Wise FBO Hangar Management Continued from page 27 Einstein at a chalkboard—han- gar subleasing gets little more than a dose of tribal knowledge. Yet, FBOs are not actually to blame. The root of the problem has many tendrils. Firstly, the very busi- ness structure of an FBO creates a quandary, as FBOs generally operate from leased land and often don’t own the very hangars they are subleasing to customers. Even attorneys, who have the benefit of formal training in their field, are sometimes bemused by such an odd arrangement. Likewise, lending institutions, accustomed to commercial building leases where occupancy cannot mathematically exceed 100%, have difficulty grasping ...the time has come for FBOs to turn their attention to the subleasing process... that occupancy levels far in excess of 100% in a hangar are not just a common occurrence, but a goal. Another is simply the historical roots of most FBOs themselves. The alluring margin and regularity of fuel sales has meant that tie downs or hangars were simply meant to garner more reliable fuel sales for an FBO. To be sure though, it is the erosion of those historic fuel mar- gins in recent years that has made the financial implications of the issue—the ugly secret—more acute. Less obvious is that hangar subleasing done well, is painfully Aviation Business Journal | 4th Quarter 2015 unglamorous. In some ways, it seems at odds with aviation itself. While aviation has perhaps lost some of its romance, it nonetheless continues to have a transcendent allure. One can hardly blame an FBO owner or manager who would rather con- centrate on the more exciting lines of business at his/her airport. Yet, subleasing hangar space is now an important revenue stream on its own. With ever-decreasing fuel-sales margins, the time has come for FBOs to turn their attention to the subleasing process itself, for one day it will bear fruit more so than fuel sales. Why? Because while fuel consumption may decrease as aircraft become more efficient, they will always need a place to land and park. Lease Subordination Basics Given such complexities, it’s not immediately clear where an FBO should begin actively re-engaging in the subleasing process. There’s simply no instruction manual. Ideally, the first place to start is the FBO’s master lease with its lessor—which is usually the airport authority, in the city or county in which they operate. The idea here is that any subles- see agreement an FBO enters into must be subordinate to that mas- ter lease. For example, if an FBO’s master lease is scheduled to end in the next five years, that FBO cannot legally enter into a hangar sublease agreement with one of its custom- ers longer than those five years. Likewise, master leases have vari- ous terms and conditions by which not only the FBO must abide, but its subtenants must as well. Broadly, these concepts are referred to as lease subordination, and FBOs should re- view their master lease as a first step. On the subject of subordination, while it is quite common to use the term “tenant” to describe a hangar sublessee, caution should be noted in ever placing the term in a hangar sublease agreement. The mere act of using the word “tenant” implies the counterweight term, “landlord.” Not only is it inaccurate with an FBO, if used improperly within a hangar agreement, it can have the unintended consequence of invok- ing various landlord-tenant laws that exist in the FBO’s jurisdiction. Many such rules, steeped in the Victorian- era history of power-wielding land- lords invoking misery on tenants, now favor tenants so heavily that an FBO would have difficulty removing a non- paying customer from the premises, placing liens, or similar action. Instead, using the master lease example above, an FBO is actually a lessee or a tenant of an airport. By legal extension then, an FBO’s tenants are in fact subtenants, or to use safer nomenclature, sublessees. What does this ultimately mean? While somewhat academic, an FBO is truly only able to grant a subles- see something more akin to a non- exclusive license to use a portion of the hangar space it rents from its airport. Such a license agreement is a far cry for the rights conferred actual tenants under Landlord-Tenant law. Business Rules After a review of the master lease, a next step an FBO may consider is establishing business rules for hangar subleasing. This step is, Continued on page 31 29
