This spring the FAA held its 32nd annual Forecast Conference in Washington, DC and released their Aerospace Forecast for 2007 - 2020. Their prediction is for continued congestion of passenger terminals, airports in general, and a crowded sky. This a record; 768 million passengers flew on commercial airlines. The FAA believes that will grow to 1 billion by 2015 and 1.2 billion by 2020. Today there are 62.5 million take offs and landings at US airports with control towers. By 2020 that number will grow to 81 million. Of course there are thousands of airports without control towers, so the actual number of aircraft in the sky will be much higher. The downside of all this was that in 2006 airline delays reached an all time high. The FAA says these delays cost the nation's economy $10 billion annually.

The forecast for general aviation was equally bullish, but the 2006 forecast numbers for the microjet industry was toned down a bit; nevertheless the FAA believes that 350 jets of this class will be active in 2007. I believe that is an aggressive number considering the delays in delivery of the Eclipse and the Mustang. By clicking on these links you can read our thoughts on Eclipse and the VLJ airtaxi industry, which holds the largest number of orders for the VLJ.

Dubai Aerospace's discussions with The Carlyle Group for Landmark Aviation and Standard Aero was a poorly kept secret for several weeks. Then it hit the press in late March with a bang. On April 3rd the Wall Street Journal ran an a story indicating the offer was for $1.8 billion, an increase from $1.5 billion, the number in a WSJ story ten days earlier. The Journal pointed out, "While these are standard maintenance operations, involvement of a Dubai-based company raises sensitive political issues in the U.S. Last year, port operator Dubai Ports World was deluged by federal government and popular outcry against its plan to buy a set of U.S.-based shipping facilities." This is a sweetheart deal for The Carlyle Group. Their lobbyists are pounding the halls of Congress.

Landmark is an interesting case study of the consolidation of the general aviation service industry that has attracted so much interest from private equity firms in recent years. Carlyle first put their toe in this water in 1990 by taking an interest in Piedmont Hawthorne when they were building the new FBO at Washington Dulles Airport. The biggest, and probably the must profitable part of this deal in the early years was the large business jet hangar complex for Mobil (now Exxon/Mobil), MCI (now Verizon), and Gannet at Dulles, all part of the P-H lease.

Carlyle tried to sell Piedmont Hawthorne several times. The most recent attempt to sell P-H was in 2004. When this failed, Carlyle found a buyer down the hall, another Carlyle Fund. This fund bought Garrett from GE, and in the fall of 2005 packaged P-H, Garrett, and Associated Air Center, a large aircraft completion center, into an new brand, Landmark Aviation. Landmark was a true aviation conglomerate. Fueling, aircraft sales, maintenance, charter, etc. The conglomerate craze of the 1960s didn't work, and I didn't understand how the Landmark pieces really fit together. Apparently neither does Dubai Aerospace. They have announced that the Landmark FBOs will be for sale as soon as the deal closes. Stay tuned.

The general aviation trade associations (AOAP, GAMA, NATA & NBAA) are screaming about the U word. U stands for ATC User Fees. All the angst reached a fever pitch when the airlines' trade association, ATA, began lobbying Congress explaining that general aviation, particularly business jets, were not paying their fair share of operating the air traffic control system. The volume (print ads, websites, media releases, etc.) of the trades increased as the FAA funding is expiring this year and needs to be reauthorized by Congress. On top of all this is the fact that the US ATC system is antiquated and in need of a major overhaul. The FAA’s Research, Engineering, and Development Advisory Committee estimates an extra $1 billion will be needed per year over the next 20 years for capital modernization of the system.

A Heritage Foundation paper explains that the large majority of the agency’s budget (nearly two-thirds of which is the ATC system) comes from aviation excise taxes. And the lion’s share of that tax revenue comes from the 7.5 percent tax on the price of airline tickets (as well as on the hourly charges for charter and fractional-jet services). The long-term trends of declining ticket prices (due to increased market share for low-cost carriers) and increasing air traffic (due to carrying a given number of passengers in a larger number of smaller-size planes) have put a very serious squeeze on ATC funding. The labor-intensive human-centric ATC system consumes most of the available budget as payroll costs. Funding for capital investment ends up getting squeezed. In both fiscal 2005 and 2006, the FAA’s budget for facilities and equipment was reduced by a half-billion dollars below the authorized levels.

The aviation alphabet groups are missing the point. How these billions will be paid or shared, by users or general tax payers, is not the most critical issue. Governance of ATC is the real problem. As long as Congress controls the purse strings we will see ATC facilities duplicated in powerful congressional districts, huge contracts for systems that never work going to favored contractors, and the labor inefficiencies of government gumming up the system. For an up-to-date read on all this check out the March issues of Bob Poole's ATC Reform Newsletter. Watch for an OP-ED piece by me and Jonathan Howe of The Aviation Group in the May issue of Professional Pilot. Jack Pelton, CEO of Cessna Aircraft will offer the counter point. We will try to get reprints and links on Hangar Talk when the articles are published.

Our friends from Macquarie, the aggressive infrastructure investors, have in three years developed a major FBO chain, Atlantic Aviation, in the US. As opposed to trying to be all things to the business jet community, Atlantic Aviation is laser focused on fuel and line service, and they market and deliver this service with perfection in almost every one of their 42 locations. Rebranding and training has not yet been completed at every base because of the rapid acquisition pace, but it is underway as rapidly as possible.

There are several things about Macquarie's program that are unique. First, Macquarie is a very long-term investor, and secondly Macquarie has packaged their FBOs with several other infrastructure investments, taken the business, Macquarie Infrastructure Company, public, and listed it on the New York Stock Exchange with the symbol MIC. In just over a year the stock, issued at $25 has risen to over $40 a share. As a public company the details are available in various SEC filings, but the easiest window into MIC and their FBOs is on their website. Contrast what Macquarie is doing with what The Carlyle Group did with Landmark Aviation. Which company created more value? Let me know what you think.

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email: jhaynes@avgroup.com

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