WATSONVILLE — Though in the red, Watsonville Municipal Airport finances are stable and improving, city officials say. An audit of city finances, commissioned by the Santa Cruz County Grand Jury and released in January, noted an ongoing deficit at the airport and criticized officials for not presenting a clearer picture of the problem.
With the exception of 2008-09, the city-owned airport’s annual operations have been in the black for the past five years, according to Administrative Services Director Ezequiel Vega. But revenue has not been strong enough to close a long-standing multimillion-dollar deficit.
City Manager Carlos Palacios said the airport developed a negative balance after the city refinanced a hangar construction loan in 2001 to shorten the term of the debt to produce interest savings. The trade off was higher annual payments.
“It’s a decision similar to refinancing a home loan from a 30-year term to a 15-year term,” Palacios said in an e-mail. “We knew at the time that the increased debt payments would put pressure on the Airport Fund balance, but also knew that in the long-term it would save money and that the Airport Fund was in a strong position to bear some years of negative fund balance.”
The airport, the only one in the county, is home to more than 300 aircraft, mostly single-engine planes but also six corporate jets and 12 helicopters.
John Cowan, vice president of the Watsonville Pilots Association, said it’s an invaluable resource for the entire county, starting with the role it can play in disasters. After the 1989 earthquake, for example, tons of supplies were flown in to the airport, he said.
Cowan noted the airport hosts a variety of aviation-related businesses, and provides a base for companies, such as Granite Construction, to reach out-of-town job sites and business meetings. He pointed to a study done a decade ago by the Association of Monterey Bay Area Governments that said the airport generated $18 million in direct economic benefit to the region and many millions more in indirect contributions.
“A lot of the airport is used for pleasure,” Cowan said. “That’s not to be discounted. That’s the icing on the cake. It’s sort of like the (Santa Cruz) yacht harbor.”
Landing in debt
According to Vega, by 2008 the airport was running more than $4 million in the red, an amount that dropped to $2.2 million in 2011. But at the end of the 2011-2012 fiscal year, the deficit soared again to $3.8 million, mostly due to capital projects designed to ensure the airport’s viability into the future, such as $100,000 in improvements to attract a tenant for the restaurant.
Vega said he’s in the midst of running projections so he couldn’t provide an estimate for how the airport’s balance will look on June 30, the end of the current fiscal year. But he said the airport will soon be on the road to recovery. Once the final payment of $235,000 is made for the hangars in November, the airport can begin attacking the negative balance, he said.
“If everything goes well, in a reasonable amount of time the balance can become positive,” Vega said.
Ready to take off
Airport General Manager Rayvon Williams said he is confident he can turn around airport finances.
“It’s straight P&L,” he said, “profit and loss.”
Williams plans to boost revenue by making fuel sales more profitable and increasing hangar fees. He also plans to build more hangars to generate additional rental income.
“If I can do that in the next five years, then I’m OK,” Williams said.
He faces hurdles, however. The plan to build 100 hangars has been on the books for years.
The airport maintains a waiting list of 135 pilots seeking hangar space so the demand is there. But environmental considerations have stalled construction, as the airport is home to the protected Santa Cruz tarplant and the California red-legged frog.
Williams said federal authorities recently cleared a plan to rebuild a taxiway, though he still needs approval from the state Fish and Wildlife Service. He said if that project goes forward successfully, he’ll be able to prove he can mitigate the impact of construction. Then he can push for the hangars.
He’s already overcome challenges. A few months after he took over management in July 2011, the longtime restaurant operator decided to call it quits. Then, the county issued a letter warning fuel sales would be shut down if holding tanks weren’t overhauled.
New tenant at restaurant
Since then, the airport fixed up the restaurant and signed a new tenant; completed a $75,000 renovation of the terminal lobby, restrooms and offices; acquired a used street-sweeper to better maintain runways; and rehabilitated the fuel sales facility.
With the improvements made to the pumping station and better inventory control, Williams aims to net $250,000 to $300,000 a year on about $1.2 million in fuel sales, profits that can be used to cover salaries, maintenance and future capital investments.
The projects were critical, Williams said, to attracting and retaining business from pilots.
He’s also embarking on a marketing effort. Aiming to draw out-of-town pilots, for example, the airport hosts an aviation swap meet with discounted fuel prices the second Saturday of every month.
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AT A GLANCE
Watsonville Municipal Airport
2011-12 revenue: $2.65M
2011-12 expenses: $2.47M
Outstanding negative balance June 30,2012: $3.8M
SOURCE: City of Watsonville
CalPilots Editors Note: It would be interesting to determine if the “P&L is based on gross receipts, or, is based on “Net” numbers which do not include the State and Federal taxes collected each year. My guess is it is Net not gross and that given the amount of taxes extracted from airports they would all be break even without an overburdening tax bill.