AirportBusiness Blogs

They say the first, maybe worst, sign of insanity is the belief that others are controlling your life. If that’s true, I’m in, as George Bush the elder said, “deep doodoo.”

To paraphrase FedEx, I am absolutely, positively certain that I have less and less control of my life each year.

In aviation, the guvmint controls more space in more ways every year. I’m not saying that’s bad (or good), just that it’s true. TSA tells me what I can check, what I can carry on, to take off my shoes and unpack my computer. The airlines tell me to get there earlier, stand in lines longer, and squish up tighter. General aviation airspace becomes more restrictive and more complex. I have no control over any of this.

Outside of aviation, same thing. Between city, county, state, and fed, I spend much of my time paying and much of it trying to find out what to pay. I’m not even allowed to call the local U.S. Postal Service office, and that office can barely explain the new rates and the rules that determine what is a “standard” letter. Medicare? Social Security? Fageddabout it. In the first place, they don’t speak English but only some weird language that consists only of acronyms. If you actually put up with the telephone system, delays, and complications necessary to get an appointment with a Social Security person, she (if the Social Security System employs any males, I have never seen one) can and will explain the system and answer your questions very clearly. But only Mother Teresa ever had the serenity to put up with the process of getting the appointments, and she didn’t need to.

Telephone companies? Cable TV suppliers? Computers or, worse yet, computer people? Y’all, you might as well just give up. Hire a 12-year-old kid and let him/her figure it out. You ain’t gonna live long enough to do it yourself. If you do, your whole system (and you) will be totally obsolete when you get done.

That’s all I’ve got time for now. I think they’re coming to take me away.

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… it’s a mixed economic bag these days. That’s the word from Jim Coyne, president of the National Air Transportation Association, which represents airport-based businesses like fixed base operators and FAR Part 135 air taxis. “It’s quite a checkerboard across the country,” he says. “For most of the last five, six years you could say that the industry was doing well nationwide. Clearly, today, different parts of the country have very, very different economic positions. If you’re in Texas, things are going gangbusters. If you’re up in Michigan or in Florida or some other places in the country, you have very depressed economies.

“I was up in Michigan three weeks ago and it’s a very depressed economy there, especially for the people that are involved in air charter for the automobile industry. There have been huge reductions in air charter activity.”

On the impact of soaring oil prices, Coyne says the NATA membership is seeing jet-A sales holding level; sales of 100LL avgas are down some 5 to 20 percent. “Quite frankly, I don’t know if the impact is more the recession or more the high fuel prices. In the parts of the country that aren’t in a recession right now, like Texas, the higher fuel prices haven’t had much of an effect. But in other places the high fuel prices are having a big effect.

“It’s affected a lot of piston operators; however, there’s kind of a silver lining because in some respects piston aircraft become more economical now than larger aircraft. So it’s not entirely a bad picture for the piston side.”

For FBOs, the challenge historically in economic downturns has been the ability to maintain profit margins. Coyne says 2008 is no different. “They’re really having a hard time maintaining margins. And, of course, their costs are going up as well. To heat a hangar this winter is going to cost twice as much as last winter. To fuel all the ramp vehicles is going to cost twice as much.

“You would think with a doubling of fuel prices the margins would double, but they haven’t. It’s much tougher to make money in the FBO business in 2008 than it was two or three years ago.”

For charter companies, significant activity reductions are being experienced in pockets – regions like Michigan, the New York region, and Florida. “The charter industry is experiencing an effect mostly from the recession,” says Coyne. “But all in all, I’m surprised that the industry is doing as well as it is.”

The traditional charter model continues to do reasonably well, he says. The per-seat, DayJet model utilizing very light jets is a work in progress, but Coyne thinks in time it will be a player. “These new efficient aircraft like VLJs are really catching the imagination of consumers who have never chartered before, especially for flights under 500-600 miles. I think there’s going to be big growth in that activity.”

Overall, comments Coyne, “I’m cautiously optimistic.”

Thanks for reading. jfi

As the old song said, “Strange Things Are Happening.”

Thanks largely to the computer, it is easier than ever to shop for price. You name it, you can find out who is selling it cheaply. That has forced prices down to rock bottom on everything from cameras to hotel rooms. Sounds like a good thing to me.

But there is another side of the story.

Look at banks for example. Back in the dark ages (around 1970, I believe), the Truth In Lending Act required lenders to disclose to the borrower the Annual Percentage Rate (APR) being charged. APR was just the “real” interest rate. Before that, it was absolutely criminal the way interest rates were quoted and charged. Most of us, however, grew up with APR and have learned to see it spelled out in the loan application. That was a good thing. You could shop among local lenders for the lowest APR and that led to lower rates.

Then—within the last few years—banks became adept at adding fees along the way. You would be quoted a certain APR, then the fees would drive the total higher. And have you paid any loan even one day late recently? You wouldn’t believe the fees and even the raising of the interest rate for the balance of the loan.

Hotels did the same thing. They’d quote a rate of, say, $89 per night (I stay in cheap hotels) without mentioning fees like “gas increase fee” charged at checkout (I am proud to say I never paid one of those—I just said I called you, you quoted your price and that’s all you’re getting. They always knocked it off the bill.).

Recently, American Airlines announced a new fee of $15 for one checked bag. That allows them to quote low fares then collect extra money.

Here’s the rub. We tend to shop for the lowest price. These fees add a little sleaze factor to the bottom line. Further, they make it hard for even good suppliers to compete without the sleaze factor.

What we can do? Always, no matter what you are buying, ask for the total price, including any and all fees. Then ask questions about fines.

It won’t work perfectly, but it will help.

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… was the focus of an audit released this month from the Office of the Inspector General at the U.S. DOT. The report isn’t good news, though it does offer insight into how small communities can better achieve success with such federal grant monies.

Since 2001, DOT’s Office of Aviation Analysis (OAA) has administered the SCASDP. The objective of the audit, says the I.G., was to determine the effectiveness of SCASDP in helping small-hub and non-hub communities in achieving sustainable air service. To achieve this objective, the I.G. reviewed SCASDP grants to determine: 1) which grants succeeded and which ones failed; and, 2) whether certain project characteristics or project types lead to a greater likelihood of grant success.

The audit found that 70 percent of the grants reviewed failed to fully achieve their objectives. Specifically, 50 percent of the grants were unable to achieve any of the articulated grant objectives, 12.5 percent were voluntarily terminated prior to any substantive progress being achieved; and, 7.5 percent were unable to obtain or achieve all the grant objectives. The I.G. also found that grants targeting the introduction of new service rather than the expansion of existing service were more successful (50 percent versus 20 percent). Revenue guarantees for new service were more successful than for existing service (56 percent versus 33 percent) and marketing grants for new service were more successful than for existing service (40 percent versus 12 percent).

The I.G. also points out that communities may not be able to fully utilize the program due to ‘same project limitation’, which precludes a community from pursuing follow-on grants using grant strategies that have worked for them in the past. The lack of funding flexibility may negatively impact the effectiveness of the program, says the I.G.

Perhaps the most significant point of the audit is the I.G.’s assertion that communities which conduct in-depth market analysis and support their grants through substantive financial and non-financial support are more likely to succeed. Accordingly, the I.G. recommends that OAA give priority to those communities that include an in-depth market analysis with their grant application and involve substantive levels of financial and non-financial community participation. The I.G. notes a strong correlation between communities that had performed a market study and those who had successfully enhanced their existing air service.

Whether or not the SCASDP is continued is up for debate – that is, the debate that never seems to get off the ground in Congress regarding aviation funding. The Bush Administration opposes the program. The minor victories associated with the SCASDP suggest such a program can help small communities, but they should first study the Inspector General’s list of ‘lessons learned’ before applying.

Of course, considering the state of the U.S. airline industry, it may all be a moot point.

Thanks for reading. jfi

Yesterday the headline on the first page, business section, USA Today, read “Foreclosures skyrocket 65% in April.”

Sixty-five percent. There were 65% more foreclosures in April of this year compared to the same month last year. Y’all correct me if I’m wrong, but I thought foreclosures were pretty bad last year—now they’re 65% higher.

Some think foreclosures will continue to rise into 2009, and possibly ‘til 2010.

If that doesn’t scare you, listen to this—Congress is working on this. Horrors.

I assume by now that everyone knows that the mortgage problem affects us all. When credit is tight, money is tight. When money is tight that hampers all of business.

Before I had time to become deeply depressed by the foreclosure info, comes today from The Wall Street Journal a WSJ News Alert. You won’t believe it—the headline announced “Housing Starts Post Unexpected Increase.” Holy cow.

The report goes on to say that home construction in April showed “surprising vigor, making the biggest increase in two years…” This after starts plunged by 13.8% in the previous month—that’s March of 2008. Unbelievable.

Furthermore, construction permits also rose. That seems to bode well as permits are acquired for future construction.

So, foreclosures up (bad news) and construction starts also up (good news). What’s a person to believe? I dunno, but maybe the people who invest in building have faith, but financing folks have no faith in those mortgages they sold to many poor risks in the past. Let’s look on the bright side.

In the meantime, I think maybe I want one of those “subprime” mortgages. Congress is talking about letting all those people who can’t pay their mortgages refinance with “federally insured” mortgages.

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… held in Van Nuys last week, two topics stood out: 1) the status of GA airports in the U.S. system; and 2) the increasing pressure to reduce greenhouse gas emissions and ‘going green’.

The meeting, put on by the American Association of Airport Executives, was held adjacent to the busiest general aviation airport in the world, Van Nuys, which is celebrating its 80^th birthday this year. Keynote for the event was aviation pioneer Clay Lacy, whose operation is based here. His achievements include introducing all-jet charter to the West Coast; long being a leader in aerial filmmaking; and, being one of the highest time pilots ever for United Airlines.

On the subject of GA airports, FAA’s Kate Lang says the agency “is very committed to general aviation” and points out that 84 percent of the airports in the U.S. system are GA. Of the $3.5 billion that is distributed via the Airport Improvement Program, some $1 billion goes to GA, she says. Even more optimistically, Lang points out that when next NPIAS (National Plan of Integrated Airport Systems) is published, she expects 44 new GA airports to be added.

Then there is the topic of emissions. “The pressure to do something exceeds the capacity to do something,” comments Daniel Reimer, a partner with the law firm Kaplan Kirsch & Rockwell LLP. Who is responsible for what is the central challenge, he and others say. With noise, says Reimer, “we figured it out” – tackling noise issues requires a partnership in which the airport’s responsibility is readily identifiable. “I’m not sure that’s true with emissions,” he says.

Everyone seems to agree that for GA airports there is little guidance to go by when it comes to reducing emissions. Larger commercial airports are the focus today; in time, it is hoped lessons learned will trickle down to smaller airports.

Roger Johnson, deputy executive director for the Los Angeles World Airports system, agrees on the responsibility challenge, pointing out that 90 percent of emissions at LAX come from aircraft. LAWA, with a strong push from a ‘green’ mayor, is on a campaign to make LAX the “greenest airport in the U.S.,” he says. A frustration with LEED – Leadership in Energy and Environmental Design – is that it “tells you what you can do, but it doesn’t tell you what you should do,” comments Johnson. Thus, LAX has developed its own green standards, using a model developed by Ricondo & Associates for Chicago’s airport system.

Among the LAX initiatives: over 60 percent of LAWA’s vehicles use alternative fuel; an on-site hydrogen generation station; GSE conversion to zero emissions by 2015 (“technically impossible right now,” says Johnson); an employee ridership sharing program; 98 percent recycling of old runway materials for a new runway and separated taxiway; and, using reclaimed water to irrigate some 35 percent of landscape areas, thereby saving 42 million gallons per year.

Another way to offset emissions, says Johnson, is by “planting trees.”

Thanks for reading. jfi

According to a May 8 report from the General Aviation Management Association (GAMA) regarding aircraft delivered in the first quarter 2008, bizjet deliveries climbed 40%, turboprops grew modestly, and piston deliveries dropped sharply. Industry billings increased 16.1% to $5.3 billion, an all-time high for the first quarter.

So, what does all that mean?

Well, jet sales are climbing like a, uh, jet, while piston sales are hurting—actually down by 28% for the quarter. If piston aircraft make up your entire market, as they did when I was in the business and as is surely true even today for some dealers in some markets, then this is a horrible report. If you’re selling bizjets, then the sun is shining brightly upon your house.

Or is it?

It has been pointed out to me that current jet deliveries indicate past behavior. Most new jets are sold long in advance. (I remember years ago taking a tour of the factory in Savannah, GA, where the big, beautiful Gulfstreams were built. It was a surprise to me that many of the buyers sent an expert—an engineer, maybe—to live in Savannah and follow the construction of their jet through the entire process.)

Perhaps a better question might be how are jet sellers doing right now? Are they taking orders? Or is everyone putting them off “until we see what the economy is going to do?” I don’t know.

Will piston sales recover? Who knows? Are they all of a sudden that unpopular or is it that smaller airplane buyers are just more susceptible to a weak economy? Probably both.

Will LSA help turn the tide for piston aircraft?

The only thing I know for sure is that the situation bears watching.

FLASH–This just in. I just now read in my new Fortune magazine that helicopter sales are soaring as the oil drilling industry searches frantically for more oil to meet high demands and prices. 

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… now you don’t – an FAA funding bill, that is. During the past week it appeared that the U.S. Senate was finally going to pass aviation authorization, something which the House did in mid-2007. Alas, the word out of Washington now is that it won’t happen and that what the industry will likely get is another continuing resolution that keeps the system running (and AIP dollars moving) through September, the end of the federal government’s fiscal year.

What is holding up movement in the Senate is the same parochial bickering that has become the trademark of Washington politics over the past decade. When you have highway amendments being tacked onto an aviation bill, something is amiss.

It is truly hard to fathom that Congress can stand up to the industry and the American public with a straight face on this issue. The airline industry is in turmoil; FAA is being hammered for safety inspection snafus and its ongoing sour relationship with the air traffic controllers; airports need money for infrastructure; and the ATC system needs to be modernized. Yet, in Washington nothing happens, and it’s always somebody else’s fault.

The U.S. Congress should be ashamed of itself. But then, that’s assuming that the word ’shame’ is even in the Congressional dictionary.

Thanks for reading. jfi

Back in the old days, airlines went bankrupt but kept on operating. That let them stop paying on some debts and other costs, but continue reaping revenue.

Today, it seems airlines go bankrupt (and boy, have they gone bankrupt) and abruptly cease operations immediately, if not sooner—no flights, no revenue, nothing. There was an exception or two in the latest spate of airline bankruptcies. At least one airline kept operating, but I forget which one.

I have not read any comments about this increase in bankrupt airlines that cease operation. It seems logical to assume (there’s that dangerous word) that direct costs—mostly fuel—make it impossible to operate even with the reduced costs possible under bankruptcy. If you still lose money on each leg under bankruptcy, why bother?

Please remember this is a question, not an answer. I’d like to get comments from those who know the facts.

Funny thing about cost and revenues. Usually, the goal is to calculate costs in advance then decide if the market will allow you to make a profit. If it won’t, why get into the business? If you’re already in the business and the numbers prove you can’t make it cheap enough to sell it profitably, why not get the hell out? Reminds me of an old rock song from decades ago. One line “goes”—as the kids say—“GREAT GOOBA GOOBA! LEMME OUTTA HEA!”

Seems to me you can hear that desperate plea on the airways these days.

What a business.

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