2013 Fall Conference Association of California Airports (ACA) South Lake Tahoe, California September 12, 2013
Establishing and Adjusting General Aviation Rents and Fees Presented by: Paul Meyers Principal Aviation Management Consulting Group
Aviation Management Consulting Group • Paul Meyers • 35 years of experience… • Aviation–leadership–management–customer service • GA (FBO operations/management), integrated freight, air carrier, and employee training and development • GA management consulting (airport and FBO) • Bachelor’s degree (business/aviation administration) • California State University at Los Angeles • Member of the GA Airports Committee (AAAE) and Airport Business Committee (NATA) • Airport Cooperative Research Program (ACRP) • Panelist, principal investigator, and subcontractor • Aircraft owner and instrument rated private pilot
Aviation Management Consulting Group… • Services • Provide a full range of GA management consulting services • Specialize exclusively in the GA industry • Services (all GA related) are provided to: • Airports • Fixed Based Operators (FBOs) • Specialized Aviation Service Operators (SASOs) • Others having an interest in the GA industry
Aviation Management Consulting Group… • Airports • Rent Studies and Fee Analysis/Studies • Primary Management and Compliance Documents • Strategic/Business Planning/Plans • Appraisals and Valuations • Lease, Use, and Operating Agreements • Through-the-Fence (Access) Agreements • Market Assessments and Feasibility Studies • RFI/RFQ/RFP Development, Evaluation, and Selection • Operational, Managerial, and Financial Assessments • Acquisition, Divestiture, and Due Diligence • Land Use, Site Planning, and Facility Programming • Litigation Support and Expert Testimony
Aviation Management Consulting Group… • Team • Experienced and proven professionals • Excellent working knowledge of the aviation industry • GA airports and aviation businesses (in particular) • Approach every project from a unique (multi-dimensional) GA perspective • Airport, business, and customer • Completed over 1,000 GA assignments at more than 500 airport and aviation business locations
Aviation Management Consulting Group… • Resources • Extensive research capabilities • Proprietary GA industry database and GA resource library • Excellent working knowledge of FAA policies and guidelines pertaining to: • The planning, development, operation, management, and funding of airports (in general) • The development, implementation, and enforcement of PMCDs (in particular)
Aviation Management Consulting Group… Paul Meyers 9085 East Mineral Circle, Suite 315 Centennial, CO 80112-3499 (303) 792-5202 (direct) (303) 792-2700 (office) (303) 792-2751 (facsimile) email@example.com www.aviationmanagement.com
Session Outline • Discussion Framework • Airport Sponsor Assurances • Key assurances • Primary Management and Compliance Documents (PMCDs) • Definition, purpose, role, and importance (value) • Leasing/Rents and Fees Policy
Background on Assurances • To secure Airport Improvement Program (AIP) funds (a grant), an airport sponsor is required to give certain assurances to the FAA known as the Airport Sponsor Assurances. • In essence, sponsors must agree to comply with the Assurances (currently 39) as a condition of receiving AIP funds.
Background on Assurances… • As the recipient of an AIP funds, in addition to complying with the assurances, sponsors must comply with: • Federal requirements (cited in the grant) including, but not limited to: • Legislation • Executive orders • Regulations • Office of Management and Budget (OMB) Circulars • Advisory Circulars (ACs)
Background on Assurances… • The Airport Sponsor Assurances provide a means for the federal government to ensure that public use airports are developed, operated, and maintained in a safe, secure, efficient, compatible, and compliant manner.
The 39 Assurances 1. General Federal Requirements 2. Responsibility/Authority of the Sponsor 3. Sponsor Fund Availability 4. Good Title 5. Preserving Rights and Powers 6. Consistency with Local Plans 7. Consideration of Local Interest 8. Consultation with Users 9. Public Hearings 10. Air and Water Quality Standards
The 39 Assurances… • Pavement Preventative Maintenance • Terminal Development Prerequisites • Accounting System, Audit, and Record Keeping Requirements • Minimum Wage Rates • Veteran’s Preference • Conformity to Plans and Specifications • Construction Inspection and Approval • Planning Projects • Operation and Maintenance
The 39 Assurances… 20. Hazard Removal and Mitigation 21. Compatible Land Use 22. Economic Nondiscrimination 23. Exclusive Rights 24. Fee and Rental Structure 25. Airport Revenues 26. Reports and Inspections 27. Use by Government Aircraft 28. Land for Federal Facilities 29. Airport Layout Plan
The 39 Assurances… 30. Civil Rights 31. Disposal of Land 32. Engineering and Design Services 33. Foreign Market Restrictions 34. Policies, Standards, and Specifications 35. Relocation and Real Property Acquisition 36. Access By Intercity Buses 37. Disadvantaged Business Enterprises 38. Hangar Construction 39. Competitive Access
22 (a). Economic Nondiscrimination • Sponsor will make its airport available as an airport for public use on reasonable terms and without unjust discrimination to all types, kinds, and classes of aeronautical use.
22 (c). Economic Nondiscrimination… • Each commercial aeronautical activity (operator) shall be subject to the same rates, fees, rentals, and other charges as are uniformly applicable to all other such operators making the same or similar uses of the airport and utilizing the same or similar facilities.
24. Fee and Rental Structure • Sponsor will maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport.
PMCDs... • Definition • A compendium of documents that govern the operation, management, and development of an airport • General Provisions • Leasing/Rents and Fees Policy • Lease, Use, or Operating Agreements • Minimum Standards • Rules and Regulations • Development Standards
PMCDs... • Purpose – in combination, these documents: • Contribute to the financial health of an airport • Facilitate (foster) orderly development • Promote the provision of quality products, services, and facilities • Protect the health, safety, interest, and general welfare of the public • Reduce the potential for (and help facilitate the successful resolution of): • Conflicts/Disputes with lessees, consumers, and users • Complaints (Part 13/informal – 16/formal) • Lawsuits (state and federal)
PMCDs... • Role • Set the stage (parameters) for the way an airport does business • Play an important (essential) role in theoperation, management, and development of an airport (large or small) • While these documents are interrelated, they function independently of each other
PMCDs... • Ideally, an airport manager would have all of these documents (or specialized tools) in the toolbox
PMCDs… • If not, may need to use other tools (that may or may not get the job done right) • In some cases, there are no tools in the toolbox
PMCDs... GENERAL (UMBRELLA) PROVISIONS LEASING/RENTS AND FEES POLICY LEASE, USE, OR OPERATING AGREEMENT OCCUPY MINIMUM STANDARDS RULES AND REGULATIONS DEVELOPMENT GUIDELINES ENGAGE USE DEVELOP
PMCDs... • The importance of having the full array of PMCDs (these specialized tools) available can not be stressed enough • If consistent with (not a duplicate of) the assurances and other federal (including FAA), state, and local requirements… • PGDs will provide protection in the event of a: • Conflicts/Dispute • Complaints • Lawsuit
Alternatives • Playing Calvinball • Using a “make up the rules as you go approach” to developing, operating, and managing an airport • Managing by Lease • Developing, operating, and managing an airport based on the most recent (latest) lease terms and conditions • Both approaches are highly problematic! • Increase the potential for conflict, disputes, complaints, and lawsuits
Terminology • Fixed Base Operator (FBO) • Specialized Aviation Service Operator (SASO) • Aeronautical Activity (Use) • Commercial (for hire) • Non-Commercial (not for hire) • Employee • Independent Operator • Through-the-Fence Operation • Self-Service, Self-Fueling, and Self-Serve Fueling
Leasing/Rents and Fees Policy… • Definition • Sets forth the parameters for leasing airport landand improvements for general aviation purposes and outlines the process for establishing and adjusting general aviation rents and fees • Purpose • Conveys the airport’s general aviation leasing and rents and fees policies and practices
Leasing/Rents and Fees Policy… • Major Sections • Introduction • Leasing Land or Improvements • Agreements • Setting and Adjusting Rents and Fees • Appendix • Key Elements
Rents • FAA requirements • Methodology for general aviation must be: • Reasonable • Justified, and • Consistently applied • Goal of being as financially self-sustaining as possible given the circumstances that exist at the airport
Rents... • Establishing rents • Methodologies • Negotiation • Rent Study • Appraisal • “Only” if required (to calculate a rental rate)
Rents... • Negotiate • To confer with another so as to arrive at the settlement of some matter • To arrange for or bring about through conference, discussion, and compromise • Negotiation • The action or process of negotiating or being negotiated
Rents... • Negotiation… • This can result in a “market” transaction as long as… • It’s an open market… • The buyer and seller each act prudently and knowledgeably… • The price not affected by undue stimulus
Rents... • Rent study • Streamlined approach • Rental rates for similar aeronautical land and/or improvements at similar (or comparable) airports are analyzed to derive an appropriate rental rate • Also, considers national, regional, and competitive airports
Rents... • Rent study (process) • Identification of comparable “airports” • Profile of the subject airport • Identification of comparable “leaseholds” • Similar land and/or improvements • Similar use • Commercial • FBOs or SASOs • Non-Commercial • Use of on-airport comparables • Compilation and analysis of data • Segregate rent (by component)
Rents... • Identification of comparable “airports” • Key elements • Infrastructure (number, configuration, and capacity of runways, taxiways, ramps/aprons) • Approaches (precision verses non-precision) • Control tower • Number and type of aviation businesses located at the airport (including fuel providers) • Amount of land available for development (and related land use considerations) • Type of market and number of airports in market • Activity levels (based aircraft, aircraft operations, and fuel volumes)
Rents... • Identification of comparable “leaseholds” • Key elements • Use (commercial verses non-commercial) • Size (usable verses unusable area) • Location and access (landside and airside access to/from the leasehold, airport infrastructure, and utilities) • Lease terms and conditions • Type, quality, condition, and functional utility or limitations of the land • Are there any restrictions on the development of land, the availability of utilities, and the ability of the land to support aircraft?
Rents... • Segregate rent (by component) • “Real estate” • Unimproved land (raw land) • Improved land (with access and infrastructure to the “lease” line) • Site improvements (ramp/apron, vehicle parking) • Facilities (terminal building, hangars, office, and shop space) • “Non-real estate” (business) • Percentage rents (gross receipts)
Rents... • Consultant qualifications • Knowledge and experience • General aviation industry • Commercial • FBOs and SASOs • Non-commercial • Appropriate for the work being performed • Consultant instructions • Dispute resolution procedures
Rents... • Adjusting rents • Methodology • Mechanisms (basis) • Negotiation • Fixed • Index • Consumer Price Index (CPI) • Producer Price Index (PPI) • Airport Economic Index (AEI) • Rent Study • Combination • Alternating
Rents... • Adjusting rents… • Frequency (how often) • Regular (periodic) adjustments throughout the lease term • Whenever an option is exercised • If options are granted in the lease agreement • Whenever the lease term is extended • Capital investment translates into term
Fees • Establishing fees • Cost recovery • Best practices approach (or methodology) • Allocate (non-funded) costs to general aviation (cost center approach) • Planning, development (including debt service), operation (including maintenance and repair), and management of the airport (not being covered by federal or state funding) • Plus reasonable reserves (or contingencies) • Ascertain the cost gap • Cost - rent = cost gap
Fees... • Establishing fees… • Best practices approach (or methodology)… • Select and calculate fees required to close the gap (recover costs) • Cross check calculated fees against the market • Comparable airports (based on airport profile) • Competitive airports (in the area) • Set fees based upon reasonable cost recovery target while striving for financial self-sufficiency • Graduating (over time) percentage of the gap
Fees... • Types of fees and basis • Fuel flowage • “Cents per gallon” sold/dispensed (with exemption if landing fee is paid) • Landing • “Cents per 1,000 lbs.” aircraft weight (or fixed fee by aircraft type or within specified aircraft groupings) with a minimum • Relationship to fuel flowage fees