The nozzle of the de-ice truck is heavy and it is cold. It is made of cast aluminum and it has the smell of stale glycol and diesel exhaust. When you hold it in the dark before the sun comes over the peaks it feels like a weight that belongs to no one. The nozzle does not care who owns it but the men in the office care very much. This piece of equipment is the physical point where two businesses collide and it is the place where the valuation of an aviation company begins to leak.
The air in the Mountain Region at is thin and it bites at the lungs. Ana stood on the ramp and she looked at the Pilatus PC-12. The wings were covered in a fine layer of hoarfrost and the frost looked like sugar in the light of the hangar. Ana is the chief pilot for the charter operation and she has a departure for a group of skiers. They are paying a great deal of money to be over the mountains by sunrise and they do not want to hear about frost.
She walked to the maintenance bay and she found Ray. Ray is the only mechanic on the field at this hour and he was deep in the wheel well of a Gulfstream G450. The Gulfstream belongs to a based customer of the FBO and the customer pays a monthly hangar fee and he expects his aircraft to be ready. Ray had his head near the brake assembly and he did not look up when Ana approached.
Shared Staff, Divided Loyalties
“Ana asked for the de-ice truck and she asked for Ray to drive it. Ray did not move and he did not stop his work. He said the FBO general manager told him the Gulfstream was the priority. Ana said her charter flight was the priority and she said Ray’s salary was paid by the charter side for three out of five days a week.”
– Conflict at 5:15 AM
Ray turned a wrench and the metal made a sharp sound and he stayed silent. This is the reality of the combined aviation business. It is a world of shared pools and it is a world of daily negotiations. The owner of the business sees one bank account and he sees one staff. He moves the people and he moves the equipment to where the fire is hottest. He does not write down the cost of the move and he does not charge one side of the house for the use of the other. The allocation works because the owner is the only one who has to be happy.
But a sale changes the math and a sale forces a decision. A buyer comes to look at the FBO and he sees the fuel flow and he sees the hangar rent. He looks at the charter operation and he sees the flight hours and he sees the tail count. He wants to buy a business that is clean and he wants to see a ledger that reflects the truth. He asks who owns the de-ice truck and he asks who pays the mechanic.
I used to believe that a P&L was a map of reality. I sat in a board room in Denver many years ago and I argued with a seller about his labor costs. I told him the numbers on the page were the final truth of his company. I was wrong. I was wrong because I did not understand that a spreadsheet is often just a record of an owner’s habit.
Labor Allocation: Coded vs. Actual
The owner had been coding his lead mechanic to the charter certificate to save on FBO taxes, but the mechanic spent eighty percent of his time pumping fuel and towing jets.
The numbers were not a map and they were a mask. The buyer wants to separate the two. He wants the FBO to stand alone and he wants the charter side to justify its own existence. If the mechanic moves to the FBO the charter side must hire a new man. The margin on the charter flights disappears and the business looks like a burden. If the mechanic stays with the charter side the FBO must pay for maintenance at retail rates. The FBO margin drops and the valuation of the fuel business falls.
The Friction That Kills the Deal
This is the friction that kills a deal. It is the moment when the seller realizes his two businesses were actually one organism and he realizes they cannot survive the surgery of a split. The same de-ice truck shows up on both ledgers as an asset and the same mechanic shows up on neither as a full-time cost. The equipment is a ghost and the labor is a gift.
When we look at a Midwest aviation platform or a Mountain Region FBO we see these entanglements. The flight training school uses the FBO’s fuel at cost and the MRO shop uses the charter hangar for overflow and nobody sends an invoice. It is a community of convenience and it is a nightmare for a corporate development lead. The buyer is looking for a machine that produces a predictable return and he is not looking for a family of businesses that share a single pair of shoes.
The process of selling an aviation business through Griffin Towers involves finding the buyers who understand this mess. There are buyers who want the whole platform and they do not mind the blur. They see the efficiency of the shared pool and they want to keep the mechanic in the wheel well and the pilot in the stickpit under the same roof.
The Airport Sponsor’s Perspective
The airport sponsor also has a voice in this. The airport manager looks at the lease and he sees the requirements for a Fixed Base Operator. He wants to know that the MRO services will continue and he wants to know that the charter flights will bring in landing fees. If the sale splits the business the airport manager may see a breach of the minimum standards. He may see a business that no longer has the staff to meet the lease and he may refuse to consent to the assignment.
Ray finally looked up from the Gulfstream. His hands were black with hydraulic fluid and his face was tired. He looked at Ana and then he looked at the hangar door. He did not care about the valuation and he did not care about the E-E-A-T of the buyer’s investment thesis. He cared about the cold and he cared about the plane. He dropped the wrench and it hit the floor with a heavy ring.
He walked to the de-ice truck and he started the engine. The engine coughed and it blew a cloud of blue smoke into the rafters. Ray drove the truck out into the dark and Ana followed him. They were one team and they had one goal. The skiers would have their sunrise and the charter flight would depart on time. The FBO general manager came out of his office and he watched the truck go. He did not stop them because the owner was still the owner and the owner wanted the skiers to be happy.
The Weight of Precedent
This peace is temporary and it is fragile. When the owner decides to exit he must prepare for the questions that Ana and Ray cannot answer. He must look at his de-ice truck and he must decide which side of the ledger it will sit on. He must look at his mechanic and he must decide who pays for the hydraulic fluid on his hands. If he does not make the choice the buyer will make it for him and the buyer will always choose the answer that costs the seller more money.
“I have seen deals fall apart over a single forklift. They argued for three days and they let a twenty-million-dollar transaction sit on the table because of a piece of yellow iron. It was not about the forklift and it was about the precedent of the split.”
The valuation of an FBO with an affiliated charter operation is a study in human behavior. It is a study in how people work when they are not being watched by an auditor. They work by the clock and they work by the weather. They do what is necessary and they do not worry about the inter-company billing. But the buyer is always watching and the buyer is always counting.
Documenting the Invisible
The solution is to document the sharing before the buyer arrives. It is to create a service level agreement between the FBO and the charter side and it is to treat the other manager like a third-party customer. It is to charge for the de-ice fluid and it is to invoice for the mechanic’s time. It feels like a burden and it feels like a waste of paper but it is the only way to prove what the business is worth.
Ana stood by the wing of the Pilatus and she watched the orange spray hit the frost. The steam rose up and it hid the mountains for a moment. The plane was becoming clean and the business was moving. Ray stayed in the cab of the truck and he kept the heater running. He would be back on the Gulfstream in and he would be coded to the FBO ledger for the rest of the morning.
My arm has a dull ache and it reminds me of the tension in a watch movement. If you over-wind the mainspring the watch stops and if you leave the gears loose the watch loses time. When you take the movement apart you must be careful not to lose the pins. You must know where each part belongs and you must know why it was put there.
The nozzle is back on the truck now and the truck is back in the shed. The sun is up and the skiers are gone. The ledger is still there and the numbers are waiting to be moved. The seller must move them now or he must wait for the buyer to move them later. One way leads to a clean exit and the other way leads to a leak that no amount of glycol can fix.
The de-ice truck cannot spray two planes at once and a ledger cannot hide the cold for long.
The Mountain Region is a hard place to do business and the Midwest is no different. The weather dictates the pace and the people dictate the success. If you own a multi-line aviation company you own a complex machine. You should know how it works and you should know what it costs to run it when no one is sharing the load. That is the only truth that matters when the time comes to sell. The rest is just steam in the morning air.