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August 30, 2004

Flight check | The busy charter business provides opportunities for Maine's small aviation firms

By Melissa Waterman
Last year, Bangor-based Telford Aviation ceased operating cargo and passenger flights on the East Coast to concentrate on its commercial aircraft maintenance and sales businesses. Withdrawing from those markets was a strategic choice, according to Bob Ziegelaar, Telford Aviation president. "The long-term plan for the company was to not do passengers and freight," he says.

Instead, the company made a major acquisition three years ago, buying a heavy maintenance facility in Mojave, Calif. "The purchase doubled our company," Ziegelaar reports, noting that revenues have increased by a factor of three during the past four years, from $12 million to $50 million a year. Now Telford Aviation focuses on providing overhaul and Federal Aviation Administration-prescribed maintenance services for larger aircraft, from 35- to 70-seat airplanes.

Telford's decision to get out of flying planes was an opportunity for Roland Lussier. In May, Lussier bought Maine Atlantic Aviation, a fixed-base operator, or FBO, that provides passenger and freight service from Knox County Regional Airport in Owls Head to the Penobscot Bay islands, from Telford. Lussier, who won't disclose the company's sale price, says he bought the company "because I have a vision that we will have a traditional full-service FBO that will move into full maintenance and flight instruction."

Lussier, president and founder of Communications Laboratories Inc., a provider of specialized telecommunications equipment and warning systems, is an aviation enthusiast who owns 10 acres next to the airport, where he loves to watch planes take off and land. He's also committed to maintaining Maine Atlantic Aviation's niche of providing air service to the islands, despite the challenges it presents.

Though Lussier appears unconcerned about the financial details of the business, it seems he's entered it at a good time: The inconvenience and rising cost of business travel due to increased security regulations after Sept. 11 has prompted a small boom in charter air flights. Like Maine Atlantic Aviation, small aviation companies in Maine are hoping to take part in that boom ˆ— plus develop their maintenance and flight instruction business.

Jennifer O'Bryon, aviation planner for the Maine Department of Transportation, thinks that Maine's aviation companies will continue to prosper for the near future. "Charter services have been utilized a lot more since Sept. 11, and we expect that growth to continue," she says. "Fractional ownership" ˆ— a timeshare arrangement ˆ— "of charter planes will also continue to increase."

No fear of flying
Harry Holt, president of Columbia Air Services of Groton, Conn., has every confidence that his 2003 purchase of Acadia Air, based at the Hancock County-Bar Harbor Airport, will prove profitable. Through its FBOs in Connecticut, Vermont, New Jersey and now Maine, Columbia Air Services provides a variety of services to the general aviation community, including maintenance, ground handling and fuel sales.

"[Moving into the Bar Harbor market] was a natural expansion of our company," says Holt. "It's a popular airport and has been well-run over the years. After we bought [Acadia Air] we made some improvements to the lobby and pilot lounge, installed weather devices to improve preflight briefings and beefed up staffing." The company also contracted out certain activities, such as scenic flights, to other companies so it could concentrate on business and personal charters.

While Holt declines to mention the price he paid Bob Bouffard, who ran Acadia Air for 20 years, he believes he's entered a good market. Prior to the purchase he studied the airport's vital statistics, including the number of airplane take-offs and landings, passengers per airplane and gallons of airplane fuel pumped each year. "Plus, look at the real estate numbers and employment statistics," Holt points out. "They're not going down. We're going to do as good a job as we possibly can do to provide exceptional service to our customers. I would like to see modest and consistent growth [in the business]."

But thanks to the post-Sept. 11 boom in the airplane charter business, Holt might find his growth more than modest. The industry, according to Frederick Gevalt, founder of the Cambridge, Mass.-based industry publication Air Charter Guide, has been growing at between seven and 11% annually since 2001. "That's not a function of fear of flying," he says. "Rather it's because the airlines cut back on their routes after Sept. 11 in order to cut expenses. Business people need to travel on short notice and currently they can't get there via the existing [hub and spoke] network."

Nate Humphrey, president of Twin Cities Air, which operates out of the Auburn-Lewiston Municipal Airport, reflects Holt's confidence. Like Columbia Air Services, his smaller company also provides fuel, maintenance and storage services for its customers. Twin Cities Air owns and operates 11 small planes for charter flight use and a flight instruction school. Humphrey, who bought the company from original owners Roger and Lillian LeBlanc in July 2002, says all sectors of the business are doing well. "The charters, the flight school and aircraft maintenance are all showing growth," he says, adding that the company is profitable, and revenues have increased by 20% for each of the last two years.

Humphrey, like many others, attributes that growth to the post-Sept. 11 boom, despite the added costs he incurs due to tightened security regulations. (See "The price of security," below.) "The commercial airlines are a mess. If a CEO has to go to a meeting, he has to get to the airport two hours early and he gets awful service," he says. "Our customers are people whose time is important or who are seasonal travelers, say from New York City to Maine in the summer."

Island-hopping
Twin Cities Air, like many aviation companies operating small planes, can pick up passengers at smaller airports, often closer to the passenger's home or business, and deliver them to a corporate or private airport near their final destination, avoiding the time-consuming delays of the larger airports. A round trip from Portland to New York City on Twin Cities Air, for example, would cost approximately $2,000 ˆ— pricey for one person, but much cheaper than last-minute fares for a group of three or four.

While Maine Atlantic Aviation also provides charter flights for time-pressured folks anxious to get to their homes on Penobscot Bay's numerous islands, the company's focus is the year-round service it provides to the islands such as Matinicus and Vinalhaven. Like the bush planes that fly supplies to remote Alaskan villages, Maine Atlantic Aviation pilots are Maine islanders' link to the mainland, transporting mail, freight and even groceries, via an arrangement with the Shaw's supermarket in Rockland. They perform 60-80 medical evacuations each year and even carry sheriffs' deputies out to the islands when requested.

In addition, the company maintains its own unpaved landing strips on the islands. "We go out and cut wood, plow them, do all the maintenance ourselves," says Kevin Waters, the company's director of operations and chief pilot. (Waters has been with Maine Atlantic Aviation since 1996, when it was a locally owned business called Penobscot Air Service. Telford Aviation bought the small company in 1999 and operated it as Telford Aviation until this summer. )

Maine Atlantic Aviation takes advantage of any opportunity to earn income, running scenic flights for tourists, flying surveys for the National Marine Fisheries Service and performing maintenance on planes for other companies and individuals. "The reality is that our core business is servicing the islands," says Waters. "The costs of doing that keep going up ˆ— the fuel costs, the insurance costs for the landing strips, everything. We compete with the state-subsidized ferry service, and it's becoming tough."

Unlike Colgan Air, the contracted carrier for U.S. Airways that flies from Augusta, Owls Head, Presque Isle and Lewiston-Auburn to Boston, Maine Atlantic Aviation's flights to the islands are not supported by the federal government through its Essential Air Services program. Back in 1978, when Congress deregulated commercial airlines, it established the program in order to ensure that rural areas then served by commercial airlines would continue to have access to the national air transportation network. Deducing that commercial carriers would focus on centers that draw from a dense population, Congress mandated that licensed carriers maintain a limited level of service to the communities they serviced prior to deregulation, and allocated funds to subsidize the companies' flights. Today, nearly 80 towns in the lower 48 states and 20 communities in Alaska are part of the EAS program.

In Maine, the Augusta State Airport, Hancock County-Bar Harbor Airport, Knox County Regional Airport and Presque Isle Airport fall within the EAS program. Carriers must provide, on average, three flights a day to the nearest major airport in small aircraft. The subsidy is paid to the airline after the flight takes place, based on the number of passengers on each plane. According to the FAA, in 2001 subsidies to Colgan Air to provide service from each of the four airports to Boston totaled nearly $3 million.

The island communities serviced by Maine Atlantic Aviation were not included in the original designation of communities in 1978, thus the company cannot be subsidized for flying to them. "They should be," says Waters. "We do a lot of things that don't hit the radar screen. People need to step up to the plate and help with this burden."

The price of security

While Maine's aviation companies are benefiting from the use of charter airplanes, the economic situation of the state's small airports is entirely different. Since Sept. 11, 2001, new security regulations, known as Part 139, have been instituted for the nation's smaller airports. The new Federal Aviation Administration regulations, which went into effect in June, require airports that receive planes with more than nine passenger seats to provide onsite crash-rescue trucks and crew at all times and to have water rescue boats and equipment available. While the cost for the equipment is split generously (95% from the federal government, 2.5% from local municipalities and 2.5% from the state), the continuing maintenance, training and salary costs are solely the responsibility of the airport. Since most small airports in Maine are municipally owned, this new financial burden will be picked up by local taxpayers.

Jennifer O'Bryon, an aviation planner for the Maine Department of Transportation, notes that the regulations will be phased in over time. "Just this month, the FAA sent out officials to do inspections at the four airports" in Augusta, Presque Isle, Lewiston-Auburn and Owls Head within the Essential Air Services program, she explains. "They will be given a list of things to do, such as coming to an agreement with local firefighters to provide the safety coverage." O'Bryon says the FAA has begun to show some flexibility in applying the rules, noting that alternative compliance strategies may be possible. Only if the airport receives planes with nine or less seats can it be excluded from the Part 139 regulations. But, as O'Bryon says, "People are uncomfortable flying in that size plane."

Anne Beebe-Center, chairman of the Knox County Commission, which oversees Knox County Regional Airport operations, met with FAA representatives recently and believes that opportunity for exemptions from the regulations may exist, though she is not optimistic. After FAA inspectors have finished visiting the four airports in Maine and submit their reports, the airports will have a year to make the requested changes to their facilities.

Sen. Olympia Snowe, in response to complaints from small airport operators in the state, met this spring with FAA officials to discuss the ramifications of Part 139. In an e-mail response for this article, she says, "From these discussions, I have learned from the FAA that airports will have the ability to submit 'alternate safety plans' to meet the new requirements, so that, for example, the Hancock County Airport will not necessarily need to have a fire truck with firefighting foam at the airport at all times. As a member of the Senate Commerce Subcommittee on Aviation, I hope to further work with the FAA and the airport managers to develop alternate safety plans."

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