McClellan-Palomar Airport Faces Growth Challenges

PalomarMcClellan-Palomar Airport faces growth challenges  More than $182 million has been invested in McClellan-Palomar Airport in the past five years, to spruce up the field for its corporate clients and jet-setters looking to avoid crowds.

But airport officials say the airport, which is owned by San Diego County, had losses of roughly $2 million during this period of modernization. The reason: Expenses outpaced revenue as travelers and corporate clients held back on spending.

The exception may have been Microsoft billionaire Bill Gates, who has on occasion been spotted there. Or Irwin Jacobs, founder of wireless telecommunications firm Qualcomm Inc., which keeps a small fleet of jets there that are detailed and shined up often to improve flight time to China, or wherever.

Nonetheless, a tanking economy didn’t help everyone else.

Flight instruction schools reduced operations as discretionary spending to take lessons dried up. Commercial flights fell as the number of airlines with a gate shrank to just one. As the economy struggled for a footing, some local corporations cut executive trips, and charter flights fell correspondingly.

Airport officials are quick to defend the investments and argue that, yes, it is true that profitability was sacrificed in recent years. But the payoffs could be huge as the recovery takes hold in North County, where unemployment is under 9 percent and consumers can dig deeper for cash than some other parts of Southern California.

Taking a longer view of the capital project investments —- some of which won’t need to be revisited for 30 or 50 years, such as the new terminal and runway overhaul —- the airport may be on the cusp of becoming a major money-driver within the county’s portfolio of eight airports, said Peter Drinkwater, director of airports for San Diego County.

“We are looking at the bigger picture, and longer-term investments, and where the airport will be,” Drinkwater said. “North County is a very wealthy region, and there are many companies headquartered there.

“The airport is not in a blighted area,” he said. “It is in a coastal community with extremely high incomes and some of the biggest industries. So the future of corporate aviation —- even though it’s up and down, and the future of airlines may ebb and flow —- the airport is a fixture that will stay there.”

Tracking the investments

The investments in the airport have flowed from private and federal funding sources, including the Federal Aviation Administration.

The millions invested in recent years bought parking lots, a new 4,897-foot asphalt runway, a terminal building, baggage security system, a firetruck, and a barrier to keep jets from sending strong blasts of air toward Palomar Road to the south. Private investors —- referred to as fixed-base operators —- paid for hangar upgrades and cavernous office buildings.

Even though the fixed-base operators have spent upward of $130 million on renovations, they also pay rent to lease the property from the county on 40-year or longer-term leases. Once the end of the lease is reached, the property reverts to the airport to lease again, even if it’s to someone else, Drinkwater explained.

Data provided by the county’s airport agency show that Palomar Airport generated roughly $22.7 million in revenue over the past five years while spending about $15.8 million on expenses. If the county includes its costs on all of the capital projects during the period, the airport estimates an approximate loss of $1.92 million over the past five years.

Airport officials say they believe that the airport’s finances are poised to steadily improve.

In the meantime, one indicator that has some airport officials worried is flight operations, or the total number of aircraft takeoffs and landings there.

Airport manager Guillermo Vasquez attributes some of the downturn in flight operations on a drop in “discretionary income” at the airport, long-known for its bread-and-butter business of charter flights.

Activity plummets

Landings and takeoffs at Palomar Airport are way down, and corporate travel is largely the reason why. The airport saw a peak period of flight operations in 1999, during the Internet go-go years. That’s when the aging control tower —- which also is being fixed up —- handled more than 291,873 operations.

After the terrorist attacks on Sept. 11, 2001, operations fell to 204,289 and continued to plummet as tourist and destination travel dropped.

Activity started to pick up in the mid-2000s, and recovered to 215,847 operations in 2007, but then steadily dropped to 132,076 operations last year —- just as the economy had begun to recover.

Forecasts call for just over 124,000 operations this year.

Vasquez said that flight operations were hurt last year because the airport’s single runway was closed every other week from April to July while the airport rebuilt the strip. Fewer operations led to a drop in the 4-cent fee collected by the airport for every gallon of fuel sold.

“As the operations have dropped, the fee (collected) for the fuel has dropped,” Vasquez said. The fees collected —- plus an 8-cent fee charged per gallon of lubricant sold —- fell to $157,532 in the fiscal year that ended June 30, 2010. This is down 30.6 percent from the $227,036 seen in the fiscal year that ended June 30, 2006. To date, over the past 11 months of the current fiscal year, the airport has collected $147,785.

“A new commercial airline will certainly help us financially,” Vasquez said.

California Pacific, a startup airline of Carlsbad entrepreneur Ted Vallas, is poised to start flying to Cabo San Lucas, Las Vegas, Oakland, Phoenix, Sacramento, San Jose and other short-haul flights by early next year.

At the moment, however, the airline’s ticket counter at the new terminal is empty. United Express is the lone commercial airline operating out of the terminal, down from three airlines just a few years ago. Gone are American West and American Eagle. There is talk that Frontier Airlines, or others, may want in.

Lease revenue helps

Boosting travel at the airport isn’t the only plan under way to raise cash. The airport also expects to rake in $450,000 annually in lease payments from the Palomar Commons development project to be built south of the airport.

Construction is set to begin this summer, and will include a Lowe’s home improvement store and other retail establishments. The airport also receives $94,047 a year from the county’s animal shelter, also located to the south. The two projects take up about 20.5 acres.

Talk also is beginning on a 1,000-foot extension to the runway. Drinkwater said that his agency is in the beginning stages of studying the economics. A plus for a longer runway is what it might mean for encouraging more corporate jet takeoffs. The jets are restricted from taking off with fuel tanks filled due to weight and safety concerns. Some, including Qualcomm flights to China, for instance, must stop in Alaska to fill up for a longer trip to Beijing.

Overall, challenges remain on the revenue front.

For instance, some flight schools are seeing a decline in people wanting to learn how to fly, and maintenance facilities and charter services have tightened their belts.

Orion Aviation has gotten out of the flight school business at the airport but continues with its aviation maintenance work. This week, Crownair Aviation announced plans to consolidate its maintenance operations into Montgomery Field along Gibbs Road —- leaving Palomar Airport altogether—- while Leading Edge Aviation announced plans to possibly consolidate into another facility at the airport.

“As we address the current challenges facing the aviation industry, this move will allow the Crownair team to continue offering competitive service and pricing to our customers,” said Crownair President Dave Ryan. Having two facilities to provide services has been less efficient at “current volumes.”

Robert Levine, director and general manager of Magellan Aviation, a fixed-base operator that leases to Crown Air and Leading Edge, noted that
Crownair and Leading Edge each have a reason to consolidate.

“There is slow growth in the economy, although aviation has seen some pickup in the last six, nine and 12 months,” Levine said. “We all need aviation to
return to (the) stronger times before 2008.”

Henry Schubach, 57, owner of Schubach Aviation, a charter service and a thriving maintenance business that has operated out of Palomar since the early 1990s, said the recession was very “deep and broad, and we’re not out of it yet.”

The Vista resident once boasted a fleet of 25 planes and jets, but is down to about 16 today.

“2007 was a pretty good year. In 2008, it got real ugly. I stepped back to see what was happening. It was dreadful for the entire industry as well,” Schubach said.

His business finally began showing signs of recovery last year, and is up roughly 10 percent so far this year over the same timeframe in 2010.

“The simple fact is that what I sell here is expensive,” he said. “It’s a very lovely product and saves a lot of time. But you can drive without it. You don’t need a Ferrari when you can get to work in a Ford.”