Google’s Jets

Google operates its own system of private buses. The coaches zip up and down the San Francisco Peninsula five days a week. Rebecca Solnit describes the tech company buses (other corporations like Apple and Genentech run them too) as “spaceships on which our alien overlords have landed to rule over us.” The buses facilitate the colonization of San Francisco’s hip neighborhoods like the Mission by youthful idiot savants with six figure paychecks and no scruples about paying three thousand a month in rent. George Packard calls the buses a “vivid emblem of the tech boom’s stratifying effect in the Bay Area.” The buses are sorting mechanisms. They’re helping re-organize the Bay Area geographically, residentially, racially, between the tech industry’s uber-haves, and the rest who have not the luck to be employed by a company with its own fleet plush, air-conditioned, wi-fi shuttles.

But Google also has a fleet of airplanes. And if the buses are emblems of the tech boom’s stratification of the California Bay Area, the planes are probably signifying something on a more planetary scale.

googleairportinterior

Artist’s rendering of the interior of Google’s future airport.

Last month Google’s top three billionaires, Sergey Brin, Larry Page, and Eric Schmidt, effectively bought a portion of the San Jose Airport to hangar their jets. Google’s privatized airport will host at least 8 aircraft owned by the three Google executives, including a customized Boeing 767. The airport will also host planes for other tech elite of Silicon Valley.

Oracle Corporation CEO Larry Ellison is famous for his squadron of private jets and hobby planes at the San Carlos Airport further up the peninsula toward San Francisco. Ellison, however, doesn’t own the airport. The privatization deal with Google’s executives is a first. Only a few airports in U.S. history have been privatized.

The public face of the privatization deal to purchase a huge chunk of San Jose’s airport is Signature Flight Support. Signature is owned by BBA Aviation, a British company that specializes in building and operating exclusive airports for the global elite. As the company’s web site explains, Signature is “focused on regions with high business jet populations.” Regions with high business jet populations are synonymous with regions having large concentrations of the one percent, the uppermost income earners and wealth holders of the new economy. In the Bay Area resides at least 50 billionaires.

Signature will build and operate a fully private airport terminal and runway system on 29 acres of the western end of San Jose’s municipal airport for Google and friends. While the actual ownership of the land will remain with the city, the concession’s 50-year term in effect transfers ownership completely to Google’s agent, Signature. In return the airport will receive $2.6 million in annual rent. The San Jose Airport, which is a department of the City of San Jose, won the promise also of a minimum investment of $82 million by Signature in the terminals and runways to be constructed to accommodate the private fleet of jets. Signature gladly agreed. As notes from the March 2013 meeting of the Airport Commission make clear, “Signature would not invest $82 million without ensuring they have an adequate return on investment and they believe that the incremental business such as their partnership with Blue City Holdings is an example of the business that is available.”

SJAirportOverhead

Overhead view of the portions of the San Jose International Airport that will be privatized and developed by Google and its airport developer Signature. Source: “Mineta San Jose International Airport West Side Development Draft RFP,” City of San Jose, July 12, 2012.

“The business that is available” is a round about way of saying that there’s probably now more than a few young billionaire and millionaire types in Silicon Valley who just aren’t content owning their own airplane, or even private fleet of jets, but who have so much money they want their own airport too. Privatized transportation infrastructures, from bus systems to airports now, seem to be the rage among California’s Internet tycoons.

Google is apparently in no mood to cool their jets on the project either. They want the airport as soon as possible. A memorandum from the city to the developer sent on May 3 describes “a plan to expedite the City development permit process to work at the speed of business,” and to, “ensure that Signature’s subtenant, Blue City Holdings San Jose, LLC, is able to park aircraft on the site as soon as possible.”

Blue City Holdings San Jose LLC is the special holding corporation the boys from Google set up apparently to take over part of the San Jose Airport. Blue City Holdings LLC is a separate holding corporation established, it appears, to manage the airplane assets owned by Brin, Page, and Schmidt, for tax purposes mostly. The lawyer administering BCH San Jose LLC for Google’s billionaires specializes in the financing and tax structure of aircraft ownership for the wealthy, according to his law firm’s web site. Aircraft are tax deductible business expenses thanks very much to years of lobbying by corporate executives. Under the U.S. tax code there is a pretty generous depreciation schedule that can knock significant sums ofr a person or company’s tax bill.

The corporate lawyer for Blue City Holdings is Teling Peterson, the CEO of Hillspire, LLC, a boutique wealth management company that manages over a billion in assets for a few high net worth families. Peterson apparently manages part of Eric Schmidt’s fortune. She also sits on the board of the Ocean Institute Schmidt created and named after himself.

It’s a bit of a tangent, but while we’re on the subject of planes, buses, and other toys that go zoom: Schmidt’s Ocean Institute of course means that the Google CEO owns ships and other sea vessels. The Schmidt Ocean Institute owns two ships – the Falkor and the Lone Ranger, both over 1800 tons. The Marine Science and Technology Foundation, another creation of Google’s CEO Schmidt, owns and operates various aquatic robots, including something called a “Saildrone.”

Google doesn’t seem to have plans to privatize a sea port anytime soon to accommodate its wealthy executives’ ocean hobbies, as far as we can tell. The airport deal, however, does mean that a significant piece of San Jose’s transportation infrastructure will be dedicated completely to serving the upper-most fraction of the region’s one percenters for the next fifty years. A business case study conducted for San Jose to determine what use to put the Airport’s “West Side Property” several years ago noted that under its use back then, mostly as a general aviation facility, the parcel was already serving a mere one percent of the passengers that the San Jose commercial airport’s air carriers were transporting on a yearly basis. Now as a fully private airport for Google and a few other of the Silicon Valley nobility, the facility will likely serve the needs of far less than even the symbolic one percent, surely an emblem of the region, and the planet’s growing inequality.

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4 comments
  1. themodernidiot said:

    so what happens when it all falls down?

  2. fboinsider said:

    The Google/San Jose Airport development agreement has received a lot of attention over the last few months by many folks who are concerned that Google is getting to be a little too big for their britches. I’ll point out just a couple of things that may shed some more light onto this situation, and then be on my way. . .
    1) The airport is not being ‘privatized’ in any way whatsoever. Yes, a long term lease was extended to Signature Flight Support (no I do not not work for them) in exchange for developing land at the airport. At the end of that lease, all ownership stakes in developments and investments by Signature at the airport will revert to the airport, which should be worth upwards of $500,000,000 at that point. This is a good deal for the airport, especially considering that the land in question was basically sitting vacant and not producing any income for the city prior to this.
    2) No, the airport will not be closed to public use. Southwest, JetBlue, Delta, US Airways, and friends, will continue to use the airport and provide airline service for the general public. It is worth noting that the cost of supporting those airlines flying into SJC via passenger fees, taxes, etc, will be alleviated through the rent dollars collected from Signature. I realize this blog did not claim that the airport would be closed to public use, but with the word ‘privatization’ being thrown around so much, I thought that this might be worth pointing out.
    3) The development will not be exclusively for the use of Google executives. Signature Flight Support will have a facility that is open to anyone operating any general aviation aircraft. Anyone flying in these aircraft, from the flight student in a 1974 2 seater Cessna 150, or a sick patient in the back of an turbo prop air ambulance, to the executive in a Gulfstream IV, will be welcomed at this facility. Blue City Holdings just happens to be an anchor tenant of Signature, which is the catalyst to Signature making the investment at the airport. Many other customers, and customer types, will use this facility.
    4) The arrangement between Signature, Blue City Holdings, and the airport is very typical of what is seen at airports all over the United States, and has been that way for decades. I don’t have any formal citations here, but I would guess that 75% of the hangars on airports across the United States were in fact developed under an arrangement where the airport granted a long term lease in exchange for investment on the airport. No one in the general aviation industry or airport management profession was surprised to read of this arrangement because it is so common.

    Thank you for the opportunity to respond!

  3. FBO Insider, thanks for the details and clarifications.

    I do have to disagree with you, however, on the issue of privatization. Long-term concession agreements are a form of privatization, even while they do not transfer the underlying title of an asset to the private party. The SJO-Signature deal removes a portion of the airport from public use and gives control over to a private company for a lengthy period. The purpose of the concession is to cater to the travel needs of a tiny fraction of a percent of the San Jose/Santa Clara region’s population, specifically the wealthiest business executives. In the simplest terms, Google and the tech industry did just buy themselves an airport.

    Whether this is a good or bad deal financially, I can’t speak to that. I haven’t read the terms in detail.

    Regarding your 4th point, I would like to see further information there. It’s not clear to me that the SJO-Signature-Google deal is typical. I doubt there are many long-term concession agreements at U.S. airports with the same terms and purposes, especially at major metropolitan airports.

  4. fboinsider said:

    Point taken on long-term concession agreements as a form of privatization. However, considering that this specific piece of property was never utilized by the majority of the region’s population to begin with, I don’t see that as a great loss. And on my 4th point, I’ll admit that there really aren’t any good published industry statistics there, so it’s kind of a ‘take my word for it,’ situation. In my experiences buying and selling FBOs and constructing private terminals and hangars, the ONLY way I’ve seen new construction work well, if the builder does not own the ground underneath, is through a long term lease. Without it there is no hope for a reasonable return, which means that public dollars will have to be spent to house the private jets, and nobody wants that.

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