ome major airports were for years considered absentee landlords when it came to the management of their airport facilities. Third-party developers were - and some are still - an adjunct to management, setting their own rental rates and at times operating independently. But changes are in the air at airport properties.

With a shakeout among airlines since 2001, and carriers focused more intently on cutting operating costs amid rising jet fuel prices, airports can no longer rely on the legacy carriers for a steady stream of rent revenue. The U.S. airlines emerging from bankruptcy protection are insisting that landing and rental fees remain unchanged, according to several airport executives, and airports are greeting the belt-tightening with a more disciplined approach to managing or subleasing on-site facilities.

The new management style includes a commitment to the bottom line and an insistence, some say, on accountability on how these facilities are managed.

Airport cargo executives realize on-site facilities "have become an accepted asset class, whereas before it was an ad-hoc game," said John Cammett, chief executive officer of Aeroterm, an air cargo facilities development and management company.

Cammett said he now sees a lot more "economic and financial discipline" going into the investment of airport facilities as well as greater standardization of facility leases.

Aeroterm is developing the Pacific Gateway Cargo Center at Southern California's Ontario International Airport, which is in the midst of California's burgeoning Inland Empire industrial region.

Airports have started "to scrutinize more thoroughly every revenue stream to the airport," said Mike Maynard, aviation project manager for Wilbur Smith Associates, a transportation consultancy specializing in airport planning. "As a result, air cargo airport development today has to make business sense to an airport sponsor."

But that does not mean airports are abandoning third-party developers in favor of a go-it-alone plan, said Maynard. In fact, many are pushing more aggressively toward third-party development, he said. What is different today, he and others said, are airports direct, or, at the very least, increased oversight role in the management of the airport facilities.

For many, developing air cargo business no longer means standing by as a landlord in the distance while freight facility developers, handlers and carriers manage their operations.

For some, third-party developers are an important part of the equation.

Pittsburgh International worked with a third-party developer, as has Kansas City International, which is conferring with Dallas-based Trammell Crow on a sizable distribution center there, said Maynard. Fort Wayne International is studying whether to develop facilities itself or go with a third-party developer.

Yet there are those that prefer flying solo. Baton Rouge Metropolitan Airport considered going with a third-party developer, but opted to develop two new cargo buildings itself. It did, however, hire a consultant to market the project, said Maynard.

Then there is the Southern giant, Hartsfield-Jackson Atlanta International Airport, which wants greater "command and control" of its facilities to increase revenue as well as enhance safety and accountability, said Warren Jones, aviation development manager for Atlanta International.

"It's a good business decision to build them ourselves. We have a waiting list," said Jones. "These facilities will rent out."

The Cargo Master Plan calls for the airport to build an additional 335,000 square feet of warehouse space by 2015.

Atlanta has three main cargo areas: North, South and Mid-Field, which is controlled solely by Delta Air Lines. Built in the 1990s, the South cargo complex later this year will see the start of construction on an additional 100,000 square feet of warehouse space, said Jones. He said the airport is in the initial planning stages for an additional 250,000 square feet of needed warehouse space, also at the South complex.

Some airports don't want to share revenue with third parties and decided to do it all themselves. But proponents claim there is a significant upside to having a third-party. The building and management expertise as well as the willingness to assume the lion's share of the risk is enticing.

And there is another benefit, developers claim. Facility charges are less at airports with multiple third parties on site than at airport-managed facilities because the market sets the price, not the airport.

"What a lot of the airports are learning, some the hard way, is that merely constructing a building is not being a developer and manager," said Steven Bradford, senior vice president and principal of airport development for Trammell Crow, which recently completed a 61,484-square-foot perishables facility at George Bush Houston Intercontinental Airport. The company also will soon open the first of a multi-part freight and logistics center at Calgary International Airport.

But third-party developers offer something else precious to airports - the ability to raise cash for construction. "A lot of airports don't have the capital for air cargo," said Robert Caton, vice president leasing and marketing director for AMB Property. "As a result, they look to third-party developers."

Those developers, experts say, are adapting to changing demands on the airport landscape from the air cargo industry.

Bradford said there is a growing need for on-site facilities that have "direct immediate apron" placement as well as facilities away from the apron with access to the aircraft. Integrators and international cargo airlines with large freight volumes typically want on-apron facilities, which comes at a premium, while those with limited cargo volume don't need direct access, he said.

Cammett said the growing sophistication of the air cargo business has demanded the facilities be easily accessible to road transportation and the rest of the airport, as well as secure and modular.

"What we're finding today is that the air cargo facilities built 30 years ago have to be significantly adapted, rehabilitated or maybe even torn down and rebuilt" to meet the stringent demands of today's air cargo business, said Cammett.

Although lucrative revenue opportunities in on-site facility development exist for airports and third-party developers alike, several airports are faced with crippling overcapacity created by the consolidation that has been sweeping across the cargo industry.

The UPS acquisition of Menlo Worldwide Forwarding (the former Emery Worldwide operation) and DHL's purchase of Airborne Express left hubs at Dayton, Ohio, and Cincinnati without users.

UPS closed the Dayton hub last June and merged the Menlo operation with its main air express hub in Louisville, Ky. The closing, according to published reports, cost Dayton $7 million in revenue from UPS as well as federal grant money. Nearly 1,200 jobs were lost. Dayton wants to buy and market the million-square-foot structure, but an agreement is months away, say city officials.

Meantime, Deutsche Post World Net-DHL decided to move all its express and ground operations into the old Airborne hub at Wilmington, Ohio, leaving the relatively new hub at Cincinnati/Northern Kentucky International Airport empty.

"The end result is you have two ready-built national air cargo hubs that are practically dormant," said cargo business development consultant Michael Webber. "Throughout the system, there is a lot of redundancy [of airport facilities] created in the last 10 years."

Whether airports go it alone or enlist the help of third parties, there are plenty of cargo facilities being built or enhanced across the Americas.

Morton V. Plum, director of the Ted Stevens Anchorage International Airport, says the airport may soon break ground on its $55 million Anchorage Global Logistics Airpark after seven long years.

Kalitta Air will become the first tenant of the 41-acre AGLAD. Evergreen International Airlines, Pegasus Maintenance, Trailboss Enterprises also will be tenants and FedEx is about to sign a lease for a maintenance facility there. The Airpark will be able to accommodate several large widebody aircraft, said AGLAD President Lee Nunn.

FedEx recently completed an expanded sorting facility and added two additional airport parking pads. And Northwest Airlines recently signed a lease a new hangar at Anchorage that will be modified to accommodate the airline's 12 747-200 freighters.

At Nashville International Airport, produce company Freshlink is proposing to build a 130,000-square-foot perishables facility to handle fresh strawberries bound for China.

The airport is trying to enhance its relationship with the Chinese government, said Tommy Jones, director of business development for the Nashville Airport Authority. If successful, the airport will hire a third-party developer to build on-site facilities to accommodate the projected increased in cargo traffic coming from China.

In Houston, George Bush Intercontinental Airport, Trammell Crow recently finished a perishables facility and the airport is looking to expand a 500,000-square-foot cargo facility built in 2003, said Genaro Peña, director of marketing at the Houston Airport System.

Part of the motivation behind the perishables facility, said Peña, is to sell Houston as an "effective alternative gateway" to the traditional gateways, like Miami and New York.

Trammell Crow also recently signed an agreement to develop warehouse, manufacturing, distribution and trucking facilities on some 800 acres at the Kansas City International Airport.

For those and other airports in North America and around the world, the expansion and addition of air cargo facilities are part of a larger drive to diversify their business by meeting the special needs of freight operations.

Indianapolis International Airport owns a site that was once a massive maintenance center for United Airlines. Now, part of the facility is occupied by Schenker Logistics and the airport, already a regional hub for FedEx Express, is completing a feasibility study to build a 55,000 square foot perishables facility. Kirk W. Lovell, air service director for BAA Indianapolis, the manager of the airport, said the airport is aggressively marketing freight services "to diversify the mix of service."

Having sufficient and well-managed air cargo facilities are a key component of that mix of services. Without these components airports marketability and profitability are diminished.

In the future, say experts, third-party developers and airports must work in concert to build air cargo and other-use facilities to enhance revenue for both parties and free airports of dependence on the rough cycles of the airline passenger business.

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Copyright 2007, Air Cargo World Magazine

Developing China

China is rapidly building new on-site cargo facilities at airports throughout the country to handle the projected growth in air cargo.

"Virtually, every gateway airport in China is interested in growing the cargo segment of their business," said Daniel B. Muscatello, managing director, cargo and logistics for Landrum & Brown.

The expansion comes amid larger investment in overall infrastructure, including massive projects to build up airports to meet Western standards. Part of that strategy, say experts, includes committing not only to basic freight handling facilities but to logistics parks that will be part of broader supply chain strategies linking manufacturing and international trade.

Major developers such as ProLogis and AMB Property have large operations in the country overseeing logistics sites in Beijing and Shanghai and the developers are looking more deeply at distribution centers far from the more familiar gateways.

In Tianjin, said Muscatello, airport authorities are looking to develop a 300-acre logistics park. The same story is being written for Dalian, on the southern tip of Liaodong peninsular in northeast China. Guangzhou too wants to develop a full service logistics park at the airport.

Trade is leading to airport investment in other parts of Asia. Expect to see large-scale development of airport facilities in Vietnam, where several IT companies have set up shop, as well as in Korea and Japan, said Muscatello.

And third-party developers are starting to look more closely at India, he said, where the sheer size of the market and the ongoing growth will overcome skepticism over bureaucracy, he said.

[:28:07/07:FEATURE ]

Copyright 2007, Air Cargo World Magazine

Farming Funding

It is not all about building new facilities to attract business. Airports are finding novel, sometimes non-aviation ways to enhance the bottom line and keep landing and facility charges at reasonable rates.

Consider the creative way of making money adopted by Kansas City International Airport. Airport tenant Wilson Motorsports is building a Le-Mans-type racetrack on 300 acres of unused airport land where amateurs can conduct road rallies.

The airport expects to collect around $250,000 in rent annually from the private race club. That will be in addition to the $350,000 in rent KCI gets from farmers for use of land for crops and cattle.

And last fall, the aviation department bought a six-story nearby office building nearby from Hyatt Hotels and is generating significant revenue.

"We realize now that we've got to get away from relying on aviation revenues to keep us healthy," said Mark VanLoh, KCI's airport director. This creative moneymaking program help keep the terminal rents at $26.90 per square foot, he said.

Apparently the idea of plowing up new revenue is spreading. The Houston Bush Intercontinental Airport is projecting $4 million from one new revenue source: hay farming.