Sunday, September 11, 2016

Vermont airports business plan reaps benefits

MONTPELIER — Six years ago, Vermont’s 10 state-owned airports were running deep in the red and lawmakers — and to some extent the public — were growing increasingly wary of the purpose they served. After significant changes in operation and maintenance, those same 10 airports are nearly breaking even and state officials expect them to generate revenue, perhaps as early as two years from now.

What caused the turnaround? Some, including Agency of Transportation Secretary Chris Cole, say it is Guy Rouelle, the pilot and all-around aviation enthusiast who heads the agency’s Aviation Division. Rouelle, who admits that he “eats, sleeps and breathes” aviation, began leading the small division in 2011, just as it was being challenged by lawmakers to find a way to balance its books or face closure.

Rouelle said he brought no magic bullets to the job, and the changes put in place likely could have been led by many others.

“I’d like to take credit for all these things. Although I led the process, I would say that anybody could have stepped in at any moment as long as they had the tenacity and could withstand the scrutiny of the public and the Legislature,” he said.

Perhaps, but the challenges were not insignificant.

Former Seven Days reporter Andy Bromage highlighted some of them in an April 2010 article. A state-commissioned report on the small, regional airports shed unflattering light on their needs and the article questioned the path forward.

“Beyond lengthening runways, building more hangars and ramping up marketing campaigns, the airports’ business plans are filled with quirky, one-off schemes for making them profitable, some of which VTrans officials say are worth considering. They include opening a restaurant in the Franklin County State Airport … renaming the Newport State Airport the “Newport-Northeast Kingdom Regional Skiport” to capitalize on its proximity to Jay Peak and Burke Mountain resorts; and partnering with Lyndon State College to launch an aviation program,” Bromage wrote. “Clever ideas, but the bottom line is not encouraging.”

In 2011, lawmakers passed a bill that was signed into law requiring the Agency of Transportation to eliminate as much as possible the operating deficits at the state airports by June 30, 2015. The Aviation Division was given a chance to turn it around.

“It was, which airports are we closing, or, I spoke up at a legislative session and said, ‘I don’t think we should close any airports, but come up with a plan.’ I already had the plan in my head and so we did. We came up with a business plan,” Rouelle said. “They were just kind of things that should have been done that were never done.”

In the 2011 fiscal year, the airports had about $558,000 in expenses and were generating just $269,000 in revenue. In the 2015 fiscal year, the airports are generating $640,000 in revenue. Overall, the airports were running operating deficits of more than $500,000 in 2011, which is down to about $80,000 now.

Some of the turnaround can be attributed to the discretionary funding that the state has received from the federal government — nearly $63 million in the past several years. That has allowed the state to upgrade facilities, including runways and terminals.

“We built very strong relationships with our congressional delegation and with the FAA. There’s a level of trust that I have directly with both of those entities that they know if I say I’m going to build a project, we’re going to build a project — no exceptions,” Rouelle said. “Leadership is based on influence. In order to have influence you have to have relationships. I built those relationships.”

The state receives $1.9 million in static funding from the federal government every year. It would have taken the state 33 years to collect the cash without the discretionary funding. That discretionary funding and the improved aviation infrastructure around the state is now generating private development in and around the airports.

In Rutland — one of two state airports still operating in the red — a $4 million grant from the Federal Aviation Administration to upgrade facilities is having the intended effect, Rouelle said.

“We now have investors knocking on our door saying we want to construct a bunch of new buildings,” he said.

The same thing is happening in Berlin, where state officials are negotiating “a large lease” with a company that will pay for all of the operating expenses at the Knapp State Airport.

And at other airports around the state, upgraded runways, terminals and service is encouraging new business and hangars, which help generate revenue for municipalities through property taxes.

“The towns get paid the property tax. That’s a huge revenue for the town when we generate hangars on airports,” he said.

In Highgate, if a planned runway extension is completed, the community is likely to see private investments in a 144,000-square-foot industrial complex adjacent to the airport that will create jobs.

“We have some runway work that we have to do … but now we have a private investor that said, ‘While you’re doing that work can we build an industrial park?’” Rouelle said. “It will bring a lot of new jobs to the airport and it will bring a lot of activity to the airport.”

Upgrading the state’s airports took some convincing. Not everyone has always viewed them as critical to the state, Rouelle said.

“You hear people say, ‘Oh it’s just for rich people playing with their discretionary toys.’ Well, they bring in a lot of revenue every year,” he said.

Rouelle’s boss at the agency recognizes the impact the grants have made.

“Under the leadership of Guy Rouelle, we’ve actually done a very good job of securing discretionary grants from the FAA. We have been making investments in the infrastructure,” Cole said. “I do believe we’re going to see some payoffs in additional employment opportunities from the infrastructure investments.”

The Aviation Division also embraced operational chances. When Rouelle took over, the airports had been managed by the agency’s Highway Division for about 10 years.

“Frankly, there was not much of a financial system in place. It was a line item on a district highway budget,” he said. “They would just level-fund it every year and that’s what it was. There was no real focus on lease revenue, fuel revenue, generating business.”

The Aviation Division began to take the accounting of the airport’s revenues and costs more seriously.

It became apparent that physical changes to buildings and other airport assets would be needed. In Springfield, the 1,800-square-foot terminal building was heated with baseboard electrical heating and cost $18,000 a year to heat.

“That’s the size of a double-wide trailer,” Rouelle said. “We tore the electrical heat out and we put in $2,000 (gas heaters) and now our heating bill is down to … under $2,000 a year.”

At the airport in Rutland, a 62-kilowatt solar array was installed and the state no longer pays anything in electrical costs — a $26,000 per year savings. Other buildings had more efficient windows, insulation and automated lighting installed.

“We went around the entire state and we refurbished every terminal … so our overall operating costs were greatly reduced,” Rouelle said.

Also, maintenance at the airports changed with modern plans to manage the grounds in summer and winter.

“The airports were all being mowed like they were golf courses. But in a lot of cases they weren’t being mowed to FAA standards,” Rouelle said. “We wrote vegetation- and snow- and ice-control plans … and we, just by implementing those plans, we shaved thousands and thousands, and thousands of dollars off of our maintenance.”

Revenues have increased, too, while expenses were reduced. Officials say there was no real accounting of the leases private individuals and companies had on state airports. Rouelle said he now knows “to the dollar” how many leases there are and what they bring in.

“When we dug into those, we found that a lot of the leases … were lapsed and people had not paid. Many were not accurate and people were not paying enough,” he said.

In 2011, the state collected $106,000 per year in leases. Today, it is nearly $400,000. Officials found that some of the leases were so cheap “that it was almost a giveaway.” In recent years the lease costs were revamped and rates were raised to reflect current costs, and the state now uses the consumer price index to determine when rates will rise.

The investments at state airports have helped increase traffic, which has generated additional revenue from fuel sales. In 2011, fuel revenue was $100,000. Now, it is $240,000.

Cole said he is pleased with the efforts made to address lawmakers’ concerns.

“Tremendous efforts were made to reduce that operating deficit. Since we did that, the airports, with the exclusion of Rutland, are more or less paying for themselves. So that was good work,” Cole said. “Hopefully, we will see some growth in this area. They are very valuable, depending on where you are in the state.”

If trends continue, officials believe the airports — as a whole — will soon be generating revenue for the state. Rutland, which is the only state airport that provides daily commercial flights to a major hub, will continue to see losses, but those will be offset by the other nine airports, Rouelle said.

“Once we lock up a couple more business leases on our airports, I think, with the exception of Rutland, two years from now our airports will be operating in the black,” he said. 


No comments: