Building Recurring Revenue, An FBO’s Golden Egg

Credit: Image Supply

Multi-Part Series on The 7 Immutable Elements of Building Equity in Your FBO Enterprise

In today’s FBO operating environment, we’ve often heard the term “Gas and Grass” to describe the two most important elements of building a successful enterprise. For this blog post, we’ll call gas the golden goose and grass the golden egg.

Selling gas, (the golden goose), is often a variable for an FBO. Volumes tend to be volatile, often unpredictable, and seemingly dependent on the economy and socio/geopolitical forces.

But revenue derived from operations on grass, (the golden egg), is recurring income that flows monthly into your balance sheet. Included are rents collected for hangars, offices and tiedowns. It’s predictable revenue that is stable and can be counted on to occur at regular intervals with a relatively high degree of certainty.

Chief among these three is the income generated from hangar rentals. It is perhaps the most important real estate investment from which an FBO can generate true passive income.

It’s been our experience that way too many FBOs tend to diminish the true value of a hangar agreement. They tend to provide deep discounts in exchange for potential fuel sales. Although the golden goose side of the business needs to be fed, FBOs should be careful in crafting their hangar lease agreements solely based on potential fuel sales. That’s why it’s important that the details of potential fuel sales be fully expressed in the hangar agreement; in specific language based on measurable fuel sales milestones.

Because hangar lease agreements are a sublease of your master lease agreement with the airport authority, signatories to hangar subleases do have a right to know the contents of your master lease. In addition, terms for rate increases in your subleases should be similar to the master lease, and the term of subleases cannot be longer than the master lease term.

FBOs should have a more detailed agreement for the lease of an entire hangar complex to an individual or flight department, especially if the agreement is for a multiple-year term. All prospective tenants should have written agreements for space within your FBO, just as you have a written agreement with your airport authority.

Also, included in your hangar agreement should be a rules and regulations section that spells out the dos and don’ts of tenants. We’ll discuss this in a future blog.

Lastly, don’t lease your hangar asset short. Know the competitive rates in your area. Conduct a market study of comparable local and regional rental rates to determine the final rental cost. If you feel the need to discount the hangar rate based on potential fuel sales, we suggest you commit your lessee (in writing) to specific fuel uplift targets at an established price. Then detail an alternate pricing method that would go into effect if the targets are not met.

In our next blog post, we’ll be discussing how to create more recurring revenue through effective office leasing techniques.

ABOUT THE BLOGGERS: John Enticknap (404-867-5518) has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson (972-979-6566) is co-founder of Aviation Business Strategies Group (ABSG) and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training.

SUBSCRIBE:

Subscribe to the AC-U-KWIK FBO Connection Newsletter    

© 2023 ABSG