Critical Airport Lease Areas for Aviation Service Providers

It may sound simple, but understanding (and managing to) the specifics of your airport lease is critical for the airport service provider. Whether you are a Fixed Base Operator (FBO), Maintenance, Repair and Overhaul (MRO) company or an Aircraft Charter and Management (ACM) company, if you provide direct on-airport service your lease is your not only your life blood and access to your customer base, but it is also a big component of your company’s value.

Aviation service providers generally work under lease directly from the airport itself. Most leases are long term in order to afford the tenant (the aviation FBO, MRO or ACM company) the ability to achieve a return on the investment they must make to establish their business. Leases usually also confer the operating rights and restrictions under which the service provider must operate. Because they have long lives, however, and are not referred to often in the day-to-day provision of airport services, the opportunity for confusion arises and mistakes can compound for months or years until discovered and corrected. There are numerous examples of rent disputes that arose from a misunderstanding of the rent calculation only to compound for years until finally reconciled, many times with the service provider taking a material charge to their profit and loss statement.

1. Rent Calculations. Obviously, most airport tenants are deeply aware of the amount of rent they pay to the airport on a monthly basis, either for ground rent or facilities. Unlike a typical office or other facility lease, however, an airport lease may require additional variable rent payments based upon activities. There are many types and structures but common types of variable rent are fuel flowage fees, a variable rent as a percentage of gross sales, additional rent in the form of recoupment from tenants of fees and taxes an airport incurs, etc. Since these are variable they are typically paid monthly by the tenant but only reconciled annually. Because FBOs typically have the most different lines of businesses, they are especially inclined to have additional variable rent structures. Diligent management and clear communication with the airport (as well as mutually agreed upon reporting tools) are best practices for preventing an unintended consequence from building up on either side of the ledger.

2. Operating Rights & Restrictions. Airport leases typically clearly state which activities a tenant may conduct (or is required to conduct) and activities from which they are prohibited. These categories vary however, from very narrow to quite broad depending upon the intent of the airport; e.g. is the airport trying to tightly manage scarce resources or is it attempting to broadly stimulate growth and employment on the airport. In the modern hurried environment it is easy to contemplate adding a new service or product line without first determining whether that service or product is specifically allowed or prohibited under your current lease. You should always clearly understand your contractual rights and restrictions before making a commitment to a material outlay of resources, especially in the areas of time, personnel and capital.

3. Maintenance & Repair. The maintenance and repair responsibility for your facilities will largely depend on who constructed them and who now holds title to them. In some cases the facilities will be let “where is, as is” and the tenant will be responsible for all maintenance and repair. Other times there are specific levels of maintenance the airport landlord may provide (e.g. “structural”) and the tenant will be responsible for others that do not rise to this level. Open communication with the airport is again the best tool for understanding who is going to pay for the next large repair issue.

4. Lease Premises. Similar to rent, above, this appears straightforward and usually is. An older lease which has been subject to multiple amendments and assignments through multiple owners, however, may be tricky. If you purchased the lease as part of a larger aviation services business and bought title insurance at that time you should have assurance as to the exact location, size and characteristics of the leasehold. If you acquired the lease through other means such as a Request For Proposals process, you should examine the description of the premises in the lease and ensure it is consistent with your understanding and current aviation operations and activity. If there is doubt or ambiguity as to what and where the actual leasehold is, you should seek help understanding exactly what your rights are respective to the leasehold.

5. Transfer and Change of Control. This is another area which can materially affect the value of an aviation service provider’s business. Most leases require a landlord’s (airport’s) consent to transfer a lease (as an asset) via an assignment (although it is common to have exceptions for transfers to entities that are subsidiaries or controlled by the current tenant). A change of control, which occurs when a tenant conveys more than 50% of the underlying interests of the business to another individual or entity, usually also requires a similar consent. This language varies from lease to lease of course and is less common in older leases. You should review this language in your lease and determine the consequences before you begin planning to sell your business as it may have a material impact on your sale process, especially if you are selling only a part of an airport based service business. There are different strategies to use in dealing with these types of provisions, however, and the best practice is to structure your business or sale process taking these provisions into account and aligning the structure of the process to meet your end goals.

Airport leases for Fixed Base Operators (FBOs), Maintenance, Repair and Overhaul (MRO) companies and Aircraft Charter and Management (ACM) Companies have evolved and become more complex, especially at larger airports, and the aviation infrastructure required to perform these services continues to become more expensive. To maximize your return as an operator, you have to have a complete understanding of one of your most important governing documents, your airport lease.

Understanding Aviation Maintenance Repair and Overhaul (MRO) Management Better

The aviation industry is growing at a substantial rate, which certainly is good news for stakeholders, from passengers and airport sponsors to institutional investors and aviation service providers. Of course, the industry runs on services in many different segments, and one of the major services provided is MRO, or Maintenance, Repair, and Overhaul.

In this post, we will describe the kind of work that these service providers offer with regards to aviation maintenance, repair and overhaul management, and why this sector matters for operational success.

The need for MRO services

Regardless of the location, facilities and other services offered at an airport, the aviation industry depends on one major aspect – operational aircraft. Aviation maintenance, repair and overhaul management is all about aircraft servicing and management. Commercial airlines and private operators prefer to delegate maintenance tasks to specialized companies offering aviation maintenance. These companies have the necessary operational expertise and experience and also have a great depth of capabilities through their training, tooling and authorizations. These services are critical as projecting and managing maintenance schedules will determine whether aircraft will be operational and available to meet their mission requirements. With today’s increasing demand, MRO service providers are pertinent, necessary, and extremely relevant to keep aircraft and their passengers moving on schedule.

What do MRO management services offer?

As MRO service providers grow, the need for professional management increases as well. In most cases, maintenance and repair work is dependent upon a number of different requirements and regulations, and the nature of contracts with end users varies considerably. Owners and operators are focused on cost control, quality, and minimizing the downtime of their assets. They also seek to source more services from single source providers, e.g. MRO companies with a breadth of capabilities and authorizations which allows for more services to be provided during a single maintenance event.

Demand for aviation MRO services is driven by mandatory maintenance, which occur on fixed flight hour, time-based or activity based intervals. The combination of an aging fleet coupled with increasing utilization underpins the increasing demand forecast for the next 5-10 years. The need for aviation maintenance, repair and overhaul management will continue to increase, and as aircraft utilization continues to grow the need for such services will become more prominent in years to come. Consequently, it is important to choose a company that has the necessary experience and expertise for your particular maintenance requirements to meet your mission profile and keep your aircraft and passengers moving.

Exceptional Fixed Base Operator Service in Aviation

Fixed Base Operators, or FBOs as they are often known, refer to the commercial businesses and companies that operate on airport grounds to offer a broad range of services to private aircraft operators. FBOs serve a number of parties, including corporate flight departments, individuals, Aircraft Charter & Management (ACM) companies, and airlines. The services of FBOs are important for a number of reasons, primarily to ensure the smooth working operations of private aircraft at major airports. Over the years, the demand for fixed base operators has increased immensely around the world, and there is a broad range of services that these companies can provide. Here are some of the aspects worth knowing.

1. When it comes to FBOs, the services can be diverse, as mentioned. They deal with some of the everyday requirements of aviation, such as fueling, aircraft handling, hangers, tie-down services, Aircraft Charter & Management (ACM), aircraft Maintenance, Repair & Overhaul (MRO), and aircraft sales. FBOs also provide facilities for private terminal operations, pilot lounges, flight planning facilities and more.

2. Many parties, especially ACM operators, corporate flight departments, and private aircraft owners, choose an FBO to provide a seamless customer experience. They take care of all the required services and ensure that passengers and crew members have no issues impacting their flight operations. As there are few limitations on what an FBO company can do, these services may often include assisting airlines in their commercial operations. Also, they help immensely in concierge services and related assistance for flight crews and pilots.

3. Many FBO management companies also deal in aircraft management and advisory service, depending on the services they are required to perform. If you are an investor and are looking for an FBO management company, it is critical to diligence the capabilities and experience of the companies you are evaluating. When it comes to management and related services in the field of aviation, on-airport experience is the key to excellent service. Some companies are capable of providing turnkey aviation management services in a wide range of sectors, including FBO, MRO and ACM.

Hiring an FBO for management services can help in bringing professionalism to the entire work procedure. If you haven't experienced an FBO's services yet, it makes sense to talk to a few fixed base operators to understand the capabilities and value they bring to the table. FBOs can help in streamlining the entire workflow of private aircraft operations, and they have expertise in increasing the efficiency of operations. Before you make the final contract, talk to the preferred company about the full range of services they offer, so that you can make an informed decision which meets your needs .. It is wise to develop a specific scope of work with detailed pricing. Also, you should ask for several references, both financial and aviation industry related.