Marks: Don’t be misled by Aspen Fly Right’s financial proposal

Regarding the proposal by Aspen Fly Right (AFR) to take over the FBO and withdraw from FAA’s financial grant regime, my personal opinion is that the proposal is unrealistic, unfinanceable, and uninsurable. 

AFR not only understates the costs of “going it alone” by hundreds of millions of dollars, but it is also naively impractical. The county has no choice but to stick with the FAA and the FBO lease to Atlantic Aviation. To safeguard our resort economy, its sales tax base, and our current level of employment, it is time to have faith in, and stand behind, the BOCC and its diligent staff members who have evaluated the issues affecting the management of the FBO.

AFR projects its airport takeover costs to be around $230 million, which would be financed by harnessing the FBO’s fuel-sales revenue. Sadly, this plan tests the limits of credulity. 

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First, AFR unrealistically assumes the FBO requires less than $50 million of fresh capital. This amount is inadequate to keep the fuel sales gravy train flowing. For instance, the three most qualified contenders for the new FBO lease — Atlantic, Signature, and Modern Aviation — budgeted between $100 and $200 million for essential air and landside capital expenditures. Such amounts were deemed necessary by three of the leading companies in the FBO industry to ensure the safety and improve the customer service for their clientele, who comprise the fussiest and most affluent, private aviation customers in the world. Utilizing a more realistic number, say, $150 million for FBO-related improvements, we may conclude that AFR’s FBO cost assumption is off by 300%. 

Second, AFR’s projected $120 million cost for the construction of a new commercial airline terminal is a stale number. This amount does not take into consideration any of the post-pandemic surge in the prices of labor and materials, which will easily push up the terminal’s costs by 25%, or another $30 million. Moreover, the additional architectural and design cost to “Aspenize” the new terminal has not been considered. 

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Finally, by opting out of the FAA’s grant regime, AFR conveniently ignores the frightening possibility the county may be forced to repay the last twenty years of federal airport grants, which total more than $100 million. 

All told, the understatement of costs for AFR’s airport takeover plan could approach $300 million.

AFR’s takeover plan assumes a bond underwriter will lend the county more than $200 million, based solely on the sales revenue from the airport’s notoriously-overpriced aviation fuel. Unfortunately, bond underwriters are not nearly so gullible, which renders AFR’s plan unfinanceable. 

In the real world, the best any lender can hope for is getting its loan repaid with interest. There is no further upside. The crux of the problem with AFR’s borrowing scheme is that bond investors will be wary of a borrower that is completely reliant on highly-variable fuel-sales revenue from a single FBO. 

Keep in mind that Pitkin County is nothing like Atlantic Aviation, which can easily access the capital markets. This is because Atlantic operates more than 100 FBOs and is recognized as an industry leader, possessing substantial geographic diversification and economies of scale. 

Moreover, it is unlikely the county can procure a guaranteed, uninterruptible supply of aviation fuel as a single FBO operator located in a remote mountainous area that is often difficult to access. Once again, Pitkin County is no Atlantic. Fuel suppliers are willing to bend over backward for Atlantic, which is a huge customer. In AFR’s financing construct, the absolute best the county could hope for (if it can raise any FBO-related debt at all) would be to raise funds at junk-bond rates, many hundreds of basis points in excess of AFR’s unrealistic 5% interest assumption. 

In addition to being unfinanceable, AFR’s plan is also uninsurable. By way of comparison, Atlantic carries catastrophe insurance for $500 million for a single insurable event. This is not an unreasonably high amount for a business that houses hundred-million-dollar aeronautical marvels loaded with thousands of gallons of highly-combustible liquids.  One might argue this amount of insurance is too low. 

For its plan to “get off the ground,” AFR would need to arrange an insurance syndicate for the FBO that could cover catastrophic losses of similar size and scope to the Atlantic policy. So, if we may ask, what insurance company in world will extend such massive coverage before the county can demonstrate a meaningful history of safe operations? Of course, the county could elect to “self-insure” the risks of operating the FBO and thereby put the taxpayers on the hook for any losses.  However, this may be a career-limiting move for any county commissioner who advocates such an idea.

It is the insurance issue in particular that makes AFR’s FBO-takeover concept so fraught, but when combined with AFR’s unrealistic financial analysis, it makes, in my view, AFR’s FBO proposal, taken as a whole, a recipe for disaster.

Evan Marks lives in Aspen.