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"Long Beach Airport Operators Concerned, As General Aviation Activity Declines"

Tuesday, July 31, 2012

Long Beach Airport Operators Concerned, As General Aviation Activity
Aviation Consultant Says Property Values Should Be Down Due To Market Trends
By Sean Belk
The Long Beach (CA) Business Journal

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 62 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 71 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 281,641 operations during the same time
period in 2011 and down from 371,126 during the same time in 2007. Other
statistics show that, from 2000, when the market was at its 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
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."

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