Taxpayers lose when city airport starts air service in declining market

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The Chattanooga Airport Authority is competing against the free market in a two-year experiment running a fixed based operation.

By Christopher Butler
http://tennessee.watchdog.org

Now that Tennessee has given the OK for government to compete against free enterprise, two other states are following its lead.

The Chattanooga Airport Authority has directly inspired officials at two other airports in other states to try to establish their own taxpayer-subsidized Fixed Base of Operations to compete against private business.

According to traditional definitions, an FBO is a company that services general aviation aircraft (providing aircraft fuel, hangar storage and other facilities for airplane crews and passengers).

Experts in the field of aviation fear that this is just the beginning and that the Airport Authority in Chattanooga will eventually establish a national trend for other airports to follow.

As Tennessee Watchdog has previously reported [1], Chattanooga Airport officials announced in 2010 that they would use millions in taxpayer money to compete against the privately run TAC Air. Until last year, TAC Air was the airport’s only FBO. The Airport Authority said a second FBO was needed to provide more competition and lower fuel prices.

TAC Air officials, however, have long maintained that airport traffic has declined and that no private enterprise would dare invest money to compete in a place where demand is lacking. Thus far, the new government-subsidized venture has lost $300,000 and counting [2].

An international real-estate consulting firm warned that the Authority’s plan will eventually lose millions of taxpayer dollars [3].

James Coyne, the president of the National Air Transportation Association, told Tennessee Gov. Bill Haslam that the Authority is setting a bad precedent [4] .

Now, officials at the Southwest Florida International Airport are following through on a plan similar to Chattanooga’s. Furthermore, officials at the Corpus Christi International Airport in Texas are considering whether to do the same.

Twelve members of Congress, including Tennessee representatives Diane Black and Marsha Blackburn, have asked the Federal Aviation Administration (FAA) to intervene. In a letter that directly cites the situation in Chattanooga, the representatives say they want the agency to make sure all FBOs can compete on a level playing field.

“As a practical matter, most airport sponsors recognize that aeronautical services are best provided by profit-motivated private enterprise,” according to the letter.

In contrast, Gregory Principato, the president of the Airports Council International North America (ACI-NA), which supports the Chattanooga Airport Authority in this matter, has written his own letter to the FAA. His interpretation of the matter differs greatly. Principato said that the 12 congressional representatives are “misguided.”

The Chattanooga Airport Authority — and not private business — has its community’s best needs in mind, he wrote.

“Airport operators are focused on the long-term needs of their communities and this focus, rather than profit motive, better serves a region’s aviation and economic development interests.”

A Request for guidelines

Chattanooga Airport Authority officials chose the private Wilson Air company to manage the competing FBO, under the Authority’s supervision and with taxpayer funds. The concerns that the 12 members of Congress provided to the FAA mirror the complaints that TAC Air officials were making as long as two years ago. The representatives say, for instance, that the Airport Authority can show preferential treatment to Wilson Air and thus give the taxpayer-subsidized entity a competitive advantage.

The representatives asked the FAA to establish strict guidelines for government aviation authorities to follow when they use taxpayer money to compete against a private business. These new powers also grant the Authority the conflicting dual roles of regulator and competitor, according to the letter.

“Since airport-sponsored FBOs do not have a profit motivation, capital losses do not present a fundamental problem. However, these losses are passed on and result in wasted taxpayer dollars. Such scenarios can be avoided by the use of privately-owned FBOs who do not rely on taxpayer subsidies and must operate within a budget,” the letter stated.

Pam McCallister, general manager for TAC Air’s Chattanooga headquarters, predicts that several other airport authorities will soon start looking at government-sponsored FBOs as another source of revenue. “I think the point of the letter is to say the following — ‘Look at what is happening in Chattanooga. If it could happen here then it could happen anywhere.’”

“Other FBO chains across the country are extremely interested in what is happening in Chattanooga because they know they could very well be in the same situation we are in at our airport,” McCallister said.

FAA spokeswoman Kathleen Bergen said her agency has received the letter, but has not yet released a response.

A problem with profit motive?

Chattanooga Airport Authority officials [5] had no comment on the matter, but they did refer questions to the ACI-NA.

In his letter to the FAA, Principato, speaking on the ACI-NA’s behalf, continues with his theme that profit-driven businesses engage in practices that are counterproductive to the best needs of the communities they serve.

“Airport operators are focused on the long-term needs of their communities and this focus, rather than profit motive, better serves a region’s aviation and economic development interests.”

Of the congressional representatives’ letter to the FAA, Principato said this:“We believe that this inquiry is a misguided attempt initiated by a few privately operated fixed-based operators to eliminate competition to their monopolies and is not a concern with efficient use of taxpayer dollars.”

The ACI-NA represents local, regional and state governing bodies that own and operate commercial airports throughout the United States.

Despite the financial losses that the Chattanooga Airport Authority has thus far sustained, Principato claims that none of those losses involve taxpayer money.
“Any operating losses sustained by the airport-owned FBO are not covered by any local, state, or federal government subsidy, but are covered by the airport’s own self-generated operating funds.”

As Tennessee Watchdog reported in 2010, however, the Authority is spending $4 million in state grant funding from the Tennessee Department of Transportation Aeronautics Division in their quest to compete against TAC Air.

Officials at the Southwest Florida International Airport in Fort Myers have already adopted a plan similar to the Chattanooga Airport Authority’s.

Vincent Wolanin, the CEO of PrivateSky Aviation Services, the airport’s only FBO, said airport officials carried out the plan at the expense of his private business.

In a lawsuit that he filed against the county agency that oversees the airport, Wolanin said the county renovated another FBO at a nearby airport via $40 million in state and federal grant money. The action has subsequently resulted in a loss of traffic at Wolanin’s private FBO.

Wolanin told Tennessee Watchdog that he and other private FBO operators believe this is the continuation of a pattern that began in Chattanooga.

“This is something that is getting out of control, and someone will have to put a stop to it. It should be illegal, otherwise government is going to run everything.

“Whatever they do, however, we can compete against them all day long, provided the playing fields are level in terms of invested capital. We’re smarter than they are. We’re faster than they are. We’re also much better adapted at business. We can compete all day long if the capital requirements are the same. They are not, which is what the problem is — the municipalities have use of free public taxpayer money without a return on capital requirement.”

A Dispute over facts

Since the second FBO was established, state officials have given the Chattanooga Airport Authority even more taxpayer dollars, this time $5 million in grant money from the Tennessee Aeronautics Commission. This money will pay for new hangar space on the side of the airport nearest Wilson Air.

TAC Air officials said many existing airport hangars are empty due to a significant decrease in airport traffic.

Airport Authority officials justify their need for new hangar space based upon the research of Tampa, Florida-based consultant Mike Hodges, of Airport Business Solutions.

“Our information indicated that the overall occupancy of the TAC Air hangar facilities was approximately 90 percent, with most of the vacancy associated with older, lower-demand facilities, as well as space predominantly dedicated to transient use,” Hodges told Tennessee Watchdog.

Hodges would not directly state who sourced this information, other than to say “multiple sources, including interviews with knowledgeable parties.”

McCallister said she is suspicious of Hodges’ claims, and she believes they were based upon faulty research of her company.

“Anytime you hire a consultant they will tell you whatever you want to hear. He said TAC Air was at 90 percent occupancy. The truth is we are actually at 60 percent occupancy. I simply don’t know where he got that number.”

TAC Air officials said many of the existing airport hangars are empty due to a significant decrease in airport traffic.

The Authority itself in a recent request for a proposal said that the annual number of general aviation operations at the airport has declined from 40,301 in 2004 to 31,494 in 2008. TAC Air spokesman Dave Edwards suggests that the Authority could address the airport’s financial losses by immediately ending their contract with Wilson Air.

“It defies common sense for the airport to continue this way. If we weren’t doing our jobs here, or if there was more business than one FBO could handle, then why doesn’t the free market compete against that? It’s very difficult, and it goes against the fiber of capitalism.”

Christopher Butler is the editor of Tennessee Watchdog and the Director of Government Accountability
for the Beacon Center of Tennessee. Contact him at chris@beacontn.org
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Article from http://tennessee.watchdog.org
URL to article: http://tennessee.watchdog.org/2012/08/21/chattanooga-inspires-more-governments-to-compete-with-free-enterprise/

Sources:
[1] As Tennessee  Watchdog has previously reported: http://tennessee.watchdog.org/2010/12/16/price-of-competition-high-for-taxpayers/
[2] the new government-subsidized venture has lost $300,000 and counting: http://tennessee.watchdog.org/2012/03/26/chattanooga-officials-admit-huge-loss-for-taxpayers-on-airport-project/
[3] the Authority’s plan will eventually lose millions of taxpayer dollars: http://tennessee.watchdog.org/2011/05/13/study-taxpayers-will-lose-3-million-on-chattanooga-airport-project/
[4] the Authority is setting a bad precedent: http://tennessee.watchdog.org/2012/07/13/national-aviation-group-upset-contacts-haslam-about-chattanooga-airport/
[5] Chattanooga Airport Authority officials: http://www.youtube.com/watch?v=1C_MMCJNXxw