How Do I Buy a Fixed Base Operator (FBO)? Is It a Good Investment?
A Resource-Rich Destination for Pilots and Passengers
The Fixed Base Operator (FBO) is a crucial aviation industry infrastructure. It serves as a multi-use hub offering aviation-related services and support. Private, corporate, and, on occasion, even commercial aircraft benefit from the services made available by an FBO. The FBO is a resource-rich destination for pilots and passengers, providing a wide range of amenities, conveniences, and services typically required for smooth operations before, during, and after aircraft operations or flights.
Skilled Aviation Licensed Technicians
Typical FBOs feature convenient facilities for handling, maintaining, repairing, and storing aircraft. These include everything from fueling services to hangar space and maintenance facilities staffed with highly skilled licensed technicians capable of performing routine inspections and repairs. FBOs commonly provide pilots and passengers with comfortable amenities, including lounges, conference rooms, and catering services, ensuring a relaxed environment for conducting business while waiting for their flights.
Easing the Logistical Load on Pilots
Most would agree that FBOs are pivotal in facilitating aircraft ground handling. This includes operations such as marshaling aircraft, loading and unloading luggage and cargo, aircraft parking, security, and arranging transfers to and from the main airport terminal. Additionally, fixed-base operators assist with pre-and post-flight administrative tasks like flight planning, weather briefing, and customs and immigration processing, easing the logistical load on pilots and their passengers.
Generate Considerable Revenue Streams
Beyond these aviation-related core operational functions, FBOs also serve to stimulate and boost the local economy significantly. They generate considerable revenue streams by providing services and employment opportunities for individuals within the aviation sector. Also worth noting is that FBOs frequently attract transient traffic outside the main commercial airport traffic flow, bringing additional visitors and business to the surrounding community. Fixed Base Operators deliver indispensable services within the aviation ecosystem, contributing to air travel’s overall efficiency, safety, and convenience.
How Do I Buy an FBO?
Without question, owning and operating a fixed base operator or FBO can be an excellent investment. As a core necessity within the world of aviation, the FBO is a commercial concern that has been sanctioned by the local airport authority to provide a range of services for crew, aircraft, and passengers. The typical FBO operates wholly within the confines of airport-owned property. Keep in mind that aside from a booming commercial aviation sector, general aviation has also enjoyed exponential growth. It’s a multi-billion-dollar industry with substantial profit potential.
Seasoned and Experienced
In short, the indispensable nature of the FBO means that purchasing this type of business is a viable and in-demand business venture option. That said, the initial steps in securing an FBO as an investment involve assembling a seasoned and experienced team of experts and professionals. Finding the right aviation specialists is the key to getting the most out of this kind of business investment. In addition, with a highly qualified acquisition team, an investor has the best chance possible of achieving the most accurate property valuation estimates.
A Carefully Chosen Team
Equally important is knowing that a properly assembled team will help the investor reduce risk by overcoming financial hurdles and navigating the complexities of regulatory demands. A carefully chosen team will streamline the entire business acquisition process and ultimately close the deal most efficiently and profitably possible. The makeup of an assembled team should include the following within its network:
- Technical Expert: A professional or group of professionals specializing in key areas of due diligence and technical and regulatory compliance.
- Aviation Attorney: Legal professionals with extensive experience in mergers and acquisitions and who understand the nuances of aviation in detail.
- Business Broker: An individual or group well-versed in aviation businesses, emphasizing FBO-related businesses.
Due Diligence
As with acquiring any business concern, due diligence is at the core of long-term investment success. It is a fundamentally important component of any wise FBO purchase. Most experts agree that a lack of comprehensive due diligence can create unexpected liability and added costs associated with buying a business. That said, there are two specific parts of the due diligence process to consider: one is economic, and the other is legal in nature.
Economic-Related Due Diligence Considerations
Economic due diligence involves a detailed and in-depth analysis of the target business’s financials. This should include, at a minimum, and not be limited to, the balance sheet and income statement. Based on these documents, the business broker can best determine the true market value of the FBO being considered for purchase. These critical first steps of the due diligence process, combined with the next set of metrics, will ensure a good investment in the future.
An Annual Analysis of Each Metric
For example, the airport traffic numbers and metrics must be carefully considered. Things like the total quantity of jet fuel and AV fuel sold over a given period are important to know. The total number of aircraft operators calculated annually is also vital information. Other metrics include total annual flight hours conducted from the target FBO and the number of hangered aircraft. Having access to an annual analysis of each metric is essential in this regard.
Expenses and Costs
In addition, the terms associated with any lease agreements must be carefully reviewed and understood. The length of the term and remaining term, along with any rent adjustments, should be inspected. The business broker should be expected to review the expenses and costs of items required under the lease, like insurance. Equipment and inventory, as with any business acquisition, require the inspection of current and past inventory levels. This clearly shows which products sell the best or are the most profitable.
Efficiency and Profitability
It is important to know which equipment is approaching its end-of-life cycle, potentially requiring updating or replacement. Finally, a full analysis of personnel is in order. Know the total number of active employees, independent contractors, compensation rates, and the cost of employee benefit plans. This detailed information will help determine if a workforce or compensation rate reduction is in order. The main objective, of course, is to improve overall efficiency and profitability for the business.
Legal Related Due Diligence Considerations
Having an experienced law firm on the team is vital to success. One of the top priorities of the legal team is initiating a due diligence request list. This is the process of requesting all the necessary financial and legal documentation needed to analyze the acquisition fully. It is where any potential liabilities are likely discovered. A law firm with a strong understanding of FBO mergers and acquisitions, aviation real estate, and aviation-related local and federal law is essential.
Here are a few representative legal concerns that should be addressed when preparing to buy an FBO:
- Regulatory: This should include any licensing issues, approvals, regulatory requirements, and insurance needs.
- Corporate Governance: This may include bylaws, operating agreements, and a lack of business transfer encumbrances.
- Legal Agreements and Contracts: All standing and enforceable contracts, such as those involving employees, suppliers, the airport, and vendors, should be carefully reviewed for obligation and liability conflicts.
Closing The Deal
Following comprehensive due diligence, the buyer of an FBO can expect to have solid footing going into the final deal. At this point, legal counsel must ensure the purchase agreement is properly structured and free of liability concerns. The purchase of an FBO can be a complex and daunting challenge; however, with the right team fully assembled, it can be a streamlined and straightforward process. Remember that in-depth due diligence and a well-structured purchase agreement are the keys to success.
Aviation Property Network
To learn more about buying an FBO or other aviation-related properties, contact APN today!
Declaimer: APN is not a financial advisor and makes no claims as such. All information provided here is intended to be educational in nature and is presented for illustrative purposes only. Contact a licensed financial expert or registered accountant if you have specific financial questions.