Aircraft Hangar Development Guide

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Aircraft Hangar Development Guide A Valuable Airport Resource AIRCRAFT HANGAR DEVELOPMENT GUIDE 1 INTRODUCTION 2 PROJECT PLANNING Step One 4 Step Two 9 Step Three 14 PROJECT EXECUTION Step Four 20 Step Five 32 APPENDIX I 34 APPENDIX II 36 APPENDIX III 38 CONTENTS The AOPA Airport Support Network program was intro- duced in 1997 in order to assist members in preserving general aviation airports throughout the United States. Today, AOPA works with some 1700 Airport Support Network volunteers to promote, protect and defend America 9s community airports. This Aircraft Hangar Development Guide is another in a series of publications AOPA has created in order to help individual volunteers keep their airport healthy, vibrant and growing.

For more information on the Airport Support Network program, please contact us at AOPA Airport Support Network 421 Aviation Way Frederick, Maryland 21701 301-695-2200 asn@aopa.org Or log onto www.aopa.org/asn © Copyright 2005 Aircraft Owners and Pilots Association Aircraft Hangar Development Guide Version 1 AIRCRAFT HANGAR DEVELOPMENT GUIDE 34 AIRPORT REVENUE AND EXPENSE FINANCIAL ANALYSIS The financial analysis is nothing more than a balance of the airport 9s revenues and expenses 4 think of it as balancing the airport 9s checkbook 4 and much of the ... more. less.

information can be obtained from the airport owner 9s finance department. What follows are some of the principal elements that make up the airport 9s revenues, expenses, and other financial items. Whether a private developer or the airport owner builds and oper- ates the hangars, most of these financial elements will apply to the typical GA airport. Revenue Fuel sales: revenue from 100LL, Jet A, auto, oil, etc. Hangar rent: revenue from owner-operated/ -built operated/built hangars Tiedown rent: revenue from tiedowns, including transients Ground rent/land leases: revenue from airport land leases for FBOs, charter operators, pri- vate hangar development, etc. Interest earnings: revenue from bonds and bank accounts Miscellaneous revenue: property tax returned to airport, penalty payments, etc. Expense Salaries and benefits for full- and part-time employees Fuel purchases: wholesale purchases of fuel for sale (applies to airport owner-operated fuel system) Fuel flowage fees: cents per gallon of fuel sold payable to airport owner (privately- owned and -operated fuel system or large operator has its own fuel supply) Professional and contract services: standing engineering consultant fees, contract employee fees, and other consultants Utilities: payments for electric, water, sewer, heating Bank fees and lab services: bank fees for credit card purchases, ground water/runoff testing for environmental compliance, underground fuel system tests Telecommunications: telephone, computer services, etc. Office supplies: postage, paper, pencils, com- puter, interior areas and other supplies Repair supplies: parts to maintain airport vehicles, hangars, fuel system, etc. Repairs and maintenance: services for equipment repair, hangar maintenance, fuel system repairs, etc. Miscellaneous: travel, memberships, advertising Overhead allocations: secretarial staff, finance staff, management. This can be allo- cated based on a standardized method used for charging other departments of owner operations, or it can be direct actual costs. The FAA requires whatever method used be consistent for all departments and enterprise funds. Insurance: general liability and damage coverage Taxes: local, county, state Bad debt write-offs Other items Loan payments: principle and interest Federal grants received State grants received Capital project expenses Fixed-asset depreciation APPENDIX I AIRCRAFT HANGAR DEVELOPMENT GUIDE 35 Use the financial analysis to build your credi- bility as a knowledgeable airport proponent. In a situation where there has been little analysis, this information also will help influence key stakeholders to support the project. If the air- port 9s financial situation is not currently satis- factory, rectify this situation before proceeding with the hangar project. By tabulating the air- port 9s annual financial results and tracking its current fiscal year performance quarterly or monthly, you will learn quickly about its financial health. Sample Airport Operating and Expense Summary REVENUEBUDGETACTUAL1QR2QR3QR4QR Fuel sales460,000480,000110,000130,000140,000100,000 Hangar rent420,000450,000105,000105,000120,000120,000 Tiedown rent15,00017,8004,4004,4004,5004,500 Ground rent90,00093,00022,50022,50024,00024,000 Interest earnings46,00048,00012,00012,00012,00012,000 Property tax return48,00045,0000045,0000 Miscellaneous12,00011,5004,0002,5003,0002,000 TOTAL1,091,0001,145,300257,901276,402348,503262,504 EXPENSESBUDGETACTUAL1QR2QR3QR4QR Salaries, benefits32,00032,0008,0008,0008,0008,000 Fuel purchases360,000370,00090,00080,000100,000100,000 Contract services82,00090,00020,00030,00020,00020,000 Utilities55,00056,50014,00014,00015,00013,500 Bank/lab fees12,00012,5003,0003,2003,5002,800 Telecommunications2,5002,500600600700600 Office supplies2,5002,700600600800700 Repair: parts15,00020,5005,0003,0006,0006,500 Repair: maintenance20,00024,0006,0004,0007,0007,000 Miscellaneous9,50010,5003,0002,5002,0003,000 Overhead85,00086,00021,50021,50021,50021,500 Insurance6,0006,0001,5001,5001,5001,500 Taxes4,0004,0001,0001,0001,0001,000 Bad debt1,5001,300500300400100 TOTAL702,000718,500174,701170,202187,403186,204 OTHERBUDGETACTUAL1QR2QR3QR4QR Loan: principle(82,000)(82,000)0(41,000)0(41,000) Loan: interest(355,000)(355,000)0(178,000)0(177,000) Federal grants150,000150,0000150,00000 State grants000000 Capital project expenses(160,000)(181,000)0(169,000)(12,000)0 Depreciation(85,000)(85,000)000(85,000) TOTAL(450,000)(471,000)0(169,000)(12,000)(262,000) In this example there is a budgeted loss of $61,000, compared to an accumulated year-end loss of $59,200. Since this loss can be attributed to depreciation charges, $85,000, (see comments about depreciation in cProject Planning 4 Step One d), there is actually a small surplus when depreciation is excluded from the review. To summarize BUDGETACTUAL Revenue:1,091,0001,145,300 Expenses:702,000733,500 Other:(450,000)(471,000) TOTAL(61,000)(59,200) AIRCRAFT HANGAR DEVELOPMENT GUIDE 36 HANGAR PROJECT PROFORMA The financial project proforma is a detailed pro- jection of the impact of your hangar project on the financial health of the airport. To create this proforma, take the year-by-year financial review as outlined in Appendix I and make some assumptions based on the scope of your hangar project. The financial institutions that will be providing the money for your project will proba- bly want to see the analysis. The airport owner 9s financial staff might be able and willing to do this for you; if not, it is not difficult. Remember, it will demonstrate the true value of your project to the airport over time. This proforma will be useful when influencing the key decision makers and stakeholders to support the project. If you can prove that your hangar project could make the airport self-supporting (without the need for supplemental funds from the local tax base), you 9ll find them much more supportive. The first task is to complete the annual financial analysis in Appendix I. Then list the project scope assumptions. Identify the scope items in the proj- ect that will impact the airport 9s revenue, expens- es, and loan payments after the hangars are com- pleted and generating revenue. Take a look at these assumptions for the example airport finan- cial analysis used in Appendix I. Current airport hangar space rented: 124,000 square feet. New hangar space for rent: 30,000 square feet (30 new hangars, 24-percent increase in rentable hangar space). You will have to esti- mate the cost of the hangar project and use a loan calculator to estimate the interest and principle payments. The design engineering consultant should be able to create a project cost estimate. Utilities increase with the increase in hangars (24-percent). Increase the current rental rate of $0.27 per square feet per month as appropriate (assume 3 percent annual inflation). Additional fuel sales: There are currently 200 aircraft, and you will be adding 30 new hangars. Assume that 50 percent of the hangar occupants are new to the airport (i.e., 15 new aircraft). This means a 7.5-percent increase in aircraft based at the airport [(200+15)/200 = 1.075 or 7.5%]. Therefore, fuel sales also should increase 7.5 percent. The rest of the hangars would be occupied by current tiedown renters ($480,000+7.5%= $516,000). Current hangar rent: $450,000 (124,000 square feet) + $99,000 for the new hangars (30,000 square feet x $0.275/mo) = $549,000. Increase operating expenses 3 percent per year for inflation. Increase fuel purchases 7.5 percent. Increase miscellaneous revenues and expens- es by 7.5 percent related to aircraft on field. Now that the assumptions are in place, set up the projections. Consolidate some of the revenue and expense numbers such as those that are not impacted by the increase in aircraft based on the field. Exclude grants, depreciation, and capital project expenses because you want to project only the ongoing operating revenues and expens- es to see if you can afford the hangar project. The yearly projected total is the total revenue minus the expenses and loan payments. cYear 0 d is the current financial state of the airport. cYear 1 d assumes the hangar project is complete and generating revenue. This airport example would include the 7.5-percent increase in fuel sales and APPENDIX II AIRCRAFT HANGAR DEVELOPMENT GUIDE 37 the net end-of-year financial picture start to improve. Inflation will continue to drive up costs and expenses, but your financing cost is con- stant, so you 9ll see an improvement in your air- port financial picture. If the airport does not own the major sources of revenue, like the fuel system and hangars, the via- bility of your hangar project could be significantly affected. This is why a careful review of the air- port 9s financial situation is vital. Working all of these issues into your business plan is critical if you are going to build the support needed to exe- cute your project effectively. purchases and 3 percent inflation increases in rental rates (3 percent inflation for following years as well). You could do these projections without considering inflation, or you could use a figure other than 3 percent, but don 9t forget the impact of rent increases on revenue. You can con- tinue the projections through to the end of the loan term, but only the first 10 years are shown in this example. The numbers on the chart below have been rounded to thousands of dollars.) After the project is complete and begins to gener- ate revenue and attract new aircraft to your air- port, thereby increasing fuel sales, you will see REVENUEYR 0YR 1YR 2YR 3YR 4YR 5YR 6YR 7 YR 8YR 9YR 10 Fuel480530547563580597615634653672691 Hangar rent450549565582600618636655675695715 Other rent110113116119122126130134138142146 Property tax4550515354565859616365 Other6062646668707274767982 SUBTOTAL11451329134513861428147215171563161116601709 EXPENSES Salaries/benefits3233343536373839404243 Fuel purchase370398409422435447461475489504519 Utilities5771737578808285879093 Other exp162167172177182188193199205211217 Overhead8689919497100103106109113117 Other exp 1111121212131314141516 SUBTOTAL7187697918058408658909189449651005 OTHER Loan principle828486889092949698100102 Loan interest355353351349347345343341339337335 New loan principle20212223242526272829 New loan interest86858483828180797877 SUBTOTAL437543543543543543543543543543543 TOTAL(10)171138456484102124152161 AIRCRAFT HANGAR DEVELOPMENT GUIDE 38 APPENDIX III IS YOUR BUSINESS CASE COMPELLING? For your project to be successful it must be com- pelling to the key decision makers and stake- holders. There are four key phases to create and integrate a compelling business case for your hangar project. Phase One: Develop the business case Phase Two: Check with stakeholders to ensure the business case is compelling Phase Three: Develop a basic presentation Phase Four: Feed the business case into your communications plan Depending on the requirements of your project and the demands of decision makers and key stakeholders, you might not need to go through all of this detail. However, it is beneficial to go through these phases to ensure the project will be successful even when faced with resistance. Phase One: Develop the business case Review the questions listed in Phase One and brainstorm other questions that will capture the five aspects of a compelling business case. It is important to document the business case, even parts that seem obvious, because it gives everyone the same point of reference for communication. Parts of a Compelling Business CaseQuestions to Ask to Develop Each Part of the Business Case PART ONE: Description of the project What is the current situation? Describe what will be targeted in the project. What is currently going well that can be built on? What has been done to confirm the need for new hangars? Who authorized/initiated the project? PART TWO: Description of the project importance Why are the hangars needed? What is the motivation of airport users for new hangars? Do they perceive: " An opportunity 3 a situation leading to future success? " A need 3 a current shortage of hangar space? " A discomfort 3 an existing problem requiring a solution? " Pain 3 a severe problem requiring immediate response? What situation demonstrated the current need? PART THREE: Description of benefits of the new hangars How will stakeholders benefit in the short run? How will stakeholders benefit in the long run? How will the airport, local community and owner benefit in the short/long run? What are the consequences of not doing the project? What resources will be available to complete the project? AIRCRAFT HANGAR DEVELOPMENT GUIDE 39 PhaseTwo: Check with stakeholders to ensure business case is compelling In Phase Two, evaluate how compelling the business case is to key stakeholders. Review these questions, and check your business case against them. Parts of a Compelling Business CaseQuestions to Ask to Develop Each Part of the Business Case PART FOUR: Description of the costs associated with What will it cost in terms of money, time, and effort? the project How will stakeholders be impacted by these costs? What is the cost/benefit analysis (project proforma )? PART FIVE: Measures for success How will success be measured? What is the monitoring system? What does success look like? How will stakeholders recognize success? The Stakeholder will ask:The Stakeholder really wants to know: PART ONE: What does the project look like? Is the project going to impact my business or daily work? PART TWO: Why is this project important? What 9s in it for me? Who cares? So what? Is it going to negatively impact me? PART THREE: Is it good for business? How will the project help my business? How will the project make my job easier/harder? How will the project make me look good/bad? PART FOUR: What will this cost me? How will the project impact my budget, people, and time? What do I have to give up if the project goes forward? What additional workload will I have? PART FIVE: When will this be successful? How do I know I 9m done with this and can go back to my creal work? d How will I know there is a positive impact on my business? AIRCRAFT HANGAR DEVELOPMENT GUIDE 40 Phase Three: Develop a basic presentation Once the business case has been drafted into your plan and checked with a sample of stake- holders, develop a presentation that can be used for communication about the project. For exam- ple, Microsoft PowerPoint can be a helpful tool to organize and deliver your presentation. Adjust the format to match the audience to which you are speaking. Phase Four: Feed the business case into your communication plan Be sure that the communication plan you have developed to gain the support of key stakeholders includes a discussion of the business case. Also, keep in mind that the business case will change as the project progresses. Revisit the business case frequently as conditions and situations change, such as project cost increases. AOPA Airport Support Network Frederick, Maryland 21701 " 301-695-2200 " asn@aopa.org

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