Chattanooga can Choose to Compete with its FBO, but wouldn’t an RFP for a 2nd Facility be Preferable?

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ARTICLE: Chattanooga Airport Officials Defend Aviation Center

090513aThere is no doubt that the Chattanooga Airport, as a proprietor, may build a GA terminal. Equally, the statute makes it clear that the existing FBO (see the TAC in the above map) has a tenuous claim to be the sole fixed based operator on the airport (49 USC § 47107(a)(4), esp.(4)(B)). The airport management cites that it was concerned about high fuel prices and poor service by TAC. That is a strong justification for competition.

One way of addressing that concern is for the Airport to create a competing air terminal. By so doing the Airport must take extraordinary precautions to make sure that its facility bears all of the costs which the private FBO does. Before setting the price for its fueling services, it must allocate a ground rent to its facility, must calculate the taxes its sales would be subject to, should offset any financing benefits that are gained through cheaper municipal loans, must eliminate any economies of scale created by cross utilization of airport employees in their Air Center functions and may not initiate capital improvements that will help their terminal to the detriment of TAC. That requires a lot of accounting overhead to assure that the municipal venture competes on equal footing with the incumbent FBO. Also, Airport management is not always the best source of entrepreneurial talent. Finally, if traffic should take a downturn, is the Airport prepared to pay for the capital costs while its Center is underutilized?

Perhaps a better way of assuring that the airport’s GA flights get good prices and services would be to issue an RFP for another FBO. That competitive process would attract a bidder which, more than likely, has experience in running such a business. The terms of the lease would create more transparent equivalency between the new and the existing FBO. Perhaps the Airport is concerned that the response to its RFP will not draw strong interest; that outcome is not entirely bad.

Using the RFP would create the desired outcome with a less cumbersome set of rules. Private competition has shown to be an effective economic regulator; stacking a municipal enterprise against a private entity is a lot more complicated in its administration. The Airport may has the power to decide to get into the FBO business, but there are major questions which cloud such a choice.

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