Top things to consider when selling an FBO

Determine the remaining number of months on your ground lease(s) and schedule the metrics of each in a spreadsheet or similar document including current rent, square foot area, demised area site plan, operating cost responsibility, taxes responsibility, and capital repairs responsibility.

The buyers market looks for a minimum of 15 to 20 years remaining for a ground lease. Longer is better of course, and 30 or 40 years is considered a sweet spot, the balance between what most airports are likely to grant at a maximum, and a comfortable minimum for the FBO owner operator and subsequent FBO buyer to be able to amortize its capital and acquisition costs over a reasonable recapture period.

If your airport ground lease is a minimum of 15 to 20 years then you have a salable FBO. If your ground lease is longer, or with options up to 30 or 40 years, you have a higher value to sell!

Schedule the metrics in a spreadsheet of the monthly number of gallons of fuel your FBO sells, both Jet-A and AvGas, and total by month and year.  Calculate the annual increase or decrease. If you can show an increase, that’s positive of course!

If your FBO shows flat volume year-to-year, or declining volume year to year, then an explanation will be necessary. Is it competition? Is it a decline in flight activity at your airport? Since the vast majority of FBO’s depend upon fuel sales as their primary contributor to revenue, be prepared that a flat or declining fuel sales volume will negatively impact the value of your FBO at sale – buyers will reduce the price.

By the way, Avgas fuel volumes are typically minimal and do not impact significantly the value of an FBO. Most often the Avgas fuel contributes low additional revenues due to the small volume and pressure on low margins.

The number of gallons of jet fuel dispensed at your airport is a good general indicator as to the total size of the market of course, and how active the airport is – the more fuel dispensed at the airport, the more active the airport is, and hopefully this translates into healthy fuel sales volume for your FBO.

You will need to provide a spreadsheet of the Airports annual fuel sales for buyers.  Airport’s report annual fuel sales (on a monthly basis) in various ways so caution is the rule. It’s necessary to break down the gallons of jet fuel dispensed at the airport by customer type, such as airline, airline in-to plane, general aviation, military, etc.

Remember, an airport might report 15,000,000 gallons annually dispensed, but when dissected, a buyer will discover that 14,000,000 gallons is in-to plane (to commercial aviation carriers at very low margins). If this is the case at your Airport and FBO, its  likely your FBO collects a very low uplift charge per gallon of maybe only $0.015 to $0.10 per gallon of revenue. That’s okay if at the low end of the uplift charge we just mentioned, it applies to many multiple millions of gallons of uplift. But if the uplift gallons are more modest then you hopefully have negotiated collecting, for example, $0.10 per gallon or more (as long as your labor costs and profit are covered) the revenue from uplift fuel services should be positive and add to the value of your FBO for sale.

So what initially may look like a high-volume airport for fuel sales to a buyer of your FBO, which would be very positive to that buyer, in reality the vast majority is in-to plane uplift fuel at very very low margins. Not enough to sustain on its own the profitability of your FBO to be sold, unless there is considerable general aviation-based and itinerant fuel sales at much higher margins.

Part two of the number of gallons of jet fuel dispensed at the airport is what market share does your FBO have? If the total fuel sales occurring at the airport for general aviation are for example reported to be 5 million gallons per year, hopefully the market share for your FBO will be at least 50% of that total or 2.5 million gallons per year. If your FBO has a significantly smaller market share of the total, say 30% of the market or less, the value of your FBO for sale is going to suffer. You will have to look at the very reason for your smaller than approximately equal market share of fuel sales and be able to rationalize the reason for it to a prospective buyer of your FBO. Just be prepared to answer this question should it arise.

Sole source locations are the “crown jewel”, so long as there is a significant number of gallons of fuel sales at your FBO exceeding a minimum of  approximately 1,000,000 gallons per annum.

Why are sole-source locations the “crown jewel”? Sole-source locations generally are able to charge higher prices for fuel and thus their margins tend to be higher due to lack of competition. (Nonetheless there is a practical market ceiling on fuel pricing depending upon the location of the FBO, the “popularity” of its location, and FBO competition or lack thereof.)

If your FBO to be sold is blessed to be a sole-source location, and you have significant number of annual gallons of fuel sales, then your FBO is going to be very attractive to prospective purchasers.

Often the first question from FBO perspective buyers is, “Is it sole-source”? If you can answer, “Yes”, you can expect significant interest by buyers for your FBO.

Prepare a spreadsheet showing the number of annual jet aircraft operations at your airport, an indicator of hours of flight activity, particularly as it relates to based aircraft at your  FBO.

These statistics are reportable to the FAA by the airport and typically available on at least a prior year statistical basis. Focus on the operations that are general aviation, based and itinerant, for your FBO buyer. Commercial operations, military, etc. generally do not translate to significant fuel sales and/or profitability, if volume at all, for your FBO.

Low number of annual operations indicates not much activity and not much activity translates to minimal fuel sales, the primary revenue source for FBO’s. Few aircraft flying, mean low fuel sales, which equals low FBO revenue. If this is the case for your airport then the value of your FBO will be negatively affected and there’s really not much you can do as an FBO operator/owner to improve those numbers.

Many FBO’s facing such a situation of low annual operations have aggressively implemented a fuel discount program in a mis-guided attempt to draw new fuel sales volume to your FBO for sale. FBO Advisors strongly recommends you proceed with caution in taking this path. If you discount your fuel to new users you most certainly will cause your loyal, existing users who are your dependable customer base to expect a similar discount from the higher fuel prices they are likely paying, and in the experience of FBO Advisors we see very few examples of this discount tact bearing acceptable results.

Never exchange or confuse volume for profit.

Similar to our #5, “Number of (jet aircraft) annual operations at the airport”, these statistics are also reported to the FAA by the airport and are typically available on at least a prior year statistical basis. You will want to focus on the number of jet aircraft and turbine aircraft based at the airport and give this information to your FBO Buyer.

Remember there are the two types of based general aviation aircraft that purchase significant amounts of jet fuel, again the primary revenue source for FBO’s. Fewer based aircraft equates to lower total fuel sales and lower profit. If this is the case at your FBO you should be prepared to address this with your FBO buyer – how you can increase the number of based aircraft at your FBO (airport) so you can gain additional fuel sales.

Many of these items are tied together; the number of jet aircraft operations annually at your airport, the number of based aircraft and type at your airport, the number of operation annually at your airport, etc. Length of Runways is also part of this list.

As you likely know, minimum acceptable runway length is commonly 5000 feet, (longer is better). Multiple longer runways are better too. Below a 5000 foot minimum runway length, corporate aircraft will not feel comfortable utilizing sub 5000 foot runway lengths especially during adverse weather conditions, high winds, high temperatures, etc. Shorter airport runway lengths restrict the weight of an aircraft taking off depending upon runway altitude, wind, and temperature conditions. In fact many corporate jet owners and corporate flight departments are restricted from utilizing sub 5000 foot runway lengths due to insurance restrictions on coverages they carry. In short, it’s a safety issue and to properly accommodate today’s modern mid to large size corporate jet aircraft, a minimum 5000 foot runway will be necessary and if your airport falls short in runway length then you have limited your market.

If your FBO operates at an airport with sub 5000 foot-long runways the makeup of FBO buyers will be significantly different and much fewer in number interested in acquiring your FBO. Likely you will have less revenues at your FBO because of lack of desired minimum runway length. There is not much that you as an FBO owner can do to increase runway length, that’s the job of the airport and airport authority and the capital costs are significant. FBO buyers will discount the desirability and price they are willing to pay if the airport has sub 5000 foot-long runways.

Similar to Length of Runways above, many corporate flight departments and private jet aircraft owners shy away from utilizing airports that don’t have a manned control tower. Typically this is not an issue at most medium airports and larger. But it is sometimes overlooked by FBO buyers, and many aircraft pilots and owners consider it a potential safety issue and avoid airports without a manned control tower.

Typically the absence of a manned control tower can be traced to a lack of aircraft usage activity at the airport. Since lower airport usage activity (also known as “movements”) mean that you have a quieter, less used airport, and since FBO’s are in the business to sell fuel this is obviously counter to the reason FBO’s are in business, to sell fuel and provide services to as many users as possible. Similar to minimum runway length, there is not much you can do in this case as an FBO owner. FBO buyers will discount the desirability and price they are willing to pay if this key airport operations feature is missing.

Likely your airport has Minimum Standards in effect which govern the minimum services and standards required for FBO’s to operate at your airport. Minimum Standards are specific areas where an FBO operator has to provide specific services and/or facilities in order to “qualify” to operate an FBO at your airport.

For your FBO buyer you will need to provide them with a copy of the current Minimum Standards and confirm your compliance with them, and how you provide each of the services required. Minimum Standards include, for instance, being open a certain number of hours per day and per week, and other services such as fueling, hanger storage, minor aircraft repair services, damaged aircraft removal from runways, pilot supplies, flight training, avionics services, and aircraft rental, etc.

Does your FBO provide any of the required Minimum Standards via outsourcing or contracting out those services instead of providing them in-house? You will need to provide to FBO buyers the contracts and agreements you have in place as the FBO owner to prove compliance with the Minimum Standards to your prospective buyer. Providing some Minimum Standards via outsourcing or contracting out is not a negative for the perspective FBO buyers you are seeking.

Future Lease Rent Escalations are important to your FBO buyer. Depending upon the age of the lease, older leases, those which are 15 years old or older, will typically have modest and minimal ground rent lease rate escalation clauses that most FBO buyers can live with. More recent FBO ground leases, within the last ten to fifteen years,  contain more “aggressive” ground rent escalations such as annual ground rent increases, increases with no maximum ceiling, and sometimes a percentage rent concept on gross income of the FBO.

So what does an FBO buyer prefer? Of course the lowest possible lease rent escalation. FBO Advisors has yet to see a recent lease that doesn’t contain some sort of annual or every few year rent escalation.  Commonly an annual rent adjustment is expected and is “normal”.

Less rent is better of course and so the FBO buyer will likely have no opportunity to renegotiate the terms of the lease which cover annual ground rent escalations. If you do have that opportunity, or if you are negotiating a new lease or a new lease extension, then this needs to be considered, that is properly defining the calculation of the annual ground rent increase, setting a maximum percentage that rent can increase in any given year (a “ceiling”) or some other reasonable benchmark by which to reasonably calculate the increased annual ground rent.

If you are renegotiating on behalf of your FBO buyer, or attempting to increase the appeal of your FBO to buyers, try to avoid at all costs a “benchmark comparable market rate” which will establish an increase based upon what other FBO’s are paying at other airports, or a rate to be determined by appraisal. In our experience your airport will hire an appraiser who will seek out the highest comparable rents paid by other FBO’s at other airports which will not be comparable to your FBO at your airport. Beware.

If possible, your existing airport ground lease that your FBO buyer is about to acquire should contain a lease renewal option for your FBO.

Such lease renewal options typically are subject to “negotiation” by both parties at the time of renewal, which may not be necessarily contain very definitive renewal terms or definitions as to the future establishment of the business terms.

“Any option is better than no lease renewal option” no matter how strong the language, or lack thereof, is for the FBO lessee, your FBO buyer. (Your FBO buyer can choose to exercise or not exercise the option.)  If you the FBO seller have the opportunity to negotiate a lease renewal option then by all means do so! Typically we see lease renewals in 10 year increments, sometimes one or two 10 year renewal options.

When it comes time to sell your FBO in the future, and if it can successfully be marketed as having a 25 year lease with exercise of the renewal option for example, that’s much more valuable to an FBO buyer than only having a 15 year lease remaining with no options to renew.

It’s very important for the FBO buyer to have lease renewal option(s) in place if you have the opportunity. Doing so can increase, immeasurably, the sale value of your FBO your buyer is attempting to acquire today.

As business improves for the FBO buyer that you are selling to, and anticipating for the future, it’s likely your FBO buyer will want to build additional hangar facilities to house its clients current aircraft and to accommodate new client aircraft. If your FBO for sale has rights for additional land then that’s a bonus!

If possible, if you as the existing FBO owner can negotiate and execute an option or options for future leasing of available airport land for your FBO buyer, this makes good sense and adds value!

Lucky #13, the “best for last”!

How much should you ask for your FBO? How much should you expect buyers will pay  for your FBO? And, just as important, what is the current market EBITDA multiple range which applies to your FBO?  That’s the “$64 million question” that all FBO buyers and FBO sellers ask!

Discussion of this most important aspect, the applicable EBITDA multiple range for your FBO requires more extensive discussion and we will cover it in a separate and forthcoming “What’s the value your FBO”!