

Let government regulate and private industry operate. It should be the American way.

For a history of airport privatization worldwide read Bob Poole’s 1998 address to AAAE, Why Airport Privatization's Time Has Come.
(Next the conundrum of general aviation airports.)

Terror Alert

Those were the words that my daughter Inslee’s instructor flashed on the screen as she settled in for her final lecture at the London School of Economics in August. Two days later she was scheduled to fly from Heathrow back home to Virginia. I first learned of the London threat when the phone rang at 5 AM Virginia time. Inslee was on a short class break and she was calling from her cell phone asking what we knew, which was nothing. Over the next few hours, we learned of canceled flights, new security regulations, and eventually the arrest of suspects with others at large. My first concern was how to get my soon-to-be-21 baby home safely and quickly. Being in the trade, aviation that is, I quickly divided an international charter fare by ten, Inslee and her other college buddies, and decided a second mortgage was worth it to get her back safely and quickly. A call to a friend in a high place in the world of business jet charter resulted in, “I am sure I can find a plane” and a promise to get back to me.

I discovered later I was lucky to even get a hello as that day resulted in a record number of calls for charter aircraft. As after 9/11, the demand for air charter, both international and domestic, has seen a sharp up tick. Some press reports mention over 60%. As men forfeit their shaving cream and tooth paste and women $500 cosmetics at security gates, business jets travel is getting more and more attention. It’s too bad such awful events are giving this boost to our industry. We have always touted efficiency, speed, and comfort, but security was never first on the list. Unfortunately it now is.

Inslee’s Gulfstream turned into a United 777, the same one she was originally booked on. She spent 6 hour making new friends at Heathrow and flying home with the lightest carryon in her short traveling career – a baggie.

Eclipse of the Eclipse?

Do you remember the BD5J, the mini-jet that every red-blooded aviator wanted in his personal hangar? Well the modern version may turn out to be the Eclipse. I cannot remember an aircraft that has received as much ink in the lay press as the Eclipse. The reality of the skies filled with micro jets, however, is premature. No Very Light Jet, “VLJ”, has yet been fully certified by the FAA. Since 1998 when Vern Rayburn first announced his vision for the Eclipse, the first of this new breed, there have been many setbacks. The most significant setback was the dissolution of the Eclipse/Williams joint venture. Every new aircraft is first designed around an engine. Eclipse picked an unproven and uncertified variant of the Williams engine that fell short of expected performance. Then other major vendors for the Eclipse could not meet delivery dates or performance criteria.

Eclipse has an order backlog reported to be over 2,300. A significant number of these orders and options are from by two startup air taxi companies, DayJet and Linear. Linear’s founder, Al Herp, claims to have proven his model. Operationally maybe, but this company that operates Cessna Caravans between the Boston and New York markets, has reportedly stacked up huge losses. The Caravan is built like a truck and is the staple of the small package feeders for FedEx, UPS, etc. It has a proven operational history and a wide service network. The Eclipse has neither. DayJet has proven only that they can raise capital. So far they have raised $18 million from private investors. Raymond James is trying to raise another $135 million to fund the purchase of their first delivery of Eclipses and startup of operations.

Vaughn Cordle, a member of The Aviation Group team, CEO of Airline Forecasts, and a pilot for a major airline, believes most of the VLJ air taxi start-up companies will fail. He says these business models are not realistic. Residual values on the aircraft are overly optimistic as are the number of hours each plane can fly per year. Larger business jets fly 350 to 400 hours a year, not 2,000 or more as projected by Linear and DayJet. Vaughn also believes their business models are not realistic in forecasting demand and the percentage of seats they will fill. Vaughn has a pretty good crystal forecasting ball. Check out his 2002 condemnation of Avolar the failed United Airlines attempt to start a fractional company to compete with NetJets. For an in depth look at the VLJ market, read Vaughn’s paper, “Dot Coms with Wings: A Fun and Exciting Way to Lose Money”.

There is talk in the clubhouse of an Eclipse IPO. My father once told me that when his caddy gave him a stock tip he knew it was time to get out of the market. Unfortunately there are very few golf caddies today unless you play with Tiger’s crowd and this group owns real business jets. No room for a set of clubs in an Eclipse.

We will have more to say in future articles about who we believe will be the winners in the evolving light jet industry (yes, we believe there will some) and how this part of the business jet industry is evolving and creating new markets. Stay tuned.

Honda's Horse Enters the Race

Today the Honda Motor Co. officially announced the commercialization of their new light business jet and a partnership with Piper Aircraft. The partnership will develop a certification program for the airplane and manufacture several test aircraft that will go through this program. It is a long process. Honda estimates three to four years. (I predict that Honda will find a way to compress this.) Last year at this time Honda unveiled a prototype aircraft. They flew it to the 2005 AirVenture for one day. As every aviator knows AirVenture is the huge Oshkosh, Wisconsin air show that attracts hundreds of thousands of pilots and everyone who ever dreamed of flying. Honda is back this year for a full week with a large exhibit.

I had the pleasure of watching this exciting new jet as it grew from an embryo to a full test aircraft. All the early design and testing work on the prototype was done in Skunk Works like secrecy. Just over a year ago two of my close associates and I were treated to a tour of this top secret facility.



(Keith Garner, Don Godwin, Michimasa Fujino, Al Blackburn, and yours truly enjoy the afterglow of our simulator flight.)

We were able to inspect and even touch the aircraft. I discussed the finer points on the hangar floor and during lunch with Michimasa Fujino, the plane's chief designer and engineer. Perhaps the highpoint of the day was when Fujino offered me an opportunity to fly the Honda Jet simulator in the hangar next to the airplane. The same group of engineers that designed the Honda Jet designed and built the simulator. The same building that housed the Honda Jet and the simulator was also home to a flight following arena that looked like what you see at NASA during the launch and recovery of the space shuttle. Telemetry transmits all the real time flight test data back to this room in Greensboro, NC, and to Japan.

Watch this aircraft carefully. It may not have been the first horse out of the gate in the VLJ race, but it is a serious contender. I will have much more to say about the VLJs and the many commercial ventures being built around this new class of aircraft. Stay tuned.

Freedom of Maintenance Information

Anyone properly qualified and licensed to work on an aircraft should have, not just the training and tools, but also the up-to-date manuals for the aircraft in question. Aircraft manufactures have been very restrictive about making these maintenance manuals available to those who need them most. About four years ago the Aeronautical Repair Station Association (ARSA) attempted to get Congress to require the FAA to enforce their existing rules by enacting legislation to clarify and codify regulations relating to the availability of maintenance manuals. ARSA’s website explains the situation:

Instructions for Continued Airworthiness (ICA) are the manuals required to maintain aircraft in airworthy condition. The Federal Aviation Regulations require the holders of design approvals for aircraft, aircraft engines and propellers to prepare ICAs and make them available to persons required to comply with the terms of the instructions, including owners and repair stations that perform maintenance on the products. The FAA has been slow to enforce its regulations requiring aviation manufacturers to make this vital information available to repair stations and product owners.

Last April the U.S. District Court for the Southern District of Georgia in Savannah ruled in Summary Judgment in favor of CAMP Systems in a suit filed by Gulfstream. In a crushing blow to Gulfstream the court stated, “What Gulfstream seeks here is to use its claimed copyright in its manuals to gain a judicially-enforced monopoly in maintenance tracking services for Gulfstream aircraft. That outcome would be injurious to the free-market public policy advanced through antitrust and restrain-of-trade laws. It would be especially egregious since Gulfstream is required by federal regulations to produce the manuals anyway.” The court also ruled that Federal copyright law does not apply to maintenance manuals.

This decision could have a huge positive implication to the entire aviation MRO industry as many manufacturers have refused to make maintenance manuals available to independent maintenance providers who, like CAMP, borrowed the manuals from aircraft owners - an awkward and sometime complicated process.

In June the General Aviation Manufacturers Association (GAMA) asked the court to reconsider. I predict that GAMA’s very effective lobbying skills will have little effect on the court. Stay tuned, this could be a big win for everyone – aircraft owners, repair stations, and I believe eventually the OEMs who should be concerned about their customers’ ability to have their aircraft properly maintained.

Fixing a Failing ATC System

Let me begin by saying I believe in the free market system. I also believe the Federal Government should be responsible for the security and safety of our citizens, our monetary system, and for helping those that can not help themselves. When our government tries to run a business it is usually a mess – expensive and inefficient. Air Traffic Control (ATC) is a perfect example. (I will save similar comments on general aviation airports for a later post.)

Despite the ads run by the controllers’ union, ATC in the United States is antiquated, expensive, and inefficient. The United States is the only non-third world country where air traffic control is both regulated and operated by the government. One only has to look north to find one of the most modern and efficient ATC systems in the world. NavCanada is a stakeholder owned non-profit corporation. Revenues come from user fees not taxes. Rates have declined since this private company was formed in the late 1990s to take over air traffic control operational responsibilities from the Canadian government, and efficiency has increased. NavCanada has developed equipment and technologies that they sell to other nations. They survived the shock of 9/11 and the bankruptcies in the airline industry. NavCanada controls not just traffic in Canada but traffic over the North Pole and the North Atlantic. They safely landed in Canada all inbound traffic from Europe and elsewhere to the United States on 9/11.

Our FAA-managed and regulated ATC was using vacuum tube equipment until a few years ago. Productivity is terrible today and has been for years. The FAA is short of money just to operate the system. Literally billion of dollars of taxpayer funds have been wasted on developmental programs that have later been cancelled. As opposed to private industry, government does not have to justify a return on investment or pay back funds that have been advanced by bond holders. Inefficient is not a strong enough word to describe this situation.

So why is our government still running this ATC service organization than can easily stand on its own?

First congress is unwilling to give up control of an organization with a large labor force that can bring jobs to a powerful Congressman’s district. For example, recently the House passed an amendment to the Transportation Appropriations Bill, H.R. 5576, by a vote of 261 to 166.

“None of the funds made available in this Act may be used to eliminate, consolidate, co-locate, or plan for the consolidation or co-location of a Terminal Radar Approach Control (TRACON).”

As a result several clear thinking members of Congress are proposing a commission or process similar to the military Base Realignment and Closure (BRAC) process to overcome the “not in my district” syndrome.

Secondly, the controllers union, NATCA, is strongly opposed to reform mainly because they feel it will be a threat to their jobs and pay scales. Controllers are among the highest paid government employees, even higher that most members of Congress. NATCA recently lost a battle with the FAA and Congress for even higher pay scales.

The third major road block is the major general aviation trade associations, particularly AOPA, NBAA, and NATA. Pilots are afraid of user fees, despite the fact that they are already paying a user fee in the form of a fuel tax. The problem with any tax is it first goes to the U. S. Treasury to which Congress holds the key – back to problem number one.

For much more on this subject click on this link to the Reason Foundation. I have provided links in the side bar to articles on ATC that I think are worth reading.

Subjects We Will Be Discussing:

• What are the new trends in General Aviation?

• What is the case for changing the way ATC is organized and managed?

• What impact will the new VLJs have?

• What is the next trend in industry consolidation?

• What are the issues that you feel are important to our industry?