Airis sees blue skies ahead

Aviation facilities firm tests international airspace for future direction It was with a great sense of satisfaction and a certain sense of closure that David C. Garrett III, president and founding principal of Atlanta-based Airis Corp., finished constructing the International Air Cargo Center at the Newark International Airport in 1998.

For one thing, the facility was the first big project for Airis and heralded even bigger and better things to come for the young firm specializing in aviation facility development.

But the event also marked a roundtrip flight of sorts from an event decades past in Garrett's life. As a youngster, Garrett had been on one of the first Delta flights into the Newark, N.J., terminal soon after the airline had received initial authorization to service the airport. Now, several decades later, he was back at Newark, looking at the new cargo center he and his colleagues had built on the same spot where the old airport terminal had stood before the Airis crew tore it down. He couldn't help but smile.

Airis Corp. is one of the nation's largest developers of aviation facilities. The company can plan, finance, construct, market and manage an aviation facility, and typically do it more quickly and cost effectively than an airline or airport. Furthermore, the company offers flexibility by serving in whatever development and financing capacities are required to meet the needs of an airport or airline. In addition to its Atlanta headquarters, Airis also has offices in Houston, Los Angeles, London, Montreal, New York and Stockholm, Sweden.

Garrett was educated as an engineer and as a lawyer. He practiced law in Florida and Georgia in the 1970s and into the mid-1980s, often handling cases involving new construction. As the son of David C. Garrett Jr., former chairman and CEO of Atlanta-based Delta Air Lines Inc., the airline industry is in his blood. To take advantage of that background, he then began applying his engineering and legal skills toward aviation facility development, co-founding Airis in 1994 with three other principals.

Co-pilots Airis's three principals include John Dixon, who has worked with Garrett for more than 15 years in several corporate entities. The two had their roots in construction with a heavy emphasis on building aviation facilities, primarily in the South. Meanwhile, Ron Factor and Brian Cochran, the other two Airis principals, had been with another company building multi-tenant airport facilities, mainly in the West and Midwest.

Since 1985, these four real estate developers have participated in the development, financing and construction of 23 projects at 12 major U.S. airports, representing 5.2 million sq. ft. of building area valued at more than $1 billion. Their respective projects have included air cargo facilities in Atlanta, Dallas, Seattle, Baltimore and Las Vegas, among other places. The huge 1.5 million sq. ft. International Concourse E at Atlanta's Hartsfield International Airport, completed by Airis affiliate Sunbelt Construction in 1994, remains one of the largest construction projects in the history of Georgia.

Garrett, Dixon, Cochran and Factor joined forces in 1994 to form the Airis Corp. Garrett and Dixon work out of Atlanta, while Factor works out of Houston and Cochran out of Los Angeles.

Al Shively is one of several recent additions to the Airis team. The former vice president of McLain, Va.-based Aviation Facilities Co. joined the firm in May as a senior vice president.

Another recent addition is Bob Kelly, who brings a strong airport sensibility to Airis's already prominent airline focus. Kelly, a long-time airport and regulatory agency executive, joined Airis in May. He is the former director of aviation for the Port Authority of New York and New Jersey, the body responsible for administration and operations of the four main airports in the two states, including Newark. Prior to that, he served as the general manager of John F. Kennedy Airport, another one of the facilities under the aegis of the Port Authority. He also served on the board of directors of the Geneva, Switzerland-based Airport Council International.

"Being on the board made me familiar with the work Airis had been doing, not only at Port Authority airports but at airports across the country. I was really impressed with their work," says Kelly. "Airis was doing some great work at airports, but primarily from an airline perspective. I think I bring a slightly different perspective. I'm very aware of issues of importance to airports such as facility control and maximizing the use of a particular piece of property, as well as living up to all of the mandates being placed on them by the Federal Aviation Authority and others."

The right stuff Success for Airis has been a combination of being in the right place (the aviation real estate industry) at the right time (the 1990s). And having the right stuff, of course. The Airis gang has more than 70 years of experience in aviation.

As Garrett explains, outsource development for aviation facilities scarcely existed before the 1980s. Before deregulation of the industry, airports and airlines developed everything they needed themselves. Airlines had routes they had been awarded and knew where they were going to be flying, and were not afraid of long-term financial commitments. Rarely would an airport need to bring in an outside developer.

"All of that changed, partly as a function of deregulation and partly as a function of the way investors began to look for quicker returns on their investments," says Garrett. "Consequently, planning windows got shorter, and airlines began to face competition from start-ups. Airlines had to become more flexible, to move their planes around and to change their route structure on much shorter notice."

During the1990s, there was a huge increase in the number of airline passengers, which began to put greater demands on airport facilities than anyone had anticipated. Furthermore, growing interstate and international business activity increased the amount of air-lifted cargo. New concourses, terminals, hangars and other facilities needed to be built quickly, yet without busting airport and airline budgets. All these factors add up to the need of airports and airlines to outsource as much of the facility development aspect of their operations as possible.

The airline industry wasn't the only industry faced with these problems. A number of industries had to dramatically alter their business equations because of deregulation in the 1980s. And much attention has been paid to the short-term demands of business investors in the 1990s and beyond. Airis has been able to recognize and respond to the real estate-related opportunities brought about by those changes in the aviation industry.

In the new economic climate, Garrett and the other Airis principals understood the value of keeping aviation facilities off an airline's balance sheet. This allows the airline to keep its capital invested in higher-return core assets, such as aircraft that can be leveraged to bring more money to the bottom line. Airis developed financing partnerships with investment companies that allowed it to offer aviation companies just that scenario. Airis assumes interest rate, construction cost and construction schedule risks following the execution of a sublease agreement with tenants.

How did Airis respond so quickly to the changes? "I think it was intuitive," says Garrett. "Part of it was because we were in the business and we had a feel for the economics of how an airline is run and how their balance sheets get evaluated. We are aviation people at our core."

That identification with the airline industry is a point of pride for Garrett. It projects the way the company does business. "Our philosophy from the beginning was to become more aligned with the airlines and to become an extension of them - to better understand what their needs are and to serve them not just as a real estate company but as an aviation services company," says Garrett.

Airport greenery Real estate development at an airport presents special challenges for investors and developers. Unlike traditional real estate markets, airport facility deals depend on ground leases in which the property typically reverts to the airport after 20 to 40 years. Real estate investors get a revenue stream during that time period but do not maintain ownership afterward. That fact calls for a different developer and lender mentality than most real estate deals.

By building high-quality facilities at gateway and hub airports, Airis has been able to secure substantial funding for its projects and thus fill a "big-project" niche within the industry. Airis assumes the financial burden and then leases the facilities to airlines or other aviation companies through a mix of short- and long-term leases.

This ability to offer full financing of huge facilities has been a key element of Airis's success. "We have been able to attract capital with an interest in putting up these facilities - and I mean much larger buildings than anybody ever thought about doing third-party," says Garrett. "Some of these projects are in the nine-figure investment level, a level no one had ever done before as a third party. We broke new ground in that regard."

Having the financial support of a deep-pocket company like Fairfield, Conn.-based GE Capital was instrumental in helping Airis land its project at Newark International Airport. The air cargo center project for the Port Authority of New York and New Jersey also pushed Airis to new heights. The company completed the 305,000 sq. ft. facility in 1998. Airis was the first - and remains the only - private-sector developer to plan, finance and operate an aviation facility administered by the two-state airport authority.

Jim Larsen, manager of air cargo business development for the Port Authority, points out that the Airis building at Newark serves its purpose well. "The facility has been very successful," says Larsen. "It meets the needs of the cargo community at Newark International Airport, as evidenced by the almost immediate occupation of the entire site."

The building's versatility was a key element of its value to tenants, adds Larsen. "The design was suitable for a widely varied list of tenants," he says. "Some required a large space; others required not so large a space. Some needed to accommodate the installation of state-of-the-art automated cargo handling equipment, while others did not. Airis' design has met all those varied needs."

The Port Authority has since awarded Airis contracts for two sites at John F. Kennedy Airport.

Strong financial partners have been equally important in subsequent Airis projects. New York-based Ambac Assurance Corp., Charlotte, N.C.-based Bank of America, and Munich, Germany-based Bayerische Landesbank are key funding sources for Airis, but Garrett reserves highest praise for Paine Webber Inc., headquartered in New York.

"Paine Webber is our underwriter of choice without a doubt," says Garrett. "They have been fantastic. They put together a team that is dedicated to our business and we work on a daily basis with their desks in Europe."

American skies Airis has been busy the last 12 months. The corporation began construction of a 564,000 sq. ft. cargo complex at Miami International Airport (MIA) in December 1999. When completed next year, the facility will house a 44,000 sq. ft., four-story corporate headquarters and adjoining 387,000 cargo building for Santiago, Chile-based LanChile Cargo Airlines, the biggest cargo carrier at MIA, as well as a separate 133,000 sq. ft. cargo building for Miami-based Fine Air Services. Airis will own the facilities, which together will constitute one of the largest air cargo complexes in the world, and lease the space to the aviation companies. It is estimated that one-third of all air freight between North and South America will be handled at these facilities.

Garrett is confident that Airis will secure business opportunities in South America through the company's relationship with LanChile. "That's a situation we feel really good about," says Garrett. "I believe we're going to be moving into the South America market."

Further north, the company completed a 112,000 sq. ft. distribution facility for Federal Express Corp. (FedEx) in February at the Louisville International Airport in Louisville, Ky. As in Miami, Airis designed, built and owns the complex, which it is leasing to Memphis, Tenn.-based FedEx.

Airis also is building a 650,000 sq. ft. cargo facility in Cincinnati for DHL Airways, the domestic carrier of DHL Worldwide Express. The facility will be the U.S. cargo hub for Redwood City, Calif.-based DHL.

Meanwhile, Airis has lined up additional projects at the Port Authority of New York and New Jersey. Two cargo facilities at John F. Kennedy Airport and an airport hotel at Newark International Airport are currently being planned .

Taking off overseas While Airis flies high in the United States, Europe and Asia offer additional opportunities for the company. Airline carriers in Europe today are going through what U.S. carriers experienced some 25 years ago, says Garrett. Many government-owned airlines are being privatized and can no longer look to their respective governments for funding. They are also faced with the same kind of shorter-term shareholder expectations as investors in the United States. Consequently, many European countries are becoming prime candidates for the services Airis can provide.

To expand its business overseas, Airis formed London-based Airis Europe LTD this year. Airis also has established an office in Stockholm, Sweden. Garrett and company see great possibilities overseas.

"As we've launched our efforts in Europe, we've found incredible receptivity - even greater than here in the United States," says Garrett. "The financial management within those European carriers has a keen sense of what our program provides its balance sheet. I think two years from today we'll have more assets in Europe than we have in the United States."

Airis Europe LTD will focus on acquiring existing properties from European carriers, rather than developing new facilities. In some cases, the company will act as a go-between for the merger and acquisition process. Mergers often result in duplicate facilities and services that become superfluous to the newly formed company. Other times, a company preparing to be merged needs to straighten out its bottom line. Airis can offer solutions for both situations.

"A group like ours can come in and take the surplus facilities off their hands, pay cash for them and go out and find new tenants," says Garrett. "Or we can bring capital to an existing facility for an expansion. In either case, it frees up the capital that merging companies can better use."

Airis has already tested the economic climate of the United Kingdom by financing a 32,000 sq. ft. flight-training facility that was completed last year near London's Luton Airport for Benton, Wash.-based Boeing. Airis is leasing the facility to Flight Safety Boeing under a design/build/leaseback arrangement.

Sweden is another country where Airis is taking flight. Stockholm-based Scandinavian Airlines Systems (SAS) became acquainted with the Atlanta firm through the International Air Cargo Center project in Newark. SAS was originally signed to develop that project but instead asked Airis to take full financial burden as owner and to lease it back to SAS as the anchor tenant.

"SAS will always be dear to us and close to our hearts because they were the first ones to really give us a chance to do a mega-project," says Garrett.

In fact, Ray Hagen, a former senior executive for SAS in North America, is now a regional vice president for Airis working out of its New York office. Hagen came to Airis after retiring from the airline.

The SAS project helped Airis generate a relationship with the Swedish government. Airis and Sweden's civil aviation authority are forming a stock company with each partner owning 50%.

"We are coming together to jointly develop cargo capacities at Sweden's international and domestic airports," explains Garrett. "What is unique about it, and the thing I'm most excited about, is that we're not just coming in as a developer but as a partner. I think the deal can become a model that we can follow up with elsewhere."

Airis has 799,000 sq. ft. of projects in the planning stage in the United States. Overseas, Airis is in discussions with three airports about acquiring existing properties to upgrade, expand or both. China and other Asian markets also are areas Airis wants to explore.

Garrett realizes that there is limited time in which Airis can fill its market niche as relatively unobstructed by competition as it is now. Still, he remains optimistic that the company's experience and aviation mentality will keep it in good stead.

"We've got to grow, we've got to continue to focus on market share, and we've got to stay focused on what it is we do," says Garrett. "It comes back to being an aviation company. We've been told by some of the airports that Airis is viewed almost like an airline. I take pride in that. If you want to know about Airis, talk to the airlines or talk to the airports. We'll let our reputation rest in their hands. They're the ones that know what we do."

David C. Garrett III was born with wings. No, he's not an angel, although some might say the term is fitting for the good-natured executive.

Garrett's "wings" come by virtue of being the son of former Delta Air Lines Inc. chairman and CEO David C. Garrett Jr. The elder Garrett was a fixture at Atlanta-based Delta as he worked his way up to the top during a 42-year career at the company. He retired in 1988, but remained active with Delta in other capacities until just two years ago. No wonder his son identifies with the airline industry.

"I took my first flight when I was 6 months old on a Delta DC-3," says the younger Garrett. "I had the old Delta triangle symbol emblazoned on my forehead when I was a mere baby. I'll put my frequent flyer miles from a lifetime up against anybody's."

Garrett III was educated as an engineer and as a lawyer. While an undergrad at the Georgia Institute of Technology, he worked at Marietta, Ga.-based Lockheed Georgia Co. (which was renamed Lockheed Martin Aeronautics Co.) helping to put together C5-As, the huge military transport plane. After earning an engineering degree from Georgia Tech, he secured a law degree from the University of Georgia.

Garrett practiced law in Florida and Georgia during the 1970s and 1980s, specializing in corporate and environmental law and often representing companies on new construction issues. He then began developing aviation facilities, eventually founding Airis in 1994

Always active in civic as well as business life, Garrett was a candidate in 1986 for the Democratic nomination for the U.S. Senate in Georgia. The founding chairman of the Georgia Lottery Corp., he has also served on the Georgia Industry, Trade and Tourism board; the Georgia Chamber of Commerce; and is a past president of the Georgia Economic Development Association. He was chairman of the Governor's Workforce Development Policy Council under Georgia Gov. Zell Miller.

When he has the time, Garrett remains active in civic initiatives, occasionally speaking in communities about economic development issues.

Notes Garrett, "It's been a very interesting life and a lot of chapters have yet to be written."

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