ASPEN – Pitkin County could receive at least $3 million in annual rent from a proposed new private jet center—a sum that is 16 times more than what the current fixed-base operator pays at Sardy Field.
Airport finance consultants explained the situation to the Pitkin County commissioners during a mid-August meeting on the airport master plan, which the county is expected to adopt this fall.
The current draft airport plan includes building a new fixed-base operations facility—a terminal and services for private planes (or general aviation, as it’s officially called)—on the west side of the airport. The current fixed-base operator, Atlantic Aviation, leases a facility on the east side, and is expected to pay the county $167,000 in rent this year.
The current lease was signed back in 1993 by Atlantic’s predecessor, and at that time was probably a fair deal for the county, airport director Jim Elwood told the commissioners.
The discrepancy in what Atlantic is paying now and what a new fixed-base operator would pay is based on market value, explained Stephen Horton of Leibowitz and Horton Airport Management Consultants of Greenwood, Colo.
“The market value of any FBO operating in Aspen has increased in the last 20 years and will continue to increase in the next 10 years,” Horton told the commissioners.
His “conservative calculation” of $3 million annual rent is based on comparable airports and a recent contract for a replacement FBO at San Diego International Airport. Fixed-base operator Landmark won a competitive bidding process to build and operate one new private facility at the San Diego airport, pledging $39 million toward a new terminal and $5.2 million in rent for 35 years.
Despite the fact that San Diego sees significantly more air traffic than Aspen, that contract is comparable because Aspen sells more fuel to private planes than San Diego does—3.3 million gallons per year at Sardy Field compared to 3 million gallons at the much larger airport.
Since FBOs generate “a significant portion” of their revenue from fuel sales, said Horton, “that’s the key comparison. And frankly, for any FBO operation coast to coast, that is the most important statistic.”
The price of jet fuel recently at San Diego International was $7.93 a gallon. It was $7.89 in Aspen, according to airnav.com.
FBO revenues, which are also derived from hangar rents and services such as airplane maintenance and passenger lounges, tend to be higher at higher-end airports, such as Aspen-Pitkin County, said Horton.
That would explain why there is sufficient market demand to open a second fixed-base facility at Sardy Field. Aspen has received “10 serious inquiries from 10 serious FBO operators” in recent years, Horton told the commissioners.
By contrast, San Diego received seven responses when it first reached out to fixed-base operators, and three serious bids to its official request for proposals. Landmark, which won the contract, had been paying $761,868 in rent at San Diego but proposed a $4.4 million annual increase to secure the contract, according to the San Diego Union Tribune and the San Diego Business Journal.
Atlantic, the FBO operator in Aspen, may have a good sense of how valuable the private jet concession at the Aspen airport is now worth, as it was one of the three final bidders on the San Diego FBO contract. Like Landmark, Atlantic also proposed to spend $39 million on facilities in San Diego, but it proposed paying just $1.35 million a year in rent.
Federal Aviation Administration rules require airports to “consider proposals for additional FBO facilities as space allows and the market dictates,” according to a statement from county airport officials regarding the FAA’s position.
The airport master plan is a 20-year facilities improvements plan that comprises the entire site. Besides a new private terminal, it includes a proposal to nearly double the size of the existing commercial terminal with a new building of up to 80,000 square feet, in addition to plans to rebuild the current east-side FBO and increase parking with both surface and underground lots.
The west-side private facility, which would include a terminal building and 19,400-square-foot hangar, is estimated to cost $22.4 million, according to the capital improvement plan. That part of the plan would be covered by “private third-party financing,” according to airport officials.
Another $10.7 million would be spent on a parallel taxiway and connectors for the new FBO. Horton said 90 percent of this cost would likely be covered by federal funds.
The Pitkin County commissioners have sent the plan on to the county Planning and Zoning Commission, which is charged with giving its input. Following that process, the commissioners will hold additional public hearings on the plan prior to formally voting on it sometime in the fall.
Watch a segment of the Pitkin County commissioners meeting on Tuesday, Aug. 14, 2012, via Grassroots TV and Granicus, where the fuel sales were discussed.
More info: Aspen airport master plan takes step forward (The Aspen Times)
Editor’s note: This is a revised version of an earlier post. Our thanks to Catherine Lutz for making it better and for posting it on the Aspen Business Journal.