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Entries in lease (9)

Wednesday
Feb282018

FBOs Share Their Outlook for 2018

Every January, FBOs begin to gear up for the annual NBAA Schedulers & Dispatchers (S&D) Conference where they can attract new business to their ramp while cementing trusted relationships with current customers.

At this year’s conference, Feb. 6-9 in Long Beach, Calif., we had a chance to converse with many FBO owners and operators, as well as schedulers and dispatchers, to find out how they view the health of the industry and if there are any real concerns going forward. We believe the following statements reflect the overall opinion on each subject:

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Tuesday
May172016

Dissecting The Fourth Element of the Six Intangibles that Build FBO Equity

Part One: Building a Sound Balance Sheet with Consistent EBITDA Performance

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In our continuing series expounding on the six intangibles that can build equity in your FBO, we break down the fourth intangible: Building a Sound Balance Sheet with Consistent EBITDA (Earnings Before, Interest, Taxes, Depreciation and Amortization) Performance.

The value of putting together a sound balance sheet consistently over several years has a lot of weight with the banking community, which is your primary ally when it's time to finance capital improvements to your facility. A strong balance sheet can also be viewed favorably by the airport authority when it's time to renew a lease or extend a lease for multiple years.

Adding in the dimension of demonstrating a consistent EBITDA performance is a plus when an FBO ownership is looking to sell the enterprise. Often, investors and buyers look to EBITDA performance in order to determine the value of an FBO, or for that matter any business. The resulting evaluation, and thus the offer, is usually based on a multiple of the EBITDA number.

The benefits of producing a sound balance sheet include:

  • Provides a business snapshot of your FBO at a specific time.
  • Easily calculates financial ratios to determine the company's fiscal outlook and profitability.
  • Determines credit worthiness for investors and banks in order to obtain loans and funding.
  • Show financial transparency into the company's assests and liabilities.
  • Discloses the solvency of the FBO business to minimize investment risks.

In future blogs, we'll share some tips on how you can use your balance sheet to understand your current ratio, cash–to-debt ratio and debt-to-equity ratio. These numbers allow you to fully understand your FBO's financial position and how to measure liquidity. In addition we will discuss how to achieve consistent EBITDA performance.

There are many factors and nuances to developing a sound balance sheet that we will not be able to cover in this blog. Therefore, we encourage you to attend one of our FBO Success Seminars where we spend additional time discussing this important topic as well as others.

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

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.

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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
Dec152015

Breaking Down the 10 Critical Elements of an FBO Airport Lease, Part 4

By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group

In previous blog posts we discussed nine of the 10 critical elements of an FBO airport lease as part of our series on the six intangibles that can build equity in your FBO.

In this final post for this subject, we will discuss the last critical element, Airport Minimum Standards.  The Airport Minimum Standards document is basically what creates a level competitive playing field. It further helps protect the intrinsic value of your enterprise by spelling out the minimum requirements for an FBO or SASO (Specialized Airport Service Organization) operating at your airport and sets the standard of compliance for existing or potential competition.

In essence, it states that if a new operator wants to start an FBO at your airport then they must make the same investment in facilities, pay the same rentals and fees, provide similar services, and operate on the same level as your business.

Although an FBO Minimum Standards document is generally separate from your lease and resides as part of the rules and regulations of the airport, it is important to make sure it is called out in your lease. Many airports do not have minimum standards and this may cause a problem for the existing businesses.

Two important elements of an airport minimum standards document are its purpose and the issuance of a permit, lease or operating agreement.

Purpose

The purpose of minimum standards is to establish and make requirements for general aviation aeronautical activities.  They are established in the public interest for the safe and efficient operation of the airport in order to enhance orderly growth and comply with federal, state and local government legal requirements. It also provides information to parties operating or desiring to operate at the airport. These standards in general establish minimum levels of service that shall be offered in order to protect the public welfare and prohibit irresponsible, unsafe or inadequate services.

Permit, Lease or Operating Agreement

No person, including an aeronautical service operator, shall offer or perform a commercial aeronautical activity, operation or service at an airport without written authority for such service. Such authority will generally be contained in a Permit, Lease or Operating Agreement that has been negotiated between the FBO/SASO and the airport.

Keeping these elements in mind will assist you in maintaining your FBO business no matter what the competition may bring to the airport environment.  Make sure the minimum standards are up to date. Many documents we review for our clients are up to 20 years old.

In our next blog, we’ll start a new series based on the second intangible that can build equity in your FBO: A Favorable Fuel Supplier Agreement.

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