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Tuesday
Apr122016

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

Tuesday
Apr052016

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.

Subscribe:

Subscribe to the AC-U-KWIK FBO Connection Newsletter

© 2016 ABSG

Monday
Mar282016

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.

Subscribe:

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Tuesday
Mar152016

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.

Subscribe:

Subscribe to the AC-U-KWIK FBO Connection Newsletter

Tuesday
Mar012016

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.

Subscribe:

Subscribe to the AC-U-KWIK FBO Connection Newsletter

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