By CHRISTOPHER BUTLER

Some people in Tennessee say what is happening at the Chattanooga Airport is a poorly-planned instance of government competing against private industry – especially at a time when no other private industries want to compete.

The Chattanooga Metropolitan Airport Authority plans to use tax dollars ($4 million in state grant funding from the Tennessee Department of Transportation Aeronautics Division) to compete against TAC Air. TAC Air is privately run and provides fuel and other services at what is known as a Fixed Base of Operations (or FBO). 

Right now, no other private companies want to open a second FBO at the airport, based on a lack of demand to justify a second FBO. Meanwhile, at other airports, the current recession has forced TAC Air to consolidate with some of its competitors, company officials said.

Officials with the Chattanooga Metropolitan Airport Authority think differently.

They say consumers will benefit once TAC Air has to compete against another FBO. They also believe airport traffic will soon increase, because the Chattanooga area is expected to boom with new industry in coming years. If that is true, then market forces will inevitably result in a private company building a second FBO at the airport – but Airport Authority officials are not going to wait. 

 “We have to give people other options. We have to be in tune with what our consumers need,” said Christina Siebold, spokeswoman for the Chattanooga Metropolitan Airport.

National Air Transportation Association President Jim Coyne, though, has publicly spoken out against the new government-run FBO, calling it “an unprecedented move for airport management.”

 THE CONSUMERS’ BEST INTERESTS

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). Some are privately operated, while others operate under the authority of a particular airport municipality.

There once was a time when TAC Air had to compete for customers with another FBO at the Chattanooga Airport. Market conditions forced the FBOs to either close or consolidate with one another – which is a harmful trend, Siebold said.

 “Consolidation is not in the best interests of the consumer. There is less competition, which is not a good thing.” 

Members of the Chattanooga Municipal Airport Authority believe TAC Air has too great an advantage at their airport, especially now, considering that large businesses such as Volkswagen have announced plans to either locate to the Chattanooga area or expand their already-existing facilities there. Officials at those businesses will no doubt make considerable use of the Chattanooga Airport, said Airport Authority president and CEO Mike Landguth, in a statement.

Without a second FBO, TAC Air will have a monopoly on prices at the airport, Siebold said.

“Under our new plan, there will be two private companies here at our airport competing for the consumer,” Siebold said.

Construction crews are already busy building the new FBO that will compete for business. Airport Authority officials are currently using a North Carolina-based research firm to find a private company to manage the second FBO. Municipal airport officials will have the ultimate authority over whomever is selected to manage it.

Airport Authority officials also say competition between two FBOs will result in lower fuel prices for commercial and general aviation airplanes that travel to their airport – but TAC Air officials say market forces do not always work that way in the aviation business.

 MARKET DRIVEN

“There is a strong possibility that this second FBO is going to fail,” said Dave Edwards, a spokesman for TAC Air, whose office is based in Texarkana, Texas.

“An FBO’s fuel prices are not entirely market driven, and a competitive situation on any given airport will not guarantee lower prices,” according to an internal document written by TAC Air officials, and one that Edwards provided to Tennessee Watchdog.

Among the points made in the internal document

• The demand for fuel (at airports) usually changes very little with changes in price. Therefore, aviation fuel, to some degree, is price inelastic – demand is not created if prices decline.
• In such markets with multiple FBOs, the level of service is often reduced, by all FBOs, in order to maintain profitability as gross profit declines due to fragmentation of the market.
• The Chattanooga Metropolitan Airport Authority, in its RFP, indicates the annual number of general aviation operations at the airport has declined from 40,301 in 2004 to 31,494 in 2008.
• TAC Air is not aware of any airport that experienced growth solely as a result of developing additional capacity.

The pending agreement between the Airport Authority and the private company that will manage the FBO is unfair for other reasons, said Pam McCallister, general manager for TAC Air in Chattanooga.   

“The main difference (between the lease agreement TAC Air has with the Airport Authority versus the one the Airport Authority will have with the company managing its second FBO) is that the Airport Authority is in total control. The managing authority can make recommendations, but the Airport Authority has the final say. Also, the Airport Authority can see TAC Air’s information and be in a position that would give the Airport Authority an advantage,” McCallister said.

People have complained that TAC Air’s facilities are outdated and not well-maintained, Siebold said. McCallister, however, said the company recently disbursed $350,000 to upgrading its Chattanooga complex. Tennessee Watchdog toured the TAC Air establishment in Chattanooga and found modern up-to-date facilities, including a pilot’s lounge and Internet technology to assist pilots and passengers.  

 “There was a time when customers were upset about our facilities, and they were in need of repair, but the Airport Authority said for years they were going to take the location in question (that received the most complaints), tear it down and build a parking facility there. They finally decided not to tear it down, so they then gave us the OK to upgrade the facilities. If Christina (Siebold) says there were complaints about our facility (which TAC Air leases from the airport until 2032), then that was out of our control, and that was because of them,” McCallister said.

National Air Transportation (NATA) officials have publicly denounced the Airport Authority’s plans for a second FBO in Chattanooga.  According to its website, NATA represents the interests of aviation service businesses throughout the country.

“NATA is a strong believer in free market competition. However, the utilization of state funding, which is taxed directly from the aviation industry for the purposes of allowing a local government to compete directly with a private aviation business is the antithesis of free market competition,” said Eric Byer, that organization’s vice president, in a statement he made to Tennessee Watchdog.  

“NATA believes the decision by the Chattanooga Metropolitan Airport Authority and the state of Tennessee to utilize taxpayer funds to establish new business to compete directly with existing aviation businesses sets a dangerous precedent that moves government from the role of facilitator of economic development to that of competitor with private enterprise.”

 FUEL PRICES

Siebold said TAC Air charges more money for fuel than other airports within a 50-mile radius of Chattanooga, and that’s why the company needs competition.

On Dec. 13, the price of full service fuel for airplanes was $5.43 a gallon at the Chattanooga Municipal Airport, according to airnav.com, a website used by many aviation professionals to determine which airport offers the best fuel prices. 

Smaller airports within a 50-mile radius offered lower prices, but those airports, such as Collegedale Municipal Airport, Hardwick Field Airport in Cleveland, and the Winchester Municipal Airport in Winchester, are all smaller and offer far fewer services, TAC Air officials said.

“To compare those airports to the Chattanooga one is not to compare apples to apples,” Edwards said.

“There is not the same operating overheard at smaller airports, no control towers, none of the same security issues and none of the same amenities at those smaller airports,” Edwards said.

On the same day, the full service fuels available at two of Tennessee’s largest airports (both of which have two private FBOs competing against one another) were considerably higher. Nashville International Airport’s fuel prices ranged from $6.27 to $6.99. Competing fuel prices at the Memphis International Airport, meanwhile, ranged in price from $5.52 to $5.82.

During her time as general manager, McCallister said she has seen three other privately-funded FBOs on the field in Chattanooga. All of them failed because of market conditions.

“I can only go back to what I said when the announcement (about the second FBO) was made.

In many situations, competition is good, but if your market doesn’t demand it then it is not going to be successful for either party.”

Christopher Butler is the editor of Tennessee Watchdog and the Director of Government Accountability for the Tennessee Center for Policy Research. Contact him at chris@tennesseepolicy.org