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What To Consider When Navigating Through An Aviation M&A Proposal
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Mergers and acquisitions (M&A) in the aviation sector are anything but straightforward. This high-stakes industry operates in an incredibly complex regulatory environment where companies must juggle compliance with domestic and international rules, industry-specific legislation, and broader corporate law. For business owners looking to plan or optimize their M&A strategies, understanding and navigating this labyrinthine landscape is essential.
Aviation companies in the UK face a dense web of regulations that need to be untangled to maintain compliance. The Civil Aviation Authority (CAA) is the primary UK regulator, overseeing safety, licensing and economic issues, but international frameworks like ICAO set global standards, while European Union regulations, despite Brexit, still influence many aspects like competition law and slot allocation at airports.
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Beyond aviation-specific rules, M&A transactions must comply with general UK legal frameworks such as the Companies Act of 2006 and the UK Competition Act of 1998. In certain circumstances the National Security and Investment Act of 2021 might also come into play, requiring government approval for deals that could impact national security. The sheer variety of oversight mechanisms means that no two transactions are identical, and preparation is key.
One common pitfall is underestimating the time and resources required for regulatory approvals. Failing to engage early with authorities like the CAA can significantly delay or even derail a transaction. To mitigate these risks, companies should adopt a proactive approach, initiating dialogue with regulators well in advance and preparing robust documentation to address potential concerns.
Stakeholders in any transaction are also responsible for thorough due diligence, which again is particularly complex in areas such as airline operating licences, lease agreements, and slot allocations.
Several recent deals illustrate the intricacies of the sector. The 2022 acquisition of floundering UK regional airline Flybe by Thyme Opco showed how licensing issues can affect timelines, with the buyer having to secure an operating licence from the CAA in a process complicated by Flybe’s prior insolvency. The stress didn’t end there in that case, with Flybe subsequently going into administration for a second (and presumably final) time in 2023.
Another high-profile case is the attempted merger of British Airways parent International Airlines Group (IAG) with Air Europa. While the deal primarily targeted the Spanish market, it was scrutinized by EU and UK regulators over competition concerns, forcing IAG to offer concessions, including route divestments, after the watchdog expressed concerns about the impact on competition. Just a couple of months later the deal was abandoned because of the complexity of the regulatory issues, underscoring the vital need to prepare ahead of time for deals in this complex sector.
Private capital investor Crestline’s recent investment in aviation services company 2Excel was another complex deal for a variety of reasons, not least 2Excel’s diverse contract environment across a whole host of service offerings from design-and-build aircraft modifications to data analysis. The breadth and variation of services and clients required a robust plan of action to ensure rolling and future contract renewals progressed smoothly during and post-transaction.
For business owners and operators in the aviation sector, the key to navigating this challenging environment lies in preparation and adaptability. By understanding the regulatory landscape, engaging early with authorities and leveraging expert advice, companies can position themselves to capitalize on opportunities while minimizing risks. In this high-stakes sector, the ability to chart a clear course through regulatory turbulence is critical.
Hamish Martin is a Partner at Lava Advisory Partners