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Sunday, May 28, 2023

Air Firms Facing Issues as Valley Business Booms

The influx of new customers that followed in the wake of the September 11 attacks has sustained itself at Van Nuys Airport as all the major private aviation players have reported substantial gains in revenues and traffic in the last few years. However, while business is currently booming at the airport, there remain unresolved issues for the 100-plus companies that operate in the space. And it’s more than just the delay of the airport master plan and the frequent complaints from angry homeowners. Currently, companies based at the airport are dealing with increased federal rules and regulations, the rise of so-called credit card charter companies, and a recent rent hike recently instituted by Los Angeles World Airports. Enhanced scrutiny from the Federal Aviation Administration has been a major issue in the industry, causing it to become increasingly expensive to fly all older planes. One specific FAA law that recently went into effect on March 29, requires all turbine-powered aircraft with six or more seats to install terrain aircraft warning systems on their planes. This technology allows for pilots to become aware of potentially dangerous terrains that they might not be able to see due to adverse weather. While such technology has the potential to save numerous lives, the installation of these systems represents a significant expense to business aviation firms. “Our company just went through a grueling required avionics upgrade, which is an issue that is coming up on all aircrafts now. We’ve also had to install terrain aircraft warning system on all of our planes,” Ron Kelly, the president and CEO of Van Nuys-based Global Jet Shares said. “It’s expensive to put on every plane, but my company stays on the leading edge of all safety rules and regulations. You have to. Safety is the number one thing affecting all the companies at the airport today.” The well-established companies in the business aviation world also are facing the influx of a new type of competitor: the credit card charter companies. These firms operate almost like travel companies in that they negotiate the lowest prices they can find with different charter providers and then sell directly to consumers. With these reduced rates, the credit card companies can effectively undercut the non-discounted pricing schemes of traditional business aviation. “These companies don’t always have their clients’ best interest in mind. They’re nothing but glorified travel agencies that try to appeal to the uneducated charter client,” Tom Magglos, the general manager at Van Nuys-based Petersen Aviation said. “Our company offers the greatest amount of 135 liability insurance, but these credit card companies could care less. If in case something happens, they have no overhead, they have nothing to lose. They are one of the biggest problems in the industry.” But in spite of the costs of doing business and the fierce competition at the airport, many local companies are continuing to expand their fleets to meet the rising consumer demand. As the larger companies grow their operations, the airport’s smaller corporate aviation firms have had a tougher time staying afloat. “There’s still a group of smaller companies; it’s getting tougher and tougher to compete with the big boys, as many of the big firms have increased the size of their fleets,” John Winthrop, the president and the CEO of The Air Group. “The economies of scale tip the balance towards the bigger guys at the airport. There’s a lot of talent in the aviation business and some fine competitors.” Another factor that is increasingly causing smaller companies to think twice about their future at Van Nuys is the recent rent hikes instituted by LAWA. According to Dave Kirkendall, the owner of Blue Skies Aviation, a pilot training school and scenic flight company, says the rate hikes are making it almost impossible to survive. “We’re being phased out. Starting in June, LAWA raised our rents roughly 85 percent, retroactively for the last five years. They’re phasing out the hangar people,” Kirkendall said. “They cannot justify this. Unless you’re extremely comfortable, you either have to get out or make cutbacks and pay for the almost doubling of the rent. Van Nuys hasn’t been conducive to investing anymore. They’re putting us out.” According to a recent statement released by LAWA, the rate hikes came as a way of getting market value for its long under-valued property. The statement asserted that land rental rates at Van Nuys had been kept at the 1990 level until recently. Additionally, LAWA has recently instituted a multi-tiered structure at the airport, in order to recognize “levels of desirability based on certain attributes such as proximity to the runways, street access and shape of the leasehold.” Previously, LAWA had utilized a single land rental rate for all aviation uses. Unfortunately for smaller mom and pop type businesses, their days at the airport may in fact be numbered. As Van Nuys’ importance continues to grow, the city will likely attempt to get as many tax dollars as it can out of this lucrative property, industry observers believe. “We have an important resource there and when the demand for it grows, it’s important to allocate it for highest value usage. If that causes recreational fliers to have to move to a smaller airport then that’s what they’ll have to do,” Dan Blake, the director of California State University Northridge’s San Fernando Valley Economic Research Center said. “You aren’t going to build more capacity at Van Nuys. The rate increases are a real signal to people. If they are going to use that space for recreational and scenic flights, then they are going to have to pay for the opportunity. Or they’ll have to find a place where recreational aviation is cheaper.” Another albatross that has been hanging over the heads of many of the business owners at Van Nuys is the issue of a master plan. With the earliest possible date for the master plan’s ratification still six months away, some members of the local aviation community say that the uncertainty adversely affects their businesses. “We’ve been operating without a master plan for a long long time,” Mark Sullivan, the president and CEO of Van Nuys-based Skytrails Aviation said. “It’s about time for them to get a master plan on this airport, so people like myself can go out and plan their lives, and figure out what they want to do with their company and how to grow it. It ties my hands behind my back. If you don’t have a long-term lease, you can’t go out and finance improvements on the leasehold.” But despite these issues, the airport continues to have a huge impact on the local economy. In the most recent survey on the airport, Wilbur Smith & Associates estimated in 1998 that the airport’s total economic impact was approximately $1.25 billion per year, bringing $73 million in state and local taxes and providing over 10,000 jobs. In spite of the simple geographical limitations of the airport itself, most observers expect to see continued growth in the airport’s future. With the commercial airline industry still extremely shaky, it seems certain that business aviation companies and the Van Nuys Airport will fill a need in the marketplace. “The future of Van Nuys is pretty solid. Over time, the older airplanes are going to die off because of age, and the new planes will be much quieter,” Winthrop said. “Ten years from now the neighbors will be a lot happier than they are now. It’s a tremendous economic generator. You just can’t shut down the tax dollars that everyone needs.” Robert L. Rodine, the chief of the Valley Industry and Commerce Association’s Aviation Committee, agrees that the next generation of jets will irrevocably alter the airport scene. “The aviation industry is currently working on a new generation of aircraft type,”Rodine said. “The small aircraft are going to be much smaller and less expensive, as well as being easier to operate. They will only serve to keep the airport growing. Van Nuys is absolutely essentially for the local economy.” But Jack Kyser, the chief economist for the Los Angeles County Economic Development Corp., isn’t so sure that the neighbors are ready to stop complaining, but nonetheless, he too sees a bright future for the Van Nuys Airport and private business aviation. “There probably is still room for growth at the airport. As more operations increase, the neighbors will probably shake their fists at them. Even though it’s an amenity and an asset, it makes homeowners nervous,” Kyser said. “As the big companies continue to prosper, you’re going to see the little guys getting pushed out and that’s unfortunate. In the future, Van Nuys will consist of just the people who can afford, mainly the larger corporations.”

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