Fixed Base Operator Valuation Report

Letter of Transmittal

1. Summary of Salient Facts and Conclusions

Exhibit 1. Salient facts

Exhibit 2. Value indications and conclusion

2. Scope of the Assignment

Purpose, intended use, and intended users

The purpose of this assignment is to develop an opinion of the fair market value of one hundred percent of the invested capital of Halstead Jet Center LLC. The intended use is to support a negotiated sale of the business. The intended users are the members of the company and their counsel. No other party is an intended user, and this report is not written for a lender, a taxing authority, a trustee, or a court.

Standard and premise of value

The standard of value is fair market value: the price at which the business would change hands between a willing buyer and a willing seller, neither being under compulsion and both having reasonable knowledge of the relevant facts. The premise is going concern. We assume the buyer continues the operation in place, obtains the sponsor's consent to the transfer, and holds the certificates and permits the operation requires.

What is valued and what is not

We value the invested capital of the operating company, which is the sum of the interest bearing debt and the equity. That is the customary basis for an FBO because the capital structure of a closely held operator is a financing choice rather than an attribute of the business. Equity value at any given transaction date is the invested capital less the debt assumed or retired at closing. We do not opine on equity value here because the debt balance at closing is not known.

The opinion includes the leasehold improvements, the tangible personal property used in the operation, the net working capital, and whatever intangible position survives the remaining term of the operating agreement. It does not include the members' personal assets, the company aircraft that is not used in the operation, or any real property held outside the leasehold.

Scope of work performed

Reporting standards

This is a sample. It is written in the form of a detailed report and follows the structure we use in engagements of this type. It should not be treated as a report prepared under any professional standard, and no party should rely on it for any purpose.

3. Assumptions and Limiting Conditions

General assumptions

1. We assume the operating agreement, the amendments, and the rent roll furnished to us are complete and accurate. We read them but we are not attorneys and we offer no legal interpretation of them.
2. We assume the company holds good title to the leasehold and to the personal property, free of liens other than those disclosed.
3. We assume the Part 145 repair station certificate remains in force and that the buyer obtains its own certificate or completes a change of ownership acceptable to the Federal Aviation Administration. Certificates are not transferable as property.
4. We assume the sponsor consents to a transfer on the terms in the agreement and does not impose conditions beyond the current minimum standards.
5. We assume the improvements are structurally sound and free of material defect. We are not engineers and we performed no destructive testing.
6. Financial information was prepared by management and reviewed by the company's accountants. We did not audit it. Our normalization adjustments are described in Section 13 and are our own.
7. We assume the fuel supply agreement and the branding agreement renew on terms no worse than the current terms.
8. Projections in this report are not forecasts. They are the cash flows a buyer would model at the effective date on the information then available.

Extraordinary assumption regarding environmental condition

We assume the premises are free of hazardous material and that no remediation obligation attaches to the company. We performed no environmental assessment. This is an extraordinary assumption, and its use might have affected the conclusion. Two conditions warrant particular attention in diligence. The first is the fuel farm. The tanks and canopy date to 2015, but fuel has been dispensed from that corner of the field since the 1970s, which creates an ordinary risk of historical release. The second is per and polyfluoroalkyl substances. Hangar A carries an aqueous film forming foam suppression system, and those agents are the principal source of the compound in a hangar setting. Halstead Regional is not certificated under 14 CFR Part 139 and therefore has never been required to maintain aircraft rescue and firefighting foam, which limits but does not eliminate the exposure. A Phase I environmental site assessment with a foam specific scope should precede any transaction.

Hypothetical conditions

None were used.

Limiting conditions

1. This report is a sample. The business, the airport, the parties, and every figure in it are illustrative. Nothing in it is an opinion of value for any real business, and no party should rely on it for any transaction, filing, dispute, or lending decision.
2. Possession of this report does not carry the right to publish it. Neither this report nor any part of it may be distributed, quoted, or referred to without our written consent.
3. The value opinion applies only as of the effective date and only for the intended use.
4. We are not required to give testimony or attend any proceeding regarding this sample.
5. Nothing in this report is legal, tax, or investment advice.

4. How We Value Fixed Base Operators

An FBO is two businesses in one set of books. Part of it is real estate. Hangar rent, tiedown fees, and ramp charges are rent by another name, and they behave like rent: they are contractual, they are stable, they turn over slowly, and they carry a real estate risk profile. The other part is an operating business. Fuel, handling, maintenance, and training are sold day by day, they carry inventory and receivable risk, they depend on labor the company must recruit and keep, and their margins move with things nobody at the FBO controls.

Valuing the whole of it at one multiple, or at one discount rate, produces a wrong answer in a predictable direction. If the rate is a business rate, the real estate earnings are overcharged for risk and the value comes in low. If the rate is a real estate rate, the service earnings are undercharged and the value comes in high. Section 20 quantifies both errors on this subject.

The seven rules we apply

1. Separate the revenue streams before doing anything else

Every stream gets its own volume driver, its own price, its own direct cost, and its own growth rate. A consolidated income statement hides the fact that 82 percent of the gross margin comes from three of the seven lines.

2. Treat fuel as a margin business, not a revenue business

Gallons and margin per gallon are the two numbers that matter. Retail price is an intermediate step. Nearly half of the subject's revenue disappears the moment fuel cost and the flowage fee are netted, and the remainder is what a buyer is actually purchasing.

3. Treat hangar income as real estate until proven otherwise

Hangar and tiedown income carries a landlord's risk, not an operator's. It gets a real property discount rate and a real property growth rate, and the costs charged against it are the costs a landlord would actually bear.

4. Allocate overhead on an avoidable cost basis and disclose the alternatives

The segment split moves by a factor of two depending on the convention chosen. Section 14 shows three conventions side by side so the reader can see the sensitivity rather than inherit ours.

5. Terminate the projection at expiration and assign no terminal value

Where improvements revert without compensation, there is nothing to sell at the end. The terminal value is zero. That single assumption accounts for most of the distance between the multiple this report concludes and the multiples FBO owners hear quoted.

6. Do not charge the finite term twice

Because the cash flow model already stops at expiration, the company specific risk premium excludes the risk that the agreement ends. Loading it into the discount rate as well would price the same risk in two places.

7. Adjust the guideline multiple rather than the earnings

Published FBO multiples come from operators with long agreements. The term adjustment is the ratio of the present value annuity factor over the remaining term to the factor over a perpetual horizon. The factor falls out of the two rates and the term, and there is nothing to argue about in it.

5. The Federal Overlay: What the Sponsor Can and Cannot Do

Halstead Regional has accepted federal airport improvement grants. That makes it an obligated airport, and it puts a body of federal law between the sponsor and the operator that a buyer must understand before pricing anything. The rules do not set rates. What they do is fix the boundaries inside which the sponsor may act, and several of those boundaries have direct value consequences.

Exhibit 3. Federal authorities bearing on the subject

The three consequences that reach the number

Exclusivity is not for sale. Buyers of FBOs sometimes pay for the belief that the airport will not admit a competitor. At an obligated airport that belief has no legal support unless the sponsor has documented both parts of the section 8.6 test, and the subject's sponsor has not. We assigned no premium for the current two operator structure. What we did assign is the barrier quantified in Section 19, which is economic rather than legal: a new entrant must build.

Self fueling is a right, not a concession. A based operator may fuel its own aircraft with its own employees and owes only the flowage fee. Three of the subject's based turbine operators are large enough for a self fueling program to pay for itself. Section 11 prices what that would cost.

Self sustainability points the ground rent one way. Contract ground rent of $0.42 per square foot sits below our concluded market rent of $0.51. The gap is an asset today, quantified in Section 23. It is also the reason the sponsor has an obligation to close it at renewal, which is why the renewal scenarios in Section 22 carry a rent reset rather than a rollover.

6. Halstead Regional Airport and the Market

Halstead Regional is a general aviation reliever serving a metropolitan area 34 minutes away by road. It has a 6,100 foot primary runway, a Category I instrument landing system, and a Class D tower staffed from 0600 to 2200. Two fixed base operators serve the field. The subject is the larger of the two and holds the only Part 145 repair station on the airport.

Exhibit 4. Airport profile

Scoring the airport

We score airports on the Valuation Takes Flight Airport Value Index because the alternative, which is to describe an airport in adjectives, does not produce a rent conclusion anyone can check. The index weights operational factors at 40 percent, service factors at 30 percent, and market factors at 30 percent. It classifies a score of 80 to 100 as Class A, a premier destination; 60 to 79 as Class B, a strong regional; 40 to 59 as Class C, a secondary market; 20 to 39 as Class D, limited service; and below 20 as below investment grade. It anchors to two observed rent points: the midpoint of the published Class A band at $21.50 per square foot and the midpoint of the Class C band at $7.50.

Exhibit 5. Airport Value Index, component scoring

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A composite of 75.8 places Halstead Regional at the upper end of the Class B band and four points short of Class A. Interpolating between the two anchors at $0.35 per index point gives an indicated hangar rent of $16.53 per square foot. Our rent survey of the two operators on the field and of four comparable airports concluded $16.50. The two agree within three cents, which is closer than the method deserves credit for and closer than we would represent as repeatable. What it does establish is that the subject's rent is not an outlier.

What the score does not capture

Two conditions matter to this business and do not appear in the index. The first is that the nearest United States port of entry is 41 minutes away, which removes international arrivals from the addressable market and takes with them the handling fees and the fuel uplift that accompany them. The second is the mechanic labor market. The repair station has carried two unfilled airframe and powerplant positions for eleven months, and that constraint is the reason the maintenance growth rate in Section 16 is held at 3.4 percent rather than at the rate the order backlog would support.

7. The Operating Agreement

The operating agreement is the single most important document in this valuation. It fixes how long the earnings run, what the operator pays for them, what the operator must do to keep them, and what happens to everything the operator built when the term ends.

Exhibit 7. Terms of the operating agreement

8. The Premises, the Improvements, and the Equipment

The leased premises are 9.03 acres on the west side of the field, with 700 feet of taxilane frontage and 562 feet of depth. Everything the operation uses sits inside that rectangle except the taxilane itself, which is airport pavement.

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Exhibit 9. Improvement schedule

Condition and effective age

The buildings are in good condition and have been maintained. Effective ages run at or slightly below chronological ages, which is what we expect where an operator carries a service reputation and the sponsor inspects. Two components run well ahead of the shells that house them. The apron was placed in 2010 and carries an effective age of sixteen years against a twenty five year economic life, and it is scheduled for a mill and overlay in projection year ten. The Hangar A and Hangar B door systems date to 2009 and carry an effective age of seventeen years against a twenty five year life, which makes them the oldest mechanical assets on the premises and is why the Hangar A rebuild sits in projection year three. Section 19 depreciates every component separately for exactly this reason.

Exhibit 10. Tangible personal property at fair value in continued use

Tangible personal property is the only part of this business that survives the reversion. The hangars, the terminal, the apron, and the fuel farm all belong to the sponsor on May 1, 2039. The refuelers, the deicer, the tugs, the shop equipment, and the vehicles can be driven onto a trailer. That distinction is why Section 23 carries them at fair value in continued use while it carries the leasehold improvements at contributory value over the remaining term.

9. Highest and Best Use

Highest and best use is tested in three places for a business of this kind: the premises as though vacant, the premises as improved, and the enterprise as a going concern. Only the third test changes anything here.

The premises as though vacant

The premises front an active taxilane inside the airport fence and are encumbered by an operating agreement that limits use to aeronautical activity. The legally permissible uses are those the sponsor's minimum standards allow. The physically possible uses are constrained by the 9.03 acre footprint and by the requirement that any building line hold the taxilane object free area. The financially feasible and maximally productive use is a fixed base operation with enclosed hangar storage, which is what stands there.

The premises as improved

The improvements contribute more than the cost of demolishing them, the layout matches current demand, and the hangar waiting list at both operators establishes that the enclosed storage is not oversupplied. Continuation of the existing use is the highest and best use as improved. No component is a candidate for removal before expiration, and with thirteen years to run, none would earn back a redevelopment.

The enterprise as a going concern

This is where the analysis matters. The relevant comparison is between the business as it operates and two alternatives. The first is an orderly liquidation, in which the operator surrenders the premises, sells the tangible personal property, collects the receivables, and walks. The second is a narrowed operation, in which the operator keeps the hangars and the fuel and exits maintenance and flight training.

Exhibit 11. Highest and best use of the enterprise

Continuation as a going concern is the highest and best use. The liquidation indication is worth stating anyway, because it is the floor a seller should know before negotiating and because it moves in the opposite direction from enterprise value as the term shortens. In year twelve of thirteen, the liquidation number will not have changed much and the going concern number will have collapsed toward it.

10. Separating the Revenue Streams

The company reports one income statement. A buyer prices seven businesses. The first analytical step, and the one most often skipped, is to pull the streams apart and put each one next to its own direct cost.

Exhibit 12. Revenue, direct cost, and gross margin by stream Trailing twelve months to March 31, 2026.

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What the separation shows

Jet A produces $3,751,000 of revenue and $708,536 of gross margin. It is 51 percent of the top line and 30 percent of the money. Hangar rental produces less than a quarter of the Jet A revenue and slightly more gross margin. Part 145 maintenance produces $1,486,000 of revenue and $490,380 of margin, a 33 percent conversion that reflects a labor business in a tight mechanic market.

Three of the seven streams carry 82 percent of the gross margin: Jet A, hangar rental, and the repair station. A buyer's diligence budget should follow that concentration rather than spread evenly across the income statement.

Exhibit 14. Direct cost conventions used above

11. Fuel Is a Margin Business

The subject pumped 620,000 gallons of Jet A and 74,000 gallons of avgas in the trailing twelve months. That produced $4,218,680 of revenue and $792,896 of gross margin. The $3,425,784 of revenue in between is the cost of the fuel and the flowage fee, and it belongs to somebody else.

Exhibit 15. Fuel margin build

Where the Jet A margin actually comes from

A blended margin per gallon is an average of three very different transactions. We pulled 36 months of transaction level data out of the fuel management system and sorted every uplift into one of three buckets.

Exhibit 16. Jet A volume and margin by customer type

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Contract fuel programs take 46 percent of the gallons and return 28 percent of the margin. Transient retail takes 34 percent of the gallons and returns 56 percent. That asymmetry is the central economic fact about a modern FBO fuel desk, and it is the reason volume by itself tells a buyer almost nothing.

Two exposures we priced

Mix migration. The contract fuel share has moved from 39 percent to 46 percent over the 36 months we examined. If it moves another ten points at the expense of transient retail, the blended Jet A margin falls from $1.2828 to $1.1508 per gallon.

Self fueling. Grant Assurance 22(f) and chapter 11 of Order 5190.6C give a based operator the right to fuel its own aircraft with its own employees. The sponsor cannot prohibit it and the self fueler pays only the flowage fee. Three of the subject's based turbine operators uplift enough Jet A for an in house program to pay for its own truck and training. Advisory Circular 150/5190-8 provides that self fueling cannot be contracted out to a third party, which is what keeps this exposure bounded: the operator has to run the program itself.

Exhibit 18. Two priced exposures to fuel margin

The self fueling figure is 13.6 percent of the concluded value. We did not deduct it, because there is no evidence any of the three operators has begun the process, and a valuation is not a stress test. We disclose it because a buyer who has not asked those three tenants about their fueling plans has not finished diligence.

What we assumed about growth

Gallons are held flat for Jet A and are declined at 1.5 percent per year for avgas. That is a deliberate choice. The Aviation Business Strategies Group annual fuel sales survey published in March 2024 reported that 41 percent of responding fixed base operators sold less fuel in 2023 than in 2022, against 29 percent the year before, and the piston fleet that consumes avgas continues to shrink. Growth in the fuel line comes entirely from margin per gallon, modeled at 2.2 percent per year, and that assumption is the single largest driver of the value conclusion. Section 21 shows how much.

12. Hangar, Ramp, and the Rest of the Book

Hangar rental is the second largest gross margin line and the most stable one. It is also the line most often mispriced, because it appears on an FBO income statement and therefore gets valued as though it were an operating business.

Exhibit 19. Hangar and ramp

Why this is real estate

Hangar income has the attributes that define real estate income. It is contractual rather than transactional. It is collected monthly on written leases. It does not depend on the operator being open at two in the morning. Its cost structure is utilities, roof, doors, insurance, and taxes, which are landlord costs. Its risk is vacancy and credit, which are landlord risks. And its growth is rent growth, which runs with a local market rather than with a national fuel margin.

The counter argument is that FBO hangar tenants receive services a landlord does not provide: towing in and out, after hours access, ramp clearing, and a front desk. That is true, and it is the reason Section 14 charges the hangar segment for the staffing a hangar landlord would still have to carry rather than charging it nothing. It is not a reason to discount hangar income at an operating business rate.

Terminal, handling, and ancillary

This line collects ramp fees, handling, ground power, lavatory and potable water service, deicing, catering commissions, rental car commissions, and after hours callouts. It produced $214,000 of revenue at a 75 percent margin. It is the most closely correlated line to transient fuel volume, because most of it is billed to the same aircraft on the same visit. We modeled it at 2.6 percent growth, which matches the transient traffic assumption rather than the fuel margin assumption.

Part 145 maintenance

The repair station holds airframe and limited powerplant ratings and employs seven technicians against nine authorized positions. It produced $1,486,000 of revenue at a 33 percent gross margin, which is consistent with a labor business that bills parts near cost. Two constraints bound it. The first is the two unfilled positions, which have persisted for eleven months. The second is shop space: the maintenance bay occupies part of Hangar B and cannot expand without displacing a paying tenant. Growth is modeled at 3.4 percent.

A note on how maintenance businesses get valued. Published guidance benchmarks maintenance and repair operations near one times revenue, with specialized and high margin shops such as avionics toward the top of the earnings multiple range. One times revenue would price this repair station at $1,486,000, which is 48 percent of the concluded value of the whole enterprise for a segment producing 21 percent of the gross margin. Rules of thumb do not survive contact with a finite term.

Flight training

The flight school operates four aircraft, three owned and one on leaseback, and employs five instructors. It produced $412,000 of revenue at a 22 percent margin, which is the lowest conversion in the book. It is retained in the model because it feeds the avgas line, fills tiedown positions, and is the recruiting channel for line staff. It contributes $90,640 of gross margin, which is 4 percent of the total, and no buyer should pay much for it.

13. Normalizing Earnings

Reported earnings of a closely held FBO reflect the owner's tax planning, the owner's lifestyle, and whatever happened that year. Normalization restates them as the earnings a buyer would inherit. Every adjustment below is supported by a document, not by an assertion.

Exhibit 20. Overhead, as reported

Exhibit 21. Normalization of earnings

Support for each adjustment

Normalized EBITDA of $880,786 is 12.0 percent of revenue. Three of the seven adjustments move against the seller, which is worth saying out loud: normalization is not a device for making the number larger. The environmental restatement, the insurance restatement, and the removal of the equipment disposal gain reduce EBITDA by $74,700 between them, and a buyer who does not find them will find them in the first year of ownership instead.

14. Allocating Overhead, and Why the Answer Moves

Gross margin by stream is objective. Segment profitability is not. It depends entirely on how $1,644,348 of overhead is pushed down onto the streams, and the conventions in common use produce answers that differ by a factor of two.

Exhibit 22. Normalized EBITDA by segment under three allocation conventions

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Why we use avoidable cost

Absorbing overhead in proportion to gross margin charges the real property segment for a share of the fuel desk, the dispatch office, and the maintenance shop's supervision. Absorbing it in proportion to revenue does the opposite: because that segment is only 14 percent of revenue but 34 percent of gross margin, revenue based absorption barely charges it anything. Neither answers the question a buyer is asking, which is what the hangar business would cost to run if the rest of the operation went away.

Exhibit 24. Avoidable cost charged to the real property segment

One line in the overhead schedule is a genuine joint cost rather than an avoidable one. Percentage rent is owed on gross revenue above a fixed $6,500,000 breakpoint. Neither segment crosses that breakpoint standing alone, so neither causes the charge by itself and the avoidable cost test does not resolve it. We charge the whole of it to the service segment, on the ground that a hangar landlord with $1,017,330 of revenue would never trigger it. A reader who prefers to split it should move about $2,348 a year to the real property segment, which moves the segment split by less than a point.

Exhibit 25. Concluded segment earnings

15. Discount Rates for a Two Part Business

Two segments with different risk get two rates. The real property segment is discounted at a rate built the way a real estate rate is built. The service segment is discounted at a rate built the way a business rate is built. The consolidated rate used in Section 16 is the value weighted blend of the two, not an independent estimate.

Exhibit 26. Real property segment: band of investment

The mortgage constant is derived from the stated rate and amortization, not assumed. The 55 percent mortgage weight is deliberately below what a fee simple industrial property would carry. The operating agreement gives a leasehold mortgagee a thirty day cure period, which is short, and the remaining term is thirteen years, which puts the collateral inside the window where the reversion extinguishes it before a twenty five year amortization completes. Published guidance in leasehold lending suggests a lease should run at least five years beyond loan maturity, which caps the practical loan term here at roughly eight years and constrains the debt a lender will advance.

Exhibit 27. Service segment: modified capital asset pricing model and weighted average cost of capital

What the company specific premium does and does not include

The 5.85 percent company specific premium covers customer concentration in the hangar rent roll, the volatility of fuel margin, key person dependence on the managing member and the director of maintenance, exposure to a single airport, the share of fuel sold through contract programs, and the two unfilled mechanic positions.

One further disclosure belongs here. The 11.75 percent real property rate is built the way real estate rates are built, from a mortgage constant and an equity dividend rate, both of which are pre tax measures. We apply it to after tax cash flow, because the whole of this valuation sits on an after tax invested capital basis and the two components have to be commensurable. The effect is conservative: a pre tax rate applied to after tax cash flow produces a lower value than the reverse, and we would rather disclose the direction than adjust it with a factor we cannot support.

It does not include the risk that the operating agreement ends. That risk is already in the cash flow model, which stops the projection on April 30, 2039 and assigns no terminal value. Charging it again in the discount rate would price the same risk in two places and would understate the business by an amount we have no way to defend. This is the most common technical error we see in FBO valuations and it is worth stating plainly.

Exhibit 28. Consolidated rate, derived from the components

16. Income Approach: Discounted Cash Flow

The projection runs thirteen years, from the effective date to April 30, 2039, and stops. There is no terminal value because there is nothing to sell. Cash flow is debt free, so the result is the value of the invested capital, and it is discounted at the mid year convention because the cash arrives through the year rather than at the end of it.

Exhibit 29. Projection assumptions

Exhibit 30. Periodic capital expenditure schedule

The capital taper

Capital expenditure falls to maintenance only in projection years eleven through thirteen and the scheduled items stop. This is not a modeling convenience. A rational operator does not replace a fuel farm or overlay an apron in the last three years of an agreement that returns the improvement to the sponsor for nothing. The behavior is well documented in the specific asset literature and it has two consequences a buyer should see. The first is that cash flow rises in the final years, which flatters the projection. The second is that the premises are handed back in worse condition than they would otherwise be, which is why the surrender obligation is carried as a liability instead of being ignored.

The same logic explains an omission. The Hangar B and Hangar C door systems reach the end of their economic lives inside the term, and the schedule above does not replace them. An operator in year eight of a thirteen year runway repairs a door rather than buying a new one, and the consequence of that choice lands partly in higher maintenance cost and partly in the surrender obligation.

Exhibit 31. Discounted cash flow, thirteen years, no terminal value Illustrative figures for a sample engagement.

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Cash flow dips in year six when the fuel farm comes due and turns negative in year ten, when the apron overlay and the ground support equipment cycle land in the same twelve months. A year of negative free cash flow is not a distress signal here. It is what an operator does in the last year the pavement will pay for itself, and it is followed immediately by the capital taper. Revenue grows at a blended 2.45 percent and EBITDA at 2.22 percent, the gap being overhead escalating faster than the top line. The growth is coming from margin per gallon and hangar rent rather than from volume. The indicated value of the invested capital is $3,070,262, or 3.49 times normalized EBITDA.

17. Sum of the Component Values

The same cash flows, split at the segment line and discounted at their own rates, give a second indication. It is not independent of the first, because Exhibit 28 derived the consolidated rate from these two components. What it is, is a check on the arithmetic and a statement of where the value sits.

Exhibit 33. Real property segment

Exhibit 34. Service segment

Exhibit 35. Sum of the components against the consolidated discounted cash flow

The 0.09 percent difference between the two indications is rounding in the consolidated rate. We report the reconciliation rather than suppressing it, and we are explicit that the two are not independent evidence. What the split does establish is the divergence between where the earnings sit and where the value sits: real property produces 62 percent of normalized EBITDA and 77 percent of the value, because it is discounted 575 basis points below the service segment.

The effective yield on the real property component

It is worth converting the real property component into a capitalization rate, because that is the language a real estate reader thinks in. Exhibit 26 built the 11.75 percent discount rate as a 9.00 percent band of investment rate plus 2.75 percent of long run growth, so the perpetuity capitalization rate it implies is that same 9.00 percent. The rate this component actually carries, being year one cash flow divided by the concluded component value, is 15.62 percent. The difference of 662 basis points is the price of the reversion.

18. Market Approach and the Term Adjustment

The market approach for fixed base operators has a data problem, and the honest way to use it is to say so first. Transactions are private. The published multiple literature is thin, dated, and written by advisers who were themselves warning readers not to rely on it.

Exhibit 36. Published guidance on fixed base operator multiples

Concluding a base multiple

The evidence supports a range of 5.50 to 7.00 times normalized EBITDA for a full service fixed base operator with a long operating agreement, an established fuel book, and enclosed hangar storage. We concluded 6.25 times. That is the multiple for the position a buyer would like the subject to be in. Three adjustments carry it to the position the subject is actually in.

Exhibit 37. Adjustments to the base multiple

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Exhibit 39. Market approach conclusion

19. Replacement Cost, Insurable Value, and the Barrier to Entry

We did not develop a cost approach as a value indication, and the reason is worth stating before the schedule rather than after it. The improvements cost far more than the remaining term allows the operator to recover. Reconciling cost to the income indication would require an external obsolescence deduction of a size we could not extract from any market evidence, and a figure that large cannot be plugged. What the cost schedule is good for is two other things: it sets insurable value, and it measures what a new entrant would have to spend.

Exhibit 40. Replacement cost new and component depreciation Illustrative figures for a sample engagement.

Door systems are broken out from the shells they hang on because they depreciate on a different clock. A twenty five year door system inside a forty five year building is the single most expensive mechanical component on the premises and the one most likely to be deferred. Treating the hangar as one depreciable unit understates accrued depreciation and, in an insurance claim, understates what it costs to make the building operable again.

Insurable value

Insurable value excludes the apron, the site improvements, and the below grade portion of the buildings, because none of them is destroyed by the perils a property policy covers. Excluding foundations and excavation at 9 percent of building shell cost gives an insurable value of $16,050,988. That is 75 percent of replacement cost new, and it is the figure the schedule of values should carry.

The barrier to entry

A third operator arriving at Halstead Regional would have to build. Replacement cost new of the subject's improvements is $21,264,240. That entrant would be building on a shorter agreement than the subject signed in 2009, into a two operator market, and against an incumbent whose capital is already sunk. Section 5 established that the sponsor's ability to keep a qualified applicant out is narrow and conditional. This section establishes why one has not appeared anyway.

That barrier is real and it supports the earnings. It does not support a higher multiple, because it protects a stream that ends on the same day regardless. A buyer paying $3,100,000 for $21,264,240 of improvements is not buying the improvements. The buyer is renting them for thirteen years, and the price is what thirteen years of their earnings are worth.

20. Four Ways This Business Gets Valued Wrong

Each of the four methods below is used by somebody in the market on a business like this one. Each is taught somewhere and each produces a defensible answer to a question that is not the question being asked. The errors do not run in the same direction.

Exhibit 41. Four methods, four answers, one subject

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The two errors that point up

Applying a perpetuity multiple to a thirteen year earnings stream overstates the business by 78 percent. That is the error most often made by sellers, and by brokers quoting comparable multiples out of a trade publication. Capitalizing the property earnings in perpetuity overstates it by 55 percent, and that is the error a real estate appraiser makes when handed an FBO income statement: the capitalization rate is built correctly, the growth rate is reasonable, and the answer is still more than half again the concluded value, because a capitalization rate assumes the income continues.

The two errors that point down or sideways

Applying one business discount rate to every dollar understates the business by 17 percent, because 62 percent of the earnings are real property and are being charged the cost of capital of an operating company. That is the error a business appraiser makes when handed a leasehold. Depreciated cost is not an error of direction so much as an error of category: $12,045,293 is what the improvements are worth to someone who will own them for their remaining economic life of 24.7 years, and the operator will own them for thirteen.

21. Sensitivity

Two variables move this valuation. One of them is the discount rate, which is what most sensitivity sections test. The other is the blended fuel margin per gallon, which matters about 8 times as much and is much easier to get wrong.

Exhibit 43. Indicated value at combinations of discount rate and fuel margin

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A seventeen and a half percent change in the blended fuel margin is $0.20 per gallon on a $1.143 blended margin. It moves the indication by roughly $758,144 in either direction. A seventy five basis point change in the discount rate moves it by roughly $99,026. The ratio is about 8 to one.

What that ratio means for diligence

It means the hours belong on the fuel data. A buyer who spends three days arguing about whether the discount rate should be 13.00 percent or 13.75 percent, and one afternoon on the fuel system export, has allocated effort exactly backwards. The questions that matter are how much of the book is contract fuel, which direction that share is moving, what the current fuel supply agreement prices at, when it renews, and whether any based operator is close to self fueling.

It also means the seller's presentation should lead with margin per gallon by customer type instead of total gallons. Exhibit 16 is the page a buyer will want first, and most sellers do not produce it.

22. Simulating the Renewal Options

The agreement carries two five year renewal options. Neither belongs to the operator. Both are at the sponsor's sole discretion, and the first is conditioned on the operator having invested $1,500,000 during the preceding term. The operator therefore has to spend the money without knowing whether the sponsor will grant. That is not an option in the financial sense and it should not be valued as one.

We simulated it instead. Twenty thousand trials, with the four variables that drive the conclusion drawn from distributions and the renewal decisions drawn as events.

Exhibit 45. Simulation specification

Before reading the results, one calibration point. Run with every distribution collapsed to its mean and no renewal granted, the simulation returns $3,177,557 against the discounted cash flow indication of $3,070,262, a difference of 3.49 percent. The gap is the simplified growth structure the simulation uses to stay fast. It is small enough that the distribution below can be read as centered on the same business the rest of this report values.

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Exhibit 47. Simulation results

The simulated median of $3,182,126 sits 2.6 percent above the concluded value of $3,100,000. We did not move the conclusion toward it. A simulation reports the distribution implied by the assumptions fed to it, and its central tendency is not independent evidence about value. What it is useful for is the shape: the fifth to ninety fifth percentile range on the base term runs from $2,506,157 to $3,949,254, which is the range a buyer should expect the answer to land in once the world happens.

Is the renewal worth chasing

This is the question the members asked, and it is the reason the simulation exists. Spending $1,500,000 in the last three years of the term buys a 55 percent chance of five more years and, conditional on that, a 45 percent chance of five more after those. The spend happens whether or not the sponsor grants.

Exhibit 48. The renewal strategy

The answer is close to a coin flip, and saying so is more useful than a confident number would be. The strategy adds $60,718 of expected value and leaves the members better off in 52.8 percent of trials. The break even is a 48.7 percent renewal probability, against our 55 percent estimate. The margin is 6.3 points of probability, which is inside the error of any estimate of how a sponsor will behave in 2039.

Exhibit 49. Sensitivity of the renewal strategy to the ground rent reset

The strategy survives a reset of half again on the ground rent and turns negative somewhere short of a seventy five percent reset. That is worth knowing, because the sponsor sets the renewal rate and the self sustainability obligation in Section 5 points it upward. It is still not the main risk. The main risk is the sponsor saying no, which costs the whole $371,228.

23. Allocation of the Concluded Value

A buyer and a seller both need the concluded value broken into the pieces a purchase agreement and a tax return will require. The pieces also test the conclusion, because the sum of what the business owns should bear some relationship to what the business is worth.

Exhibit 50. Net working capital

Exhibit 51. The favorable ground rent

Market ground rent of $0.51 per square foot was concluded from the sponsor's published rates and charges schedule for new aeronautical leases, from two leases executed on the field since 2023, and from a survey of eight comparable general aviation airports in the region. The subject's rate was set in 2009 and has escalated only by the capped consumer price index adjustment, which is why the gap exists.

Exhibit 52. Allocation of the concluded value

There is no goodwill in this business

The identified components sum to $3,562,565 against a concluded value of $3,100,000. The residual is negative $462,565, which is 14.9 percent of the value. Under the residual method, consideration is allocated in class order and each class receives fair market value but no more than the consideration remaining. Here the consideration runs out inside Class V. The favorable ground rent, being a Class VI intangible, receives nothing, Class VII goodwill receives nothing, and the Class V assets are allocated proportionately rather than at full fair value.

Exhibit 53. Class V allocated proportionately

This is not a criticism of the operation. It is a description of what happens to a capital intensive business as its agreement runs down. The improvements on this leasehold carry a depreciated cost of $12,045,293 and the equipment a fair value of $901,000. Thirteen years of earnings support $2,813,600 of that between them. The gap is the quasi rent the operator committed to this site and cannot now move, and it is recoverable only by extending the term, which is what Section 22 prices.

A buyer should read the negative residual as information rather than as a warning. It says the purchase price is supported entirely by hard assets and a below market ground lease, with nothing paid for reputation, customer lists, or the assembled workforce. That is a defensible place to be, and it is the opposite of what the perpetuity multiple in Section 20 would have the buyer paying for.

24. The Sponsor's Side of the Agreement

Every leasehold has two sides. The operator holds thirteen years of earnings. The sponsor holds thirteen years of rent and fees, and then it holds the buildings. We quantify the sponsor's position because a valuation that reports only one side of an agreement has not described the agreement.

Exhibit 54. Present value of the sponsor's position

Exhibit 55. The reversion

Two conventions in that schedule run against the sponsor and are worth naming. The Hangar A door rebuild in projection year three and the apron overlay in projection year ten both reset the economic life of the component they touch, and we credited both. The fuel farm tank replacement in projection year six is a partial replacement of a larger asset and we credited none of it, which understates what reverts. Neither convention changes the direction of the conclusion below.

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Exhibit 57. Summary of both sides

The sponsor's position is worth $5,476,939, or 1.77 times the operator's. That is not a criticism of the sponsor, which has a statutory obligation to make the airport self sustaining and a fiduciary duty to the public that owns it. It is a statement about where the value in a maturing ground leasehold sits, and it becomes more lopsided every year the term runs down.

25. Reconciliation and Value Conclusion

Three indications, developed from the same normalized earnings and the same thirteen year horizon, differ by 4.7 percent from lowest to highest.

Exhibit 58. Reconciliation

Weighting

The discounted cash flow carries half the weight because it is the only approach that models the actual shape of this business: a stream that ends on a known date, with two capital events inside it and an obligation at the end. The sum of the components and the guideline transactions each carry a quarter. The sum of the components earns its weight by testing the risk split rather than the total, and the guideline approach earns its weight by tying the answer to transaction evidence, but neither deserves more than that: the first is not independent, and the second rests on published sources that are old enough to have described a different market.

Rounding

The weighted indication is $3,104,570. We rounded to $3,100,000, a movement of 0.15 percent below. A conclusion carried to the dollar implies a precision the inputs do not support.

Exhibit 59. The conclusion tested against every metric in this report

26. Exposure Time, Marketing Time, and the Level of Value

Exposure time

Reasonable exposure time is 9 to 18 months. That is longer than a comparable operating business of the same size would require, and the reason is the term. A buyer must underwrite the remaining thirteen years, obtain the sponsor's consent, arrange financing against collateral that extinguishes inside a normal amortization, and satisfy itself on the environmental condition of a fuel farm. Each of those adds weeks. The pool of buyers who will do all four is smaller than the pool who would look at the business.

Marketing time

Prospective marketing time is 12 to 18 months at the concluded value. Shorter periods are achievable at a discount, and the two most common paths to a faster close are a sale to the competing operator on the field and a sale to a regional consolidator already holding sponsor relationships. Both of those buyers underwrite the term faster because they have done it before, and both will price the term more aggressively for the same reason.

The level of value

This opinion is stated on a controlling, marketable basis. A minority interest in the same company is worth materially less per unit, and the members should understand the arithmetic before any internal transfer is priced off this report.

Exhibit 60. What changes for a minority interest

We have not applied either discount, because the interest valued is one hundred percent. The table is here so that nobody reads this report, divides by the membership units, and prices a minority transfer off the quotient.

27. What Buy Side Diligence Will Test

This section is written for the members, not for a buyer. Every item below is something a competent buyer will ask about, and a seller who has the answer ready spends less of the negotiation reconstructing it.

Exhibit 61. Diligence checklist, in the order we would work it

28. Certification

We certify that, to the best of our knowledge and belief:

1. The statements of fact in this report are true and correct.
2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and are our impartial and unbiased professional analyses, opinions, and conclusions.
3. We have no present or prospective interest in the business or the property and no personal interest with respect to the parties involved.
4. We have performed no services regarding the subject business within the three year period immediately preceding acceptance of this assignment.
5. We have no bias with respect to the business or to the parties involved.
6. Our engagement was not contingent upon developing or reporting predetermined results.
7. Our compensation is not contingent upon the development or reporting of a predetermined value, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this assignment.
8. We made a personal inspection of the premises and the equipment.
9. No one provided significant assistance to the persons signing this certification.

Signature omitted. This is a sample report and is not certified.
Dr. Carter, DBA, CFA, FRM, CAIA, CIPM · Valuation Takes Flight LLC

29. About Valuation Takes Flight

Valuation Takes Flight LLC is an aeronautical valuation advisory firm. We value aircraft hangars, fixed base operations, and airport ground leases, and we do it nationwide. The practice is remote first, with site work performed wherever the engagement calls for it.

What we do

Market value and market rent opinions on hangars and FBO facilities. Business valuations of fixed base operators, repair stations, charter and management companies, and flight schools. Ground lease and reversion analysis. Hangar rent studies for owners and airport sponsors. Property tax appeal support. Partner and shareholder buyout valuations. Employee stock ownership plan valuations. Estate and gift valuations of aviation holding entities. Litigation support and expert testimony. Portfolio level review for lenders and institutional owners.

Who leads the work

Dr. Carter, DBA, CFA, FRM, CAIA, CIPM, is the founder and principal. He is the author of Valuing Aircraft Hangars: A Textbook for Real Estate Appraisers and serves as Assistant Professor at an aeronautical university in Daytona Beach, Florida. His research covers hangar valuation method, ground lease economics, capitalization rate determination for aviation leaseholds, and the valuation of aviation service businesses. Before founding the firm he worked in institutional investment analysis, performance measurement under the Global Investment Performance Standards, and risk modeling for private assets.

How we scope an engagement

Every proposal states the scope, the intended use and users, the deliverable, and the delivery date before work begins. Where an intended use requires a state certified general appraiser, we say so at the proposal stage and structure the engagement accordingly. We would rather turn down work than deliver a report that will not do the job the client needs it to do.

Valuation Takes Flight LLC · valuationtakesflight.com · Valuationtakesflight@outlook.com · 314-277-6572

30. Addendum: Terms Used in This Report

31. Addendum: Index of Exhibits