The Treece Privatization Plan: Market & Marketability Study
After going through a week plus of stories questioning them form the The Toledo Blade, the Treece family released the first substantial part of their privatization plan. The Market and Marketability Assessment (http://toledoairports.com/wp-content/uploads/2013/11/ToledoFinalReport.pdf) was prepared by Airport Business Solutions out of Tampa, Florida. The company itself doesn’t provide much information about who they have consulted for in the past on their website. After some digging you can find reports for Fort Collins, Colorado and Oroville, California. Both of the airports are more general aviation oriented and would be compared to Toledo Executive Airport than the commercially focused Express Airport. Neither of those airports have scheduled passenger service right now. Reviewing the report for Fort Collins (http://www.fortloveair.com/img/site_specific/uploads/Final_BusinessPlan_Sept_15_2009.pdf) several familiar terms and suggestions are also found in this “new” report for the Treece group. Apparently noticing things like this isn’t new as a story from San Diego, who had ABS prepare a report for two of their smaller airports, had reported that the suggestions in the report were “boilerplate” language that could apply to any airport and nothing specific for San Diego. The article quoted local official Gerald Blank as saying “They told us what we already knew. I remember reading them and saying. ‘Thanks a lot.’ ” (http://www.utsandiego.com/uniontrib/20051107/news_1n7means.html) Finding comments like these out there start to reaffirm a lot of what was felt by reading the proposal for TOL & TDZ. Here is a break down going through the main sections.
The best way I found to review this is just go section by section. I’ll bold the main section headings so you know where to look in the report.
Introduction and Background Information
This section covers a brief overview of the current setup. The first sentence has an obvious error stating that the Port Authority owns the two airports, where that is the City of Toledo that owns them. The assessment of the Port’s surface operations only being through the Central Union Terminal don’t really come across as accurate, however that’s not a big deal. It also evaluates the area’s geographic setup mentioning the communities in it. Unfortunately the city of Sylvania, Monclova Township, Swanton Township, Springfield Township, village of Ottawa Hills, and Waterville Township were all voted off the island and no longer exist.
Current Airport Data
The claim is made that TOL is designed around the DC-8-73F somehow, but doesn’t provide anything to explain where they got that from. The other basic airport details are fairly accurate. In discussing airline passenger numbers, the focus is only on enplanements and not arriving passengers. It highlights that Detroit and Cleveland constraint passenger growth, which is accurate. Overall no major inaccuracies in this section. The discussion of TDZ is mostly spot on as well with no major issues that stood out.
A claim is made that cost savings by the Reason Foundation say the airport can save between 20% and 50%. The report (http://reason.org/news/show/apr-2013-airport-privatization) is mostly focused on the international scene as US airport privatization has been very limited. The also claim better access to expertise, though I’m sure hundreds of domestic airports would disagree with that – as well as popular consultants like Michael Boyd. Improved risk management and innovation are better with private sector operators appears to be a blanket statement that could apply to anything comparing against a government run operation.
This section also highlights a dozen or so options top help with profitability. Land development, lease and property management, fuel operations oversight, and air service marketing are a few of them. It then lists several advantages to going the private route.
- “Reduction in airport labor costs” – This is something already targeted by the Port Authority.
- “Access to private sector expertise” – The Port has worked with Boyd and Sixel, to name two, private entities for the airport.
- “Accelerate projects/reduce costs” – Could be argued with any public/private project.
- “Engages motivated marketing programs” – This is something we’ve felt the airport has needed help with, and the addition of an individual involved with the success of Akron-Canton has been a good thing.
- “Reduce Port Authorites'[sic] subsidies” – Outside of the spelling error, since there is only one, we need to see the business plan before addressing this.
- “Introduce private capital” – While good, it doesn’t speak for impact in possibly losing public funding.
We then move on to examples of public/private partnerships. They mention Bob Hope airport in Burbank, which stopped being privately managed in 1978 and therefore no longer a viable example. Other examples given were:
- Albany Int’l Airport which is actually managed by Albany County Airport Authority
- Rhode Island Airport Corporation – board of directions are 100% government appointees.
- Indianapolis Int’l Airport – managed by Indianapolis Airport Authority, use to have an agreement with BAA decades ago.
- Teterboro Airport – formerly private sector now managed by New York/New Jersey Port Authority.
- Atlantic City Int’l Airport – now also managed by the NY/NJ Port Authority.
- Newark Libert Int’l Airport – also managed by the NY/NJ Port Authority.
- Los Angeles County Airports – these are the 5 small general aviation airports in LA County that are owned by the country. These do not have commercial passenger service.
The rest of the section summarizes the rest of the proposal and its purpose.
This section starts with a history section that has nothing specifically to do with Toledo as it is mainly just overall industry information. Getting through that background they get to the part specific to TOL. It has an accurate portrayal of what DB Shencker did to BAX. Unfortunately their current assessment of air cargo at TOL is outdated by about 3-4 years. It claims current activity includes flights to Canada, Mexico, Australia, Europe, and the Middle East. Unfortunately as our members know, majority of those flights ended when the BAX hub closed. Remaining service does include DHL service to MSP and CVG and on demand service from Northern Air Cargo and other random flights from operators like USA Jet.
The section then discusses the situation regarding the perishable market in Miami, FL and how airports try to compete for it. If we recall, the Port Authority was discussing and addressing these issues about 5+ years ago and it is why the cold storage facility was placed in the air cargo building. This appears to just be a rehashed idea that was already implemented when it was more practical. Unfortunately airlines never latched on to the idea of moving that traffic out of Miami.
The rest of the evaluation of the air cargo setup are in line for the most part. It starts hitting on fuel costs for airlines and that it is keeping some from being able to fly to TOL because the current setup apparently doesn’t allow airlines to buy fuel and store on sight according to their terms. We know that fuel and the FBOs is a big sticking point with anything, we remember the issues when Grand Aire first arrived and how TOL Aviation was saying that certain people wanted them out of business. The report proposes that airlines should be allowed to negotiate to purchase fuel from who they want and have it stored at the airport, going around the local FBOs if needed.
Another opportunity proposed is upgrading the ILS capabilities of the airport to at least Category II to make the airport more attractive for international carriers and better accommodate DTW diversions. Other options presented include cross-docking facilities, third party ground handling, and onsite maintenance capabilities.
FIXED BASED OPERATORS / GENERAL AVIATION
Again, this starts with a history lesson and an industry overview. A few sections they are hitting on…
- Specialized Aviation Service Operators – such as Toledo Jet need to be increased.
- Aircraft Manufacturing
- Aviation Fuel Sales
- and then a half dozen other private scenarios for general aviation.
TOL – FBO FUEL ISSUES
This is probably going to be the biggest issue I see. Here is what they are saying. They describe how fuel storage is split between Grand Aire, National Flight, TOL Aviation, Owens Corning, and Maumee Air Associates. Also hit on are the existing FBO facilities are in need of updating. This is exactly the same suggestion in the other proposal linked at the start for other airports.
The hot button issue of course is hitting on fuel services and saying the 3 FBOs is causing a negative impact on revenues for those operators by all competing with each other. They suggest consolidation through out this piece, but it is unknown if they are also suggesting a rise in fuel prices for customers. If that is the case, that could negatively impact passenger operators like Allegiant who rely on lower costs to make markets like Toledo profitable. They also inaccurately call Grand Aire a predominately air cargo company, which is something they transitioned from years ago. The proposal wants to have a consolidate fuel storage system that the FBOs and operators would draw from. Essentially taking control away from the FBOs and putting it in the hands of a single entity – which we would assume is one of the Treece’s companies being setup for this proposal. Corporate users would also purchase fuel from the consolidated fuel farm and not from the FBOs or their own fuel farm.
Finally they point out a need for more airport-based aircraft for on demand charter services for passengers. We’ve seen this added in with Sierra West providing more on demand air cargo options from Toledo.
AIR CARRIER ACTIVIES
A brief overview of the industry is presented, but it isn’t all that great. It states there are only 5 major airlines today (DL, UA, WN, AA, and US) and numerous secondary airlines (B6, AS, F9). Unfortunately they need to be aware that B6, F9, and AS are also considered major airlines per the DOT. They also claim these secondary airlines only focus on large metro markets. Which of course isn’t true. When you look at B6 or even Virgin America, that is pretty accurate. Alaska with subsidiary Horizon provides an extensive hub and spoke (and point to point) network in the West. Frontier service several smaller markets with infrequent service (new focus cities at Trenton and Wilmington, DE). Even with these limited schedules, there are ample connection opportunities for most of their routes – that are’t focused on O&D. Now the 3rd classification that was ignored for the most part, the Ultra Low Cost Carrier (ULCC) is where Toledo’s future is likely locked in includes G4 (already here and they did hit on them) and Spirit (in DTW). F9 will eventually join them as well as PeoplExpress if it ever happens.
They make a claim that Toledo is not large enough to sustain a legacy carrier today, which isn’t completely accurate, but the local market’s mindset is the biggest obstacle there (which they do mention).
They hit on the scheduled charter form of operation, which we’ve seen in the region pick up some. Lakeshore Express out of Pontiac Int’l in Metro Detroit and Ultimate Jet Charters (mentioned in the report) out of Lunkin Field in Cincinnati. They say these operations are important to the big NE cities and similar for business travelers. The key thing to remember with these operations is that flights are limited to 4 days per week when operating under Part 135 instead of the typical Part 121. The report mentions they have received out to Ultimate Jet Charters about a Toledo to New York flight and stated they received a high level of interest and were willing to meet with the reps of the airport (Port I would assume). It is hard to say if this is accurate and what the fare structure would be like for a Dornier 328 to New York (not to mention what airport they could fly into). We’ll look at this in another blog post when possible.
OTHER AVIATION SERVICES
They claim that being near DTW is a great chance to a heavy maintenance base. While this could have been an option in the past, unfortunately most of these larger airlines are consolidating facilities from previous mergers. We’ve seen old Northwest bases shut down or scrapped in Minnesota. In the early 1990s, Toledo competed against Hibbing and Duluth for the A-319/320 maintenance base. Toledo lost out on the bid, Minnesota won, but the projects never developed as were promised. Modern day Delta has maintenance bases in Atlanta, Cincinnati, Chicago, Boston, Salt Lake City and Los Angles and other cities. The facilities at Detroit are used as line maintenance now and the airline has a few hangars as well still. This is something Toledo doesn’t have right now. Previous discussions to bring airline maintenance to Toledo has hinged on the availability of hangar space – something the airport doesn’t have as it is all rented out.
We’ve suggested before that if Toledo wants to get in on the MRO options out there, they need to get a hangar that can hold 3-5 regional aircraft and target the regional carriers flying for the majors. This is what airports such as Fort Wayne, Grand Rapids, and South Bend have done for years. Fort Wayne has the benefits of being a base for Delta Connection carrier Endeavor Air (formerly Pinnacle). This keeps FWA relevant in keeping Delta service. They mention Abilene, TX which does something similar for American Eagle. They also mention the American base in Tulsa, Oklahoma in the past tense even though it is the largest maintenance base for American this day.
The suggestion that Delta would divest some of its major overhaul away from its mega hub in Atlanta isn’t realistic. The better option would be to seek a company like AAR or ARINC to build a base here that would serve multiple airlines, which is something they hit on in a round about way. We also see options for aircraft painting, which goes hand in hand with the companies mentioned.
Defense Contractors, Air Park, and Flight Training services are all mentioned but don’t have a significant number of details. It is mostly just an overview of “what ifs” and “this is what is out there” but nothing tailored for TOL.
The report finishes up with a “SWOT” analysis which is what they do in every report they do. It really doesn’t provide any new information that isn’t already well known. In all the report is a decent analysis of what is out there and what is well known already. It doesn’t provide anything new that we haven’t’ discussed at one point in time over the ten plus years we’ve been doing this site. The report also had several errors and lacks a significant amount of specifics for Toledo. While we are glad we are finally seeing some specifics come out from the Treece proposal, this study really doesn’t tell us much. It does hint at what we may see in their final proposal due on in the next few weeks. There was a lot of focus on the fuel situation at the airport that would create a controlling monopoly on all fuel and force the FBOs and corporate operators to purchase from that sole entity. This is something that could negatively impact the way those businesses function and also for the ULCC air operators such as Allegiant from being able to service the airport. One of the big questions we’ve had is how will the Treeces make money considering profits from the airport have to stay with in the operation (or they risk having to pay millions back to the FAA). It seems logical now that they are wanting to use a consolidate fuel farm as one way to make money, on top of a likely “airport management fee”. This is something that could negatively impact long time supporters and job creators at the airport.