Aviation Consultant Says Property Values Should Be Down Due To Market Trends
By Sean Belk - Staff Writer
July 31, 2012 – General aviation, or GA, activity, such as landings and takeoffs of small private aircraft, continues to decline at Long Beach Airport, according to recently published statistics. Some aviation businesses, such as fixed base operators (FBOs), which sell fuel to customers and lease hangars, said the current market poses profitability challenges and may call for a drop in aviation business property values.
Operations of general aviation aircraft, which includes anything from small piston-engine planes to corporate jets, helicopters and other aircraft, during the first six months of the year has dropped by about 24 percent compared to the same time period last year, according to year-to-date airport statistics provided to the Business Journal. General aviation operations during the first half of the year were down close to 42 percent compared to 2007, according to the data.
The airport statistics show that, as of June 2012, there were 106,452 GA operations, which was down from 140,820 operations during the same time period in 2011 and down from 185,563 during the same time in 2007. Other statistics show that, from 2000, when operations were at their peak, to 2011, general aviation and air taxi traffic declined by about 34 percent.
Some FBO operators at Long Beach Airport said declining general aviation traffic is not the only factor impacting the aviation business market. According to John Tary, general manager of Toyota AirFlite, recent struggles include rising general aviation fuel prices, vacancies and increased competition in a slow market.
He said today there are four main FBOs at the airport that sell gas, in addition to a few others, as opposed to only two in years past, ultimately creating an environment where there’s “less fuel to go around.” Also, while the cost to sell aviation fuel has increased, FBOs are still making the same profit margins from customers, Tary said.
“As a percentage we’re making less money and there’s a lot of factors that go into the ability to be profitable,” he said. Tary added that decades ago there were upwards of 1,200 private aircraft based at the airport and now there are less than 400. In addition, he said there also used to be five-year waiting lists to get a hangar and now he has five vacancies.
Long Beach Airport staff states that the airport’s lease rates have remained “the lowest of all similar airports in the region,” according to a July 6 city memo on the results from a survey of the airport’s lease rates.
The results concluded that rental rates at the airport vary from 32 cents to 65 cents per square foot, compared to $1.36 to $2.65 at other airports, and are also more favorable when compared to non-air carrier airports such as Van Nuys, where FBOs pay higher rates. “While private aviation continues to trend downwards, LGB’s lease rates allow our businesses to remain viable in these financially challenging times,” the memo states.
Despite some concerns raised about the airport raising rental rates in today’s market, Kerry Gerot, spokesperson for Long Beach Airport, said in a statement that some rental rates might increase, but “not significantly.” She added that the airport has cut costs in other areas that has enabled the airport to keep rates low for FBOs. “We run the airport like a business,” Gerot said. “This translates to a very efficient operation with little waste unlike other airports. This in turn translates to very competitive rates and rentals.”
One aviation consultant, however, disagrees with the airport’s analysis of aviation property values. Michael Hodges, president and CEO of Florida-based Airport Business Solutions, a consultant for AirFlite, said the current market trends at Long Beach Airport should keep property values low. He said general aviation activity is far down from 2007, which is the year that the airport is basing its rate structure. He added that using a “land residual valuation method” that involves mixing property values of other unrelated aviation business at the airport is flawed.
“The technique they’re using allows the airport to create the value they want to create and justify the value they want to justify, so it doesn’t give a true indication,” Hodges said. “The biggest problem is the market is just so far down over 2007, which is when any volume actually occurred in the industry. It really doesn’t give a true representation of what the value is today.”
Curt Castagna, CEO of Aeroplex/ Aerolease Group, which leases space out to tenants at the airport, said via e-mail, “Costs or rents are just one element that would impact the viability of any airport. Location, marketability, the economic development opportunities and realities and perception are other reasons.”