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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.

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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.

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Monday
Feb222016

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 1st. 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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Monday
Feb082016

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.

Subscribe:

Subscribe to the AC-U-KWIK FBO Connection Newsletter

Monday
Feb012016

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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